UBS Group AG and UBS AG
Annual Report 2014
Contents
Letter to shareholders
2
5 UBS Group AG key figures
8 UBS and its businesses
10 Our Board of Directors
12 Our Group Executive Board
14 The making of UBS
1. UBS Group –
Changes to our legal structure
4. Risk, treasury and
capital management
18 The new legal structure of UBS Group
20 Transaction overview
21 Comparison UBS Group AG (consolidated)
vs. UBS AG (consolidated)
23 External reporting concept
24
Future structural changes
2. Operating environment
and strategy
26 Current market climate and industry drivers
30 Regulation and supervision
33 Regulatory and legal developments
39 Our strategy
43 Measurement of performance
46 Wealth Management
49 Wealth Management Americas
52 Retail & Corporate
54 Global Asset Management
Investment Bank
58
61 Corporate Center
63 Risk factors
3. Financial and
operating performance
80 Critical accounting policies
85 Significant accounting and financial reporting changes
88 Group performance
104 Balance sheet
109 Off-balance sheet
112 Cash flows
113 Wealth Management
119 Wealth Management Americas
125 Retail & Corporate
130 Global Asset Management
Investment Bank
137
143 Corporate Center
Implementation of EDTF recommendations
158
166 Key developments
168 Risk management and control
235 Treasury management
245 Capital management
5. Corporate governance, responsibility
and compensation
282 Corporate governance
315 Corporate responsibility
331 Our employees
338 Compensation
6. Financial
information
389 UBS Group AG consolidated financial statements
549 UBS AG consolidated financial statements
725 UBS Group AG standalone financial statements
745 UBS AG standalone financial statements
765 UBS Group AG consolidated supplemental disclosures
required under SEC regulations
787 UBS AG consolidated supplemental disclosures required
under SEC regulations
809 UBS Group AG consolidated supplemental disclosures
required under Basel III Pillar 3 regulations
Appendix
861 Abbreviations frequently used in our financial reports
863
864 Cautionary statement
Information sources
Annual Report 2014
Letter to shareholders
Dear shareholders,
In 2014, we delivered net profit attributable to shareholders of
CHF 3.5 billion, a 9% increase on the prior year. At the same time,
we continued to reduce risk-weighted assets (RWA) and improve
our leverage ratio, and we maintained the best fully applied
Basel III common equity tier 1 (CET1) capital ratio in our peer
group of large global banks, ending the year at 13.4%.
We owe thanks to our employees for their continued dedication
and hard work in providing superior advice and services to our
clients daily. This enabled us to deliver on our commitment of at-
tractive returns to our shareholders. As previously announced, we
are proposing an ordinary dividend of CHF 0.50 per share for the
financial year 2014, an increase of 100% on the prior year and a
payout ratio of 55%1 of reported net profit, which is in line with
our commitment to attractive shareholder returns. In addition, re-
flecting progress in the establishment of the new Group holding
company, including the successful completion of the share-for-
share exchange offer, we fully accrued a supplementary capital
return of CHF 0.25 per share in the fourth quarter of 2014. Sub-
ject to shareholder approval at the forthcoming Annual General
Meeting (AGM), UBS Group AG intends to pay this one-time sup-
plementary capital return upon successful completion of the
squeeze-out procedure.
In 2014, we achieved the key strategic targets we set out in 2011
and 2012. Since the end of 2011, we have reduced RWA by over
CHF 160 billion, particularly in the Corporate Center – Non-core
and Legacy Portfolio, and added almost 700 basis points to our
fully applied Basel III CET1 capital ratio, surpassing our long-stated
target of 13%. Furthermore, our Investment Bank today is less
complex and delivers more consistent underlying returns.
Now that we have completed our strategic transformation, we will
concentrate all our efforts on executing our strategy to unlock our
firm’s full potential. Our strategy centers on our leading wealth
management businesses and our premier universal bank in Switzer-
land, enhanced by our strong asset manager and investment bank.
As we expected, markets and the macroeconomic environment
during 2014 were influenced by heightened geopolitical tensions
in eastern Europe and the Middle East. Economic conditions in
leading developed economies differed greatly. This was reflected
in increasingly divergent central bank policies, as respective cen-
tral bank actions fueled ongoing appreciation of the US dollar
while weakening the euro and yen. At the same time, a sharp fall
in commodity prices in the latter half of the year contributed to
muted inflation expectations and to an increase in volatility, ad-
versely influencing client confidence and activity levels. Client risk
appetite remained subdued. All our business divisions demon-
strated resilience and their commitment to clients in this challeng-
ing environment, while delivering solid underlying performances.
In Wealth Management, adjusted2 profit before tax was up 4%
on the prior year to CHF 2.5 billion, as the business attracted net
new money, drove high-quality revenues and managed costs care-
fully. It was another record-breaking year for Wealth Manage-
ment Americas, with operating income, loan balances, financial
advisor productivity, invested assets and adjusted2 profit before
tax reaching all-time highs. Despite elevated charges for litigation,
regulatory and similar matters, the business delivered USD 1 bil-
lion in adjusted2 profit before tax for the second year in a row. In
Retail & Corporate, 2014 was the best year for new Swiss retail
client acquisition since 2008. The business also achieved all of its
targets and grew adjusted2 profit before tax 4%. Global Asset
Management delivered over CHF 0.5 billion in adjusted2 profit
before tax and a substantial turnaround in net new money, at-
tracting almost CHF 23 billion excluding money market flows,
supported by greater engagement and collaboration with our
wealth management businesses. Client focus and resource effi-
ciency remained important drivers of our Investment Bank’s suc-
cess. In particular, our strategic efforts to grow Corporate Client
Solutions bore fruit, with revenues up 8% year on year. We
achieved net cost reductions in Corporate Center, while reduc-
ing operational risks, strengthening controls and making progress
with our resolution and recovery plans through the establishment
of our Group holding company.
We are also pleased by the significant external recognition our
businesses’ achievements received during 2014 and into 2015.
UBS was confirmed as the largest wealth manager in the world in
Scorpio Partnership’s influential Global Private Banking Bench-
mark 20143. In Euromoney’s Private Banking Survey 2015, we
1 Ordinary dividend per share as a percentage of diluted earnings per share. 2 Please refer to “Group performance” in the “Financial and operating performance” section of this report for
more information on adjusted results. 3 The Scorpio Partnership Private Banking Benchmark 2014 – banks with assets under management of over USD 1 trillion.
2
Axel A. Weber
Chairman of the Board of Directors
Sergio P. Ermotti
Group Chief Executive Officer
received five global awards and were acknowledged as the firm
offering the best private banking services in Switzerland, western
Europe and Asia. Reflecting our standing as a leading brokerage
house and research provider, we took top position in several cat-
egories in the annual pan-European Thomson Reuters Extel Sur-
vey, including Leading Pan-European Equity House for the 11th
consecutive year. Other accolades included being named Equity
Derivatives House of the Year by International Financing Review
and Most Innovative Bank for M&A by The Banker.
Looking ahead to our 2015 AGM on May 7, in addition to votes
on existing members of the Board standing for re-election, share-
holders will have the opportunity to approve Jes Staley’s nomina-
tion to the Board. We believe his professional expertise would
strengthen the UBS Board of Directors further. This year’s AGM
will be the first time our shareholders have the opportunity to
make binding decisions regarding remuneration for the Board of
Directors and Group Executive Board, in addition to the existing
advisory vote on our Compensation Report. In relation to com-
pensation, we have a stringent performance award framework
which has remained broadly consistent for the past three years.
Our robust compensation model fosters accountability by reward-
ing actions that help our firm achieve its medium and long-term
goals and deliver attractive and sustainable returns for our share-
holders. Overall, the firm’s performance award pool for 2014 was
CHF 3.1 billion, 5% lower than in 2013, weighing our strong per-
formance against the effects of charges for provisions for litiga-
tion, regulatory and similar matters.
For many years, we have been helping our clients invest sustainably
and responsibly. In 2014, we launched UBS and Society, an initia-
tive combining all our activities and capabilities in sustainable in-
vesting and philanthropy, as well as our firm’s interaction with the
wider community. We also published details of our environmental
3
Annual Report 2014
Letter to shareholders
and social risk policy framework in a single, comprehensive docu-
ment. This guides us in identifying and dealing with environmental
and social risks arising from client and supplier relationships. We
aim to be a responsible corporate citizen and are therefore honored
by the external recognition our efforts have received. We were
named in the top three in our industry for 2014 in RobecoSAM’s
Corporate Sustainability Assessment, and we were rated best in
class in the 2014 Dow Jones Sustainability Indices, the FTSE4Good
Index Series and the CDP Climate Performance Leadership Index.
We also received the American Foreign Policy Association 2014
Corporate Social Responsibility award in acknowledgment of our
firm’s support of projects focusing on education and entrepreneur-
ship in communities around the world.
Finally, we would like to take this opportunity to thank both our
shareholders and our clients for the continued trust they place in
us. We are confident that by striving for excellence and putting
our clients at the center of everything we do, we can grow our
business profitably and continue delivering attractive returns to
shareholders.
13 March 2015
Yours sincerely,
UBS
Axel A. Weber
Chairman of the
Board of Directors
Sergio P. Ermotti
Group Chief Executive Officer
4
UBS Group AG key figures 1
CHF million, except where indicated
Group results
Operating income
Operating expenses
Operating profit / (loss) before tax
Net profit / (loss) attributable to UBS Group AG shareholders
Diluted earnings per share (CHF) 2
Key performance indicators 3
Profitability
Return on equity (RoE) (%)
Return on assets, gross (%)
Cost / income ratio (%)
Growth
Net profit growth (%)
Net new money growth for combined wealth management businesses (%)
Resources
Common equity tier 1 capital ratio (fully applied, %) 4
Swiss SRB leverage ratio (phase-in, %)
Additional information
Profitability
Return on tangible equity (%) 5
Return on risk-weighted assets, gross (%) 6
Resources
Total assets
Equity attributable to UBS Group AG shareholders
Common equity tier 1 capital (fully applied) 4
Common equity tier 1 capital (phase-in) 4
Risk-weighted assets (fully applied) 4
Risk-weighted assets (phase-in) 4
Common equity tier 1 capital ratio (phase-in, %) 4
Total capital ratio (fully applied, %) 4
Total capital ratio (phase-in, %) 4
Swiss SRB leverage ratio (fully applied, %)
Swiss SRB leverage ratio denominator (fully applied) 7
Swiss SRB leverage ratio denominator (phase-in) 7
Other
Invested assets (CHF billion) 8
Personnel (full-time equivalents)
Market capitalization 9
Total book value per share (CHF) 9
Tangible book value per share (CHF) 9
As of or for the year ended
31.12.14
31.12.13
31.12.12
28,027
25,567
2,461
3,466
0.91
7.0
2.8
91.0
9.3
2.5
13.4
5.4
8.2
12.4
1,062,478
50,608
28,941
42,863
216,462
220,877
19.4
18.9
25.5
4.1
997,822
1,004,869
2,734
60,155
63,526
13.94
12.14
27,732
24,461
3,272
3,172
0.83
6.7
2.5
88.0
3.4
12.8
4.7
8.0
11.4
1,013,355
48,002
28,908
42,179
225,153
228,557
18.5
15.4
22.2
3.4
1,015,306
1,022,924
2,390
60,205
65,007
12.74
11.07
25,423
27,216
(1,794)
(2,480)
(0.66)
(5.1)
1.9
106.6
3.2
9.8
3.6
1.6
12.0
1,259,797
45,949
25,182
40,032
258,113
261,800
15.3
11.4
18.9
2.4
1,206,214
1,216,561
2,230
62,628
54,729
12.26
10.54
1 Represents information for UBS Group AG (consolidated). Comparative information is the same as previously reported for UBS AG (consolidated) as UBS Group AG (consolidated) is considered to be the continuation
of UBS AG (consolidated). Refer to the “UBS Group – Changes to our legal structure” section and to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more
information. 2 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” in the “Financial information” section of this report for more information. 3 Refer to the “Measurement of performance” section of
this report for the definitions of our key performance indicators. 4 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Refer to the “Capital management” section of this report
for more information. 5 Net profit / (loss) attributable to UBS Group AG shareholders before amortization and impairment of goodwill and intangible assets (annualized as applicable) / average equity attributable to UBS
Group AG shareholders less average goodwill and intangible assets. Goodwill and intangible assets used in the calculation of tangible equity attributable to UBS Group AG shareholders as of 31 December 2014 have
been adjusted to reflect the non-controlling interests in UBS AG as of that date. 6 Based on phase-in Basel III risk-weighted assets. 7 The leverage ratio denominator is also referred to as “total adjusted exposure”
and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Refer to
the ”Capital management” section of this report for more information. 8 Group invested assets includes invested assets for Retail & Corporate. 9 Refer to the “UBS shares” section of this report for more information.
The 2014 results and the balance sheet in this report differ from those presented in our fourth quarter 2014 report issued on 10 February 2015. The net impact
of adjustments made subsequent to the publication of the unaudited fourth quarter 2014 financial report on net profit attributable to UBS Group AG share-
holders was a loss of CHF 105 million, which decreased basic and diluted earnings per share by CHF 0.03.
➔ Refer to “Note 37 Events after the reporting period” in the “Financial information” section of this report for more information
5
Annual Report 2014
Shaping
the future
Annual Review 2014
The Annual Review 2014 “Shaping the future” will
be available at the beginning of April 2015 in an
iPad version at UBS Newsstand / Annual Review and
in a PDF version on ubs.com/investors.
Corporate information
UBS Group AG is incorporated and domiciled in Switzerland and operates
under the Swiss Code of Obligations as an Aktiengesellschaft, a stock
corporation. Its registered office is at Bahnhof strasse 45, CH-8001 Zurich,
Switzerland, phone +41-44-234 11 11, and its corporate identification number
is CHE-395.345.924. UBS Group AG was incorporated on 10 June 2014
and was established in 2014 as the holding company of the UBS Group.
UBS Group AG shares are listed on the SIX Swiss Exchange and on the
New York Stock Exchange (ISIN: CH0244767585; CUSIP: H42097107).
UBS AG is incorporated and domiciled in Switzerland and operates under the
Swiss Code of Obligations as an Aktiengesellschaft, a stock corporation. The
addresses and telephone numbers of the two registered offices of UBS AG are:
Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, phone +41-44-234 11 11;
and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 50 50.
The corporate identification number is CHE-101.329.561. UBS AG is a bank
and the main operating company of the UBS Group. The company was
formed on 29 June 1998, when Union Bank of Switzerland (founded 1862)
and Swiss Bank Corporation (founded 1872) merged to form UBS AG. UBS AG
shares are currently listed on the SIX Swiss Exchange (ISIN: CH0024899483).
6
Contacts
Switchboards
For all general enquiries.
Zurich +41-44-234 1111
London +44-20-7568 0000
New York +1-212-821 3000
Hong Kong +852-2971 8888
www.ubs.com/contact
Investor Relations
UBS’s Investor Relations team supports
institutional, professional and retail
investors from our offices in Zurich and
New York.
UBS Group AG, Investor Relations
P.O. Box, CH-8098 Zurich, Switzerland
investorrelations@ubs.com
www.ubs.com/investors
Hotline Zurich +41-44-234 4100
Hotline New York +1-212-882 5734
Fax (Zurich) +41-44-234 3415
Media Relations
UBS’s Media Relations team supports
global media and journalists from
offices in Zurich, London, New York
and Hong Kong.
www.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 5857
mediarelations-ny@ubs.com
Hong Kong +852-2971 8200
sh-mediarelations-ap@ubs.com
Office of the Company Secretary
The Company Secretary receives
enquiries on compensation and related
issues addressed to members of the
Board of Directors.
UBS Group AG, Office of the
Company Secretary
P.O. Box, CH-8098 Zurich, Switzerland
sh-company-secretary@ubs.com
Hotline +41-44-235 6652
Fax +41-44-235 8220
Shareholder Services
UBS’s Shareholder Services team, a unit
of the Company Secretary office, is
responsible for the registration of the
global registered shares.
UBS Group AG, Shareholder Services
P.O. Box, CH-8098 Zurich, Switzerland
sh-shareholder-services@ubs.com
Hotline +41-44-235 6652
Fax +41-44-235 8220
US Transfer Agent
For global registered share-related
enquiries in the US.
Computershare Trust Company NA
P.O. Box 30170
College Station
TX 77842-3170, USA
Shareholder online enquiries:
https://www-us.computershare.com/
investor/Contact
Shareholder website:
www.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 Foreign Shareholders
+1-201-680-6610
Corporate calendar UBS Group AG
Imprint
Publication of the first quarter 2015 report:
Tuesday, 5 May 2015
Annual General Meeting1:
Thursday, 7 May 2015
Publication of the second quarter 2015 report: Tuesday, 28 July 2015
Publication of the third quarter 2015 report:
Tuesday, 3 November 2015
1 The Annual General Meeting of UBS AG shareholders will also take place on Thursday, 7 May 2015.
Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com
Language: English
© UBS 2015. The key symbol and UBS are among the registered and
unregistered trademarks of UBS. All rights reserved.
7
Annual Report 2014
UBS and its businesses
We are committed to providing private, institutional and corporate clients worldwide, as well as retail clients in Switzer-
land with superior financial advice and solutions while generating attractive and sustainable returns for shareholders.
Our strategy centers on our Wealth Management and Wealth Management Americas businesses and our leading univer-
sal bank in Switzerland, complemented by our Global Asset Management business and our Investment Bank. These
businesses share three key characteristics: they benefit from a strong com petitive position in their targeted markets, are
capital-efficient, and offer a superior structural growth and profitability outlook. Our strategy builds on the strengths of
all of our businesses and focuses our efforts on areas in which we excel, while seeking to capitalize on the compelling
growth prospects in the businesses and regions in which we operate. Capital strength is the foundation of our success.
The operational structure of the Group is comprised of the Corporate Center and five business divisions: Wealth Manage-
ment, Wealth Management Americas, Retail & Corporate, Global Asset Management and the Investment Bank.
Wealth Management
Wealth Management provides comprehensive financial services
to wealthy private clients around the world – except those served
by Wealth Management Americas. UBS is a global firm with
global capabilities, and Wealth Management clients benefit from
the full spectrum of UBS’s global resources, ranging from invest-
ment management solutions to wealth planning and corporate
finance advice, as well as a wide range of specific offerings. Its
guided architecture model gives clients access to a wide range of
products from third-party providers that complement our own
products.
Wealth Management Americas
Wealth Management Americas is one of the leading wealth man-
agers in the Americas in terms of financial advisor productivity
and invested assets. It provides advice-based solutions and bank-
ing services through financial advisors who deliver a fully integrat-
ed set of products and services specifically designed to address
the needs of ultra high net worth and high net worth individuals
and families. It includes the domestic US and Canadian business
as well as international business booked in the US.
Retail & Corporate
Retail & Corporate provides comprehensive financial products
and services to its retail, corporate and institutional clients in
Switzerland, maintaining a leading position in these client seg-
ments and embedding its offering in a multi-channel approach.
The retail and corporate business constitutes a central building
block of UBS’s universal bank delivery model in Switzerland, sup-
porting other business divisions by referring clients to them and
assisting retail clients to build their wealth to a level at which we
can transfer them to our Wealth Management unit. Furthermore,
it leverages the cross-selling potential of products and services
provided by its asset-gathering and investment banking busi-
nesses. In addition, we manage a substantial part of UBS’s Swiss
infrastructure and Swiss banking products platform, which are
both leveraged across the Group.
8
Global Asset Management
Corporate Center
Global Asset Management is a large-scale asset manager with
well diversified businesses across regions and client segments. It
serves third-party institutional and wholesale clients, as well as
clients of UBS’s wealth management businesses with a broad
range of investment capabilities and styles across all major tradi-
tional and alternative asset classes. Complementing the invest-
ment offering, the fund services unit provides fund administration
services for UBS and third-party funds.
Investment Bank
The Investment Bank provides corporate, institutional and wealth
management clients with expert advice, innovative solutions, ex-
ecution and comprehensive access to the world’s capital markets.
We offer advisory services and access to international capital
markets, and provide comprehensive cross-asset research, along
with access to equities, foreign exchange, precious metals and
selected rates and credit markets, through our business units,
Corporate Client Solutions and Investor Client Services. The In-
vestment Bank is an active participant in capital markets flow
activities, including sales, trading and market-making across a
range of securities.
Corporate Center is comprised of Core Functions and Non-core
and Legacy Portfolio. Core Functions include Group-wide control
functions such as finance (including treasury services such as
liquidity, funding, balance sheet and capital management), risk
control (including compliance) and legal. In addition, Core Func-
tions provide all logistics and support services, including opera-
tions, information technology, human resources, regulatory rela-
tions and strategic initiatives, communications and branding,
corporate services, physical security, information security as well
as outsourcing, nearshoring and offshoring. Non-core and Lega-
cy Portfolio is comprised of the non-core businesses and legacy
positions that were part of the Investment Bank prior to its
restructuring.
As of 1 January 2015, Corporate Center – Core Functions was
reorganized into two new components, Corporate Center – Ser-
vices and Corporate Center – Group Asset and Liability Manage-
ment (Group ALM).
9
Annual Report 2014
Our Board of Directors
The Board of Directors (BoD) of UBS Group AG and UBS AG, each under the leadership of the Chairman, decides on the strategy of the Group upon recom-
mendation of the Group Chief Executive Officer (Group CEO), exercises ultimate supervision over senior management and appoints all Group Executive Board
(GEB) members. The BoD also approves all financial statements for issue and proposes the Chairman, who in turn is elected by the shareholders at the general
shareholders meeting. In addition, shareholders elect each member of the BoD individually, as well as the members of the Human Resources and Compensation
Committee. The BoD in turn appoints one or more Vice Chairmen, a Senior Independent Director, the members of the BoD committees other than the HRCC,
and their respective Chairpersons, and the Company Secretary. In 2014, our BoD met the standards of the Organization Regulations for the percentage of
directors that are considered independent.
10
1
5
9
2
6
10
3
7
11
4
8
1 Axel A. Weber Chairman of the Board of Directors / Chairperson of the Corporate Culture and Responsibility Committee / Chairperson of the Governance
and Nominating Committee 2 William G. Parrett Chairperson of the Audit Committee / member of the Corporate Culture and Responsibility Commit-
tee 3 Reto Francioni Member of the Corporate Culture and Responsibility Committee / member of the Human Resources and Compensation Commit-
tee 4 Isabelle Romy Member of the Audit Committee / member of the Governance and Nominating Committee 5 Ann F. Godbehere Chairperson of the
Human Resources and Compensation Committee / member of the Audit Committee 6 Beatrice Weder di Mauro Member of the Audit Committee / mem-
ber of the Risk Committee 7 Joseph Yam Member of the Corporate Culture and Responsibility Committee / member of the Risk Committee
8 Axel P. Lehmann Member of the Risk Committee 9 Helmut Panke Member of the Human Resources and Compensation Committee / member of the
Risk Committee 10 David Sidwell Senior Independent Director / Chairperson of the Risk Committee / member of the Governance and Nominating Commit-
tee 11 Michel Demaré Independent Vice Chairman / member of the Audit Committee / member of the Governance and Nominating Committee / member
of the Human Resources and Compensation Committee
11
Annual Report 2014
Our Group Executive Board
UBS Group AG and UBS AG operate under a strict dual board structure, and therefore the BoD delegates the management of the
business to the Group Executive Board (GEB). Under the leadership of the Group Chief Executive Officer, the Group Executive Board
has executive management responsibility for the UBS Group and its businesses. It assumes overall responsibility for the development
of the Group and business division strategies and the implementation of approved strategies.
1
5
9
2
6
10
3
7
4
8
12
➔ To read the full biographies of our Board members, visit
www.ubs.com/geb or refer to “Group Executive Board” in the
“Corporate governance” section of this report
1 Sergio P. Ermotti Group Chief Executive Officer 2 Lukas Gähwiler President Retail & Corporate and President Switzerland 3 Markus U. Diethelm Group
General Counsel 4 Philip J. Lofts Group Chief Risk Officer 5 Tom Naratil Group Chief Financial Officer and Group Chief Operating Officer 6 Andrea Orcel
President Investment Bank 7 Robert J. McCann President Wealth Management Americas and President Americas 8 Chi-Won Yoon President Asia Pacific
9 Jürg Zeltner President Wealth Management 10 Ulrich Körner President Global Asset Management and President Europe, Middle East and Africa
13
Annual Report 2014
The making of UBS
UBS has played a pivotal role in the development and growth of
Switzerland’s banking tradition since the firm’s origins in the mid-
19th century.
The origins of the banking industry in Switzerland can be
traced back to medieval times. This long history may help explain
the widespread impression, reinforced in popular fiction, that
Switzerland has always possessed a strong financial sector. In re-
ality, the size and international reach of the Swiss banking sector
we know today is largely a product of the second half of the 20th
century, strongly influenced by two banks: Union Bank of Switzer-
land and Swiss Bank Corporation (SBC), which merged to form
UBS in 1998.
At the time of the merger, both banks were already well-estab-
lished and successful in their own right. Union Bank of Switzer-
land celebrated its 100th anniversary in 1962, tracing its origins
back to the Bank in Winterthur. SBC marked its centenary in 1972
with celebrations in honor of its founding forebear, the Basler
Bankverein. The historical roots of PaineWebber, acquired by UBS
in 2000, go back to 1879, while S.G. Warburg, the central pillar
upon which UBS’s Investment Bank was built, commenced opera-
tions in 1946.
In the early 1990s, SBC and Union Bank of Switzerland were
both commercial banks operating mainly out of Switzerland. The
banks shared a similar vision: to become a world leader in wealth
(cid:19)(cid:26)(cid:21)(cid:18)
(cid:19)(cid:26)(cid:22)(cid:18)
(cid:19)(cid:26)(cid:23)(cid:18)
(cid:19)(cid:26)(cid:24)(cid:18)
(cid:19)(cid:26)(cid:25)(cid:18)
(cid:19)(cid:26)(cid:26)(cid:18)
(cid:19)(cid:26)(cid:27)(cid:18)
(cid:19)(cid:27)(cid:18)(cid:18)
(cid:19)(cid:27)(cid:19)(cid:18)
(cid:19)(cid:27)(cid:20)(cid:18)
(cid:19)(cid:27)(cid:21)(cid:18)
(cid:19)(cid:27)(cid:22)(cid:18)
(cid:19)(cid:27)(cid:23)(cid:18)
(cid:19)(cid:27)(cid:24)(cid:18)
(cid:19)(cid:27)(cid:25)(cid:18)
(cid:19)(cid:27)(cid:26)(cid:18)
(cid:19)(cid:27)(cid:27)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:18)
(cid:20)(cid:18)(cid:20)(cid:18)
(cid:19)(cid:26)(cid:21)(cid:20)(cid:2)(cid:2)
(cid:38)(cid:75)(cid:78)(cid:78)(cid:81)(cid:80)(cid:2)(cid:52)(cid:71)(cid:67)(cid:70)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:26)(cid:21)(cid:20)
(cid:53)(cid:69)(cid:74)(cid:84)(cid:210)(cid:70)(cid:71)(cid:84)(cid:2)(cid:47)(cid:216)(cid:80)(cid:69)(cid:74)(cid:79)(cid:71)(cid:91)(cid:71)(cid:84)(cid:2)(cid:42)(cid:71)(cid:80)(cid:73)(cid:85)(cid:86)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:26)(cid:24)(cid:20)(cid:2)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:42)(cid:67)(cid:80)(cid:70)(cid:71)(cid:78)(cid:85)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:26)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)
(cid:38)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:71)(cid:80)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:23)(cid:24)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:25)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:27)(cid:23)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:8)(cid:2)(cid:60)(cid:216)(cid:84)(cid:69)(cid:74)(cid:71)(cid:84)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:27)(cid:25)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:27)
(cid:60)(cid:216)(cid:84)(cid:69)(cid:74)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:27)
(cid:53)(cid:69)(cid:74)(cid:89)(cid:71)(cid:75)(cid:92)(cid:16)
(cid:55)(cid:80)(cid:75)(cid:81)(cid:80)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:27)(cid:23)(cid:2)
(cid:50)(cid:74)(cid:75)(cid:78)(cid:78)(cid:75)(cid:82)(cid:85)(cid:2)(cid:8)(cid:2)(cid:38)(cid:84)(cid:71)(cid:89)
(cid:19)(cid:26)(cid:24)(cid:21)(cid:2)
(cid:39)(cid:75)(cid:70)(cid:73)(cid:71)(cid:80)(cid:210)(cid:85)(cid:85)(cid:75)(cid:85)(cid:69)(cid:74)(cid:71)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:24)(cid:21)
(cid:54)(cid:81)(cid:73)(cid:73)(cid:71)(cid:80)(cid:68)(cid:87)(cid:84)(cid:73)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:24)(cid:20)(cid:2)(cid:2)
(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:75)(cid:80)(cid:2)(cid:57)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:86)(cid:74)(cid:87)(cid:84)
(cid:19)(cid:26)(cid:25)(cid:20)(cid:2)
(cid:35)(cid:67)(cid:84)(cid:73)(cid:67)(cid:87)(cid:75)(cid:85)(cid:69)(cid:74)(cid:71)(cid:2)(cid:45)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:67)(cid:80)(cid:85)(cid:86)(cid:67)(cid:78)(cid:86)
(cid:19)(cid:26)(cid:24)(cid:21)(cid:2)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:75)(cid:80)(cid:2)(cid:36)(cid:67)(cid:70)(cid:71)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:18)
(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:2)(cid:8)(cid:2)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)
(cid:19)(cid:26)(cid:25)(cid:27)
(cid:44)(cid:67)(cid:69)(cid:77)(cid:85)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:87)(cid:84)(cid:86)(cid:75)(cid:85)
14
(cid:19)(cid:27)(cid:19)(cid:20)(cid:2)(cid:55)(cid:80)(cid:75)(cid:81)(cid:80)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:27)(cid:19)(cid:27)
(cid:19)(cid:27)(cid:19)(cid:23)
(cid:19)(cid:27)(cid:19)(cid:22)(cid:2)
(cid:36)(cid:78)(cid:91)(cid:86)(cid:74)(cid:14)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:79)(cid:67)(cid:80)(cid:2)(cid:38)(cid:75)(cid:78)(cid:78)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:27)(cid:19)(cid:27)
(cid:47)(cid:75)(cid:86)(cid:69)(cid:74)(cid:71)(cid:78)(cid:78)(cid:2)(cid:42)(cid:87)(cid:86)(cid:69)(cid:74)(cid:75)(cid:80)(cid:85)(cid:14)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)
(cid:19)(cid:27)(cid:20)(cid:26)(cid:2)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:74)(cid:67)(cid:80)(cid:70)(cid:71)(cid:78)
(cid:19)(cid:27)(cid:24)(cid:25)
(cid:19)(cid:27)(cid:27)(cid:26)
(cid:20)(cid:18)(cid:19)(cid:23)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:41)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:17)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)
(cid:19)(cid:27)(cid:25)(cid:27)
(cid:19)(cid:27)(cid:25)(cid:25)
(cid:19)(cid:27)(cid:22)(cid:20)(cid:2)
(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:14)(cid:2)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)(cid:14)(cid:2)(cid:44)(cid:67)(cid:69)(cid:77)(cid:85)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:87)(cid:84)(cid:86)(cid:75)(cid:85)
(cid:19)(cid:27)(cid:25)(cid:22)(cid:2)(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)(cid:14)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:27)(cid:21)(cid:24)(cid:2)(cid:2)
(cid:50)(cid:81)(cid:86)(cid:86)(cid:71)(cid:84)(cid:2)(cid:50)(cid:67)(cid:84)(cid:86)(cid:80)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:27)(cid:22)(cid:24)(cid:2)
(cid:53)(cid:16)(cid:41)(cid:16)(cid:2)(cid:57)(cid:67)(cid:84)(cid:68)(cid:87)(cid:84)(cid:73)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)
(cid:19)(cid:27)(cid:22)(cid:23)
(cid:19)(cid:27)(cid:22)(cid:23)
(cid:19)(cid:27)(cid:27)(cid:25)
(cid:19)(cid:27)(cid:26)(cid:25)
(cid:19)(cid:27)(cid:27)(cid:23)
(cid:19)(cid:27)(cid:26)(cid:27)
(cid:36)(cid:84)(cid:75)(cid:80)(cid:85)(cid:81)(cid:80)(cid:2)
(cid:50)(cid:67)(cid:84)(cid:86)(cid:80)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:27)(cid:27)(cid:22)
(cid:19)(cid:27)(cid:25)(cid:25)
(cid:49)(cid:111)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)(cid:2)(cid:8)(cid:2)(cid:35)(cid:85)(cid:85)(cid:81)(cid:69)(cid:75)(cid:67)(cid:86)(cid:71)(cid:85)
(cid:19)(cid:27)(cid:27)(cid:20)
(cid:19)(cid:27)(cid:27)(cid:25)
(cid:19)(cid:27)(cid:26)(cid:24)
management, a successful global investment bank and a top-tier
global asset manager, while remaining an important commercial
and retail bank in their home market of Switzerland.
Union Bank of Switzerland, the largest and best-capitalized
Swiss bank of its time, pursued these goals primarily through a
strategy of organic growth. In contrast, SBC, then the third-larg-
est Swiss bank, grew through a combination of partnership and
acquisition. In 1989, SBC started a joint venture with O’Connor, a
leading US derivatives firm noted for its dynamic and innovative
culture, its meritocracy and its team-oriented approach. O’Con-
nor brought state-of-the-art risk management and derivatives
technology to SBC, and in 1992 SBC moved to fully acquire
O’Connor. In 1994, SBC added to its capabilities when it acquired
Brinson Partners, a leading US-based institutional asset manage-
ment firm.
The next major milestone was in 1995, when SBC acquired
S.G. Warburg, the British merchant bank. The deal helped SBC fill
a strategic gap in its corporate finance, brokerage, and research
capabilities and, most importantly, brought with it an institution-
al client franchise that remains crucial to our equities business to
this day.
The 1998 merger of SBC and Union Bank of Switzerland into
the firm we know today created a world-class wealth manager
and the largest universal bank in Switzerland, complemented by a
strong investment bank and a leading global institutional asset
manager. In 2000, UBS grew further with the acquisition of
PaineWebber, establishing the firm as a significant player in the
US. UBS has established a strong footprint in the Asia Pacific re-
gion and emerging markets based on a presence in many of these
countries going back decades.
In 2007, the effects of the global financial crisis started to be
felt across the financial industry. This crisis had its origins in the
securitized financial product business linked to the US residential
real estate market. Between the third quarter of 2007 and the
(cid:19)(cid:26)(cid:21)(cid:18)
(cid:19)(cid:26)(cid:22)(cid:18)
(cid:19)(cid:26)(cid:23)(cid:18)
(cid:19)(cid:26)(cid:24)(cid:18)
(cid:19)(cid:26)(cid:25)(cid:18)
(cid:19)(cid:26)(cid:26)(cid:18)
(cid:19)(cid:26)(cid:27)(cid:18)
(cid:19)(cid:27)(cid:18)(cid:18)
(cid:19)(cid:27)(cid:19)(cid:18)
(cid:19)(cid:27)(cid:20)(cid:18)
(cid:19)(cid:27)(cid:21)(cid:18)
(cid:19)(cid:27)(cid:22)(cid:18)
(cid:19)(cid:27)(cid:23)(cid:18)
(cid:19)(cid:27)(cid:24)(cid:18)
(cid:19)(cid:27)(cid:25)(cid:18)
(cid:19)(cid:27)(cid:26)(cid:18)
(cid:19)(cid:27)(cid:27)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:18)
(cid:20)(cid:18)(cid:20)(cid:18)
(cid:19)(cid:26)(cid:21)(cid:20)(cid:2)(cid:2)
(cid:38)(cid:75)(cid:78)(cid:78)(cid:81)(cid:80)(cid:2)(cid:52)(cid:71)(cid:67)(cid:70)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:26)(cid:24)(cid:20)(cid:2)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:42)(cid:67)(cid:80)(cid:70)(cid:71)(cid:78)(cid:85)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:23)(cid:24)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:25)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:27)(cid:23)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:8)(cid:2)(cid:60)(cid:216)(cid:84)(cid:69)(cid:74)(cid:71)(cid:84)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:27)(cid:25)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)
(cid:38)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:71)(cid:80)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:26)(cid:27)
(cid:60)(cid:216)(cid:84)(cid:69)(cid:74)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:27)
(cid:53)(cid:69)(cid:74)(cid:89)(cid:71)(cid:75)(cid:92)(cid:16)
(cid:55)(cid:80)(cid:75)(cid:81)(cid:80)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:27)(cid:23)(cid:2)
(cid:50)(cid:74)(cid:75)(cid:78)(cid:78)(cid:75)(cid:82)(cid:85)(cid:2)(cid:8)(cid:2)(cid:38)(cid:84)(cid:71)(cid:89)
(cid:19)(cid:26)(cid:21)(cid:20)
(cid:53)(cid:69)(cid:74)(cid:84)(cid:210)(cid:70)(cid:71)(cid:84)(cid:2)(cid:47)(cid:216)(cid:80)(cid:69)(cid:74)(cid:79)(cid:71)(cid:91)(cid:71)(cid:84)(cid:2)(cid:42)(cid:71)(cid:80)(cid:73)(cid:85)(cid:86)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:27)(cid:21)(cid:24)(cid:2)(cid:2)
(cid:50)(cid:81)(cid:86)(cid:86)(cid:71)(cid:84)(cid:2)(cid:50)(cid:67)(cid:84)(cid:86)(cid:80)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:27)(cid:22)(cid:24)(cid:2)
(cid:53)(cid:16)(cid:41)(cid:16)(cid:2)(cid:57)(cid:67)(cid:84)(cid:68)(cid:87)(cid:84)(cid:73)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)
(cid:19)(cid:27)(cid:22)(cid:23)
(cid:19)(cid:27)(cid:22)(cid:23)
(cid:19)(cid:27)(cid:27)(cid:25)
(cid:19)(cid:27)(cid:26)(cid:25)
(cid:19)(cid:27)(cid:27)(cid:23)
(cid:19)(cid:27)(cid:26)(cid:27)
(cid:36)(cid:84)(cid:75)(cid:80)(cid:85)(cid:81)(cid:80)(cid:2)
(cid:50)(cid:67)(cid:84)(cid:86)(cid:80)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:27)(cid:27)(cid:22)
(cid:19)(cid:27)(cid:25)(cid:25)
(cid:49)(cid:111)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)(cid:2)(cid:8)(cid:2)(cid:35)(cid:85)(cid:85)(cid:81)(cid:69)(cid:75)(cid:67)(cid:86)(cid:71)(cid:85)
(cid:19)(cid:27)(cid:27)(cid:20)
(cid:19)(cid:27)(cid:27)(cid:25)
(cid:19)(cid:27)(cid:26)(cid:24)
(cid:19)(cid:27)(cid:19)(cid:20)(cid:2)(cid:55)(cid:80)(cid:75)(cid:81)(cid:80)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:27)(cid:19)(cid:27)
(cid:19)(cid:27)(cid:19)(cid:23)
(cid:19)(cid:27)(cid:19)(cid:22)(cid:2)
(cid:36)(cid:78)(cid:91)(cid:86)(cid:74)(cid:14)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:79)(cid:67)(cid:80)(cid:2)(cid:38)(cid:75)(cid:78)(cid:78)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:27)(cid:19)(cid:27)
(cid:47)(cid:75)(cid:86)(cid:69)(cid:74)(cid:71)(cid:78)(cid:78)(cid:2)(cid:42)(cid:87)(cid:86)(cid:69)(cid:74)(cid:75)(cid:80)(cid:85)(cid:14)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)
(cid:19)(cid:27)(cid:20)(cid:26)(cid:2)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:74)(cid:67)(cid:80)(cid:70)(cid:71)(cid:78)
(cid:19)(cid:27)(cid:24)(cid:25)
(cid:19)(cid:27)(cid:27)(cid:26)
(cid:20)(cid:18)(cid:19)(cid:23)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:41)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:17)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)
(cid:19)(cid:27)(cid:25)(cid:27)
(cid:19)(cid:27)(cid:25)(cid:25)
(cid:19)(cid:27)(cid:22)(cid:20)(cid:2)
(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:14)(cid:2)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)(cid:14)(cid:2)(cid:44)(cid:67)(cid:69)(cid:77)(cid:85)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:87)(cid:84)(cid:86)(cid:75)(cid:85)
(cid:19)(cid:27)(cid:25)(cid:22)(cid:2)(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)(cid:14)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)
(cid:20)(cid:18)(cid:18)(cid:18)
15
(cid:19)(cid:26)(cid:24)(cid:21)(cid:2)
(cid:39)(cid:75)(cid:70)(cid:73)(cid:71)(cid:80)(cid:210)(cid:85)(cid:85)(cid:75)(cid:85)(cid:69)(cid:74)(cid:71)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:24)(cid:21)
(cid:54)(cid:81)(cid:73)(cid:73)(cid:71)(cid:80)(cid:68)(cid:87)(cid:84)(cid:73)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:24)(cid:20)(cid:2)(cid:2)
(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:75)(cid:80)(cid:2)(cid:57)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:86)(cid:74)(cid:87)(cid:84)
(cid:19)(cid:26)(cid:24)(cid:21)(cid:2)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:75)(cid:80)(cid:2)(cid:36)(cid:67)(cid:70)(cid:71)(cid:80)
(cid:19)(cid:26)(cid:25)(cid:20)(cid:2)
(cid:35)(cid:67)(cid:84)(cid:73)(cid:67)(cid:87)(cid:75)(cid:85)(cid:69)(cid:74)(cid:71)(cid:2)(cid:45)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:67)(cid:80)(cid:85)(cid:86)(cid:67)(cid:78)(cid:86)
(cid:19)(cid:26)(cid:26)(cid:18)
(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:2)(cid:8)(cid:2)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)
(cid:19)(cid:26)(cid:25)(cid:27)
(cid:44)(cid:67)(cid:69)(cid:77)(cid:85)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:87)(cid:84)(cid:86)(cid:75)(cid:85)
Annual Report 2014
fourth quarter of 2009, we incurred significant losses on these
assets. We responded with decisive action designed to reduce risk
exposures and stabilize our businesses, including raising capital on
multiple occasions. More recently, we continued to improve the
firm’s capital strength to meet new and enhanced industry-wide
regulatory requirements. Our position as one of the world’s
best-capitalized banks, together with our stable funding and
sound liquidity positions, provides us with a solid foundation for
our success.
In 2012, the year of our 150th anniversary, we accelerated our
strategic transformation of the firm to create a business model
that is better adapted to the new regulatory and market circum-
stances and that we believe will result in more consistent and
high-quality returns. In 2013, we further advanced the execution
of our strategic transformation and by the end of 2014, we com-
pleted our strategic transformation process. We have further
reduced risk-weighted assets, improved our leverage ratio and
maintained the best fully applied Basel III CET1 capital ratio in our
peer group of large global banks. We will continue to execute our
strategy in order to achieve the firm’s long-term success and to
deliver sustainable returns for our shareholders.
➔ Refer to www.ubs.com/history for more information on UBS’s
history of more than 150 years
16
UBS Group –
Changes to our
legal structure
17
UBS Group – Changes to our legal structure UBS Group – Changes to our legal structure
The new legal structure of UBS Group
The new legal structure of UBS Group
During 2014, we established UBS Group AG as the holding com-
pany of UBS Group. This change is intended, along with other
measures already announced, to substantially improve the resolv-
ability of UBS Group in response to evolving too big to fail (TBTF)
regulatory requirements.
UBS Group AG was incorporated on 10 June 2014 as a wholly
owned subsidiary of UBS AG. On 29 September 2014, UBS Group
AG launched an offer to acquire all the issued ordinary shares of
UBS AG in exchange for registered shares of UBS Group AG on a
one-for-one basis. Following the exchange offer and subsequent
private exchanges on a one-for-one basis with various sharehold-
ers and banks in Switzerland and elsewhere outside the United
States, UBS Group AG acquired 96.68% of UBS AG shares by
31 December 2014.
UBS Group AG has filed a request with the Commercial Court
of the Canton of Zurich for a procedure under article 33 of the
(cid:46)(cid:71)(cid:73)(cid:67)(cid:78)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:53)(cid:74)(cid:67)(cid:84)(cid:71)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)
(cid:19)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:7)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)
(cid:27)(cid:24)(cid:16)(cid:24)(cid:26)(cid:7)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)
(cid:19)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:7)(cid:19)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:81)(cid:78)(cid:75)(cid:70)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:81)(cid:78)(cid:75)(cid:70)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:21)(cid:16)(cid:21)(cid:20)(cid:7)
(cid:48)(cid:81)(cid:80)(cid:15)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:78)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)
(cid:55)(cid:36)(cid:53)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:43)(cid:80)(cid:69)(cid:16)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:46)(cid:75)(cid:79)(cid:75)(cid:86)(cid:71)(cid:70)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)
(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:20)
(cid:55)(cid:36)(cid:53)(cid:2)
(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:35)(cid:41)(cid:21)
(cid:19)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:7)
(cid:21)(cid:18)(cid:7)
(cid:25)(cid:18)(cid:7)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)
(cid:55)(cid:53)(cid:35)
(cid:55)(cid:36)(cid:53)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)
(cid:53)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:43)(cid:80)(cid:69)(cid:16)
(cid:55)(cid:36)(cid:53)
(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:46)(cid:46)(cid:37)
141.553 mm
141.553 mm
(cid:19)(cid:2)(cid:38)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:74)(cid:81)(cid:78)(cid:70)(cid:75)(cid:80)(cid:73)(cid:85)(cid:16)(cid:2)(cid:54)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:86)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:85)(cid:82)(cid:71)(cid:69)(cid:75)(cid:386)(cid:69)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:78)(cid:75)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:111)(cid:85)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:16)(cid:2)(cid:52)(cid:71)(cid:72)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:2)(cid:112)(cid:48)(cid:81)(cid:86)(cid:71)(cid:2)(cid:21)(cid:18)(cid:2)(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:71)(cid:80)(cid:86)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:113)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:112)(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)
(cid:75)(cid:80)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:113)(cid:2)(cid:85)(cid:71)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2)(cid:85)(cid:74)(cid:81)(cid:89)(cid:80)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:86)(cid:2)(cid:74)(cid:81)(cid:78)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:73)(cid:73)(cid:84)(cid:71)(cid:73)(cid:67)(cid:86)(cid:71)(cid:2)(cid:19)(cid:18)(cid:18)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:85)(cid:71)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:75)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:88)(cid:71)(cid:84)(cid:91)(cid:2)(cid:72)(cid:71)(cid:89)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:124)
(cid:35)(cid:41)(cid:2)(cid:75)(cid:85)(cid:2)(cid:67)(cid:2)(cid:89)(cid:74)(cid:81)(cid:78)(cid:78)(cid:91)(cid:2)(cid:81)(cid:89)(cid:80)(cid:71)(cid:70)(cid:14)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:75)(cid:70)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:16)(cid:2)(cid:43)(cid:86)(cid:2)(cid:75)(cid:85)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:71)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:71)(cid:69)(cid:81)(cid:80)(cid:70)(cid:2)(cid:83)(cid:87)(cid:67)(cid:84)(cid:86)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:16)(cid:2)
18
Swiss Stock Exchanges and Securities Trading Act (the “SESTA
procedure”). If the SESTA procedure is successful, the shares of
the remaining minority shareholders of UBS AG will be automati-
cally exchanged for UBS Group AG shares, and UBS Group AG
will become the 100% owner of UBS AG. The timing and success
of the SESTA procedure are dependent on the court. We currently
expect that the SESTA procedure will be completed in the second
half of 2015.
UBS Group AG may continue to acquire additional UBS AG
shares using any method permitted under applicable law, includ-
ing purchases of UBS AG shares or share equivalents or exchanges
of UBS AG shares with UBS Group AG shares on a one for one
basis.
After the squeeze-out process is completed, we expect to pay
a supplementary capital return of CHF 0.25 per share to share-
holders of UBS Group AG.
UBS Group AG shares have been listed on the SIX Swiss Ex-
change (SIX) (Ticker symbol: UBSG) since 28 November 2014 and
also began regular-way trading on the New York Stock Exchange
(NYSE) (Ticker symbol: UBS) on the same date. UBS AG shares
were delisted from the NYSE on 17 January 2015. UBS AG shares
will also be delisted from SIX upon completion of the squeeze-out
process.
The changes to our legal structure do not affect our strategy,
our business and the way we serve our clients. They also have no
material effect on the organization, processes, roles and responsi-
bilities with respect to how UBS is managed and governed. UBS
Group AG’s Board of Directors and Group Executive Board have
the same members as UBS AG’s Board of Directors and Group
Executive Board, respectively.
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 (consolidated)”
UBS AG and its consolidated subsidiaries
“UBS Group AG” and “UBS Group AG (standalone)”
UBS Group AG on a standalone basis
“UBS AG” and “UBS AG (standalone)”
UBS AG on a standalone basis
19
UBS Group – Changes to our legal structure UBS Group – Changes to our legal structure
The new legal structure of UBS Group
Transaction overview
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:115)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:68)(cid:78)(cid:75)(cid:85)(cid:74)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:74)(cid:81)(cid:78)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:67)(cid:80)(cid:91)
(cid:43)(cid:80)(cid:69)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)
(cid:46)(cid:67)(cid:87)(cid:80)(cid:69)(cid:74)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:15)(cid:72)(cid:81)(cid:84)(cid:15)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)
(cid:71)(cid:90)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:2)(cid:81)(cid:72)(cid:72)(cid:71)(cid:84)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:68)(cid:71)(cid:69)(cid:67)(cid:79)(cid:71)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:74)(cid:81)(cid:78)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:67)(cid:80)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:74)(cid:71)(cid:78)(cid:70)(cid:2)(cid:27)(cid:18)(cid:16)(cid:22)(cid:18)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:67)(cid:78)(cid:78)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:85)(cid:2)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:85)(cid:2)(cid:85)(cid:86)(cid:67)(cid:84)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:53)(cid:43)(cid:58)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:48)(cid:59)(cid:53)(cid:39)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:74)(cid:71)(cid:78)(cid:70)(cid:2)
(cid:27)(cid:25)(cid:16)(cid:20)(cid:27)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:85)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:74)(cid:71)(cid:78)(cid:70)(cid:2)(cid:27)(cid:24)(cid:16)(cid:24)(cid:26)(cid:7)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:85)
(cid:19)(cid:22)(cid:2)(cid:49)(cid:69)(cid:86)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:18)(cid:2)(cid:48)(cid:81)(cid:88)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:24)(cid:2)(cid:48)(cid:81)(cid:88)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:19)(cid:18)(cid:2)(cid:38)(cid:71)(cid:69)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:19)(cid:18)(cid:2)(cid:44)(cid:87)(cid:80)(cid:71)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:27)(cid:2)(cid:53)(cid:71)(cid:82)(cid:86)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:26)(cid:2)(cid:48)(cid:81)(cid:88)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:24)(cid:2)(cid:47)(cid:67)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)
(cid:43)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:81)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:70)
(cid:53)(cid:87)(cid:68)(cid:85)(cid:71)(cid:83)(cid:87)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:70)
Key steps in the Group reorganization
– On 10 June 2014, the new entity UBS Group AG was incorpo-
rated as a stock corporation (Aktiengesellschaft) under Swiss
law and as a wholly owned subsidiary of UBS AG with a regis-
tered domicile in Zurich.
– On 29 September 2014, UBS Group AG launched an offer to
acquire all issued ordinary shares of UBS AG in exchange for
registered shares of UBS Group AG on a one-for-one basis (the
exchange offer). During the initial offer period from 14 Octo-
ber to 20 November 2014, 90.40% of all issued UBS AG shares
were tendered.
– On 26 November 2014, the capital increase in connection with
the first settlement of the exchange offer was approved by
UBS AG, the sole shareholder of UBS Group AG at the time.
– On 28 November 2014, the first settlement of the exchange
offer was carried out and UBS Group AG became the holding
company of UBS Group and the parent company of UBS AG.
UBS Group AG shares started trading on the SIX and also be-
gan regular-way trading on the NYSE on the same date.
– A subsequent offer period was provided from 26 November to
10 December 2014.
– Following the exchange offer and subsequent private ex-
changes on a one-for-one basis with various shareholders and
banks in Switzerland and elsewhere outside the United States,
UBS Group AG held 96.68% of UBS AG shares by 31 Decem-
ber 2014.
– Further private exchanges have reduced the amount of out-
standing UBS AG shares by 17.1 million and as a result UBS
Group held 97.29% of UBS AG shares by 6 March 2015.
➔ Refer to the “UBS shares” section of this report for more
information on our shares
Transfer of deferred compensation plans
As part of the Group’s reorganization, in the fourth quarter of
2014, UBS Group AG assumed obligations of UBS AG as grantor
in connection with outstanding awards under employee share,
option, notional fund and deferred cash plans. At the same time,
UBS Group AG acquired the beneficial ownership of the financial
assets and 90.5 million treasury shares of UBS Group AG held to
hedge the economic exposure arising from these plans.
Obligations relating to these deferred compensation plans’
awards, which are required to be, and have been, granted by a
separate UBS subsidiary or local employing UBS AG branches,
have not been assumed by UBS Group AG and will continue on
this basis. Furthermore, obligations related to other compensation
vehicles, such as defined benefit pension plans and other local
awards, have not been assumed by UBS Group AG and are re-
tained by the relevant employing and / or sponsoring subsidiaries
or UBS AG branches.
20
Comparison UBS Group AG (consolidated) vs. UBS AG (consolidated)
The consolidated assets and liabilities of the Group were not af-
fected by the transaction. No cash offer was made for UBS AG
shares and therefore no cash proceeds have resulted from the is-
sue of the UBS Group AG shares in connection with the exchange
offer.
The table on the next page shows the differences between
UBS Group AG (consolidated) and UBS AG (consolidated) finan-
cial, capital and liquidity and funding information as of or for the
period ended 31 December 2014. These differences are recorded
in Corporate Center – Core Functions and relate to the following:
– Assets, liabilities, operating income, operating expenses and
operating profit before tax relating to UBS Group AG are re-
flected in the consolidated financial statements of UBS Group
AG but not of UBS AG. UBS AG's assets, liabilities, operating
income, and operating expenses related to transactions with
UBS Group AG are not subject to elimination in the UBS AG
(consolidated) financial statements, but are eliminated in the
UBS Group AG (consolidated) financial statements.
– The accounting policies applied under International Financial
Reporting Standards (IFRS) in both financial statements are
identical. However, there are differences in equity and net
profit, as a small portion of UBS AG shares is still held by share-
holders with non-controlling interests (NCI) and due to differ-
ent presentation requirements related to preferred notes is-
sued by UBS AG.
– Total equity of UBS Group AG consolidated includes NCI in UBS
AG. Most of the difference of CHF 1,500 million in equity at-
tributable to shareholders between the consolidated equity of
UBS Group AG and UBS AG relates to these NCI. Net profit
attributable to non-exchanged UBS AG shares since 26 Novem-
ber 2014 is presented as net profit attributable to NCI in the
consolidated income statement of UBS Group AG.
– Preferred notes issued by UBS AG of CHF 2,013 million are
presented in the consolidated UBS Group AG balance sheet as
equity attributable to NCI, while in the consolidated UBS AG
balance sheet these preferred notes are required to be pre-
sented as equity attributable to preferred noteholders. For
2014, the consolidated financial statements of UBS Group AG
and UBS AG reflect the same net profit attributable to pre-
ferred noteholders as no additional profit has been attributed
to preferred noteholders following the date upon which UBS
Group AG became the holding company of the Group.
– Most of the differences of CHF 1,864 million and CHF 451
million in common equity tier 1 and total capital, respectively,
were due to compensation-related regulatory capital accruals,
liabilities and capital instruments which are reflected on the
level of UBS Group AG, following the transfer of the grantor
function for the Group’s employee deferred compensation
plans during the fourth quarter of 2014. Respective charges to
consolidated UBS AG common equity tier 1 and total capital
will be made over the service period of the corresponding com-
pensation awards.
21
UBS Group – Changes to our legal structure UBS Group – Changes to our legal structure
Regulatory and legal developments
Comparison UBS Group AG (consolidated) versus UBS AG (consolidated)
CHF million, except where indicated
Income statement
Operating income
Operating expenses
Operating profit / (loss) before tax
Net profit / (loss)
of which: net profit / (loss) attributable
to shareholders
of which: net profit / (loss) attributable
to preferred noteholders
of which: net profit / (loss) attributable
to non-controlling interests
Balance sheet
Total assets
Total liabilities
Total equity
of which: equity attributable
to shareholders
of which: equity attributable
to preferred noteholders
of which: equity attributable
to non-controlling interests
Capital information (fully applied)
Common equity tier 1 capital
Total capital
Risk-weighted assets
Swiss SRB leverage ratio denominator
Common equity tier 1 capital ratio (%)
Total capital ratio (%)
Swiss SRB leverage ratio (%)
Liquidity and funding
Liquidity coverage ratio (pro-forma, %)
Net stable funding ratio (pro-forma, %)
Share information
Shares issued (number of shares)
Shares outstanding (number of shares)
Diluted earnings per share (CHF)
Tangible book value per share (CHF)
22
As of or for the year ended 31.12.14
UBS Group AG
(consolidated)
UBS AG
(consoli dated)
Difference
(absolute)
Difference
(%)
28,027
25,567
2,461
3,640
28,026
25,557
2,469
3,649
3,466
3,502
142
32
142
5
1,062,478
1,008,110
54,368
1,062,327
1,008,162
54,165
1
10
(8)
(9)
(36)
0
27
151
(52)
203
50,608
52,108
(1,500)
0
0
0
0
(1)
0
540
0
0
0
(3)
0
2,013
(2,013)
(100)
3,760
45
3,715
28,941
40,806
216,462
997,822
13.4
18.9
4.1
123
106
30,805
41,257
217,158
999,124
14.2
19.0
4.1
123
106
(1,864)
(451)
(696)
(1,301)
(0.8)
(0.1)
0.0
0
0
3,717,128,324 3,844,560,913
(127,432,589)
3,629,256,587 3,842,445,658
(213,189,071)
0.91
12.14
0.91
11.80
0.00
0.34
(6)
(1)
0
0
(3)
(6)
0
3
External reporting concept
General requirements
Our external reporting requirements and the scope of our external
reports are defined by general accounting law and principles, rele-
vant stock and debt listing rules, specific legal and regulatory re-
quirements, as well as by our own financial reporting policies. As a
global firm with shares listed both on the SIX and the NYSE, we have
to prepare and publish consolidated financial statements in accor-
dance with International Financial Reporting Standards (IFRS) at least
on a half-yearly basis. Additionally, statutory financial statements
need to be prepared annually as the basis for the tax return, the
appropriation of retained earnings and a potential distribution of
dividends or capital contribution reserves, subject to approval at the
Annual General Meeting (AGM). Management’s discussion and
analysis (MD&A) complements our annual financial statements by
providing information on (i) our strategy and the operating environ-
ment in which we operate, (ii) the financial and operating perfor-
Content of our external reporting documents
mance of our business divisions and Corporate Center, (iii) our risk,
treasury and capital management and (iv) our corporate governance,
corporate responsibility framework and compensation frameworks.
Our Annual Reports and Form 20-F
To give shareholders as well as other stakeholders access to infor-
mation on UBS Group AG and on UBS AG, both in a combined
manner and separately, we publish three distinct documents on
www.ubs.com/investors:
– A combined Annual Report providing all relevant and required
disclosures for both UBS Group AG and UBS AG, which is also
the basis for our combined Form 20-F filing;
– An Annual Report for UBS Group AG only and
– An Annual Report for UBS AG only, consisting of financial in-
formation related to UBS AG only, complemented by MD&A
on a UBS Group level.
Audited / unaudited
Section
All electronic
versions of
our reports are
available on
www.ubs.com/
investors
1. Changes
to our
Group legal
structure
2. Operating
environ-
ment and
strategy
Unaudited1
3. Financial
and
operating
performance
Content
Audited
Unaudited
Unaudited
Audited
4. Risk,
treasury
and capital
manage-
ment
5. Corporate
governance,
responsibili-
ty and com-
pensation
6. UBS
Group AG
consolidat-
ed financial
statements
6. UBS
Group AG
standalone
financial
statements
6. UBS
Group AG
consolidated
SEC
disclosures
6. UBS AG
consolidat-
ed financial
statements
6. UBS AG
standalone
financial
statements
6. UBS
Group AG
consolidated
Basel III
Pillar 3
disclosures
Unaudited
6. UBS AG
consolidated
SEC
disclosures
GRI /
Ordinance2
IFRS
Swiss
Code of
Obliga-
tions
IFRS
Basel III
IFRS
IFRS
Swiss
federal
banking
law
Prepared in accordance
with
Language
Publication
English
Electronic
UBS Group AG and UBS AG
Annual Report 2014
English
German
Electronic
and printed
Electronic
and printed
These sections are based on the consolidated UBS Group.
Selective differences to UBS AG (consolidated) are described
in each section.
3
3
English
Electronic 4
5
UBS Group AG
Annual Report 2014
UBS AG
Annual Report 2014
1 Certain disclosures in the “Risk, treasury and capital management” section are required by IFRS and subject to audit, and are an integral part of the Financial Statements. In section 5, only the compensation report is audited.
Content of the sections “Corporate responsibility” and “Our employees” is reviewed by Ernst & Young (EY) to ensure information has been prepared according to the Global Reporting Initiative (GRI). 2 Content of the sec-
tions “Corporate Responsibility” and “Our employees” was prepared in accordance with Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. The “Compensation” section was prepared in accordance with
the Swiss Ordinance against Excessive Compensation in Stock Exchange Listed Companies (“Ordinance”). 3 The printed version of this report only contains summarized financial statements for UBS AG (standalone). 4 In
accordance with Swiss law, the Annual Report will be available in print for shareholders at UBS AG’s registered addresses and, on request, by mail. 5 Following an exemption from certain reporting and other requirements
under the listing regulations of SIX Swiss Exchange, information relating to the corporate governance of UBS AG is not required to be published in the Annual Report 2014, but information about UBS AG continues to be
presented in response to US Securities and Exchange Commission (SEC) requirements, and the compensation report of UBS AG is an abridged version of the compensation report of UBS Group AG.
23
UBS Group – Changes to our legal structure UBS Group – Changes to our legal structure
Regulatory and legal developments
Future structural changes
UBS continues to implement additional measures to substantially
improve the Group’s resolvability in response to too big to fail
(TBTF) requirements in Switzerland and other countries in which
the Group operates. In Switzerland, we are progressing toward
the transfer of our Retail & Corporate business division and the
Swiss-booked business of our Wealth Management business divi-
sion into UBS Switzerland AG by mid-2015. Pursuant to the Swiss
Merger Act, we will transfer all relevant assets, liabilities and con-
tracts of clients of the Retail & Corporate business and the Swiss-
booked clients of the Wealth Management business. Under the
Swiss Merger Act, UBS AG will retain joint liability for obligations
existing on the date of the transfer that are transferred to UBS
Switzerland AG. UBS Switzerland AG will contractually assume
joint liability for contractual obligations of UBS AG existing on the
date of transfer. Neither UBS AG nor UBS Switzerland AG will
have joint liability for new obligations incurred by the other after
the effective date of the asset transfer.
To comply with new rules for foreign banks in the US under the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank), by 1 July 2016 we will designate an intermediate
holding company that will own all of our US operations except US
branches of UBS AG. In the UK, we have begun to implement a
revised business and operating model for UBS Limited, which will
enable UBS Limited to bear and retain a larger proportion of the
risk and reward in its business activities.
Our strategy, our business and the way we serve our clients are
not affected by these changes. These plans do not require UBS to
raise additional common equity capital and are not expected to
materially affect the firm’s capital-generating capability.
We are confident that the establishment of UBS Group AG as
the holding company of the Group along with our other an-
nounced measures will substantially enhance the resolvability of
the Group. We expect that the Group will qualify for a rebate on
the progressive buffer capital requirements, which should result in
lower overall capital requirements. The Swiss Financial Market Su-
pervisory Authority (FINMA) has confirmed that our proposed
measures are in principle suitable to warrant a rebate, although
the amount and timing will depend on the actual execution of
these measures and can therefore only be specified once all mea-
sures are implemented.
We may consider further changes to the Group’s legal struc-
ture in response to regulatory requirements, including to further
improve the resolvability of the Group, to respond to capital
requirements, to seek any reduction in capital requirements to
which the Group may be entitled, and to meet any other regula-
tory requirements regarding our legal structure. Such changes
may include the transfer of operating subsidiaries of UBS AG to
become direct subsidiaries of UBS Group AG, the transfer of
shared service and support functions to service companies and
adjustments to the booking entity or location of products and
services. These structural changes are being discussed on an on-
going basis with FINMA and other regulatory authorities and re-
main subject to a number of uncertainties that may affect their
feasibility, scope or timing.
➔ Refer to the “Capital management” section of this report for
more information on our capital requirements
24
Operating
environment
and strategy
Signposts
Throughout the Annual Report, signposts that are displayed at the beginning of a section, table or chart – Audited | EDTF | Pillar 3 | – indicate
that those items have been audited, have addressed the recommendations of the Enhanced Disclosure Task Force, or are Basel Pillar 3
disclosure requirements, respectively. A “triangle” symbol – ▲▲▲ – indicates the end of the signpost.
25
Operating environment and strategy Operating environment and strategy
Current market climate and industry drivers
Current market climate and industry drivers
The overall global economic climate improved modestly in 2014, but the business environment remained demanding for
the financial services industry. Profitability was curbed by lackluster market conditions with low interest rates and
muted client activity, amid an increasingly complex operating environment also driven by the expansion of regulatory
requirements.
Global economic and market climate
Global economies recovered moderately over the course of 2014.
However, the pace of the recovery remained slow in most parts of
the world and was marked by distinct divergence. Whereas the
US and the UK experienced stronger rates of growth with improv-
ing labor markets, economies in continental Europe remained
anemic and Japan relapsed into a recession in mid-2014. Among
key emerging markets, the still solid growth in China slowed due
to the ongoing real estate market downturn, Russia slipped into a
recession and Brazil’s economy stagnated.
In many advanced economies, growth remained constrained
by high levels of public and private debt. Fiscal austerity policies,
even if less intense than in prior years, continued to pose head-
winds, as did concerns with regard to the stability of the banking
sector, particularly in the eurozone. Geopolitical uncertainty,
doubts about the pace of reforms in emerging economies, and
falling oil and commodity prices further restrained economic ac-
tivity in a number of economies.
Despite such mixed growth, global equity markets rallied to
all-time highs, supported by strong liquidity, mostly due to
quantitative easing and high levels of corporate profitability, no-
tably in the US. Global fixed income markets were supported by
expansive monetary policies, low or falling inflation, and sub-
dued global economic activity. However, by the second half of
2014, market volatility was fuelled by concerns about a poten-
tial end to unconventional monetary policy measures in the US
and its consequences domestically and, especially, internation-
ally. Most notably, the stronger US economic recovery and mar-
ket expectations for divergent monetary policies between the
US and Europe or Japan resulted in a strong appreciation of the
US dollar.
The momentum of economic activity in the US improved
during 2014, with the recovery becoming more broad-based,
supported by an improving labor market and recovering con-
sumer and investor confidence. Wage inflation accelerated mod-
estly and falling energy prices kept inflation low, helping to lift
household purchasing power. Against this background, the Board
of Governors of the Federal Reserve System (Federal Reserve) de-
cided to gradually taper its asset purchase program, concluding its
third round of quantitative easing in October 2014.
The Japanese economy suffered from a consumption tax in-
crease in April 2014, which stifled domestic demand, softened
26
capital expenditures and set off a two-quarter recession around
mid-year. The Bank of Japan responded with a further round of
monetary easing. Consequently, the yen remained weak on global
foreign exchange markets during 2014, but inflation remained
below the central bank’s 2% target.
The recovery in the eurozone remained asymmetrical and frag-
ile, with growth insufficient to bring down unemployment. Falling
energy and food prices, alongside considerable weakness in the
eurozone, resulted in falling inflation and ultimately deflation by
the end of the year. Economic activity remained weak in France
and Italy throughout 2014, while Spain achieved a positive growth
rate in 2014. Germany’s economy slowed down around mid-year,
likely due to concerns about the impact of tighter sanctions
against Russia as a result of an escalation of the conflict in Ukraine.
Faced with the prospect of inflation sliding significantly below
target, the European Central Bank (ECB) introduced negative de-
posit rates and launched an asset-backed security (ABS) and cov-
ered-bond purchase program in June. Later, the ECB announced a
program of asset purchases (quantitative easing). The ECB also
carried out a comprehensive assessment of the largest banks in
the eurozone, consisting of an asset quality review and stress
tests. The results of this assessment, which also marked the for-
mal starting point of the Single Supervisory Mechanism as an im-
(cid:37)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:71)(cid:90)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)(cid:85)(cid:2)(cid:19)(cid:2)(cid:44)(cid:67)(cid:80)(cid:87)(cid:67)(cid:84)(cid:91)(cid:2)(cid:20)(cid:18)(cid:18)(cid:22)(cid:2)(cid:115)(cid:2)(cid:20)(cid:26)(cid:2)(cid:40)(cid:71)(cid:68)(cid:84)(cid:87)(cid:67)(cid:84)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)
(cid:2)
(cid:20)(cid:16)(cid:23)
(cid:20)(cid:16)(cid:18)
(cid:19)(cid:16)(cid:23)
(cid:19)(cid:16)(cid:18)
(cid:18)(cid:16)(cid:23)
(cid:18)
(cid:19)(cid:23)(cid:18)
(cid:19)(cid:20)(cid:18)
(cid:2)(cid:2)(cid:27)(cid:18)
(cid:2)(cid:2)(cid:24)(cid:18)
(cid:2)(cid:2)(cid:21)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:22) (cid:20)(cid:18)(cid:18)(cid:23) (cid:20)(cid:18)(cid:18)(cid:24)
(cid:20)(cid:18)(cid:18)(cid:25) (cid:20)(cid:18)(cid:18)(cid:26) (cid:20)(cid:18)(cid:18)(cid:27)
(cid:20)(cid:18)(cid:19)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:19)
(cid:20)(cid:18)(cid:19)(cid:20)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:20)(cid:18)(cid:19)(cid:22)(cid:17)(cid:20)(cid:18)(cid:19)(cid:23)
(cid:39)(cid:55)(cid:52)(cid:2)(cid:17)(cid:2)(cid:55)(cid:53)(cid:38)(cid:2)
(cid:10)(cid:78)(cid:71)(cid:72)(cid:86)(cid:15)(cid:74)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:69)(cid:67)(cid:78)(cid:71)(cid:11)
(cid:41)(cid:36)(cid:50)(cid:2)(cid:17)(cid:2)(cid:55)(cid:53)(cid:38)(cid:2)
(cid:10)(cid:78)(cid:71)(cid:72)(cid:86)(cid:15)(cid:74)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:69)(cid:67)(cid:78)(cid:71)(cid:11)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:17)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)
(cid:10)(cid:78)(cid:71)(cid:72)(cid:86)(cid:15)(cid:74)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:69)(cid:67)(cid:78)(cid:71)(cid:11)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:17)(cid:2)(cid:44)(cid:50)(cid:59)
(cid:10)(cid:84)(cid:75)(cid:73)(cid:74)(cid:86)(cid:15)(cid:74)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:69)(cid:67)(cid:78)(cid:71)(cid:11)
(cid:24)(cid:19)(cid:22)(cid:15)(cid:22)(cid:19)(cid:19)(cid:19)(cid:16)(cid:19)(cid:2)
Source: UBS Global Economics/Haver
(cid:27)(cid:26)(cid:14)(cid:27)(cid:19)(cid:26)
(cid:19)(cid:19)(cid:19)(cid:14)(cid:25)(cid:25)(cid:21)
(cid:21)(cid:19)(cid:14)(cid:24)(cid:21)(cid:23)
(cid:21)(cid:24)(cid:14)(cid:21)(cid:20)(cid:21)
(cid:20)(cid:20)(cid:23)(cid:14)(cid:26)(cid:23)(cid:22)
(cid:20)(cid:21)(cid:18)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:20)(cid:19)(cid:26)(cid:14)(cid:24)(cid:26)(cid:19)
(cid:22)(cid:19)(cid:14)(cid:26)(cid:23)(cid:26)
(cid:21)(cid:22)(cid:14)(cid:23)(cid:23)(cid:24)
(cid:21)(cid:19)(cid:14)(cid:23)(cid:19)(cid:27)
(cid:20)(cid:24)(cid:14)(cid:25)(cid:18)(cid:19)
portant pillar of the European Banking Union, should help
strengthen confidence in the European banking system.
Far-reaching regulatory reform proposals close
to finalization
Contrary to most European countries, Switzerland experienced
another year of solid growth in 2014, supported by robust do-
mestic demand and a strong housing market on the back of low
interest rates. Nevertheless, inflation remained well below the
Swiss National Bank’s target of 2% during 2014.
Emerging economies posted highly inconsistent economic ac-
tivity, with some countries benefiting from improving growth in
advanced economies, while others were negatively impacted by
weakening consumer and investor confidence, as well as falling
commodity prices. Russia slipped into a recession in late-2014,
as a result of international sanctions stemming from the Ukraine
conflict, and plunging oil prices. Weak commodity prices also
slowed growth in Brazil. China’s economy still grew solidly in
2014, despite the onset of a recession in its real estate market,
which was the key catalyst for the global decline in prices for
basic materials and commodities. Financial markets in the
emerging world experienced volatility in 2014, given slowing
growth, a strong US dollar and concerns about the impact of a
pending normalization of US monetary policy, as well as geo-
political uncertainties.
Economic and market outlook for 2015
Overall, we expect lower oil prices as well as favorable financial
and monetary policy conditions to give momentum to a global
economic recovery in 2015. Global growth should pick up slightly
in 2015, underpinned by an acceleration in the US and modest
recoveries in Japan and Europe. The eurozone should benefit
from a weaker euro and lower oil prices, although the strength
of the recovery may prove uneven across the region and sensitive
to local political climate. The pace of UK economic growth should
remain solid, while the Swiss economy is facing the challenge of
a stronger currency and is expected to slow as a result. Among
emerging economies, China’s growth is expected to slip just
below 7%, if the real estate recession in the country persists. A
modest upturn in global trade should benefit net exports in
Asian emerging countries, while Russia’s economy is likely to
continue experiencing the impacts of international sanctions and
low oil prices.
➔ Refer to the “Impact of Swiss National Bank actions” sidebar in
the “Current market climate and industry drivers” section of this
report for more information on the effect of Swiss National Bank
actions effective January 2015
Industry drivers
The operating environment for the financial services industry re-
mained demanding over the course of 2014, reflecting challeng-
ing market conditions, continued headwinds due to the expan-
sion of the regulatory requirements, and a subdued macroeconomic
and market environment, among other reasons. All of these put
pressure on revenue growth.
During 2014, regulators and legislators continued to require fi-
nancial services firms to become simpler, more transparent and
more resilient. Against this backdrop, far-reaching regulatory ini-
tiatives, such as MiFID II / MiFIR and the Bank Recovery and Reso-
lution Directive in the European Union (EU), and cross-border re-
quirements for securities-based swap dealers in the US, were
progressed substantially or finalized. Additionally, further steps
were taken toward finalizing the Basel III capital and liquidity
framework, with the Basel Committee on Banking Supervision
(BCBS) issuing global standards related to the calculation of the
leverage ratio denominator and the final framework for the Net
Stable Funding Ratio to address banks’ long-term liquidity risks.
Regulators also addressed TBTF by taking actions intended to
ensure that large, global financial services institutions can be re-
solved without causing a systemic disruption to the financial sys-
tem or requiring capital support from the taxpayer. The Financial
Stability Board (FSB) proposed to introduce global standards for
“total loss absorbing capacity” (TLAC). With this requirement, the
FSB aims to ensure that global systemically important banks have
adequate loss-absorbing capacity to enable an orderly wind-
down. The FSB proposed that a minimum Pillar 1 TLAC require-
ment be set within the range of 16% to 20% of risk-weighted
assets (RWA) and at least twice the Basel III tier 1 leverage ratio
requirement. To support cross-border resolution, the FSB, jointly
with the industry, also developed a resolution stay protocol. This
protocol imposes a stay on cross-default and early termination
rights under standard derivatives contracts of the International
Swaps and Derivatives Association (ISDA) between banks should
one of them become subject to resolution action in its jurisdiction.
The underlying purpose of this agreement is to give regulators
sufficient time to facilitate an orderly resolution of a troubled
bank. Eighteen major banks, including UBS, have adopted the
protocol.
➔ Refer to the “Regulatory and legal developments” section of
this report for more information
Spotlight lingers on bank capitalization and balance sheets
In order to further increase trust in the banking sector, regulators
focused on the quality of banks’ balance sheets and the calcula-
tion of embedded risks, as well as increasing capital requirements,
such as the enhanced leverage ratio requirements for US top-tier
bank holding companies.
The ECB conducted a comprehensive review of balance sheets
and risk profiles of 130 European banks. The review consisted of
three elements: (i) a quantitative and qualitative supervisory as-
sessment of key risks, including liquidity, leverage and funding; (ii)
a review of the banks’ asset quality, including the accuracy of as-
set and collateral valuations and adequacy of related provisions,
aiming to enhance the transparency of banks’ exposures and (iii)
a stress test to examine the resilience of banks’ balance sheets to
27
Operating environment and strategy Operating environment and strategy
Current market climate and industry drivers
stress scenarios. In this review, banks were measured against a
capital threshold of 8% based on Capital Requirements Directive
IV definitions. The comprehensive assessment identified a capital
shortfall of EUR 25 billion for 25 banks at the end of 2013. Twelve
of those 25 banks covered their shortfall during 2014, and the
remaining banks were given up to nine months to close the iden-
tified gap. The comprehensive assessment also showed that in a
severe scenario, as defined by the ECB, the banks’ median CET1
capital ratio decreased by approximately four percentage points
from 12.4% to 8.3%. UBS Luxembourg SA was reviewed by the
ECB and passed the comprehensive assessment successfully.
Similar stress testing exercises were conducted in the UK and
the US. The Bank of England concluded that the resilience of the
banking system in the UK had improved significantly since the
capital shortfall assessment in 2013. The Bank of England’s stress
test results, and banks’ capital plans, indicated that the banking
system has the capacity to maintain its core functions in a stress
scenario, and that no system-wide macro-prudential actions were
needed. The Federal Reserve’s Comprehensive Capital Analysis
and Review (CCAR) showed that US firms had substantially in-
creased their capital since the first tests in 2009, with the aggre-
gate tier 1 common equity ratio more than doubling from 5.5%
to 11.6%.
Further to the above reviews, policymakers focused increas-
ingly on transparency with regard to the risks that banks hold on
their balance sheets. As a result, attention shifted to unweighted
capital ratios and to the way banks calculate the risks on their
balance sheets. In this context, the BCBS revised the standardized
approach to calculating credit risk, such as by relying less on exter-
nal credit ratings and the scope of national discretion or by
strengthening the link between the standardized and the internal
risk-based approach.
Increased focus on costs to compensate for
subdued revenues
In 2014, raising income levels remained a challenging task for the
financial services industry. Growth constraints imposed by the
expansion of regulatory requirements were compounded by de-
manding market conditions and various uncertainties arising
from, among other things, political tensions in Eastern Europe
and the Middle East and policy divergence among major central
banks. These factors reduced investors’ risk appetites, leading to
subdued volumes and increased volatility. In addition, the contin-
ued low-interest rate environment and flat yield curves added
pressure on net interest margins and revenues.
As a result of this unfavorable revenue environment, and also
to offset rising regulatory costs, the industry further intensified its
efforts to increase operational efficiency and realign cost struc-
tures to match subdued revenue levels.
Continued need to update digital capabilities
In 2014, the financial industry progressed in adapting to the rap-
idly changing digital reality. However, constant innovation is nec-
essary in this area, in order to meet evolving client expectations
with regard to personalization, convenience and transparency,
and to master the challenge of new market participants and the
latest trends in financial technology services and products, such as
digital currencies, mobile payments and robo-advisory services. It
is equally important to anticipate the rise of non-traditional fi-
nancing options, such as crowd funding and peer-to-peer fund-
ing. The established financial industry has therefore intensified its
efforts to enhance its digital capabilities to address these chal-
lenges, for example by introducing more sophisticated and cus-
tomized online services, or by more closely embedding social me-
dia into its client-facing activities, in order to further strengthen
individual customer relationships.
A further challenge for the financial services industry, also re-
sulting from increased digitalization, is cyber-crime. The risks asso-
ciated with cyber-crime not only commanded increased aware-
ness and investment from the financial services industry, but also
attracted close attention from regulators in 2014. A number of
regulators in the US, notably the Federal Reserve, the Federal De-
posit Insurance Corporation (FDIC), the Office of the Comptroller
of the Currency (OCC) and the Securities and Exchange Commis-
sion (SEC), have been delving into the topic to identify cyber-secu-
rity risks inherent in financial institutions and to assess the finan-
cial industry’s current practices and overall resilience. Furthermore,
the US Congress has taken a keen interest in cyber-security and
the financial industry may see additional legislation in this area as
a result. The EU, for its part, has made the mitigation of cyber-risk
a priority in its work program for 2015, which is also likely to be
followed by new legislation.
28
EDTF | Impact of Swiss National Bank actions
On 15 January 2015, the Swiss National
Bank (SNB) discontinued the minimum
targeted exchange rate for the Swiss franc
versus the euro, which had been in place
since September 2011. At the same time,
the SNB lowered the interest rate on
deposit account balances at the SNB that
exceed a given exemption threshold by 50
basis points to negative 0.75%. It also
moved the target range for three-month
LIBOR to between negative 1.25% and
negative 0.25% (previously negative
0.75% to positive 0.25%). These decisions
resulted in a considerable strengthening of
the Swiss franc against the euro, US dollar,
British pound, Japanese yen and several
other currencies, as well as a reduction in
Swiss franc interest rates. As of 28 Feb-
ruary 2015, the Swiss franc exchange rate
was 0.95 to the US dollar, 1.07 to the
euro, 1.47 to the British pound and 0.80
to 100 Japanese yen. Volatility levels in
foreign currency exchange and interest
rates also increased.
A significant portion of the equity of
UBS’s foreign operations is denominated
in US dollars, euros, British pounds and
other foreign currencies. The appreciation
of the Swiss franc would have led to an
estimated decline in total equity of
approximately CHF 1.2 billion or 2%
when applying currency translation rates
as of 28 February 2015 to the reported
balances as of 31 December 2014. This
includes a reduction in recognized
deferred tax assets, mainly related to the
US, of approximately CHF 0.4 billion (of
which CHF 0.2 billion relates to temporary
differences deferred tax assets), which
would be recognized in Other compre-
hensive income.
Similarly, a significant portion of our
Basel III risk-weighted assets (RWA) are
denominated in US dollars, euros, British
pounds and other foreign currencies.
Group Asset and Liability Management
(Group ALM) is mandated with the task of
minimizing adverse effects from changes
in currency rates on our fully applied CET1
capital and capital ratios. The Group Asset
and Liability Management Committee
(Group ALCO), a committee of the UBS
Group Executive Board, can adjust the
currency mix in capital, within limits set by
the Board of Directors, to balance the
effect of foreign exchange movements on
the fully applied CET1 capital and capital
ratio. As the proportion of RWA denomi-
nated in foreign currencies outweighs the
capital in these currencies, the significant
appreciation of the Swiss franc against
these currencies benefited our Basel III
capital ratios. On a fully applied basis for
Swiss systemically relevant banks (SRB),
we would have experienced the following
approximate declines in our capital and
RWA balances when applying currency
translation rates as of 28 February 2015
to the reported balances as of 31 De-
cember 2014: CHF 0.5 billion or 2% in
fully applied common equity tier 1 (CET1)
capital, CHF 0.8 billion or 2% in fully
applied total capital, CHF 5.8 billion or
3% in fully applied RWA and CHF 45.1
billion or 5% in the fully applied leverage
ratio denominator.
Consequently, based solely on foreign
exchange movements, we estimate that
our fully applied Swiss SRB CET1 capital
ratio would have increased by approxi-
mately 10 basis points and the fully
applied leverage ratio would have
improved by approximately 10 basis
points. In aggregate, UBS did not
experience negative revenues in its
trading businesses in connection with the
SNB announcement.
However, the portion of our operating
income denominated in non-Swiss franc
currencies is greater than the portion of
operating expenses denominated in
non-Swiss franc currencies. Therefore,
appreciation of the Swiss franc against
other currencies generally has an adverse
effect on our earnings in the absence of
any mitigating actions.
In addition to the estimated effects from
changes in foreign currency exchange
rates, our equity and capital are affected
by changes in interest rates. In particular,
the calculation of our net defined benefit
assets and liabilities is sensitive to the
assumptions applied. Specifically, the
changes in applicable discount rate and
interest rate related assumptions for our
Swiss pension plan during January and
February would have reduced our equity
and fully applied Swiss SRB CET1 capital
by around CHF 0.7 billion. Also, the
persistently low interest rate environment
would continue to have an adverse effect
on our replication portfolios, and our net
interest income would further decrease.
Furthermore, the stronger Swiss franc may
have a negative impact on the Swiss
economy, which, given its reliance on
exports, could impact some of the
counterparties within our domestic
lending portfolio and lead to an increase
in the level of credit loss expenses in
future periods. ▲
29
Operating environment and strategy Operating environment and strategy
Regulation and supervision
Regulation and supervision
The Swiss Financial Market Supervisory Authority (FINMA) is UBS’s home country regulator and consolidated supervisor.
As a financial services provider with a global footprint, we are also regulated and supervised by the relevant authorities
in each of the jurisdictions in which we conduct business. The following sections summarize the key regulatory require-
ments and supervision of our business in Switzerland as well as in the US and the UK, our next two largest areas of
operation.
Regulation and supervision in Switzerland
➔ Refer to the “Capital management” and “Liquidity management”
The Swiss Federal Law on Banks and Savings Banks of 8 Novem-
ber 1934, as amended (Banking Act), and the related Swiss Fed-
eral Ordinance on Banks and Savings Banks of 17 May 1972, as
amended (Banking Ordinance), impose certain requirements on
UBS as a group under provisions on consolidated supervision of
financial groups and conglomerates. These requirements include
provisions on capital, liquidity, risk concentration and organiza-
tional requirements.
UBS AG, which is currently UBS Group AG’s only subsidiary, is
a fully licensed Swiss bank and securities dealer under the Bank-
ing Act. We may engage in a full range of financial services activ-
ities in Switzerland and abroad, including retail banking, commer-
cial banking, investment banking and asset management. The
Banking Act, Banking Ordinance and the Financial Market Super-
vision Act of 22 June 2007, as amended, establish a framework
for supervision by FINMA, empowering it to issue its own ordi-
nances and circulars, which contribute to shaping the Swiss legal
and regulatory framework for banks.
➔ Refer to the “UBS Group – Changes to our legal structure”
section for more information on the establishment of
UBS Group AG
Swiss banks have to comply with the Basel III accord, as imple-
mented by Switzerland. Furthermore, the Swiss Parliament
amended the legal framework for banks to address the lessons
learned from the financial crisis and, in particular, the too big to
fail issue. The amended sections are applicable to the largest
Swiss banks, including UBS, due to our size, complexity, organi-
zation and business activities, as well as our importance to the
financial system. These provisions contain specific, more strin-
gent, capital and liquidity requirements and provisions to ensure
that systemically relevant functions can be maintained in case of
insolvency. In addition, and in line with global requirements, we
are required to produce and update recovery plans and resolution
planning materials aimed at increasing the firm’s resilience in the
case of a crisis, and to provide FINMA and other regulators with
information on how the firm could be resolved in the event of an
unsuccessful recovery. During 2014, UBS has made significant
progress in improving its resolvability via changes to its legal
structure.
30
sections of this report for more information on capital and
liquidity requirements
➔ Refer to the “UBS Group – Changes to our legal structure”
section for more information on the establishment of
UBS Group AG
The Federal Act of 10 October 1997 on the Prevention of
Money Laundering in the Financial Sector defines a common stan-
dard for due diligence obligations to prevent money laundering
for the whole financial sector.
The legal basis for the investment funds business in Switzer-
land is the Swiss Federal Act on Collective Investment Schemes
(Collective Investment Schemes Act) of 23 June 2006, which
came into force on 1 January 2007. FINMA, as supervisory author-
ity for investment funds in Switzerland, is responsible for the au-
thorization and supervision of the institutions and investment
funds subject to its control.
As a securities broker and issuer of shares listed in Switzerland,
we are governed by the Federal Act on Stock Exchanges and Se-
curities Trading of 24 March 1995. FINMA is the competent su-
pervisory authority with respect to securities broking.
FINMA fulfills its statutory supervisory responsibilities through
licensing, regulation, monitoring and enforcement. Generally,
prudential supervision in Switzerland is based on a division of
tasks between FINMA and authorized audit firms. Under this two-
tier supervisory system, FINMA has responsibility for overall super-
vision and enforcement measures while the authorized audit firms
carry out official duties on behalf of FINMA. The responsibilities of
external auditors encompass the audit of financial statements, the
risk-based assessment of banks’ compliance with prudential re-
quirements and on-site audits.
FINMA is the resolution authority for Swiss banks and securities
dealers. FINMA may open resolution or insolvency proceedings if it
determines that a bank has reached the point of impending insol-
vency. Under Swiss law, all assets and liabilities of a bank fall into
the FINMA resolution proceedings, irrespective of where they are
located. Statutory FINMA resolution tools include transferring activ-
ities of the bank to a bridge entity or the conversion of debt into
equity. Any such measure would need to comply with statutory
safeguards, including the requirement to ensure creditors are not
worse off than in liquidation and the equal treatment of creditors.
As UBS Group is considered a Swiss systemically relevant bank,
we are subject to more rigorous supervision than most other
banks. We are directly supervised by the FINMA group “Supervi-
sion of UBS,” which is supported by teams specifically monitoring
investment banking activities, risk management and legal matters
as well as solvency and capital aspects. FINMA’s supervisory tools
include meetings with management at the group and divisional
level, reporting requirements encompassing control and business
areas, on-site reviews in Switzerland and abroad, and exchanges
with internal audit and host supervisors in other jurisdictions. In
recent years, FINMA has implemented the recommendations is-
sued by the Financial Stability Board and the Basel Committee on
Banking Supervision, and complemented the Supervisory College,
established in 1998 with the UK Financial Services Authority (FSA)
and the Federal Reserve Bank of New York (FRBNY) to promote
supervisory cooperation and coordination, with a General Super-
visory College – including more than a dozen of UBS’s host regu-
latory agencies – and a Crisis Management College, which is also
attended by representatives from the Swiss National Bank (SNB)
and the Bank of England.
The SNB contributes to the stability of the financial system
through macro-prudential measures and monetary policy, while
also providing liquidity to the banking system. It does not exercise
any banking supervision authority and is not responsible for en-
forcing banking legislation, but works together with FINMA, in
particular with respect to regulation of Swiss systemically relevant
banks. The SNB may also carry out its own enquiries and request
information directly from the banks. In addition, the SNB is tasked
by Parliament with the designation of Swiss systemically relevant
banks and their systemically relevant functions in Switzerland.
Currently, UBS, Credit Suisse, Zürcher Kantonalbank and Raif-
feisen are required to comply with specific Swiss rules for system-
ically relevant banks.
➔ Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
Regulation and supervision in the US
Our operations in the US are subject to a variety of regulatory re-
gimes. UBS maintains branches and representative offices in sev-
eral states, including Connecticut, Illinois, New York, California
and Florida. These branches are licensed either by the Office of
the Comptroller of the Currency (OCC) or the state banking au-
thority of the state in which the branch is located. The represen-
tative offices are licensed as loan production offices by the OCC.
Each US branch and representative office is subject to regulation
and supervision, including on-site examination by its federal
banking authority or its licensing state and by the Federal Reserve.
We are subject to oversight regulation and supervision by the
Federal Reserve under various laws because we maintain branches
in the US. These include the International Banking Act of 1978,
the Federal Reserve Act of 1913 and the Bank Holding Company
Act of 1956 (BHCA), each as amended, and related regulations.
On 10 April 2000, UBS was designated a financial holding com-
pany under the BHCA, as amended by the Gramm-Leach-Bliley
Act of 1999. Financial holding companies may engage in a
broader spectrum of activities than holding companies of US
banks or foreign banking organizations that are not financial
holding companies. These activities include expanded authority to
underwrite and deal in securities and commodities and to make
merchant banking investments in commercial and real estate en-
tities.
We also maintain state and federally-chartered trust compa-
nies and a Federal Deposit Insurance Corporation (FDIC)-insured
depository institution subsidiary, which are licensed and regulated
by state regulators or the OCC. Only the deposits of UBS Bank
USA, headquartered in the state of Utah, are insured by the FDIC.
The regulation of our US branches and subsidiaries imposes activ-
ity and prudential restrictions on the business and operations of
those branches and subsidiaries, including limits on extensions of
credit to a single borrower and on transactions with affiliates.
To maintain our financial holding company status, (i) the
Group, our federally-chartered trust company (Federal Trust Com-
pany) subsidiary and UBS Bank USA are required to meet certain
capital ratios, (ii) our US branches, our Federal Trust Company,
and UBS Bank USA are required to maintain certain examination
ratings, and (iii) UBS Bank USA is required to maintain a rating of
at least “satisfactory” under the Community Reinvestment Act of
1977.
The licensing authority of each state-licensed US branch may,
in certain circumstances, take possession of the business and
property of UBS located in the state of the UBS offices it licenses.
Such circumstances generally include violations of law, unsafe
business practices and insolvency. As long as we maintain one or
more federal branches licensed by the OCC, the OCC also has
the authority to take possession of all the US operations of UBS
under broadly similar circumstances, as well as in the event that
a judgment against a federally licensed branch remains unsatis-
fied. This federal power may pre-empt the state insolvency re-
gimes that would otherwise be applicable to our state-licensed
branches. As a result, if the OCC exercised its authority over the
US branches of UBS pursuant to federal law in the event of a UBS
insolvency, all US assets of UBS would generally be applied first to
satisfy creditors of these US branches as a group, and then made
available for application pursuant to any Swiss insolvency pro-
ceeding.
A major focus of US governmental policy relating to financial
institutions in recent years has been combating money laundering
and terrorist financing. Regulations applicable to UBS and our
subsidiaries require the maintenance of effective policies, proce-
dures and controls to detect, prevent and report money launder-
ing and terrorist financing, and to verify the identity of our clients.
As a result, failure to maintain and implement adequate programs
to prevent money laundering and terrorist financing could result
in significant legal and reputational risk.
In the US, UBS Financial Services Inc. and UBS Securities LLC,
as well as our other US-registered broker-dealer subsidiaries, are
subject to laws and regulations that cover all aspects of the secu-
31
Operating environment and strategy Operating environment and strategy
Regulation and supervision
rities and futures business, including sales and trading practices,
use and safekeeping of clients’ funds and securities, capital re-
quirements, record-keeping, financing of clients’ purchases of
securities and other assets, and the conduct of directors, officers
and employees. These entities are regulated by a number of dif-
ferent government agencies and self-regulatory organizations,
including the Securities and Exchange Commission (SEC) and the
Financial Industry Regulatory Authority (FINRA). Each entity is
also regulated by some or all of the following: the New York
Stock Exchange (NYSE), the Municipal Securities Rulemaking
Board, the US Department of the Treasury, the Commodities Fu-
tures Trading Commission (CFTC) and other exchanges of which
it may be a member, depending on the specific nature of the re-
spective broker-dealer’s business. In addition, the US states and
territories have local securities commissions that regulate and
monitor activities in the interest of investor protection. These reg-
ulators have a variety of sanctions available, including the au-
thority to conduct administrative proceedings that can result in
censure, fines, the issuance of cease-and-desist orders or the sus-
pension or expulsion of the broker-dealer or its directors, officers
or employees.
UBS Global Asset Management (Americas) Inc. and our other
US-registered investment adviser entities, are subject to regula-
tions that cover all aspects of the investment advisory business
and are regulated primarily by the SEC. Some of these entities are
also registered as commodity trading advisers (CTA) and / or com-
modity pool operators (CPO) and in connection with their activi-
ties as CTA and / or CPO are regulated by the CFTC. To the extent
these entities manage plan assets of employee benefit plans sub-
ject to the Employee Retirement Income Security Act of 1974,
their activities are subject to regulation by the US Department of
Labor.
Regulation and supervision in the UK
Our operations in the UK are mainly regulated by two bodies: the
Prudential Regulation Authority (PRA), newly established as an af-
filiated authority of the Bank of England, and the Financial Con-
duct Authority (FCA). The PRA’s main objective relating to the
banking sector is to promote the safety and soundness of UK-reg-
ulated financial firms. The FCA is responsible for securing an ap-
propriate degree of consumer protection, protecting the integrity
of the UK financial system and promoting effective competition in
the interest of consumers.
The PRA and FCA operate a risk-based approach to supervision
and have a wide variety of supervisory tools available to them,
including regular risk assessments, on-site inspections (which may
relate to an industry-wide theme or be firm-specific) and the abil-
ity to commission reports by skilled persons, who may be the
firm’s auditors, information technology specialists, lawyers or
other consultants as appropriate. The UK regulators also have a
wide set of sanctions at their disposal, which may be imposed
under the Financial Services and Markets Act (FSMA).
Some of our subsidiaries and affiliates are also regulated by the
London Stock Exchange and other UK securities and commodities
exchanges of which they are a member. We are also subject to the
requirements of the UK Panel on Takeovers and Mergers, where
relevant.
Financial services regulation in the UK is conducted in accor-
dance with EU directives which require, among other things, com-
pliance with certain capital and liquidity adequacy standards, cli-
ent protection requirements and conduct of business rules (such
as the Markets in Financial Instruments Directive I). These direc-
tives apply throughout the EU and are reflected in the regulatory
regimes of the various member states.
➔ Refer to the “Regulatory and legal developments” and “Risk
➔ Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
factors” sections of this report for more information
32
Regulatory and legal developments
In 2014, several important international regulatory and legal initiatives advanced or came into force. Key developments
included the finalization of the Markets in Financial Instruments Directive (MiFID) II and the Bank Recovery and Resolu-
tion Directive, as well as the publication of proposals for Total Loss Absorbing Capacity (TLAC) by the Financial Stability
Board (FSB).
Key developments in Switzerland
Swiss Federal Council publishes concept for new article
on immigration
In February 2014, Swiss cantons and voters accepted an initiative
against “mass immigration” and the Swiss Federal Council pub-
lished its concept for implementing the new article of the Federal
Constitution on immigration in June. Key elements of the concept
are quantitative limits and quotas, defined by the Federal Council
on an annual basis, becoming effective as of February 2017. The
Federal Council drafted an implementation law in February 2015.
The Federal Council will start its negotiations with the European
Union (EU) on the amendment of the Swiss-EU bilateral agree-
ment on the free movement of persons. The extent to which UBS
could be impacted, such as in its recruitment of foreign nationals
to work in Switzerland or due to effects on Swiss corporate clients
and the Swiss economy, will depend on the final implementation
of the initiative in Swiss law and the outcome of negotiations with
the EU.
Swiss Federal Council issues drafts of Federal Financial Services
Act and Financial Institutions Act
In June 2014, the Swiss Federal Council issued drafts of a Federal
Financial Services Act (FFSA) and Financial Institutions Act (FinIA).
The FFSA would govern the relationship between financial inter-
mediaries and their clients for all financial products and includes
provisions on matters such as (i) the provision of financial services
subject to the obligation to publish a prospectus, (ii) the obliga-
tion to provide clients with a simple, comprehensible basic infor-
mation sheet, (iii) the distribution of the corresponding code of
conduct at points of sale (i.e., the obligations to provide informa-
tion and conduct research) and (iv) legal enforcement. According
to the Federal Council, the FFSA would support the creation of
uniform competitive conditions for financial intermediaries and
improve client protection. With the FinIA, the Federal Council pro-
poses to provide for the supervision of all financial service provid-
ers that operate an asset management business under a single
law. The published draft of the FinIA would (i) require licensing of
managers of individual client assets and managers of Swiss occu-
pational benefits schemes and (ii) require the introduction of a tax
compliance rule that requires new assets to be inspected before
acceptance. The latter requirement applies to all countries that
have not signed an agreement for the automatic exchange of in-
formation with Switzerland. The Federal Council initiated a con-
sultation that ran until 17 October 2014 for both items of legisla-
tion. The nature and extent of the impact on UBS will remain
difficult to assess until the Federal Council presents its final draft
to the Swiss Parliament, which is expected to take place in 2015.
Swiss Federal Council submits Financial Market Infrastructure Act
In September 2014, the Swiss Federal Council submitted to the
Swiss parliament the Financial Market Infrastructure Act (FMIA).
The FMIA would make substantial changes to the regulation of
financial market infrastructure in Switzerland and would imple-
ment the G20 commitments on OTC derivatives in Switzerland,
including (i) mandating clearing via a central counterparty, (ii)
transaction reporting to a trade repository, (iii) risk mitigation
measures and (iv) mandatory trading of derivatives on a stock ex-
change or another trading facility once this has also been intro-
duced in partner states, such as the EU, the US and APAC jurisdic-
tions. FMIA would also (i) introduce new licensing requirements
for stock exchanges, multilateral trading facilities, central coun-
terparties, central depositaries, trade repositories and payment
systems, (ii) impose transparency requirements for multilateral
and organized trading facilities and (iii) establish a basis for regu-
lating high-frequency trading, should this be deemed necessary.
FMIA is intended to make Swiss regulation of OTC derivatives
equivalent to the European Market Infrastructure Regulation and
to achieve compliance with international standards. An equiva-
lence determination by the EU would allow Swiss companies to
benefit from intra-group exemptions provided by EU regulation
and otherwise provide a more level playing field with EU peers.
Without such exemptions, costly clearing and margin require-
ments would apply.
FINMA publishes leverage ratio and revised disclosure circulars,
and further guidance on RWA calculations
In November 2014, the Swiss Financial Market Supervisory Au-
thority (FINMA) published a new circular on the leverage ratio and
a revised circular on disclosure. The new FINMA Circular “Lever-
age ratio – banks” covers the calculation rules for the leverage
ratio in Switzerland. For Swiss systemically relevant banks (SRB),
the new circular revises the way the leverage ratio denominator
(LRD) is calculated in order to be aligned with the rules issued by
the Bank for International Settlements (BIS) in January 2014. This
change became effective on 1 January 2015. We are using a one-
33
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
year transition period, under which the existing Swiss SRB defini-
tion may still be used, but we are required to disclose both lever-
age ratios (based on existing Swiss SRB rules as well as on the BIS
Basel III rules) starting with our first quarter 2015 reporting. The
current minimum leverage ratio requirement as a percentage of
the risk-based capital ratio requirement (excluding the counter-
cyclical buffer requirement) remains unchanged for Swiss SRB.
The Basel III rules also require disclosure of the leverage ratio
and liquidity coverage ratio (LCR) as of 2015. These disclosure
requirements are included in the revised FINMA Circular “Disclo-
sure – banks,” which came into force on 1 January 2015.
During 2012, FINMA began requiring banks using the internal
ratings-based (IRB) approach to apply a bank-specific IRB multi-
plier when calculating risk-weighted assets (RWA) for owner-oc-
cupied Swiss residential mortgages. This multiplier is applied to
new and renewed mortgages. The entire owner-occupied Swiss
residential mortgage portfolio is subject to this multiplier, which is
being phased in through 2019. FINMA has notified us that the
RWA increase will be extended to Swiss income-producing resi-
dential and commercial real estate from the first quarter of 2015,
with a phased implementation through 2019. FINMA also an-
nounced that the RWA levels of other asset classes are to be re-
viewed. We understand these reviews to be in anticipation of the
Basel Committee on Banking Supervision (BCBS) expected pru-
dential reforms (e.g., reduction in the variability of capital ratios or
capital floors).
Swiss Federal Council mandates the Brunetti group to develop
Swiss financial market strategy
In December 2014, senior experts representing the private sector,
authorities and academia (the Brunetti group) appointed by the
Swiss Federal Council and mandated to further develop the strat-
egy of Switzerland’s Financial market, published its final report.
The Brunetti group made recommendations with regard to
(i) safeguarding systemic stability / TBTF, (ii) preserving market ac-
cess, (iii) improving the tax environment and (iv) efficient organi-
zation of regulatory processes. The Brunetti group stated that the
Swiss TBTF approach compares favorably with the approaches of
other countries and therefore no reorientation of the prevailing
regulatory model is necessary. Although an international compar-
ative analysis has confirmed that the Swiss regulatory model is, in
principle, suitable to address the TBTF problem, the Brunetti
group argued that certain adjustments in the model are necessary
to eliminate the implicit government guarantee in the long term.
The Brunetti group’s work on the TBTF regime served as the basis
for the Swiss Federal Council’s review report on the Swiss TBTF
law that was presented to the Swiss parliament in February 2015.
In its report, the Swiss Federal Council confirmed the findings of
the Brunetti group and mandated the Federal Department of Fi-
nance to set up a working group with representatives of FINMA
and SNB that is expected to submit proposals to the Swiss govern-
ment by the end of 2015. The Brunetti group also emphasized the
importance of Swiss financial services providers’ access to foreign
markets with a view to maintaining the competitiveness of the
Swiss financial center. Following a recommendation made by the
Brunetti group, the Swiss Federal Council submitted a draft law
on 17 December 2014 for consultation, proposing to move to-
wards a “paying agent” principle for Swiss withholding tax. The
Brunetti group also analyzed the Swiss regulatory and supervisory
processes and proposed various improvements, including that the
institutionalized dialogue among governmental authorities, mar-
ket participants and research be expanded.
Key developments in the European Union
EC proposes structural measures to improve resilience of EU
credit institutions
In January 2014, the European Commission (EC) proposed a reg-
ulation on “Structural measures improving the resilience of EU
credit institutions.” It includes two main measures: (i) a ban on
proprietary trading and investments in hedge funds and (ii) an
additional potential separation of certain trading activities, includ-
ing market-making, “risky securitization” and complex deriva-
tives, which will not be mandatory, but rather based on supervi-
sory discretion. Overall, there is a material degree of supervisory
discretion in the application of the proposed requirements, partic-
ularly in relation to the separation of trading and investment
banking activities. Potential derogations from the separation re-
quirements are available for jurisdictions with equivalent legisla-
tion. The European Parliament and Council of the EU are currently
reviewing the EC proposal. While neither has yet finalized its po-
sition, changes to the proposals during the political negotiations
are likely. In light of this, it is unclear at this stage whether, and to
what extent, UBS branches and entities, in particular UBS AG Lon-
don branch and UBS Limited, will be impacted.
EU remuneration rules under Capital Requirements Directive
come into effect
Also at the beginning of 2014, EU-wide remuneration rules came
into effect under Capital Requirements Directive IV (CRD IV). The
rules include provisions on the amount and form of variable remu-
neration that may be paid to employees identified as material risk
takers, as defined by the European Banking Authority (EBA). A key
element of the rules is the introduction of a maximum ratio of 1:1
for variable to fixed remuneration (bonus cap). The cap may be
increased to 2:1 with shareholders’ consent. These restrictions ap-
ply to material risk takers at all banks active in the EU, including
UBS. As a non-EU headquartered firm, UBS is required to apply
these restrictions to material risk takers employed by EU subsidiar-
ies or branches, but not globally. Further regulatory attention to
the topic of remuneration is expected. The EBA is due to review
the Committee of European Banking Supervisors’ guidelines on
remuneration in the first half of 2015.
Economic and Financial Affairs Council (ECOFIN) agreement on
EU-FTT postponed to 2015
Despite the commitment made by the 11 participating EU mem-
ber states, no agreement on the EU Financial Transaction Tax was
34
reached in 2014. There is still divergence among participating
member states on the design of the EU-FTT, including the rate,
scope, possible exemptions, territorial application and collection
mechanism. A statement issued at the December 2014 ECOFIN
meeting said that the 11 participating member states will con-
tinue to work on reaching agreement in the first half of 2015,
with the aim of introducing an EU-FTT in January 2016. The tax
would be based on equities and certain derivatives, but no agree-
ment on the definition has yet been reached.
non-EEA branches, the PRA will focus its supervision on under-
standing whether the branch undertakes critical economic func-
tions and on working with the HSS to gain adequate assurance
that these functions could be resolved in line with the PRA’s objec-
tives. The PRA policy is applicable to UBS Limited and UBS AG
London Branch and could have implications for the nature of busi-
ness and the legal structure of UBS’s UK operations. However,
additional guidance from the PRA will be required to more accu-
rately assess the impact.
MiFID II and MiFIR enter into force
In July 2014, the EU Markets in Financial Instruments Directive II
and Regulation package (MiFID II / MiFIR) entered into force. The
majority of the requirements relating to investor protection, trad-
ing issues and third country market access will apply to firms only
from January 2017, although there are transitional provisions in
several areas. However, level 2 legislation on MiFID II / MiFIR has
been under discussion since May 2014, when the European Se-
curities and Markets Authority (ESMA) published a consultation
paper on its proposed technical advice to the European Commis-
sion on delegated acts, as well as a first discussion paper on pro-
posed draft Regulatory Technical Standards (RTS) and Implement-
ing Technical Standards (ITS) under MiFID II / MiFIR. The papers
covered categories of investor protection, transparency, data
publication, market data reporting, microstructural issues (in-
cluding algorithmic and high-frequency trading), requirements
applying to trading venues, commodity derivatives, portfolio
compression and post-trade issues. In mid-December 2014,
ESMA issued its final report on the technical advice taking into
account industry feedback received in the summer consultation,
and asked for further views on the RTS through a related fol-
low-up consultation paper. A further Level 2 consultation was
issued in 2015. MiFID II / MiFIR will affect many areas of UBS’s
business, including the Investment Bank, Wealth Management
and Global Asset Management. An assessment of the potential
impact and the development of implementation measures are
ongoing.
UK PRA publishes Policy Statement and Supervisory Statement
on its approach to supervising international banks
In September 2014, the Prudential Regulation Authority (PRA)
published a Policy Statement and Supervisory Statement. In sum-
mary, the PRA’s approach, which applies to both existing and new
branches, is centered on an assessment of (i) the equivalence of
the home state’s supervision of the whole firm, (ii) the branch’s UK
activities and (iii) the level of assurance the PRA gains from the
home state supervisor (HSS) over resolution. Where the PRA is
satisfied on these matters, it will also need to have a clear and
agreed division of prudential supervisory responsibilities with the
HSS. Where the PRA is not satisfied, it will consider the most ap-
propriate course of action, which could include refusing authori-
zation of a new branch or cancelling authorization of an existing
branch (requiring the non-European Economic Area (EEA) firm to
exit the UK market or to establish a UK subsidiary). For existing
Operational start of SSM – milestone in the implementation of
the EBU
The implementation of the European Banking Union (EBU) passed
a milestone with the operational start of the Single Supervisory
Mechanism (SSM) on 4 November 2014. Now the ECB directly
supervises 120 significant banks in the eurozone, representing
82% of total banking assets in the euro area. UBS Luxembourg
SA is one of the banks in the SSM. Prior to the start of the SSM,
the ECB had published the results of a comprehensive assess-
ment on 26 October 2014. UBS Luxembourg SA successfully
passed the comprehensive assessment. The SSM is one of the
two pillars of the EU banking union, along with the Single Reso-
lution Mechanism (SRM). Key elements of the SRM include the
establishment of a Single Resolution Board (SRB) and a Single
Resolution Fund (SRF). Significant banks that are subject to direct
ECB supervision under the SSM and cross-border banks would be
resolved by the SRB. The SRM entered into force on 1 January
2015, at which time the SRB became fully operational, while the
resolution function of the SRM and the bail-in tool will apply as
of 1 January 2016, in line with the EU Bank Recovery and Reso-
lution Directive (BRRD). UBS Luxembourg SA would be subject to
resolution by the Single Resolution Board should a resolution be-
come necessary.
➔ Refer to the “Current market climate and industry drivers”
section in this report for more information on the ECB’s
comprehensive assessment of banks
BRRD comes into force in the EU
Another important development was the finalization of the
BRRD that came into force in July 2014. The BRRD seeks to
achieve a harmonized approach to the recovery and resolution
of banks in the EU and broadly covers measures relating to re-
covery and resolution planning, early intervention powers for
authorities and resolution tools should a bank fail or be deemed
likely to fail. The majority of the BRRD applies from 1 January
2015 and the bail-in tool will apply from 1 January 2016. UBS’s
EU subsidiaries will be subject to the requirements of the BRRD,
while EU member states have the right to apply the provisions of
the BRRD to UBS’s EU-based branches in certain circumstances.
The overall impact is difficult to assess at this stage, as the EU
resolution authorities have broad discretion in setting some of
the key requirements of the BRRD, and many technical stan-
dards and guidelines are yet to be finalized.
35
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
Key developments in the US
SEC approves final rule on cross-border requirements for
securities-based swap dealers
In June 2014, the Securities and Exchange Commission (SEC) ap-
proved a final rule addressing certain cross-border requirements for
securities-based swap dealers, including definitions of certain key
terms, activities that count toward determining whether an entity is
required to register, procedures for substituted compliance applica-
tions and an anti-fraud rule. The SEC expects to address other as-
pects of its 2013 proposed framework for cross-border application
of its securities-based swap rules in future rulemakings. No deadline
for registering as a securities-based swap dealer was contained in
the final rule. We anticipate registering UBS AG as a securities-based
swap dealer when registration requirements become effective.
FDIC and Federal Reserve feedback on 2013 resolution plans of
first-wave filers
In August 2014, the Federal Deposit Insurance Corporation (FDIC)
and the Federal Reserve provided feedback on the 2013 resolution
plans of first-wave filers (11 large and complex banking organiza-
tions, including UBS, that initially filed resolution plans in 2012). The
reviews identified shortcomings that will need to be addressed in
the 2015 submissions, including assumptions that the agencies re-
gard as unrealistic or inadequately supported, and the failure to
make changes in firm structure and practices that would enhance
the prospects for orderly resolution. The agencies also indicated that
the first-wave filers must make significant progress in addressing the
agencies’ concerns before they file their 2015 resolution plans. If a
first-wave filer is unable to address the regulators’ concerns, the
agencies may find that a plan is not “credible” as required by Dodd-
Frank and may take a number of actions, including imposing more
stringent capital, leverage, liquidity or other requirements, restrict-
ing its US activities or the growth of its US operations, or requiring it
to divest assets and operations that affect its resolvability.
CFTC cross-border rules sustained
In September 2014, a US district court granted summary judgment
to the CFTC on the basis that the CFTC’s cross-border interpretative
guidance and policy statement was not reviewable, as it has not
been applied in practice. The CFTC’s cross-border interpretation
and policy statement have significant extraterritorial effect and cre-
ate both uncertainty and significant implementation issues for
swap dealers, including UBS. Subsequently, the CFTC extended
no-action relief regarding transaction-level requirements: for
non-US swap dealers entering into swaps with most non-US per-
sons until 30 September 2015, unless the CFTC decides to take
action earlier; for reporting of transactions with non-US persons
until 1 December 2015; and for certain inter-affiliate transactions
until 31 December 2015.
Federal Reserve, FDIC and OCC impose a liquidity coverage ratio
on large banks
In September 2014, the Federal Reserve, the FDIC and the Office
of the Comptroller of the Currency (OCC) issued a rule imposing
a liquidity coverage ratio on large banks. Under the final rule, a
large bank will be required to continuously maintain enough
high-quality liquid assets to cover 100% of its total net cash out-
flows over a 30-day period of financial stress. The rule will apply
to foreign banks that have US bank holding company subsidiaries
and similar requirements are expected for foreign banks that do
not have a US bank holding company, such as UBS.
Federal Reserve, FDIC and OCC adopt final SLR for banks
Separately, the Federal Reserve, the FDIC and the OCC adopted a
final supplementary leverage ratio (SLR) for banks that are subject
to the advanced approaches risk-based capital rules. This SLR rule
revises the way the denominator of the SLR is calculated in order
to align it with BIS rules issued in January 2014. Certain required
public disclosures must be made starting in the first quarter of
2015, and the minimum SLR requirements will be effective from
1 January 2018. Earlier in 2014, US regulators approved a final
enhanced supplementary leverage ratio requirement for US top-
tier bank holding companies (BHC), with more than USD 700 bil-
lion in consolidated assets or USD 10 trillion in assets under cus-
tody, currently the eight largest US banks. Under this rule, BHCs
are required to maintain a Tier 1 capital leverage buffer of at least
2% above the Basel III minimum supplementary leverage ratio
requirement of 3%, for a total of 5% (6% for insured depository
institutions). UBS is not subject to this requirement.
Federal Reserve issues final rule on due date for large BHC’s
capital plans and stress test results
In October 2014, the Federal Reserve issued a final rule adjusting
the due date for large BHCs to submit capital plans and stress test
results from 5 January to 5 April, beginning with the 2016 cycle.
The final rule also adopts, with some adjustments, the limitation
on a BHC’s ability to make capital distributions to the extent that
its actual net capital issuances are less than the amount indicated
in its capital plan. The rule reaffirmed that an intermediate hold-
ing company (IHC) formed in anticipation of the IHC rule, such as
that of UBS, would not be subject to risk-based capital, liquidity
and risk management standards until 1 July 2016, the capital plan
rule until the 2017 cycle, and the stress testing rule and Compre-
hensive Capital Analysis and Review (CCAR) process until the
2018 cycle.
Far-reaching regulatory reform proposals close to
completion on the international level
OECD presents a standard for tax information exchange
In February 2014, following a G20 mandate, the Organization for
Economic Cooperation and Development (OECD) presented a
new single global Standard for Automatic Exchange of Financial
Account Information in Tax Matters, the Common Reporting
Standard (CRS). In July 2014, the OECD released the full CRS, in-
cluding the Model Competent Authority Agreement, a commen-
tary, and a CRS schema. The CRS obliges countries and jurisdic-
36
tions to obtain all financial information from their financial
institutions and exchange that information automatically with
other jurisdictions, on an annual basis, subject to appropriate
safeguards including certain confidentiality requirements and the
requirement that information may be used exclusively for the tax
purposes foreseen.
At the Global Forum meeting in October 2014, all OECD and
G20 countries as well as a majority of financial centers endorsed
the new OECD / G20 standard. 58 jurisdictions (early adopters)
committed to launch the first automatic exchanges in 2017 and
35 jurisdictions committed to start in 2018.
Upon the OECD revealing the full global standard in July 2014,
the EU signaled that it will align its legislation with the new inter-
national standard. In October, a political agreement was reached
on amending Directive 2011/16/EU on administrative cooperation
in the field of direct taxation (DAC), followed by its full endorse-
ment. The revised DAC reproduces the OECD standard at EU level,
with first exchange of information expected to take place in 2017,
in line with the early adopters. Austria was given one additional
year of transition for implementation. The DAC entered into force
on 5 January 2015 and will be applicable from 1 January 2016
(except in Austria).
In May 2014, the Swiss Federal Council endorsed the OECD
Declaration on Automatic Exchange and in October of that year,
the Swiss Federal Council approved the mandates for negotia-
tions on introducing the automatic exchange of information with
the EU, the United States and other countries and entered into
negotiations with the European Commission. Switzerland com-
mitted to launch the first automatic exchanges in 2018, one year
after the early adopters. In November 2014, the Federal Council
approved a declaration on Switzerland joining the OECD Multilat-
eral Competent Authority Agreement (MCAA), which sets out the
conditions for the annual exchange of account information be-
tween the competent authorities of two countries, in accordance
with the OECD standard. In January 2015, the Swiss Federal
Council launched a consultation on the introduction of the auto-
matic exchange of information. The consultation package in-
cludes a federal draft law for the implementation of the auto-
matic exchange of
the
OECD / Council of Europe administrative assistance convention
and the ratification of the MCAA. The consultation runs until
21 April 2015.
ratification of
information,
the
BCBS review of risk-based capital framework
The Basel Committee on Banking Supervision (BCBS) issued a dis-
cussion paper in 2013 on “The regulatory framework: balancing
risk sensitivity, simplicity and comparability” with a number of
proposals on how to reform the Basel risk-based capital frame-
work. In 2014, the BCBS published proposals to address excessive
variability in risk-weighted asset calculations with the objective of
improving consistency and comparability in bank capital ratios.
In October 2014, the BCBS consulted on a revised standard-
ized approach for measuring operational risk capital. With this,
the BCBS aims to address certain weaknesses identified in the
existing approaches and to streamline the framework. In Novem-
ber 2014, the BCBS published its report on “Reducing excessive
variability in banks’ regulatory capital ratios," giving an overview
of its priorities and next steps. The report addresses three areas: (i)
policy measures, which aim to develop prudential proposals to
improve the standardized, non-modelled approaches for calculat-
ing regulatory capital that will also provide the basis for the use of
floors and benchmarks; (ii) disclosure requirements related to risk
weights by amending Pillar 3 of the Basel framework and (iii) mon-
itoring in order to ensure proper implementation of risk-weighted
asset variability through Hypothetical Portfolio Exercises (HPEs)
under the Committee’s Regulatory Consistency Assessment Pro-
gram (RCAP). In its report the BCBS outlines its objective to final-
ize key pillars of its framework by the end of 2015, i.e., the stan-
dardized approach requirements for credit risk, market risk and
operational risk, the capital floor framework, and internal model
requirements for credit risk and market risk. In addition, the BCBS
confirmed that it is continuing to undertake a longer-term review
of the structure of the regulatory capital framework considering
whether a more fundamental reform is necessary.
In December 2014, the BCBS published three consultations.
One consultation covers the BCBS proposals for revising the stan-
dardized approach to credit risk, such as by relying less on exter-
nal credit ratings, reducing the scope of national discretion or by
strengthening the link between the standardized and the IRB ap-
proach. One of the key aspects of the current proposal is that the
corporate and bank exposures would be based on a limited num-
ber of drivers and no longer risk-weighted by reference to their
external credit ratings. The second consultation outlines the de-
sign of the capital floor framework, which would be based on
revised standardized approaches for credit, market and opera-
tional risk. The calibration of the floor is outside the scope of the
consultation. The third proposal covers the outstanding issues in
terms of the fundamental review of the trading book, and sets
out a limited set of revisions to the earlier BCBS’s consultation on
a proposed market risk framework, which was published for con-
sultation in October 2013.
FSB proposes standards on TLAC
With regard to addressing TBTF, an important development was
the publication for consultation of the proposed standards on To-
tal Loss-Absorbing Capacity (TLAC) by the Financial Stability Board
(FSB) in November 2014. These standards aim to build up ade-
quate loss-absorbing capacity for global systemically important
banks to ensure that an orderly wind-down is possible. The FSB
proposes that a minimum Pillar 1 TLAC requirement be set within
the range of 16% to 20% of RWA and at least twice the Basel III
tier 1 leverage ratio requirement.
BCBS issues revised Pillar 3 disclosure requirements
In January 2015, the BCBS issued revised Pillar 3 disclosure re-
quirements that aim to improve comparability and consistency of
disclosures. To this end, the BCBS introduced harmonized tem-
plates. These include prescriptive, fixed-form templates for quan-
37
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
titative information that is considered essential for the analysis of
a bank’s regulatory capital requirements, as well as templates with
a more flexible format for information that is considered mean-
ingful to the market but not central to the analysis of a bank’s
regulatory capital adequacy. In addition, banks may accompany
the disclosure requirements in each template with a qualitative
commentary that explains a bank’s particular circumstances and
risk profile. According to the BCBS timeline, banks will be required
to publish their first Pillar 3 reports under the revised framework
concurrently with their year-end 2016 financial reports. Under the
new requirements, we will be mapping the financial statements
into regulatory risk categories and we will present semiannually
and annually comprehensive sets of standardized disclosure ta-
bles. Amendments to our Pillar 3 reporting will further include
the quarterly disclosure of a RWA flow statement in a granularity
similar to the one we have so far been disclosing annually. The
standardized tables are designed to improve the comparability
between banks and are expected to require implementation in-
vestment.
38
Our strategy
We are committed to providing our clients with superior financial advice and solutions while generating attractive and
sustainable returns for shareholders. Our strategy centers on our leading wealth management businesses and our
premier universal bank in Switzerland, enhanced by our strong asset manager and investment bank. These businesses
share three key characteristics: they benefit from a strong com petitive position in their targeted markets, are capital-
efficient, and offer a superior structural growth and profitability outlook. Our strategy builds on the strengths of all of
our businesses and focuses our efforts on areas in which we excel, while seeking to capitalize on the compelling growth
prospects in the businesses and regions in which we operate. Capital strength is the foundation of our success.
Our strategic transformation
EDTF | In 2011, we laid out three critical objectives for UBS: execut-
ing our strategy, delivering for our clients and unlocking our
growth potential. We accelerated the execution of our strategy in
2012 and have since made substantial progress focusing our ac-
tivities on a set of highly synergistic, less capital and balance
sheet-intensive businesses dedicated to serving clients and
well-positioned to maximize value for shareholders. We have
reached our targeted Basel III CET1 capital ratio of 13%, signifi-
cantly reduced risk-weighted assets and costs, while simultane-
ously growing our business and enhancing our competitive posi-
tioning. We have successfully grown our unrivaled wealth
management businesses and transformed our Investment Bank to
focus on its traditional strengths in advisory, research, equities,
foreign exchange and precious metals. At our Investor Update on
6 May 2014, we provided information on the progress of execut-
ing our strategy. By the end of 2014, we completed our strategic
transformation process. Through the continued successful execu-
tion of our strategy, we believe we can sustain and grow our busi-
ness and maintain a prudent capital position. While our strategy
remains unchanged going forward, we updated and extended
several of our annual performance targets, which are outlined in
the table at the end of this section.
Achieving greater effectiveness and efficiency is imperative for
the success of our strategy. We remain fully committed to achiev-
ing the cost reductions announced at the 2014 Investor Update,
with a net cost reduction target of CHF 1.4 billion versus full-year
2013 by the end of 2015, including CHF 1.0 billion in Corporate
Center – Core Functions and CHF 0.4 billion in Corporate Center –
Non-Core and Legacy Portfolio. After that, we target additional
net cost reductions of CHF 0.7 billion as we exit our Non-core and
Legacy Portfolio.
Our commitment to a prudent capital position is based on
maintaining a fully applied CET1 capital ratio of at least 13% and
a post-stress fully applied CET1 capital ratio of at least 10%. From
2014 onwards, our deferred contingent capital plan awards will
qualify as additional tier 1 capital under Basel III requirements.
Through our compensation programs, we intend to build approx-
imately CHF 2.5 billion in additional tier 1 capital over the next
five years, which will eventually replace the high-trigger loss-ab-
sorbing capital recognized as tier 2 capital. Additional tier 1 capi-
tal is an important component of our future capital structure and
we have also started building additional tier 1 capital through
external issuance from UBS Group AG. An optimized capital struc-
ture enables us to meet regulatory requirements while targeting
optimal shareholder returns.
As discussed further above, we continue to adapt our legal
structure to improve UBS’s resolvability in response to evolving
too big to fail (TBTF) requirements in Switzerland and other coun-
tries in which UBS operates. The changes to our legal structure
do not affect our strategy, our business and the way we serve our
clients. ▲
➔ Refer to the “UBS Group – Changes to our legal structure”
section of this report for more information
39
Operating environment and strategy Operating environment and strategy
Our strategy
Delivering attractive shareholder returns
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)
We are committed to delivering sustainable performance and at-
tractive returns to shareholders. We have delivered progressive
capital returns in 2011, 2012 and 2013. In 2014, we achieved our
capital ratio target of a fully applied CET1 capital ratio of at least
13% and met our objective of maintaining a post-stress fully
applied CET1 capital ratio of at least 10%. Subject to maintaining
our CET1 capital ratio target and our objective for the post-stress
CET1 capital ratio, we are targeting a total payout ratio of at least
50% of net profit attributable to UBS shareholders.
In line with our dividend policy, we propose a 100% increase
in our ordinary dividend to CHF 0.50 per share for the financial
year 2014, which will be paid out of capital contribution re-
serves. The ex-dividend date is expected to be 11 May 2015. In
addition, following the successful completion of the squeeze-
out procedure, we expect to pay a supplementary capital return
of CHF 0.25 per share to be paid to shareholders of UBS Group
AG. This supplementary capital return is separate and in addition
to the proposed ordinary dividend described above and will also
be paid out of capital contribution reserves.
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:13)
(cid:50)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:71)(cid:70)
(cid:81)(cid:80)(cid:71)(cid:15)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)
(cid:85)(cid:87)(cid:82)(cid:82)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:84)(cid:91)(cid:2)
(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)
(cid:72)(cid:81)(cid:78)(cid:78)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:85)(cid:83)(cid:87)(cid:71)(cid:71)(cid:92)(cid:71)(cid:15)(cid:81)(cid:87)(cid:86)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:19)(cid:18)
(cid:18)(cid:16)(cid:19)(cid:23)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)
(cid:50)(cid:67)(cid:91)(cid:81)(cid:87)(cid:86)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:20)(cid:18)(cid:19)(cid:19)
(cid:27)(cid:7)
(cid:20)(cid:18)(cid:19)(cid:20)
(cid:48)(cid:17)(cid:47)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:21)(cid:18)(cid:7)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:23)(cid:23)(cid:7)(cid:2)
(cid:10)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)(cid:11)(cid:19)
(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)
(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)
(cid:96)(cid:24)(cid:16)(cid:25)(cid:7)
(cid:96)(cid:27)(cid:16)(cid:26)(cid:7)
(cid:19)(cid:20)(cid:16)(cid:26)(cid:7)
(cid:19)(cid:21)(cid:16)(cid:22)(cid:7)
(cid:49)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)
(cid:50)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:50)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:71)(cid:15)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:84)(cid:91)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)
(cid:19)(cid:2)(cid:49)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:67)(cid:85)(cid:2)(cid:67)(cid:2)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:75)(cid:78)(cid:87)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:16)
40
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Our annual performance targets
The table below outlines our annual performance targets for the
Group, the business divisions and the Corporate Center for 2015
and beyond. These performance targets are based on adjusted
results that exclude items that management believes are not
representative of the underlying performance of our businesses,
and assume constant foreign currency translation rates, unless
otherwise indicated.
(cid:35)(cid:80)(cid:80)(cid:87)(cid:67)(cid:78)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)
(cid:37)(cid:81)(cid:79)(cid:79)(cid:81)(cid:80)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:10)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:11)(cid:19)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:15)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:10)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:11)(cid:19)
(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:70)(cid:71)(cid:80)(cid:81)(cid:79)(cid:75)(cid:80)(cid:67)(cid:86)(cid:81)(cid:84)(cid:2)(cid:10)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:11)(cid:20)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17) (cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:67)(cid:80)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)
(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)
(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17) (cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17) (cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:52)(cid:71)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:88)(cid:81)(cid:78)(cid:87)(cid:79)(cid:71)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:84)(cid:71)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17) (cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:50)(cid:84)(cid:81)(cid:386)(cid:86)(cid:2)(cid:68)(cid:71)(cid:72)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:67)(cid:90)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:387)(cid:81)(cid:89)(cid:85)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17) (cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:86)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:15)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:10)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:11)(cid:19)(cid:14)(cid:2)(cid:21)
(cid:40)(cid:87)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:21)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17) (cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)
(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:2)
(cid:35)(cid:86)(cid:2)(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)(cid:19)(cid:21)(cid:16)(cid:18)(cid:7)(cid:2)
(cid:30)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:19)(cid:23)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:15)(cid:71)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)
(cid:30)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:18)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:15)(cid:71)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:25)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:27)(cid:18)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:24)
(cid:24)(cid:18)(cid:115)(cid:25)(cid:18)(cid:7)
(cid:67)(cid:84)(cid:81)(cid:87)(cid:80)(cid:70)(cid:2)(cid:19)(cid:18)(cid:7)(cid:2)(cid:75)(cid:80)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)
(cid:32)(cid:2)(cid:19)(cid:23)(cid:7)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:20)(cid:18)(cid:19)(cid:24)
(cid:21)(cid:115)(cid:23)(cid:7)
(cid:23)(cid:23)(cid:115)(cid:24)(cid:23)(cid:7)(cid:2)
(cid:20)(cid:115)(cid:22)(cid:7)
(cid:25)(cid:23)(cid:115)(cid:26)(cid:23)(cid:7)
(cid:19)(cid:115)(cid:22)(cid:7)
(cid:19)(cid:22)(cid:18)(cid:115)(cid:19)(cid:26)(cid:18)(cid:2)(cid:68)(cid:82)(cid:85)
(cid:23)(cid:18)(cid:115)(cid:24)(cid:18)(cid:7)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:79)(cid:71)(cid:70)(cid:75)(cid:87)(cid:79)(cid:2)(cid:86)(cid:71)(cid:84)(cid:79)
(cid:21)(cid:115)(cid:23)(cid:7)
(cid:24)(cid:18)(cid:115)(cid:25)(cid:18)(cid:7)
(cid:32)(cid:2)(cid:19)(cid:23)(cid:7)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:18)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:25)(cid:18)(cid:115)(cid:26)(cid:18)(cid:7)(cid:2)
(cid:37)(cid:81)(cid:79)(cid:68)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:80)(cid:87)(cid:67)(cid:78)(cid:2)(cid:82)(cid:84)(cid:81)(cid:386)(cid:86)(cid:2)(cid:68)(cid:71)(cid:72)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:67)(cid:90)(cid:2)
(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:81)(cid:72)(cid:2)(cid:19)(cid:18)(cid:115)(cid:19)(cid:23)(cid:7)(cid:2)(cid:86)(cid:74)(cid:84)(cid:81)(cid:87)(cid:73)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:91)(cid:69)(cid:78)(cid:71)
(cid:37)(cid:81)(cid:84)(cid:71)(cid:2)(cid:40)(cid:87)(cid:80)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:69)(cid:81)(cid:85)(cid:86)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80) (cid:22)(cid:14)(cid:2)(cid:23)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:16)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:15)(cid:71)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)
(cid:48)(cid:81)(cid:80)(cid:15)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:46)(cid:71)(cid:73)(cid:67)(cid:69)(cid:91)(cid:2)(cid:50)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:15)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:10)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:11)(cid:19)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:69)(cid:81)(cid:85)(cid:86)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:96)(cid:37)(cid:42)(cid:40)(cid:2)(cid:22)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:15)(cid:71)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)
(cid:96)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:23)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:15)(cid:71)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:25)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:18)(cid:16)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:15)(cid:71)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:22)(cid:14)(cid:2)(cid:24)
(cid:35)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:18)(cid:16)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:72)(cid:86)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:24)(cid:14)(cid:2)(cid:25)(cid:2)
(cid:19)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:67)(cid:85)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:69)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:85)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:75)(cid:69)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:84)(cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(cid:80)(cid:86)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:10)(cid:53)(cid:52)(cid:36)(cid:11)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:16)(cid:2)(cid:52)(cid:71)(cid:72)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:112)(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:113)(cid:2)(cid:85)(cid:71)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:87)(cid:78)(cid:71)(cid:85)(cid:2)
(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:69)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:24)(cid:2)(cid:47)(cid:67)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:2)(cid:52)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:14)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:67)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:22)(cid:2)(cid:47)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:15)(cid:71)(cid:80)(cid:70)(cid:2)(cid:71)(cid:90)(cid:75)(cid:86)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:88)(cid:71)(cid:84)(cid:85)(cid:87)(cid:85)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:21)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:80)(cid:85)(cid:71)(cid:85)(cid:14)(cid:2)(cid:80)(cid:71)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:82)(cid:84)(cid:81)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:78)(cid:75)(cid:86)(cid:75)(cid:73)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:75)(cid:79)(cid:75)(cid:78)(cid:67)(cid:84)(cid:2)(cid:79)(cid:67)(cid:86)(cid:86)(cid:71)(cid:84)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:23)(cid:2)(cid:47)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:80)(cid:71)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:40)(cid:58)(cid:2)(cid:79)(cid:81)(cid:88)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:70)(cid:71)(cid:79)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:71)(cid:79)(cid:82)(cid:81)(cid:84)(cid:67)(cid:84)(cid:91)(cid:2)(cid:80)(cid:67)(cid:86)(cid:87)(cid:84)(cid:71)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:24)(cid:2)(cid:38)(cid:81)(cid:71)(cid:85)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:67)(cid:85)(cid:85)(cid:87)(cid:79)(cid:71)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:86)(cid:67)(cid:80)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:71)(cid:75)(cid:73)(cid:80)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:80)(cid:85)(cid:78)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:25)(cid:2)(cid:52)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:80)(cid:80)(cid:87)(cid:67)(cid:78)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:71)(cid:90)(cid:82)(cid:71)(cid:80)(cid:85)(cid:71)(cid:85)(cid:2)(cid:88)(cid:71)(cid:84)(cid:85)(cid:87)(cid:85)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:21)(cid:16)
41
Operating environment and strategy Operating environment and strategy
Our strategy
UBS – leading universal bank in Switzerland
Leading positions in all 5 business areas in Switzerland
Retail
Wealth
Management
Switzerland
Corporate &
Institutional Banking
Investment Bank
Switzerland
Global Asset
Management
Switzerland
efficiently. As a result, we are in an
excellent position to meet our clients’
needs with a comprehensive range of
banking products and services. Our
universal bank model has proven itself
to be highly effective and consistently
contributes substantially to the Group.
Our distribution is based on a multi-
c hannel strategy. We strive to offer a
unique client experience, giving clients the
choice how to interact with us –
via branches, customer service centers or
digital channels. Our expanding electronic
and mobile banking offering is very
well-regarded and we see a steadily rising
number of users and client interactions.
Client feedback remained excellent with
87% of Apple App Store reviewers
awarding the maximum five stars. Our
e-banking service counted over 1.4 million
clients, with more than 250,000 using our
market-leading personal financial
management tool. We received external
recognition with the “Master of Swiss
Web 2014” award for our e-banking
services and the “Master of Swiss Apps
2014” award for our co-operation with
SumUp. The Celent Model Bank Award
2014 and Visa’s Contactless & Mobile
Award 2014 highlighted our outstanding
security solution for e-banking authentica-
tion. We will continue building on our
position as the leading multi-channel
bank in Switzerland and our tradition as
innovator in digital services to capture
market share and increase efficiency.
(cid:55)(cid:36)(cid:53)(cid:2)(cid:47)(cid:81)(cid:68)(cid:75)(cid:78)(cid:71)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:70)(cid:81)(cid:89)(cid:80)(cid:78)(cid:81)(cid:67)(cid:70)(cid:85)(cid:2)
(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:81)(cid:87)(cid:85)(cid:67)(cid:80)(cid:70)(cid:85)
(cid:23)(cid:18)(cid:18)
(cid:21)(cid:25)(cid:23)
(cid:20)(cid:23)(cid:18)
(cid:19)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:23)(cid:26)(cid:7)
(cid:20)(cid:26)(cid:24)
(cid:22)(cid:20)(cid:19)
(cid:19)(cid:24)(cid:21)
(cid:20)(cid:18)(cid:19)(cid:20)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:20)(cid:18)(cid:19)(cid:22)
UBS is the pre-eminent universal bank in
Switzerland, the only country where we
operate and maintain leading positions
in all five of our business areas: retail,
wealth management, corporate and
institutional banking, investment bank
services and asset management. We are
fully committed to our home market
as our leading position in Switzerland is
crucial in terms of sustaining our global
brand and profit stability. Drawing on our
network of around 300 branches and
4,500 client-facing staff, complemented
by modern digital banking services and
customer service centers, we are able to
reach approximately 80% of Swiss
wealth and serve one in three house-
holds, high net worth individuals and
pension funds, more than 120,000
companies, and 85% of banks domiciled
in Switzerland. In 2014, Euromoney
acknowledged our pre-eminent position
in Switzerland with its prestigious Best
Bank in Switzerland award for the third
consecutive year.
Our universal bank model is central to
our success. We differentiate ourselves
by leveraging our strengths across all
segments. We have a cross-divisional
management approach which promotes
cross-divisional thinking, enables seamless
collaboration across all business areas
and allows us to utilize our resources
42
(cid:23)(cid:18)(cid:18)
(cid:21)(cid:25)(cid:23)
(cid:20)(cid:23)(cid:18)
(cid:19)(cid:20)(cid:23)
(cid:18)
(cid:20)(cid:26)(cid:18)
(cid:20)(cid:19)(cid:18)
(cid:19)(cid:22)(cid:18)
(cid:25)(cid:18)
(cid:18)
Measurement of performance
Performance measures
Key performance indicators
EDTF | Our key performance indicator (KPI) framework focuses on
key drivers of total shareholder return, measured by the dividend
yield and price appreciation of our shares. Our senior manage-
ment reviews the KPI framework on a regular basis by considering
prevailing strategy, business conditions and the environment in
which we operate. The KPIs are disclosed consistently in our quar-
terly and annual reporting to facilitate comparison of our perfor-
mance over the reporting periods.
The Group and business divisions are managed based on this
KPI framework, which emphasizes risk awareness, effective risk
and capital management, sustainable profitability and client fo-
cus. Both Group and business division KPIs are taken into account
in determining variable compensation. ▲
➔ Refer to the “Compensation” section of this report for
more information
EDTF | In addition to KPIs, we disclose our performance targets.
These performance targets, which are defined in order to track
the achievement of our strategic plan, are based on our KPIs as
well as on additional balance sheet and capital management per-
formance measures. ▲
➔ Refer to the “Our strategy” section of this report for more
information on performance targets
Changes to our key performance indicators in 2014
EDTF | In 2014, we made certain changes to our KPI framework to
further enhance its relevance by reclassifying certain KPIs to
“Additional information,” or redefining them to focus on our
specific wealth management or retail businesses.
“Return on risk-weighted assets, gross (%)” for the Group is
now reported as “Additional information” rather than as a KPI, as
we consider this metric less meaningful and relevant than other
existing KPIs in measuring Group performance. We also report
our “Swiss SRB Basel III common equity tier 1 (CET1) capital ratio
(%) (phase-in)” as “Additional information” rather than as a KPI.
Our Swiss SRB Basel III CET1 capital ratio on a fully applied basis
remains a KPI. At the Group level, we replaced the KPI “Net new
money growth (%)” with “Net new money growth for combined
wealth management businesses (%),” focusing on net new
money generated only by our wealth management businesses, by
excluding net new money from Global Asset Management and
Retail & Corporate from this measure.
“Recurring income as a % of income (%)” is no longer a
Wealth Management Americas KPI, but is instead reported as
“Additional information,” consistent with the way this metric is
reported in Wealth Management.
We replaced our Retail & Corporate KPI “Net new business
volume growth (%)” with “Net new business volume growth for
retail business (%),” excluding our corporate and institutional
business from this measure as its net new business volume is vol-
atile by nature and therefore provides limited insight. The revised
measure better reflects management’s view on our business. As
“Additional information,” we also show “Business volume for re-
tail business (CHF billion)” and “Net new business volume for re-
tail business (CHF billion).” “Impaired loan portfolio as a % of
total loan portfolio, gross (%)” is no longer a Retail & Corporate
KPI, but is instead reported as “Additional information.”
Additionally, we replaced the KPI “Net new money growth
(%)” for Global Asset Management with “Net new money growth
excluding money market flows (%).” Money market flows are vol-
atile by nature, and metrics excluding these flows therefore pro-
vide more focused insight. ▲
New key performance indicators in 2015
EDTF | In 2015, return on tangible equity (RoTE) will replace return
on equity (RoE) as a KPI. RoE will continue to be reported as “Ad-
ditional information.” In addition, net margin on invested assets
for Wealth Management, Wealth Management Americas and
Global Asset Management will become a KPI. We will continue to
report gross margin on invested assets as a KPI for these business
divisions. ▲
Client / invested assets reporting
We report two distinct metrics for client funds:
– The measure “client assets” encompasses all client assets man-
aged by or deposited with us, including custody-only assets.
– The measure “invested assets” is more restrictive and includes
only client assets managed by or deposited with us for invest-
ment purposes.
Of the two, invested assets is a more important measure.
Net new money in a reported period is the amount of invested
assets that are entrusted to us by new or existing clients less those
withdrawn by existing clients or clients who terminated their rela-
tionship with us. Interest and dividend income from invested as-
sets is not counted as net new money inflow. However, in Wealth
43
Operating environment and strategy Operating environment and strategy
Measurement of performance
Management Americas we also show net new money including
interest and dividend income in line with historical reporting prac-
tice in the US market. The Investment Bank does not track in-
vested assets or net new money.
When products are managed in one business division and sold
by another, they are counted in both the investment management
unit and the distribution unit. This results in double-counting
within our total invested assets, as both units provide an indepen-
dent service to their client, add value and generate revenues.
Most double-counting arises when mutual funds are managed by
Global Asset Management and sold by Wealth Management and
Wealth Management Americas. The business divisions involved
count these funds as invested assets. This approach is in line with
both finance industry practices and our open architecture strat-
egy, and allows us to accurately reflect the performance of each
individual business. Overall, CHF 173 billion of invested assets
were double-counted as of 31 December 2014 (CHF 156 billion as
of 31 December 2013).
➔ Refer to “Note 35 Invested assets and net new money” in
the “Financial information” section of this report for more
information
Seasonal characteristics
Our main businesses may show seasonal patterns. The Investment
Bank’s revenues have been affected in some years by the seasonal
characteristics of general financial market activity and deal flows
in investment banking. Other business divisions may also be im-
pacted by seasonal components, such as lower client activity lev-
els related to the summer and end-of-year holiday seasons, an-
nual income tax payments (which are concentrated in the second
quarter in the US) and asset withdrawals that tend to occur in the
fourth quarter.
44
t
n
e
m
e
g
a
n
a
M
h
t
l
a
e
W
t
n
e
m
e
g
a
n
a
M
s
a
c
i
r
e
m
A
h
t
l
a
e
W
e
t
a
r
o
p
r
o
C
&
l
i
a
t
e
R
t
e
s
s
A
l
a
b
o
G
l
t
n
e
m
e
g
a
n
a
M
t
n
e
m
t
s
e
v
n
I
k
n
a
B
p
u
o
r
G
EDTF | Pillar 3 | Group / business division key performance indicators
Key performance indicators
Definition
Net profit growth (%)
Pre-tax profit growth (%)
Cost / income ratio (%)
Return on equity (RoE) (%)
Change in net profit attributable to UBS Group AG shareholders
from continuing operations between current and comparison
periods / net profit attributable to UBS Group AG shareholders from
continuing operations of comparison period
Change in business division performance before tax between
current and comparison periods / business division performance
before tax of comparison period
Operating expenses / operating income before credit loss (expense)
or recovery
Net profit attributable to UBS Group AG shareholders (annualized
as applicable) / average equity attributable to UBS Group AG share-
holders
Return on attributed equity (RoaE)
(%)
Business division performance before tax (annualized as
applicable) / average attributed equity
Return on assets, gross (%)
Swiss SRB leverage ratio
(phase-in, %)
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average total assets
Swiss SRB Basel III common equity tier 1 capital and loss-absorbing
capital / total adjusted exposure (leverage ratio denominator)
Swiss SRB Basel III common equity
tier 1 capital ratio (fully applied, %)
Swiss SRB Basel III common equity tier 1 capital / Swiss SRB Basel III
risk-weighted assets
Net new money growth (%)
Net new money for the period (annualized as applicable) / invested
assets at the beginning of the period. Group net new money
growth is reported as net new money growth for combined wealth
management businesses. Global Asset Management net new
money growth excludes money market flows.
Gross margin on invested assets
(bps)
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average invested assets
Net new business volume growth
for retail business (%)
Net new business volume (i.e., total net inflows and outflows of
client assets and loans) for the period (annualized as applicable) /
business volume (i.e., total of client assets and loans) at the
beginning of the period
Net interest margin (%)
Net interest income (annualized as applicable) / average loans
Average VaR (1-day, 95% confidence,
5 years of historical data)
Value at Risk (VaR) expresses maximum potential loss measured
to a 95% confidence level, over a 1-day time horizon and based
on five years of historical data
EDTF | Pillar 3 | New key performance indicators in 2015
Key performance indicators
Definition
Net margin on invested assets (bps)
Business division performance before tax
(annualized as applicable) / average invested assets
Return on tangible equity (RoTE) (%)
Net profit attributable to UBS Group AG shareholders before amortization and impairment of
goodwill and intangible assets (annualized as applicable) / average equity attributable to UBS
Group AG shareholders less average goodwill and intangible assets UBS Group AG 1
1 Goodwill and intangible assets are adjusted to reflect the non-controlling interests in UBS AG. ▲▲
▲▲
t
n
e
m
e
g
a
n
a
M
h
t
l
a
e
W
t
n
e
m
e
g
a
n
a
M
s
a
c
i
r
e
m
A
h
t
l
a
e
W
t
e
s
s
A
l
a
b
o
G
l
t
n
e
m
e
g
a
n
a
M
p
u
o
r
G
45
Operating environment and strategy
Operating environment and strategy
Wealth Management
Wealth Management
Wealth Management provides wealthy private clients with investment advice and solutions tailored to their individual
needs. At the end of 2014, we had a presence in nearly 50 countries and invested assets of CHF 987 billion.
Business
We provide comprehensive financial services to wealthy private
clients around the world, with the exception of those served by
our colleagues in Wealth Management Americas. UBS is a
global firm with global capabilities, and our clients benefit from
a full spectrum of resources, ranging from investment manage-
ment solutions to wealth planning and corporate finance ad-
vice, as well as the specific offerings outlined below. Our guided
architecture model gives clients access to a wide range of
products from third-party providers that complement our own
products.
Strategy and clients
We are one of the pre-eminent wealth managers globally and aim
to provide our clients with superior investment advice and solu-
tions in line with their individual financial objectives.
The wealth management business has attractive long-term
growth prospects and we expect its growth to outpace that of
gross domestic product globally. From a client segment perspec-
tive, the global ultra high net worth market, including family of-
fices, has the highest growth potential, followed by the high net
worth market. Our broad client base and strong global footprint
put us in an excellent position to capture the growth opportuni-
ties across regions and segments.
We provide wealth management solutions, products and ser-
vices to wealthy private clients as well as financial intermediaries.
Investment management and portfolio construction lie at the
heart of our offering. Clients who opt for a discretionary invest-
ment mandate delegate the management of their assets to a
team of professional portfolio managers. Those who prefer to be
actively involved can choose an advisory mandate. The portfolios
of advisory mandate clients are monitored and analyzed closely,
and they receive tailored proposals to help them make informed
investment decisions. All clients can also invest in the full range of
financial instruments, from single securities such as equities and
bonds to various investment funds, structured products and alter-
native investments. Additionally, we offer clients advice on struc-
tured lending and corporate finance. Our integrated client service
model allows us to bundle capabilities from across the Group to
identify investment opportunities in all market conditions and cre-
ate solutions that suit individual client needs. This collaboration is
also crucial to our focused expansion in key onshore markets,
where we continue to benefit from the established business rela-
tionships of our local Investment Bank and Global Asset Manage-
ment teams.
We cater to the specific needs of our diverse client segments.
Our ultra high net worth clients have access to the infrastruc-
ture we offer to our institutional clients. This includes the In-
vestment Bank’s trading platforms and our Institutional Solu-
tions Group’s services. In addition, through our Global Family
Invested assets by client domicile(cid:15)
%
Total: CHF 987 billion
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:124)(cid:2)
(cid:7)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:27)(cid:26)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
As of 31.12.14
9
22
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:19)(cid:18)
Americas
Asia Pacific
27
Europe, Middle East and Africa
Switzerland
(cid:24)(cid:19)
(cid:30)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:115)(cid:23)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:115)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:32)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:19)(cid:27)
(cid:19)(cid:18)
42
46
68-161_1 WM_IA by client domicile_e
(cid:25)(cid:18)(cid:15)(cid:19)(cid:24)(cid:19)(cid:65)(cid:20)(cid:2)(cid:57)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)
Office Group, our most sophisticated ultra high net worth cli-
ents benefit from tailored institutional coverage and global ex-
ecution provided by dedicated specialist teams from both
Wealth Management and the Investment Bank. We offer our
high net worth clients the full range of our investment manage-
ment capabilities. For example, UBS Advice, which forms part of
our advisory mandate offering, provides our clients with tai-
lored investment advice. It is an industry first in terms of how it
uses state-of-the-art technology to systematically monitor cli-
ents’ portfolios to detect risks as well as deviations from their
selected investment strategies. We believe that both our advi-
sory and discretionary mandate offerings provide a superior
value proposition as they both draw on the full range of our
investment management capabilities. We aim to grow our man-
dates business as it offers premium pricing opportunities and
contributes to higher recurring revenues.
Our booking centers across the globe give us a strong local
presence that allows us to book client assets in multiple locations.
The strength and scope of our franchise also enable us to adapt
swiftly to the changing legal and regulatory environment.
In Asia Pacific, we are accelerating our growth with a focus on
Hong Kong and Singapore, the leading financial centers in the
region. We are also developing our presence in major onshore
markets such as Japan and Taiwan, and investing further in our
local footprint in China to help capture long-term growth oppor-
tunities.
In the emerging markets, we are focused on key growth mar-
kets such as Mexico, Brazil, Turkey, Russia, Israel and Saudi Arabia.
We regularly assess our local presence to ensure proximity to our
clients in key markets, with the aim of serving them most effi-
ciently out of key hubs in the major emerging regions. Many
emerging market clients prefer to book their assets in established
financial centers and, to that end, we are strengthening our cov-
erage for such clients through our booking centers in Switzerland,
the US, and the UK.
In Europe, our long-established local presence in all major mar-
kets supports our growth ambition. We recognized early the con-
verging needs of clients and combined our offshore and onshore
businesses. This gives clients across the region access to our ex-
tensive Swiss product offering, and creates economies of scale by
enabling us to deal efficiently with increased regulatory and fiscal
requirements. In 2014, we extended our Swiss platform and of-
fering to our German domestic business – a major milestone in
terms of capitalizing on our existing global capabilities.
In Switzerland, based on our integrated business model, we col-
laborate closely with our colleagues in the retail, corporate, asset
management and investment banking businesses. This creates op-
portunities to expand our business through client referrals and gen-
erates efficiencies by enabling us to make use of UBS’s extensive
branch network, which includes 100 wealth management offices.
Our Global Financial Intermediaries business supports our
growth ambitions by providing us with access to markets and cli-
ents beyond our own client advisor network. Additionally, it acts
as a strategic business partner for more than 2,200 financial inter-
mediaries in all major financial centers. It offers them professional
investment advisory services, a global banking infrastructure and
tailored solutions, helping financial intermediaries to advise their
end-clients more effectively.
Looking ahead, we want to continue to build on our leading
position by adapting our business for the digital age. Digitalization
represents an important opportunity for us to differentiate our-
selves and respond to our evolving client base. Accordingly, we are
making significant investments in our IT platform and e-capabilities.
Organizational structure
Headquartered in Switzerland, we have a presence in nearly 50
countries with approximately 230 offices, of which 100 are in
Switzerland. As of the end of 2014, we employed approximately
16,700 people worldwide. Of these, approximately 4,250 were
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)
(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)
(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:20)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:26)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:27)(cid:26)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:20)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:26)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:27)(cid:26)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:19)
(cid:19)(cid:22)
(cid:20)(cid:22)
(cid:19)(cid:19)
(cid:19)(cid:25)
(cid:20)(cid:21)
(cid:19)(cid:21)
(cid:19)(cid:20)
(cid:20)(cid:25)
(cid:19)(cid:18)
(cid:19)(cid:23)
(cid:20)(cid:21)
(cid:19)(cid:21)
(cid:19)(cid:21)
(cid:20)(cid:27)
(cid:19)(cid:19)
(cid:19)(cid:22)
(cid:20)(cid:18)
(cid:35)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:85)(cid:17)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)(cid:14)(cid:2)(cid:386)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:19)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:25)
(cid:23)
(cid:19)(cid:27)
(cid:20)(cid:24)
(cid:21)(cid:21)
(cid:19)(cid:25)
(cid:23)
(cid:19)(cid:27)
(cid:20)(cid:23)
(cid:21)(cid:22)
(cid:19)(cid:25)
(cid:24)
(cid:19)(cid:26)
(cid:20)(cid:21)
(cid:21)(cid:24)
(cid:25)(cid:20)(cid:15)(cid:19)(cid:24)(cid:19)(cid:65)(cid:21)(cid:2)(cid:57)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)
(cid:55)(cid:53)(cid:38)
(cid:41)(cid:36)(cid:50)
(cid:39)(cid:55)(cid:52)
(cid:37)(cid:42)(cid:40)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:85)
(cid:25)(cid:22)(cid:15)(cid:19)(cid:24)(cid:19)(cid:65)(cid:20)(cid:2)(cid:57)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)
47
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Operating environment and strategy Operating environment and strategy
Wealth Management
client advisors. We are governed by executive, operating and risk
committees and are primarily organized along regional lines with
our business areas being Asia Pacific, Europe, Global Emerging
Markets, Switzerland and Global Ultra High Net Worth. Our busi-
ness is supported by the Chief Investment Office and a global In-
vestment Products and Services unit, as well as central functions.
Competitors
Our major global competitors include the private banking opera-
tions of Credit Suisse, JP Morgan, HSBC, BNP Paribas, Deutsche
Bank, Julius Bär and Citigroup. In the European domestic markets,
we primarily compete with the private banking operations of
large local banks such as Barclays in the UK, Deutsche Bank in
Germany and UniCredit in Italy. In Asia Pacific, the private banking
franchises of HSBC, Citigroup and Credit Suisse are our main
competitors.
Investment advice and solutions
As part of a global, integrated firm, we are a dynamic wealth
manager with investment management capabilities at our core.
Our client advisors are proactive in their relationships with clients,
and we have a systematic process for developing a thorough un-
derstanding of our clients’ financial objectives and risk appetite. In
addition, our wealth planners – part of our specialist product
team – often support client advisors as they guide their clients in
making financial decisions based on their life-cycle needs. With
this comprehensive overview, we offer them wealth planning ad-
vice and products, and we ascertain their investment strategy,
which serves as the foundation for the investment solutions we
offer them. Client advisors regularly review their clients’ investor
profiles to make sure they correspond to their evolving priorities
and changing risk tolerance. Our bespoke training programs and
the ongoing support the firm provides to our client advisors en-
able them to deliver superior advice and solutions to our clients.
For example, we require all of our client advisors to obtain the
Wealth Management Diploma, a program accredited by Switzer-
land’s State Secretariat For Economic Affairs (SECO) that ensures
a high level of knowledge and expertise. For our most senior cli-
ent advisors, we offer extensive training through the Wealth Man-
agement Master program.
Our global Chief Investment Office synthesizes the research
and expertise of our global network of economists, strategists,
analysts and investment specialists across all business divisions
worldwide. These experts closely monitor and assess financial
market developments. This allows us to deliver real-time insights
and to include local expertise in our global investment process.
Using these analyses, and in consultation with our external part-
ner network at the UBS Investor Forum, which includes many of
the world’s most successful money managers, the Chief Invest-
ment Office establishes a clear, concise and consistent investment
view – the UBS House View.
The UBS House View identifies and communicates investment
opportunities and market risks to help protect and grow our cli-
ents’ wealth, and we aim to apply and implement it consistently
in our clients’ portfolios. The UBS House View is also reflected in
our strategic and tactical asset allocations, both of which under-
pin the investment strategies for our flagship discretionary man-
dates. The strategic asset allocation is an essential part of our
disciplined style of managing and growing our clients’ wealth,
and ensures that our clients remain on course to meet their finan-
cial goals over the long term. It is complemented by our tactical
asset allocation, which uses our global expertise to help our cli-
ents navigate markets and ultimately improve the risk and return
trade-off potential of their portfolios.
Our Investment Products and Services unit ensures our solu-
tions are in step with market conditions by aligning our discretion-
ary and advisory offerings with our UBS House View. Our products
are aimed at achieving positive performance in various market
scenarios. They are developed from a wide range of sources, in-
cluding Investment Products and Services, Global Asset Manage-
ment, the Investment Bank and third parties, as we operate within
a guided architecture model. By aggregating private investment
flows into institutional-size flows, we can offer our clients access
to investments normally available only to institutional clients.
(cid:53)(cid:87)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:84)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:70)(cid:88)(cid:75)(cid:69)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:111)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)
(cid:52)(cid:75)(cid:85)(cid:77)
(cid:53)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:69)(cid:2)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)
(cid:35)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:54)(cid:67)(cid:69)(cid:86)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)
(cid:35)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)
(cid:48)(cid:71)(cid:89)
(cid:49)(cid:78)(cid:70)
(cid:52)(cid:75)(cid:85)(cid:77)
(cid:35)(cid:70)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)
(cid:38)(cid:71)(cid:78)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:85)(cid:86)(cid:67)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:38)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:111)(cid:2)(cid:73)(cid:81)(cid:67)(cid:78)(cid:85)
(cid:35)(cid:80)(cid:67)(cid:78)(cid:91)(cid:85)(cid:75)(cid:85)
(cid:41)(cid:67)(cid:86)(cid:74)(cid:71)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)
(cid:75)(cid:80)(cid:86)(cid:71)(cid:78)(cid:78)(cid:75)(cid:73)(cid:71)(cid:80)(cid:69)(cid:71)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:42)(cid:81)(cid:87)(cid:85)(cid:71)(cid:2)(cid:56)(cid:75)(cid:71)(cid:89)(cid:2)
(cid:37)(cid:78)(cid:71)(cid:67)(cid:84)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)(cid:2)
(cid:35)(cid:2)(cid:85)(cid:86)(cid:84)(cid:81)(cid:80)(cid:73)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)
(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:82)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:69)(cid:74)(cid:75)(cid:71)(cid:88)(cid:71)(cid:2)
(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:111)(cid:2)(cid:73)(cid:81)(cid:67)(cid:78)(cid:85)(cid:2)(cid:2)
(cid:50)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:73)(cid:81)(cid:67)(cid:78)(cid:85)
(cid:50)(cid:84)(cid:81)(cid:86)(cid:71)(cid:69)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:111)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:85)(cid:2)
48
(cid:3)
(cid:3)
Wealth Management Americas
Wealth Management Americas develops advice-based relationships through its financial advisors, who deliver a fully
integrated set of wealth management solutions designed to address the needs of high net worth and ultra high net
worth individuals and families.
Business
We are one of the leading wealth managers in the Americas in
terms of financial advisor productivity and invested assets. Our
business includes the domestic US and Canadian business as well
as international business booked in the US. We have attractive
growth opportunities and a clear strategy focused on serving our
target client segments. As of 31 December 2014, invested assets
totaled USD 1,032 billion.
Strategy and clients
Our goal is to be the best wealth management business in the
Americas. With our client-focused, advisor-centric strategy, we
deliver advice-based wealth management solutions and banking
services through our financial advisors in key metropolitan mar-
kets, providing a fully integrated set of products and services to
meet the needs of our target client segments – high net worth
clients and ultra high net worth clients – while also serving the
needs of core affluent clients. We define high net worth clients as
those with investable assets of between USD 1 million and USD
10 million, and ultra high net worth clients as those with invest-
able assets of more than USD 10 million. Core affluent clients are
defined as those with investable assets of between USD 250,000
and USD 1 million. The Global Family Office – Americas, a joint
venture between Wealth Management Americas and the Invest-
ment Bank, was launched in 2013 with the objective of seam-
lessly offering the global resources and reach of the entire firm by
providing integrated, comprehensive wealth management and
institutional-type services to selected Family Office clients. Our
Wealth Advice Center serves emerging affluent clients with in-
vestable assets of less than USD 250,000. We are committed to
(cid:41)(cid:71)(cid:81)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:69)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:77)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)(cid:124)(cid:2)
(cid:2)
(cid:37)(cid:67)(cid:80)(cid:67)(cid:70)(cid:67)(cid:2)(cid:22)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)(cid:85)(cid:28)(cid:2)
(cid:37)(cid:67)(cid:78)(cid:73)(cid:67)(cid:84)(cid:91)(cid:14)(cid:2)(cid:47)(cid:81)(cid:80)(cid:86)(cid:84)(cid:71)(cid:67)(cid:78)(cid:14)(cid:2)(cid:54)(cid:81)(cid:84)(cid:81)(cid:80)(cid:86)(cid:81)(cid:14)(cid:2)(cid:56)(cid:67)(cid:80)(cid:69)(cid:81)(cid:87)(cid:88)(cid:71)(cid:84)
(cid:35)(cid:46)(cid:35)(cid:53)(cid:45)(cid:35)
(cid:57)(cid:35)(cid:53)(cid:42)(cid:43)(cid:48)(cid:41)(cid:54)(cid:49)(cid:48)
(cid:47)(cid:49)(cid:48)(cid:54)(cid:35)(cid:48)(cid:35)
(cid:48)(cid:49)(cid:52)(cid:54)(cid:42)(cid:2)(cid:38)(cid:35)(cid:45)(cid:49)(cid:54)(cid:35)
(cid:47)(cid:43)(cid:48)(cid:48)(cid:39)(cid:53)(cid:49)(cid:54)(cid:35)
(cid:49)(cid:52)(cid:39)(cid:41)(cid:49)(cid:48)
(cid:43)(cid:38)(cid:35)(cid:42)(cid:49)
(cid:57)(cid:59)(cid:49)(cid:47)(cid:43)(cid:48)(cid:41)
(cid:53)(cid:49)(cid:55)(cid:54)(cid:42)(cid:2)(cid:38)(cid:35)(cid:45)(cid:49)(cid:54)(cid:35)
(cid:57)(cid:43)(cid:53)(cid:37)(cid:49)(cid:48)(cid:53)(cid:43)(cid:48)
(cid:48)(cid:39)(cid:36)(cid:52)(cid:35)(cid:53)(cid:45)(cid:35)
(cid:43)(cid:49)(cid:57)(cid:35)
(cid:47)(cid:43)(cid:37)(cid:42)(cid:43)(cid:41)(cid:35)(cid:48)
(cid:48)(cid:39)(cid:57)(cid:2)(cid:59)(cid:49)(cid:52)(cid:45)
(cid:48)(cid:39)(cid:56)(cid:35)(cid:38)(cid:35)
(cid:55)(cid:54)(cid:35)(cid:42)
(cid:37)(cid:49)(cid:46)(cid:49)(cid:52)(cid:35)(cid:38)(cid:49)
(cid:45)(cid:35)(cid:48)(cid:53)(cid:35)(cid:53)
(cid:43)(cid:46)(cid:46)(cid:43)(cid:48)(cid:49)(cid:43)(cid:53)
(cid:49)(cid:42)(cid:43)(cid:49)
(cid:43)(cid:48)(cid:38)(cid:43)(cid:35)(cid:48)(cid:35)
(cid:50)(cid:39)(cid:48)(cid:48)(cid:53)(cid:59)(cid:46)(cid:56)(cid:35)(cid:48)(cid:43)(cid:35)
(cid:57)(cid:39)(cid:53)(cid:54)
(cid:56)(cid:43)(cid:52)(cid:41)(cid:43)(cid:48)(cid:43)(cid:35)
(cid:45)(cid:39)(cid:48)(cid:54)(cid:55)(cid:37)(cid:45)(cid:59)
(cid:56)(cid:43)(cid:52)(cid:41)(cid:43)(cid:48)(cid:43)(cid:35)
(cid:47)(cid:43)(cid:53)(cid:53)(cid:49)(cid:55)(cid:52)(cid:43)
(cid:48)(cid:39)(cid:57)(cid:2)(cid:42)(cid:35)(cid:47)(cid:50)(cid:53)(cid:42)(cid:43)(cid:52)(cid:39)
(cid:47)(cid:35)(cid:53)(cid:53)(cid:35)(cid:37)(cid:42)(cid:55)(cid:53)(cid:39)(cid:54)(cid:54)(cid:53)
(cid:52)(cid:42)(cid:49)(cid:38)(cid:39)(cid:2)(cid:43)(cid:53)(cid:46)(cid:35)(cid:48)(cid:38)
(cid:37)(cid:49)(cid:48)(cid:48)(cid:39)(cid:37)(cid:54)(cid:43)(cid:37)(cid:55)(cid:54)
(cid:48)(cid:39)(cid:57)(cid:2)(cid:44)(cid:39)(cid:52)(cid:53)(cid:39)(cid:59)
(cid:38)(cid:39)(cid:46)(cid:35)(cid:57)(cid:35)(cid:52)(cid:39)
(cid:47)(cid:35)(cid:52)(cid:59)(cid:46)(cid:35)(cid:48)(cid:38)
(cid:57)(cid:35)(cid:53)(cid:42)(cid:43)(cid:48)(cid:41)(cid:54)(cid:49)(cid:48)(cid:2)(cid:38)(cid:16)(cid:37)(cid:16)
(cid:56)(cid:39)(cid:52)(cid:47)(cid:49)(cid:48)(cid:54)
(cid:47)(cid:35)(cid:43)(cid:48)(cid:39)
(cid:37)(cid:35)(cid:46)(cid:43)(cid:40)(cid:49)(cid:52)(cid:48)(cid:43)(cid:35)
(cid:35)(cid:52)(cid:43)(cid:60)(cid:49)(cid:48)(cid:35)
(cid:48)(cid:39)(cid:57)(cid:2)(cid:47)(cid:39)(cid:58)(cid:43)(cid:37)(cid:49)
(cid:49)(cid:45)(cid:46)(cid:35)(cid:42)(cid:49)(cid:47)(cid:35)
(cid:35)(cid:52)(cid:45)(cid:35)(cid:48)(cid:53)(cid:35)(cid:53)
(cid:54)(cid:39)(cid:48)(cid:48)(cid:39)(cid:53)(cid:53)(cid:39)(cid:39)
(cid:48)(cid:49)(cid:52)(cid:54)(cid:42)(cid:2)(cid:37)(cid:35)(cid:52)(cid:49)(cid:46)(cid:43)(cid:48)(cid:35)
(cid:53)(cid:49)(cid:55)(cid:54)(cid:42)(cid:2)
(cid:37)(cid:35)(cid:52)(cid:49)(cid:46)(cid:43)(cid:48)(cid:35)
(cid:47)(cid:43)(cid:53)(cid:53)(cid:43)(cid:53)(cid:53)(cid:43)(cid:50)(cid:50)(cid:43)
(cid:35)(cid:46)(cid:35)(cid:36)(cid:35)(cid:47)(cid:35)
(cid:41)(cid:39)(cid:49)(cid:52)(cid:41)(cid:43)(cid:35)
(cid:54)(cid:39)(cid:58)(cid:35)(cid:53)
(cid:46)(cid:49)(cid:55)(cid:43)(cid:53)(cid:43)(cid:35)(cid:48)(cid:35)
(cid:42)(cid:35)(cid:57)(cid:35)(cid:43)(cid:43)
(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)(cid:85)(cid:28)
(cid:30)(cid:2)(cid:23)(cid:2)
(cid:23)(cid:115)(cid:19)(cid:23)
(cid:32)(cid:2)(cid:19)(cid:23)
(cid:40)(cid:46)(cid:49)(cid:52)(cid:43)(cid:38)(cid:35)
(cid:50)(cid:55)(cid:39)(cid:52)(cid:54)(cid:49)(cid:2)(cid:52)(cid:43)(cid:37)(cid:49)
(cid:55)(cid:84)(cid:87)(cid:73)(cid:87)(cid:67)(cid:91)(cid:2)(cid:19)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)(cid:28)(cid:2)
(cid:47)(cid:81)(cid:80)(cid:86)(cid:71)(cid:88)(cid:75)(cid:70)(cid:71)(cid:81)
(cid:20)(cid:36)(cid:38)(cid:18)(cid:19)(cid:18)(cid:65)(cid:71)
49
(cid:56)(cid:67)(cid:80)(cid:69)(cid:81)(cid:87)(cid:88)(cid:71)(cid:84)(cid:2)(cid:10)(cid:37)(cid:35)(cid:48)(cid:11)(cid:28)(cid:2)(cid:19)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)
(cid:47)(cid:81)(cid:80)(cid:86)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:10)(cid:37)(cid:35)(cid:48)(cid:11)(cid:28)(cid:2)(cid:19)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)
(cid:54)(cid:81)(cid:84)(cid:81)(cid:80)(cid:86)(cid:81)(cid:2)(cid:10)(cid:37)(cid:35)(cid:48)(cid:11)(cid:28)(cid:2)(cid:19)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)
Operating environment and strategy Operating environment and strategy
Wealth Management Americas
providing high-quality advice to our clients across all their finan-
cial needs by employing the best professionals in the industry,
delivering the highest standard of execution, and running a
streamlined and efficient business.
We believe we are uniquely positioned to serve high net worth
and ultra high net worth investors in the world’s largest wealth
market. With a network of about 7,000 financial advisors and
USD 1,032 billion in invested assets, we are large enough to be
relevant, but focused enough to be nimble, enabling us to com-
bine the advantages of large and boutique wealth managers. We
aim to differentiate ourselves from competitors and be a trusted
and leading provider of financial advice and solutions to our cli-
ents by enabling our financial advisors to leverage the full re-
sources of UBS, including unique access to wealth management
research, a global Chief Investment Office, and solutions from our
asset-gathering businesses and the Investment Bank. These re-
sources are augmented by our commitment to an open architec-
ture platform and are supported by our partnerships with many of
the world’s leading third-party institutions. Moreover, our wealth
management offering is complemented by banking, mortgage
and financing solutions that enable us to provide advice on both
the asset and liability sides of our clients’ balance sheets.
We believe the long-term growth prospects of the wealth
management business are attractive in the Americas, with high
net worth and ultra high net worth expected to be the fastest
growing segments in terms of invested assets in the region. In
2014, our strategy and focus led to a continued improvement in
financial results, retention of high-quality financial advisors and
net new money growth. Building on this progress, we aim for
continued growth in our business by developing our financial ad-
visors’ focus towards delivering holistic advice across the full spec-
trum of client needs, leveraging the global capabilities of UBS to
clients by continuing to expand our cross business collaboration
efforts throughout the firm, and delivering banking and lending
services that complement our wealth management solutions. We
also plan to continue investing in improved platforms and tech-
nology, while remaining disciplined on cost. We expect these ef-
forts to enable us to achieve higher levels of client satisfaction,
strengthen our client relationships, and lead to greater revenue
productivity among our financial advisors.
Organizational structure
Wealth Management Americas consists of branch networks in the
US, Puerto Rico, Canada and Uruguay, with 6,997 financial advi-
sors as of 31 December 2014. Most corporate and operational
functions are located in the Wealth Management Americas home
office in Weehawken, New Jersey and the UBS Business Solutions
Center in Nashville, Tennessee.
In the US and Puerto Rico, we operate primarily through UBS
subsidiaries. Securities and operations activities are conducted pri-
marily through two registered broker-dealers, UBS Financial Ser-
vices Inc. and UBS Financial Services Incorporated of Puerto Rico.
Our banking services in the US include those conducted through
the UBS AG branches and UBS Bank USA, a federally regulated
bank in Utah, which provides Federal Deposit Insurance Corpora-
tion (FDIC)-insured deposit accounts, collateralized lending ser-
vices, mortgages and credit cards.
Canadian wealth management and banking operations are
conducted through UBS Bank (Canada), and Uruguayan wealth
management operations are conducted through UBS Financial
Services Montevideo.
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)
(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:124)(cid:2)
(cid:7)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)(cid:55)(cid:53)(cid:38)(cid:2)(cid:19)(cid:14)(cid:18)(cid:21)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:26)(cid:22)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:27)(cid:25)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:19)(cid:14)(cid:18)(cid:21)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:26)
(cid:20)(cid:27)
(cid:21)(cid:19)
(cid:24)
(cid:20)(cid:18)
(cid:24)
(cid:27)
(cid:21)(cid:20)
(cid:21)(cid:19)
(cid:23)
(cid:19)(cid:25)
(cid:24)
(cid:26)
(cid:21)(cid:21)
(cid:21)(cid:20)
(cid:22)
(cid:19)(cid:24)
(cid:25)
(cid:22)
(cid:19)(cid:21)
(cid:21)(cid:27)
(cid:30)(cid:2)(cid:55)(cid:53)(cid:38)(cid:2)(cid:20)(cid:23)(cid:18)(cid:2)(cid:86)(cid:74)(cid:81)(cid:87)(cid:85)(cid:67)(cid:80)(cid:70)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:18)(cid:16)(cid:20)(cid:23)(cid:115)(cid:19)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:19)(cid:115)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:32)(cid:2)(cid:55)(cid:53)(cid:38)(cid:2)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:22)(cid:22)
(cid:25)(cid:18)(cid:15)(cid:19)(cid:24)(cid:19)(cid:65)(cid:20)(cid:2)(cid:57)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:19)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:26)(cid:20)(cid:15)(cid:19)(cid:24)(cid:20)(cid:65)(cid:20)(cid:2)(cid:57)(cid:47)(cid:35)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)(cid:65)(cid:55)(cid:53)(cid:38)(cid:65)(cid:71)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)(cid:14)(cid:2)(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:386)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
50
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Competitors
We compete with national full-service brokerage firms, domes-
tic and global private banks, regional broker-dealers, indepen-
dent broker-dealers, registered investment advisors, trust com-
panies and other financial services firms offering wealth
management services to US and Canadian private clients, as
well as foreign non-resident clients seeking wealth manage-
ment services within the US. Our main competitors include the
wealth management businesses of Bank of America, Morgan
Stanley and Wells Fargo.
Products and services
We offer clients a full array of solutions that focus on their individ-
ual financial needs. Comprehensive planning supports clients
through the various stages of their lives, including education
funding, charitable giving, estate strategies, insurance, retirement
and trusts, and foundations, with corresponding product offer-
ings for each stage. Our advisors work closely with internal con-
sultants in areas such as wealth planning, portfolio strategy, re-
tirement and annuities, alternative
investments, managed
accounts, structured products, banking and lending, equities and
fixed income. Clients also benefit from our dedicated Wealth
Management Research team, which provides research guidance
to help support our clients’ investment decisions.
lending, resource management accounts, FDIC-insured deposits,
mortgages and credit cards.
Additionally, our UBS Equity Plan Advisory Services is a leading
provider of equity compensation plan services and advice to more
than 150 US corporations, representing one million participants
worldwide. For corporate and institutional clients, we offer a ro-
bust suite of solutions, including equity compensation, adminis-
tration, investment consulting, defined benefit and contribution
programs and cash management services.
Our clients can choose asset-based pricing, transaction-based
pricing or a combination of both. Asset-based accounts have access
to both discretionary and non-discretionary investment advisory
programs. Non-discretionary advisory programs enable the client to
maintain control over all account transactions, while clients with
discretionary advisory programs authorize investment professionals
to manage a portfolio on their behalf. Depending on the type of
discretionary program, the client can give investment discretion to
a qualified financial advisor, a team of our investment professionals
or a third-party investment manager. Separately, we also offer mu-
tual fund advisory programs, whereby a financial advisor works
with the client to create a diversified portfolio of mutual funds
guided by a research-driven asset allocation framework.
For clients who favor individual securities, we offer a broad
range of equity and fixed income instruments. In addition, quali-
fied clients may invest in structured products and alternative in-
vestment offerings to complement their portfolio strategies.
Our offering is designed to meet a wide variety of investment
objectives, including wealth accumulation and preservation, in-
come generation and portfolio diversification. To address the full
range of our clients’ financial needs, we also offer competitive
lending and cash management services such as securities-backed
All of these solutions are supported by a dedicated capital mar-
kets group. This group cooperates with the Investment Bank and
Global Asset Management in order to access the resources of the
entire firm, as well as with third-party investment banks and asset
management firms.
51
Operating environment and strategy Operating environment and strategy
Retail & Corporate
Retail & Corporate
As the leading retail and corporate banking business in Switzerland, our goal is to deliver comprehensive financial
products and services to retail, corporate and institutional clients, provide stable and substantial profits for the Group
and create revenue opportunities for other businesses within the Group.
Business
Strategy and clients
We provide comprehensive financial products and services to our
retail, corporate and institutional clients in Switzerland, maintain-
ing a leading position in these client segments and embedding
our offering in a multi-channel approach. As shown in the “Busi-
ness mix” chart below, our retail and corporate business gener-
ates stable profits which contribute substantially to the overall fi-
nancial performance of the Group. We are among the leading
players in the retail and corporate loan market in Switzerland,
with a well collateralized lending portfolio of CHF 137 billion as of
31 December 2014, as shown in the “Loans, gross” chart below.
This portfolio is managed conservatively, focusing on profitability
and credit quality rather than market share.
Our retail and corporate business constitutes a central building
block of UBS’s universal bank delivery model in Switzerland, sup-
porting other business divisions by referring clients to them and
assisting retail clients to build their wealth to a level at which we
can transfer them to our Wealth Management unit. Furthermore,
we leverage the cross-selling potential of products and services
provided by our asset-gathering and investment banking busi-
nesses. In addition, we manage a substantial part of UBS’s Swiss
infrastructure and Swiss banking products platform, which are
both leveraged across the Group.
We aspire to be the bank of choice for retail clients in Switzerland
by delivering value-added services. Currently, we serve one in three
Swiss households. Our distribution network is comprised of around
300 branches, 1,250 automated teller machines including self-ser-
vice terminals, and four customer service centers, as well as state-
of-the-art digital banking services. Technology is fundamentally
transforming the way we deliver our products and services. We
are, therefore, continuously expanding and enhancing our
multi-channel offering and will continue to build on our long tra-
dition as a leader and innovator in digital services to deliver supe-
rior client experience, capture market share and increase efficiency.
Moreover, we follow a life-cycle-based product approach to pro-
vide our clients with tailored solutions to meet their particular
needs in their different stages of life. With regard to execution, we
ensure a client-focused and efficient sales process.
Our size in Switzerland and the diversity of businesses we op-
erate put us in an advantageous position to serve all our clients’
complex financial needs in an integrated and efficient way. We
aim to be the main bank of corporate and institutional clients
ranging from small and medium-sized enterprises to multination-
als, and from pension funds and insurers to commodity traders
and banks. We serve more than 120,000 companies, including
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:75)(cid:90)
(cid:7)(cid:2)
(cid:40)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:71)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:28)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:14)(cid:26)(cid:21)(cid:24)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:52)(cid:71)(cid:69)(cid:87)(cid:84)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)
(cid:52)(cid:71)(cid:69)(cid:87)(cid:84)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:72)(cid:71)(cid:71)(cid:85)
(cid:23)(cid:25)
(cid:48)(cid:81)(cid:80)(cid:15)(cid:84)(cid:71)(cid:69)(cid:87)(cid:84)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)
(cid:20)(cid:27)
(cid:19)(cid:22)
52
Loans, gross
%
As of 31.12.14
7
5
1
15
73
Total: CHF 137 billion1
Secured by residential property2
Secured by commercial/ industrial property3
Secured by securities
Secured by guarantees and other collateral
Unsecured loans
1 Total includes less than 1% secured by cash. 2 54% average loan-to-value based on latest credit review.
3 56% average loan-to-value based on latest credit review.
(cid:19)(cid:36)(cid:38)(cid:18)(cid:20)(cid:20)(cid:65)(cid:71)
1BD021_e
more than 85% of the 1,000 largest Swiss corporations, as well
as one in three pension funds in Switzerland, including 75 of the
largest 100, and 85% of banks domiciled in Switzerland. We
strive to selectively expand our market share in Switzerland with
focus on the cash flow-based lending and fee and trading busi-
ness. Additionally, we systematically expand our international
footprint leveraging our product capabilities to optimally serve
Swiss corporate clients with activities abroad as well as global cor-
porate clients with headquarters in Switzerland.
Our clients value the good work we do and have rewarded it
once again: for the fourth consecutive year, in 2014, the interna-
tional finance magazine Euromoney named UBS “Best Domestic
Cash Manager Switzerland” on the basis of a survey of cash man-
agers and Chief Financial Officers. We were recognized by our
clients for our extraordinary quality in the annual “Agent Banks in
Major Markets” survey carried out by the Global Custodian mag-
azine.
As the leading retail and corporate banking business in Swit-
zerland, we understand the importance of our role in supporting
our clients’ needs. We continuously review structures and pro-
cesses in order to simplify our service commitments across the
business, including streamlining our processes, reducing the ad-
ministrative burden on our client advisors and enhancing their
long-term productivity without compromising our risk standards.
Continuous development, particularly of our client-facing
staff, is a crucial element of our strategy, as this is our key to en-
suring superior client service. We are the only bank in Switzerland
with a mandatory certification scheme for our client advisors ac-
knowledged by an independent third party.
Organizational structure
We are a core element of UBS’s universal bank delivery model in
Switzerland, which allows us to extend the expertise of the entire
bank to our Swiss retail, corporate and institutional clients. Swit-
zerland is the only country where we operate in retail, corporate
and institutional banking, wealth and asset management, as well
as investment bank services.
To ensure consistent delivery throughout Switzerland, the Swiss
network is organized into 10 geographical regions. Dedicated
management teams in the regions and in the branches derived
from all business areas are responsible for executing the universal
bank model, fostering cross-divisional collaboration and ensuring
that the public and clients have a uniform experience based on a
single corporate image and shared standards of service.
Competitors
In the Swiss retail banking business, our competitors are Raif-
feisen, Credit Suisse, the cantonal banks, Postfinance, and other
regional and local Swiss banks.
In the Swiss corporate and institutional business, our main
competitors are Credit Suisse, the cantonal banks and foreign
banks in Switzerland.
Products and services
Our retail clients have access to a comprehensive life-cycle-based
offering, comprising easy-to-understand products including cash
accounts, payments, savings and retirement solutions, investment
fund products, residential mortgages, a loyalty program and advi-
sory services. We provide financing solutions to our corporate cli-
ents, offering access to equity and debt capital markets, syndi-
cated and structured credit, private placements, leasing and
traditional financing. Our transaction banking offers solutions for
payment and cash management services, trade and export fi-
nance, receivable finance, as well as global custody solutions to
institutional clients. In 2014, we launched a number of product
and service innovations. Examples include the UBS Asset Wizard,
which enables our globally invested clients to analyze the risks
and performance of their portfolios with just a few clicks, digitally
and in real time. Additionally, we launched SME Fast Credit based
on a lean credit process that includes fast credit decisions and ef-
ficient credit monitoring, which optimally addresses small and
medium-sized enterprise needs and helps us realize significant
efficiency gains. To best leverage our value proposition to clients,
close collaboration with our Investment Bank is a key building
block in our universal bank strategy. This enables us to offer capi-
tal market products, foreign exchange products, hedging strate-
gies and trading, as well as to provide corporate finance advice in
fields such as mid-market mergers and acquisitions, corporate
succession planning and real estate.
53
Operating environment and strategy Operating environment and strategy
Global Asset Management
Global Asset Management
Global Asset Management is a large-scale asset manager with well diversified businesses across regions and client
segments. We serve third-party institutional and wholesale clients, as well as clients of UBS’s wealth management
businesses with a broad range of investment capabilities and styles across all major traditional and alternative asset
classes.
Business
Our investment capabilities encompass traditional investments in-
cluding equities, fixed income, multi-asset and currency strate-
gies, as well as alternative investments including hedge funds,
real estate, infrastructure and private equity funds. Complement-
ing the investment offering, our fund services unit provides ad-
ministration services for traditional and alternative UBS and third-
party funds. Invested assets totaled CHF 664 billion and assets
under administration were CHF 520 billion as of 31 December
2014. We are a leading fund house in Europe, the largest mutual
fund manager in Switzerland and one of the leading fund of
hedge funds and real estate investment managers in the world.
Strategy
Our mission is to bring the best of Global Asset Management to
our clients by drawing on the full breadth of our capabilities to
deliver high-quality solutions and services, and by acting as a
trusted partner. We offer a broad range of investment capabilities
and styles across all major traditional and alternative asset classes.
We are focused on delivering superior investment performance
and carefully managing our product shelf to ensure we can offer
distinctive and innovative products for our clients. Across our
business, we have a clear focus on fostering an environment that
attracts, develops and retains world-class professionals.
Our aim is to drive profitable and sustainable growth across
our client segments. In third-party distribution, we are focusing
our growth ambitions on key markets, strengthening our institu-
tional business and accelerating the growth of our wholesale
business. We are also intensifying our collaboration with UBS’s
wealth management businesses to deliver products and solutions
for their clients.
Our global business model has proven resilient to challenging
market conditions, positions us well to benefit from shifting mar-
ket dynamics, and provides a solid foundation to capture growth
opportunities.
Going forward, we will build on our strengths, including alter-
natives and passive investments. In alternatives, we continue to
work to expand our successful platform, building on our estab-
lished positions in real estate, hedge funds and fund of hedge
funds, and leveraging this expertise across all investment areas. In
passive investments, we continue to develop our well established
capabilities, including indexed strategies and exchange-traded
funds (ETF), to meet growing demand for these products from
both institutional and individual investors. Nearly one-third of our
invested assets now fall into this category and our platform is
highly scalable.
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:71)(cid:73)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:19)
(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:24)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:24)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:24)(cid:26)
(cid:21)(cid:20)
(cid:25)(cid:18)
(cid:21)(cid:18)
(cid:25)(cid:19)
(cid:20)(cid:27)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:71)(cid:85)
(cid:54)(cid:74)(cid:75)(cid:84)(cid:70)(cid:2)(cid:82)(cid:67)(cid:84)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
54
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:21)(cid:21)
(cid:19)(cid:27)
(cid:20)(cid:18)
(cid:20)(cid:26)
(cid:21)(cid:22)
(cid:20)(cid:20)
(cid:20)(cid:18)
(cid:20)(cid:22)
(cid:21)(cid:20)
(cid:20)(cid:22)
(cid:20)(cid:19)
(cid:20)(cid:21)
(cid:27)(cid:22)(cid:15)(cid:19)(cid:24)(cid:22)(cid:65)(cid:20)(cid:2)(cid:41)(cid:46)(cid:35)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:80)(cid:71)(cid:78)(cid:65)(cid:37)(cid:42)(cid:40)
(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:14)(cid:2)(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:72)(cid:84)(cid:75)(cid:69)(cid:67)
(cid:35)(cid:85)(cid:75)(cid:67)(cid:2)(cid:50)(cid:67)(cid:69)(cid:75)(cid:386)(cid:69)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:18)(cid:18)(cid:15)(cid:19)(cid:24)(cid:22)(cid:65)(cid:23)(cid:2)(cid:41)(cid:46)(cid:35)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:65)(cid:37)(cid:42)(cid:40)
(cid:19)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:84)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:89)(cid:81)(cid:84)(cid:78)(cid:70)(cid:89)(cid:75)(cid:70)(cid:71)(cid:16)(cid:2)(cid:2)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:85)(cid:82)(cid:78)(cid:75)(cid:86)(cid:2)(cid:75)(cid:85)(cid:2)(cid:82)(cid:84)(cid:75)(cid:79)(cid:67)(cid:84)(cid:75)(cid:78)(cid:91)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:75)(cid:80)(cid:73)(cid:2)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Following a challenging period, the asset management indus-
try has seen a resurgence in asset inflows. The long-term outlook
is positive, with three main drivers indicating continued industry
inflows: (i) populations are aging in developed countries and this
will increase future savings requirements; (ii) governments are
continuing to reduce support for pensions and benefits, leading
to a greater need for private provision; and (iii) emerging markets
are becoming ever more important asset pools.
Clients and markets
We serve third-party institutional and wholesale clients, and cli-
ents of UBS’s wealth management businesses. As shown in the
“Invested assets by client segment” chart, as of 31 December
2014 approximately 71% of invested assets originated from third-
party clients. These comprised institutional clients, such as corpo-
rate and public pension plans, governments and central banks,
and wholesale clients, such as financial intermediaries and distri-
bution partners. UBS’s wealth management businesses repre-
sented 29% of invested assets. Geographically, our client base is
broadly diversified, as shown in the “Invested assets by region”
chart.
Competitors
Our competitors include global firms with wide-ranging capabili-
ties and distribution channels, such as BlackRock, JP Morgan As-
set Management, BNP Paribas Investment Partners, Amundi,
Goldman Sachs Asset Management, AllianceBernstein Invest-
ments, Schroders and Morgan Stanley Investment Management.
Our other competitors include firms with a specific market or as-
set class focus.
Organizational structure
At the end of 2014, we employed 3,817 personnel in 24 coun-
tries, and have our principal offices in London, Chicago, Frankfurt,
Hartford, Hong Kong, New York, Paris, Singapore, Sydney, Tokyo
and Zurich.
Our structure is organized around our:
– investment and business areas (as detailed under products and
services below);
– client servicing and distribution teams, including regional
teams responsible for third-party wholesale and institutional
distribution, and dedicated global teams covering sovereign
clients, consultants, ETFs and UBS’s wealth management busi-
nesses;
– global product development and management function;
– regional heads of Americas, Asia Pacific, Switzerland and
EMEA to provide regional governance and oversight;
– a divisional COO function including global product control and
logistics, fund services, business risk and regulatory manage-
ment, fund treasury, global marketing, and strategic planning
and development;
– support functions including shared services provided by Corpo-
rate Center.
55
Operating environment and strategy Operating environment and strategy
Global Asset Management
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:69)(cid:67)(cid:82)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:40)(cid:75)(cid:90)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:71)(cid:86)(cid:67)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:70)(cid:71)(cid:90)(cid:75)(cid:80)(cid:73)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:40)(cid:87)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:37)(cid:81)(cid:84)(cid:71)(cid:2)(cid:73)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:14)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:14)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:14)(cid:2)
(cid:71)(cid:79)(cid:71)(cid:84)(cid:73)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)
(cid:49)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:87)(cid:80)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2)(cid:74)(cid:75)(cid:73)(cid:74)(cid:124)(cid:67)(cid:78)(cid:82)(cid:74)(cid:67)
(cid:53)(cid:79)(cid:67)(cid:78)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:14)(cid:2)(cid:85)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:79)(cid:67)(cid:86)(cid:75)(cid:69)(cid:14)(cid:2)
(cid:85)(cid:87)(cid:85)(cid:86)(cid:67)(cid:75)(cid:80)(cid:67)(cid:68)(cid:78)(cid:71)
(cid:41)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:85)(cid:86)(cid:91)(cid:78)(cid:71)(cid:2)(cid:115)(cid:2)(cid:73)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:14)(cid:2)(cid:55)(cid:53)(cid:14)(cid:2)
(cid:71)(cid:79)(cid:71)(cid:84)(cid:73)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)
(cid:46)(cid:81)(cid:80)(cid:73)(cid:17)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)(cid:14)(cid:2)(cid:87)(cid:80)(cid:69)(cid:81)(cid:80)(cid:85)(cid:86)(cid:84)(cid:67)(cid:75)(cid:80)(cid:71)(cid:70)(cid:14)(cid:2)
(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:87)(cid:86)(cid:84)(cid:67)(cid:78)
(cid:51)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)
(cid:42)(cid:75)(cid:73)(cid:74)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)
(cid:47)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)
(cid:37)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:47)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)
(cid:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:2)(cid:70)(cid:87)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:37)(cid:81)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:82)(cid:78)(cid:87)(cid:85)(cid:2)
(cid:53)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:2)(cid:85)(cid:82)(cid:71)(cid:69)(cid:75)(cid:386)(cid:69)(cid:2)
(cid:39)(cid:79)(cid:71)(cid:84)(cid:73)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)(cid:2)
(cid:42)(cid:75)(cid:73)(cid:74)(cid:2)(cid:91)(cid:75)(cid:71)(cid:78)(cid:70)(cid:2)
(cid:55)(cid:80)(cid:69)(cid:81)(cid:80)(cid:85)(cid:86)(cid:84)(cid:67)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:43)(cid:80)(cid:70)(cid:71)(cid:90)(cid:71)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2)(cid:386)(cid:90)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:14)(cid:2)
(cid:69)(cid:81)(cid:79)(cid:79)(cid:81)(cid:70)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:14)(cid:2)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:86)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:2)
(cid:35)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:71)(cid:86)(cid:67)
(cid:52)(cid:87)(cid:78)(cid:71)(cid:85)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)
(cid:39)(cid:54)(cid:40)(cid:14)(cid:2)(cid:82)(cid:81)(cid:81)(cid:78)(cid:71)(cid:70)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)(cid:14)(cid:2)(cid:79)(cid:67)(cid:80)(cid:70)(cid:67)(cid:86)(cid:71)(cid:85)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:14)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)
(cid:79)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:71)(cid:70)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:47)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:84)
(cid:35)(cid:70)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:40)(cid:87)(cid:80)(cid:70)(cid:17)(cid:50)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:2)(cid:85)(cid:71)(cid:86)(cid:15)(cid:87)(cid:82)
(cid:40)(cid:75)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)
(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)(cid:69)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:81)(cid:84)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:50)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:78)(cid:67)(cid:68)(cid:71)(cid:78)(cid:75)(cid:80)(cid:73)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:85)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)
(cid:35)(cid:80)(cid:69)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:91)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:49)(cid:111)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)
(cid:35)(cid:8)(cid:51)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:86)(cid:71)
(cid:43)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:82)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:53)(cid:75)(cid:80)(cid:73)(cid:78)(cid:71)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:84)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)(cid:28)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:79)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)
(cid:78)(cid:81)(cid:80)(cid:73)(cid:2)(cid:17)(cid:2)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)
(cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:78)(cid:81)(cid:80)(cid:73)(cid:2)(cid:17)(cid:2)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)
(cid:37)(cid:81)(cid:80)(cid:88)(cid:71)(cid:84)(cid:86)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:67)(cid:84)(cid:68)(cid:75)(cid:86)(cid:84)(cid:67)(cid:73)(cid:71)
(cid:47)(cid:71)(cid:84)(cid:73)(cid:71)(cid:84)(cid:2)(cid:67)(cid:84)(cid:68)(cid:75)(cid:86)(cid:84)(cid:67)(cid:73)(cid:71)
(cid:47)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:84)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)
(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)
(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:42)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:67)(cid:70)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)(cid:2)(cid:82)(cid:84)(cid:81)(cid:73)(cid:84)(cid:67)(cid:79)(cid:85)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)
(cid:38)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:75)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)
(cid:43)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:43)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:14)(cid:2)(cid:69)(cid:81)(cid:84)(cid:71)(cid:14)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:15)(cid:67)(cid:70)(cid:70)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:81)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:87)(cid:80)(cid:75)(cid:85)(cid:86)(cid:75)(cid:69)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:71)(cid:85)
(cid:50)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)
(cid:47)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:84)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:46)(cid:75)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:40)(cid:67)(cid:84)(cid:79)(cid:78)(cid:67)(cid:80)(cid:70)
Products and services
We offer our clients investment products and services in equities,
fixed income, single and multi-manager hedge funds, global real
estate, infrastructure, private equity, and multi-asset solutions.
These can be delivered in the form of active or passive, segre-
gated, pooled or advisory mandates, as well as a broad range of
registered investment funds, ETFs and other investment vehicles
in a wide variety of jurisdictions. We also offer fund administra-
tion services for UBS and third-party funds. The “Investment capa-
bilities and services” chart illustrates the distinct offerings of each
area.
– Equities offers a wide spectrum of active investment strategies
with varying risk and return objectives. Global and regional ca-
pabilities in the US, Europe, APAC and emerging markets are
complemented by growth and quantitative styles. Strategies
include core, high alpha, unconstrained, long-short, small cap,
sector, thematic and high dividend.
– Fixed income offers a diverse range of active global, regional
and local market-based investment strategies. Its capabilities in-
clude single-sector strategies such as government and corporate
bond portfolios, multi-sector strategies such as core and core
plus bond, and extended sector strategies such as high yield and
emerging market debt. In addition to this suite of traditional
fixed income offerings, the team also manages unconstrained
fixed income, currency strategies and customized solutions.
– Structured beta and indexing offers indexed, alternative beta
and rules-based strategies across all major asset classes on a
global and regional basis. Its capabilities include indexed equi-
ties, fixed income, commodities, real estate and alternatives
with benchmarks ranging from mainstream to highly custom-
ized indices and rules-driven solutions. Products are offered in
a variety of structures including ETFs, pooled funds, structured
funds and mandates.
– Global investment solutions (GIS) offers active asset allocation,
currency and multi-manager investment strategies as well as
structured solutions and advisory services. It manages a wide
array of regional and global multi-asset investment strategies
across the full investment universe and risk/return spectrum,
customized and risk-managed strategies, convertible bonds
56
and multi-manager strategies. GIS also supports clients in a
wide range of advisory functions including outsourced chief
investment officer, manager selection, pension risk manage-
ment, risk advisory, global tactical asset allocation and custom
mandates.
strategies across the risk/return spectrum. These are offered
through open and closed-end private funds, real estate invest-
ment trusts, customized investment structures, multi-manager
funds, individually managed accounts and real estate securi-
ties.
– O’Connor is a global, relative value-focused, single-manager
hedge fund platform. It is dedicated to providing investors with
strong absolute and risk-adjusted returns, differentiated from
those available from long-only investments in traditional asset
classes.
– A&Q hedge fund solutions (A&Q) offers a full spectrum of
multi-manager hedge fund solutions and advisory services in-
cluding a wide range of strategies that provide professionally
managed exposure to hedge fund investments with tailored
risk and return profiles.
– Global real estate actively manages real estate investments
globally and regionally within Asia Pacific, Europe and the US,
across the major real estate sectors. Its capabilities are focused
on core and value-added strategies, but also include other
– Infrastructure and private equity manages direct infrastructure
investment and multi-manager infrastructure and private eq-
uity strategies for both institutional and private banking cli-
ents. Infrastructure asset management manages direct invest-
ments in core infrastructure assets globally. Alternative Funds
Advisory (AFA) infrastructure and AFA private equity construct
broadly diversified fund of funds portfolios across the infra-
structure and private equity asset classes, respectively.
– Fund services, a global fund administration business, offers a
comprehensive range of flexible solutions, including fund
set-up and fiduciary and regulatory services as well as report-
ing and accounting for traditional investment funds, managed
accounts, hedge funds, real estate funds, private equity funds
and other alternative structures.
57
Operating environment and strategy Operating environment and strategy
Investment Bank
Investment Bank
The Investment Bank provides corporate, institutional and wealth management clients with expert advice, innovative
solutions, execution and comprehensive access to the world’s capital markets. We offer advisory services and access to
international capital markets, and provide comprehensive cross-asset research, along with access to equities, foreign
exchange, precious metals and selected rates and credit markets, through our business units, Corporate Client Solutions
and Investor Client Services. The Investment Bank is an active participant in capital markets flow activities, including
sales, trading and market-making across a range of securities.
Business
The Investment Bank is organized as two distinct but aligned busi-
ness units:
Corporate Client Solutions includes all advisory and financing
solutions businesses, origination, structuring and execution, in-
cluding equity and debt capital markets in service of corporate,
financial institution, sponsor clients and UBS’s wealth manage-
ment businesses.
Investor Client Services includes execution, distribution and
trading for institutional investors and provides support to Corpo-
rate Client Solutions and UBS’s wealth management businesses. It
is comprised of our equities businesses, including cash, derivatives
and financing services, cross-asset class research capabilities, and
our foreign exchange franchise, precious metals, rates and credit
businesses. The Investor Client Services unit also provides distribu-
tion and risk management capabilities required to support all of
our businesses.
Strategy
We aspire to provide best-in-class services and solutions to our
corporate, institutional and wealth management clients, through
an integrated, solutions-led approach, driven by intellectual capi-
tal and leveraging our award-winning electronic platforms. With
our client-centric business model, we are an ideal partner to our
wealth management businesses, Retail & Corporate and Global
Asset Management, and we are well positioned to provide our
clients with deep market insight as well as global coverage and
execution.
We continue to focus on our traditional strengths in advisory,
capital markets, equities and foreign exchange businesses, com-
plemented by a re-focused rates and credit platform, in order to
deliver attractive, sustainable, risk-adjusted returns. Supported by
world-class research and technology capabilities, we continue to
pioneer innovative and integrated solutions across asset classes.
We are thus able to support our clients as they adapt to evolving
market structures, driven by regulatory and technological changes.
Our Corporate Client Solutions business unit is comprised of
our advisory and capital markets businesses and financing solu-
tions, which are geared toward industries and geographies that
58
offer the best opportunities to meet our long-term strategic goals.
We are present in all major financial markets, with coverage based
on a comprehensive matrix of country, sector and product bank-
ing professionals.
Within Investor Client Services, our industry-leading equities
business continues to leverage its global distribution platform and
comprehensive product capabilities, to support a broad client
base, including UBS’s wealth management businesses, and insti-
tutional and retail investors, providing access to primary and sec-
ondary equity markets globally. Our foreign exchange and pre-
cious metals businesses, underpinned by a world-class distribution
platform, continue to be a cornerstone of our services. Consistent
with our strategy, our rates and credit businesses are focused on
client flow and solutions, in addition to executing and clearing
exchange-traded fixed income and commodities derivatives. It
serves our capital markets business through an intermediation
model, similar to our equities and foreign exchange businesses.
To ensure the ongoing successful execution of our strategy, we
continue to invest in technology and selectively recruit talent in
key areas across the business. Furthermore, we remain focused on
(cid:54)(cid:74)(cid:71)(cid:2)(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:87)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:70)(cid:71)(cid:78)(cid:75)(cid:88)(cid:71)(cid:84)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:2)(cid:2)(cid:22)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:21)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:14)(cid:25)(cid:20)(cid:26)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:19)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:20)(cid:14)(cid:20)(cid:23)(cid:18)
(cid:20)(cid:14)(cid:19)(cid:27)(cid:18)
(cid:20)(cid:14)(cid:20)(cid:22)(cid:18)
(cid:19)(cid:14)(cid:25)(cid:18)(cid:25)
(cid:19)(cid:14)(cid:26)(cid:24)(cid:19)
(cid:19)(cid:14)(cid:27)(cid:26)(cid:23)
(cid:19)(cid:14)(cid:27)(cid:21)(cid:23)
(cid:19)(cid:51)(cid:19)(cid:21)
(cid:20)(cid:51)(cid:19)(cid:21)
(cid:21)(cid:51)(cid:19)(cid:21)
(cid:22)(cid:51)(cid:19)(cid:21)
(cid:19)(cid:51)(cid:19)(cid:22)
(cid:20)(cid:51)(cid:19)(cid:22)
(cid:21)(cid:51)(cid:19)(cid:22)
(cid:22)(cid:51)(cid:19)(cid:22)
(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:19)
(cid:19)(cid:2)(cid:52)(cid:71)(cid:72)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:86)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:113)(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:85)(cid:113)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:113)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:113)(cid:2)(cid:85)(cid:71)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)
(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)
(cid:22)(cid:18)(cid:18)(cid:18)
(cid:21)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)(cid:18)
(cid:18)
our ongoing cost reduction programs and on strengthening our
operational risk framework. In 2014, we further optimized inter-
nal efficiencies by implementing a targeted technology plan. This
plan is based on a long-term portfolio approach across businesses
aimed at enhancing the effectiveness of our platform for clients.
In addition, we will continue to undertake targeted measures to
simplify our production processes, achieve leaner front-to-back
processes and operate with a reduced real-estate footprint.
To support our goal of earning attractive returns on our allo-
cated capital, we operate within a tightly controlled framework of
balance sheet, risk-weighted assets and leverage ratio denomina-
tor. Consistent with this, we assess both the Corporate Client
Solutions and the Investor Client Services business units based on
the returns they generate individually, as well as assessing the sup-
port and contribution they provide across our two business units.
Organizational structure
At the end of 2014, we employed 11,794 personnel in over 35
countries, and had our principal offices in Hong Kong, London,
New York, Singapore, Sydney, Tokyo and Zurich.
To ensure that our corporate and institutional clients benefit
from our global reach and capabilities in tailoring solutions to
meet their individual needs, we are organized into two client-cen-
tric business units: Corporate Client Solutions and Investor Client
Services. Dedicated management teams in these business units
complement our global product capabilities with their regional
expertise to foster cross-product and cross-divisional collabora-
tion, enabling us to deliver the firm’s comprehensive range of ser-
vices to our clients.
We are governed by executive, operating and risk committees
and operate through UBS AG branches, and other subsidiaries of
UBS Group. Securities activities in the US are conducted through
UBS Securities LLC, a registered broker-dealer. In the UK, Invest-
ment Bank activities are conducted mainly out of UBS AG London
Branch and UBS Limited, consistent with the modified operating
model implemented during 2014 for UBS Limited.
Competitors
Our Investment Bank’s strategy and scope is unique, but other
competing firms are active in many of the businesses and markets
in which we participate. For our leading equities, foreign ex-
change and corporate advisory businesses, our main competitors
are the major global investment banks, including Bank of America
Merrill Lynch, Barclays, Citigroup, Credit Suisse, Deutsche Bank,
Goldman Sachs, JP Morgan Chase and Morgan Stanley.
Products and services
Corporate Client Solutions
This unit provides client coverage, advisory, debt and equity capi-
tal market solutions and financing solutions for corporate, finan-
cial institution, sponsor clients and UBS’s wealth management
businesses. Corporate Client Solutions works closely with Investor
Client Services in the distribution and risk management of capital
markets products and financing solutions. With a presence in all
major financial markets, it is managed by region and is organized
on a matrix of product, industry sector and country banking pro-
fessionals. Its main business lines are as follows:
– Advisory provides bespoke solutions for our clients’ most com-
plex strategic challenges. This includes mergers and acquisi-
tions advice and execution, as well as refinancing, spin-offs,
exchange offers, leveraged buyouts, joint ventures, takeover
defense, corporate broking and other advisory services.
– Equity capital markets offers equity capital-raising services, as
well as related derivative products and risk management solu-
tions. Its services include managing initial public offerings, fol-
low-ons, including rights issues and block trades, as well as
equity-linked transactions and other strategic equities solu-
tions.
– Debt capital markets helps corporate and financial institution
clients in raising debt capital including investment-grade and
emerging market bonds, high-yield bonds, subordinated debt
and hybrid capital. It also provides leveraged capital services,
which include event-driven (acquisition, leveraged buy-out)
loans, bonds and mezzanine financing. All debt products are
provided alongside risk management solutions, including de-
rivatives in close collaboration with our foreign exchange, rates
and credit businesses.
– Financing solutions serves corporate and investor clients across
the globe by providing customized solutions across asset
classes via a wide range of financing capabilities, including
structured financing, real estate finance and special situations.
– Risk management includes corporate lending and associated
hedging activities.
Investor Client Services
Investor Client Services, which includes our equities business and
our foreign exchange, rates and credit business, provides a com-
prehensive distribution platform with enhanced cross-asset deliv-
ery as well as specialist skills to our corporate, institutional and
wealth management clients.
Equities
We are one of the world’s largest equities houses and a leading
participant in the primary and secondary markets for cash equities
and equity derivatives. We provide a full front-to-back product
suite globally, including financing, execution, clearing and cus-
tody services. Our franchise takes a client-centric approach in
serving hedge funds, asset managers, wealth management advi-
sors, financial institutions and sponsors, pension funds, sovereign
wealth funds and corporations globally. We distribute, structure,
execute, finance and clear cash equity and equity derivative prod-
ucts. Our research franchise provides in-depth investment analysis
on companies, sectors, regions, macroeconomic trends, public
policy and asset-allocation strategies. The main business lines of
the equities unit are:
59
Operating environment and strategy Operating environment and strategy
Investment Bank
– Cash provides clients with liquidity, investment advisory, trade
execution and consultancy services, together with comprehen-
sive access to primary and secondary markets, corporate man-
agement and subject matter experts. We offer full-service
trade execution for single stocks and portfolios, including cap-
ital commitment, block trading, small cap execution and com-
mission management services. In addition, we provide clients
with a full suite of advanced electronic trading products, direct
market access to over 100 venues worldwide, including low-
latency execution, innovative algorithms and pre-trade, post-
trade and real-time analytical tools. Our broker and intermedi-
ary services franchise offers execution and price improvement
to retail wholesalers.
– Derivatives provides a full range of flow and structured prod-
ucts, convertible bonds and strategic equity solutions with
global access to primary and secondary markets. It enables cli-
ents to manage risk and meet funding requirements through a
wide range of listed, over-the-counter, securitized and fund-
wrapped products. We create and distribute structured prod-
ucts and notes for institutional and retail investors with invest-
ment returns linked to companies, sectors and indices across
multiple asset classes, including commodities.
– Financing services provides a fully integrated platform for our
hedge fund clients, including prime brokerage, capital intro-
duction, clearing and custody, synthetic financing and securi-
ties lending. In addition, we execute and clear exchange-traded
equity derivatives in more than 45 markets globally. The busi-
ness efficiently manages its allocated resources to deliver at-
tractive, risk-adjusted returns.
Foreign exchange, rates and credit
This unit consists of our leading foreign exchange franchise and
our market-leading precious metals business, as well as select
rates and credit businesses. These businesses support the execu-
tion, distribution and risk management related to corporate and
institutional client businesses, and they also meet the needs of
UBS’s wealth management clients via targeted intermediaries. We
are focused on building a leading agency execution and electronic
trading business, and continue to maintain high levels of balance
sheet velocity. The main business lines are:
– Foreign exchange provides a full range of G10 and emerging
markets currency and precious metals services globally. We are
a leading foreign exchange market-maker in the professional
spot, forwards and options markets. We provide clients world-
wide with first-class execution facilities (voice, electronic, algo-
rithmic) coupled with premier advisory and structuring capabil-
ities when tailored solutions best fit our clients’ positioning,
hedging or liquidity management. We have been present in
physical and non-physical precious metals markets for almost
one century, providing trading, investing and hedging across
the precious metals spectrum.
– Rates and credit encompasses sales, trading and market-mak-
ing in a selected number of rates and credit products, including
standardized rates-driven products, interest rate swaps, medi-
um-term notes, government and corporate bonds, bank notes,
credit derivatives and the execution and clearing of ex-
change-traded fixed income and commodities derivatives. In
addition, we work closely with Corporate Client Solutions, pro-
viding support to our debt capital markets businesses and tai-
loring customized financing solutions for our clients.
60
Corporate Center
Corporate Center is comprised of Core Functions and Non-core and Legacy Portfolio. Core Functions include Group-wide
control functions such as finance (including treasury services such as liquidity, funding, balance sheet and capital
management), risk control (including compliance) and legal. In addition, Core Functions provide all logistics and support
services, including operations, information technology, human resources, regulatory relations and strategic initiatives,
communications and branding, corporate services, physical security, information security as well as outsourcing, near-
shoring and offshoring. Non-core and Legacy Portfolios is comprised of the non-core businesses and legacy positions
that were part of the Investment Bank prior to its restructuring.
Corporate Center – Core Functions
At the end of 2014, 23,637 personnel were employed in Corporate
Center – Core Functions. Core Functions allocates the majority of
its treasury income, operating expenses and personnel associated
with control and shared services functions to the businesses for
which the respective services are performed based on service
consumption and financial resource usage.
As of 1 January 2015, Corporate Center – Core Functions was
reorganized into two new components, Corporate Center – Ser-
vices and Corporate Center – Group Asset and Liability Manage-
ment (Group ALM).
Group Chief Financial Officer
Our Group Chief Financial Officer (Group CFO) is responsible for
ensuring transparency in, and the assessment of, the financial
performance of our Group and business divisions and for the
Group’s financial accounting, controlling, forecasting, planning
and reporting processes. The Group CFO also provides advice on
financial aspects of strategic projects and transactions. The Group
CFO is responsible for divisional and UBS Group financial control
functions. The Group CFO is also responsible for management
and control of the Group’s tax affairs and for treasury and capital
management, including management and control of funding and
liquidity risk with independent oversight from the Group Chief
Risk Officer (Group CRO), and UBS’s regulatory capital ratios. Af-
ter consultation with the Audit Committee of the Board of Direc-
tors (BoD), our Group CFO makes proposals to the BoD regarding
the accounting standards adopted by the Group, and defines fi-
nancial reporting and disclosure standards. Together with the
Group Chief Executive Officer (Group CEO), the Group CFO pro-
vides external certifications under sections 302 and 404 of the
Sarbanes-Oxley Act of 2002, and, in coordination with the Group
CEO, manages relations with investors and external analysts. The
Group CFO supports the Group CEO in strategy development and
key strategic topics. The Corporate Development function sup-
ports UBS’s senior management in the definition, implementation
and monitoring of UBS’s strategy.
Group Chief Operating Officer
Our Group Chief Operating Officer (Group COO) is responsible for
the management of the Group COO functions, which from Janu-
ary 2014 onward includes Group Technology, Group Operations,
Group Corporate Services and Business Design & Effectiveness.
The Group COO is responsible for providing quality, cost-effective
and differentiating Group-wide IT services and tools in line with
the needs of the business divisions and Corporate Center and for
the delivery of a wide range of operational services across all busi-
ness divisions and regions. The Group COO is also responsible for
supplying real estate infrastructure and general administrative ser-
vices, and for directing and controlling all supply and demand
management activities for the entire firm. He supports the firm
with its third-party sourcing strategies and takes responsibility for
the bank’s nearshore, offshore, outsourcing and supplier-related
processes. The Group COO supports the firm in enabling change
and transition to better serve our clients by redefining the level of
services and product offerings throughout the firm, improving the
effectiveness and efficiency of UBS’s operating model and pro-
cesses, reducing complexity and enhancing the flexibility and agil-
ity of the organization.
Group Chief Risk Officer
The Group Chief Risk Officer is responsible for the development
of the Group’s risk appetite framework, its risk management and
control principles and risk policies. In accordance with the risk
appetite framework approved by the Board, the Group CRO is
responsible for the implementation of appropriate independent
control frameworks for credit, market, treasury, country, compli-
ance and operational risks within the Group. The Group CRO is
also responsible for the development and implementation of the
frameworks for risk measurement, aggregation, portfolio controls
and, jointly with the Group CFO, for risk reporting. The Group
CRO decides over transactions, positions, exposures, portfolio lim-
its and risk provisions / allowances in accordance with the risk con-
trol authorities delegated to him. The Group CRO has manage-
ment responsibility over the divisional, regional and firm-wide
risk control functions, and monitors and challenges the bank’s
61
Operating environment and strategy Operating environment and strategy
Corporate Center
risk-taking activities. In January 2014, the compliance and opera-
tional risk organizations were brought together to form a single
function focusing on the control of our regulatory, conduct and
operational risks across all business divisions. This integrated unit
reports to the Group CRO. Also effective January 2014, our Group
Security Services function became part of the Group CRO area.
Group General Counsel
Our Group General Counsel (Group GC) is responsible for legal
matters, policies and processes, and for managing the legal func-
tion of our Group. The Group GC is responsible for reporting legal
risks and material litigation, and for managing litigation, internal,
special and regulatory investigations. The Group GC assumes re-
sponsibility for legal oversight in respect of the Group’s key regu-
latory interactions and for maintaining the relationships with our
key regulators with respect to legal matters.
Corporate Center – Non-core and Legacy Portfolio
Corporate Center – Non-core and Legacy Portfolio is comprised
of the non-core businesses and legacy positions that that were
part of the Investment Bank prior to its restructuring, and is over-
seen by a committee consisting of the Group Chief Executive
Officer, the Group Chief Financial Officer and the Group Chief
Risk Officer.
Non-core and Legacy Portfolio’s businesses and positions are
being managed and exited over time with the objective of max-
imizing shareholder value, in line with our strategic plan. We
have established clear priorities for regions, counterparties and
product lines and have developed detailed wind-down plans
with the objective of achieving capital benefits at optimized cost.
Non-core and Legacy Portfolio works closely with sales manag-
ers and bankers in the Investment Bank as well as with trading
market contacts in attempting to execute the most appropriate
strategy for each situation, and has built strong management
information systems to track the progress of risk-weighted as-
sets (RWA) and leverage ratio denominator reductions and exit
costs. The wind-down and exit strategies include negotiated bi-
lateral settlements with specific counterparties, third-party nova-
tions, including transfers to central clearing houses, agreements
to net down trades with other dealer counterparties and portfo-
lio sales. Significant simplification of books and trades also con-
tributed to our strong progress, and dynamic risk management
and hedging of positions effectively mitigated profit and loss
volatility in the portfolio.
Fully applied RWA for Non-core and Legacy Portfolio as of
31 December 2014 were CHF 36 billion. As of 31 December
2014, 1,480 personnel were employed within Non-core and
Legacy Portfolio compared with 1,585 personnel as of 31 De-
cember 2013.
62
Risk factors
EDTF | Certain risks, including those described below, may impact
our ability to execute our strategy and affect our business activi-
ties, financial condition, results of operations and prospects. Be-
cause the business of a broad-based international financial ser-
vices firm such as UBS is inherently exposed to risks that become
apparent only with the benefit of hindsight, risks of which we are
not presently aware or which we currently do not consider to be
material could also impact our ability to execute our strategy and
affect our business activities, financial condition, results of opera-
tions and prospects. The order of presentation of the risk factors
below does not indicate the likelihood of their occurrence or the
potential magnitude of their consequences. ▲
Fluctuation in foreign exchange rates and continuing low
or negative interest rates may have a detrimental effect
on our capital strength, our liquidity and funding position,
and our profitability
EDTF | On 15 January 2015, the Swiss National Bank (SNB) discon-
tinued the minimum targeted exchange rate for the Swiss franc
versus the euro, which had been in place since September 2011.
At the same time, the SNB lowered the interest rate on deposit
account balances at the SNB that exceed a given exemption
threshold by 50 basis points to negative 0.75%. It also moved the
target range for three-month LIBOR to between negative 1.25%
and negative 0.25%, (previously negative 0.75% to positive
0.25%). These decisions resulted in an immediate, considerable
strengthening of the Swiss franc against the euro, US dollar, Brit-
ish pound, Japanese yen and several other currencies, as well as a
reduction in Swiss franc interest rates. The longer-term rate of the
Swiss franc against these other currencies is not certain, nor is the
future direction of Swiss franc interest rates. Several other central
banks have likewise adopted a negative-interest-rate policy.
A significant portion of the equity of UBS’s foreign operations
is denominated in US dollars, euros, British pounds and other for-
eign currencies.
Similarly, a significant portion of our Basel III risk-weighted as-
sets (RWA) are denominated in US dollars, euros, British pounds
and other foreign currencies. Group Asset and Liability Manage-
ment (Group ALM) is mandated with the task of minimizing ad-
verse effects from changes in currency rates on our capital ratios.
The Group Asset and Liability Management Committee, a com-
mittee of the UBS Group Executive Board, can adjust the currency
mix in capital, within limits set by the Board of Directors, to bal-
ance the effect of foreign exchange movements on the fully ap-
plied CET1 capital and total capital ratio. As a result, the propor-
tion of RWA denominated in foreign currencies outweighs the
capital in these currencies, and any further significant apprecia-
tion of the Swiss franc against these currencies would be expected
to benefit our Basel III capital ratios, while a depreciation of the
Swiss franc would be expected to have a detrimental effect.
The portion of our operating income denominated in non-Swiss
franc currencies is greater than the portion of operating expenses
denominated in non-Swiss franc currencies. Therefore, appreciation
of the Swiss franc against other currencies generally has an adverse
effect on our earnings in the absence of any mitigating actions.
In addition to the estimated effects from changes in foreign
currency exchange rates, our equity and capital are affected by
changes in interest rates. In particular, the calculation of our net
defined benefit assets and liabilities is sensitive to the discount
rate applied. Any further reduction in interest rates would lower
the discount rates and result in an increase in pension plan deficits
due to the long duration of corresponding liabilities. This would
lead to a corresponding reduction in our equity and fully applied
CET1 capital. Also, a continuing low or negative interest rate en-
vironment would have an adverse effect on the re-pricing of our
assets and liabilities, and would significantly impact the net inter-
est income generated from our wealth management and retail
and corporate businesses. The low or negative interest rate envi-
ronment may affect customer behavior and hence the overall bal-
ance sheet structure. Any mitigating actions that we may take to
counteract these effects, such as the introduction of selective de-
posit fees or minimum lending rates, could result in the loss of
customer deposits, a key source of our funding, and / or a declin-
ing market share in our domestic lending portfolio.
Furthermore, the stronger Swiss franc may have a negative im-
pact on the Swiss economy, which, given its reliance on exports,
could impact some of the counterparties within our domestic
lending portfolio and lead to an increase in the level of credit loss
expenses in future periods. ▲
Regulatory and legal changes may adversely affect our
business and our ability to execute our strategic plans
EDTF | Fundamental changes in the laws and regulations affecting
financial institutions can have a material and adverse effect on our
business. In the wake of the 2007–2009 financial crisis and the
following instability in global financial markets, regulators and
legislators have proposed, have adopted, or are actively consider-
ing, a wide range of changes to these laws and regulations. These
measures are generally designed to address the perceived causes
of the crisis and to limit the systemic risks posed by major financial
institutions. They include the following:
– significantly higher regulatory capital requirements;
– changes in the definition and calculation of regulatory capital;
– changes in the calculation of RWA, including potential require-
ments to calculate or disclose RWA using less risk-sensitive
standardized approaches rather than the internal models ap-
63
Operating environment and strategy Operating environment and strategy
Risk factors
proach we currently use as required by FINMA under the
Basel III framework;
– changes in the calculation of the leverage ratio or the introduc-
tion of a more demanding leverage ratio;
– new or significantly enhanced liquidity requirements;
– requirements to maintain liquidity and capital in jurisdictions in
which activities are conducted and booked;
– limitations on principal trading and other activities;
– new licensing, registration and compliance regimes;
– limitations on risk concentrations and maximum levels of risk;
– taxes and government levies that would effectively limit bal-
ance sheet growth or reduce the profitability of trading and
other activities;
– cross-border market access restrictions;
– a variety of measures constraining, taxing or imposing addi-
tional requirements relating to compensation;
– adoption of new liquidation regimes intended to prioritize the
preservation of systemically significant functions;
– requirements to maintain loss-absorbing capital or debt instru-
ments subject to write down as part of recovery measures or a
resolution of the Group or a Group company, including re-
quirements for subsidiaries to maintain such instruments;
– requirements to adopt structural and other changes designed
to reduce systemic risk and to make major financial institutions
easier to manage, restructure, disassemble or liquidate, includ-
ing ring-fencing certain activities and operations within sepa-
rate legal entities; and
– requirements to adopt risk and other governance structures at
a local jurisdiction level.
Many of these measures have been adopted and their imple-
mentation has had a material effect on our business. Others will be
implemented over the next several years; some are subject to legis-
lative action or to further rulemaking by regulatory authorities be-
fore final implementation. As a result, there remains a high level of
uncertainty regarding a number of the measures referred to above,
including whether (or the form in which) they will be adopted, the
timing and content of implementing regulations and interpreta-
tions and / or the dates of their effectiveness. The implementation
of such measures and further, more restrictive changes may mate-
rially affect our business and ability to execute our strategic plans.
Notwithstanding attempts by regulators to coordinate their ef-
forts, the measures adopted or proposed differ significantly across
the major jurisdictions, making it increasingly difficult to manage
a global institution. The absence of a coordinated approach,
moreover, disadvantages institutions headquartered in jurisdic-
tions that impose relatively more stringent standards. Switzerland
has adopted capital and liquidity requirements for its major inter-
national banks that are among the strictest of the major financial
centers. This could disadvantage Swiss banks, such as UBS, when
they compete with peer financial institutions subject to more le-
nient regulation or with unregulated non-bank competitors. ▲
➔ Refer to the “Regulatory and legal developments” in this report
for more information on changes in 2014
Regulatory and legislative changes in Switzerland
EDTF | Swiss regulatory changes have generally proceeded more
quickly in capital, liquidity and other areas than those in other ma-
jor jurisdictions, and FINMA, the SNB and the Swiss Federal Coun-
cil are implementing requirements that are significantly more oner-
ous and restrictive for major Swiss banks, such as UBS, than those
adopted or proposed by regulatory authorities in other major
global financial centers. In December 2014, a group of senior ex-
perts representing the private sector, authorities and academia
(the Brunetti group) appointed by the Swiss Federal Council pub-
lished recommendations on, among other things, safeguarding
systemic stability and too big to fail (TBTF), including with respect
to the calculation of RWA, higher leverage ratio and withdrawing
regulatory waivers at the level of the entity holding systemically
relevant functions. The Brunetti group’s work on the TBTF regime
served as the basis for the Swiss Federal Council’s review report on
the Swiss TBTF law that was presented to the Swiss parliament in
February 2015. In its report, the Swiss Federal Council confirmed
the findings of the Brunetti group and mandated the Federal De-
partment of Finance to set up a working group with representa-
tives of FINMA and SNB that is expected to submit proposals to the
Swiss government by the end of 2015. This may result in further
changes to the Swiss TBTF and regulatory regime.
Capital regulation: A revised banking ordinance and capital ad-
equacy ordinance implementing the Basel III capital standards and
the Swiss TBTF law became effective on 1 January 2013. As a
systemically relevant Swiss bank, we are subject to base capital
requirements, as well as a progressive buffer that scales with our
total exposure (a metric that is based on our balance sheet size)
and market share in Switzerland. In addition, Swiss governmental
authorities have the authority to impose an additional countercy-
clical buffer capital requirement of up to 2.5% of RWA. This au-
thority has been exercised to impose an additional capital charge
of 2% in respect of RWA arising from Swiss residential mortgage
loans. FINMA has further required banks using the internal ratings
based approach to use a bank-specific multiplier when calculating
RWA for owner-occupied Swiss residential mortgages, which is
being phased in through 2019. FINMA has notified us that the
RWA increase should be extended to Swiss income producing and
commercial real estate from the first quarter of 2015. FINMA also
announced that the RWA levels of other asset classes are to be
reviewed. We understand these reviews to be in anticipation of
the Basel Committee on Banking Supervision (BCBS) expected
prudential reforms, for example, the reduction in the variability of
capital ratios or capital floors.
In addition, we have mutually agreed with FINMA to an incre-
mental operational capital requirement to be held against litiga-
tion, regulatory and similar matters and other contingent liabili-
ties, which added CHF 17.5 billion to our RWA as of 31 December
2014. There can be no assurance that we will not be subject to
increases in capital requirements in the future either from the im-
position of additional requirements or changes in the calculation
of RWA or other components of the existing minimum capital
requirement.
64
The BCBS has issued far-reaching proposals (i) on revising the
standardized approach to credit risk, e.g., by relying less on ex-
ternal credit ratings, reducing the scope of national discretion
and strengthening the link between the standardized and the
IRB approach, (ii) on mandatory disclosure of RWA based on the
standardized approach and (iii) on the design of a capital floor
framework. If adopted by the BCBS and implemented into
Swiss regulation, implementation of disclosure or capital calcu-
lations based on the standardized approach would result in sig-
nificant implementation costs to us. In addition, a capital stan-
dard or floor based on the standardized approach would likely
be less risk sensitive and would likely result in higher capital re-
quirements.
Liquidity and funding: We are required to maintain a Liquidity
Coverage Ratio (LCR) of high-quality liquid assets to estimated
stressed short-term funding outflows and will be required to
maintain a Net Stable Funding Ratio (NSFR), both of which are
intended to ensure that we are not overly reliant on short-term
funding and that we have sufficient long-term funding for illiquid
assets.
We currently calculate our LCR under supervisory guidance
from FINMA. FINMA has issued a circular, which requires us to
calculate our leverage ratio using new rules that align the lever-
age ratio denominator with the rules issued by the Bank of Inter-
national Settlements (BIS). We will make use of a one-year transi-
tion period under which the prior definition may still be used, but
we must disclose both measures of LCR commencing with the
first quarter of 2015.
Neither the international nor Swiss standards for the calcula-
tion of NSFR have been fully implemented.
These requirements, together with liquidity requirements im-
posed by other jurisdictions in which we operate, require us to
maintain substantially higher levels of overall liquidity than was
previously the case. Increased capital requirements and higher li-
quidity requirements make certain lines of business less attractive
and may reduce our overall ability to generate profits. The LCR
and NSFR calculations make assumptions about the relative likeli-
hood and amount of outflows of funding and available sources of
additional funding in a market or firm-specific stress situation.
There can be no assurance that in an actual stress situation our
funding outflows would not exceed the assumed amounts.
Resolution planning and resolvability: The revised Swiss bank-
ing act and capital adequacy ordinances provide FINMA with ad-
ditional powers to intervene to prevent a failure or resolve a fail-
ing financial institution. These measures may be triggered when
certain thresholds are breached and permit the exercise of consid-
erable discretion by FINMA in determining whether, when or in
what manner to exercise such powers. In case of a threatened
insolvency, FINMA may impose more onerous requirements on us,
including restrictions on the payment of dividends and interest.
Although the actions that FINMA may take in such circumstances
are not yet defined, we could be required directly or indirectly, for
example, to alter our legal structure (e.g., to separate lines of
business into dedicated entities, with limitations on intra-group
funding and certain guarantees), or to further reduce business risk
levels in some manner. The Swiss banking act also provides FINMA
with the ability to extinguish or convert to common equity the li-
abilities of a bank in connection with its resolution.
Swiss TBTF requirements require systemically important banks,
including us, to put in place viable emergency plans to preserve
the operation of systemically important functions despite a failure
of the institution, to the extent that such activities are not suffi-
ciently separated in advance. The Swiss TBTF law provides for the
possibility of a limited reduction of capital requirements for sys-
temically important institutions that adopt measures to reduce
resolvability risk beyond what is legally required. Such actions
would likely include an alteration of the legal structure of a bank
group in a manner that would insulate parts of the group to ex-
posure from risks arising from other parts of the group thereby
making it easier to dispose of certain parts of the group in a recov-
ery scenario, to liquidate or dispose of certain parts of the group
in a resolution scenario or to execute a debt bail-in. However,
there is no certainty with respect to timing or size of a potential
capital rebate.
We have announced a series of measures to improve our re-
solvability:
– In December 2014, UBS Group AG completed an exchange
offer for the shares of UBS AG and now holds approximately
97% of the outstanding shares of UBS AG and is the holding
company for UBS Group.
– We plan to establish a new banking subsidiary of UBS in Swit-
zerland and filed a formal application for a banking license in
the third quarter of 2014. The subsidiary, which will be named
UBS Switzerland AG, will include our Retail & Corporate busi-
ness division and the Swiss-booked business within the Wealth
Management business division. We expect to implement this
change in a phased approach starting in mid-2015.
– In the United Kingdom, in consultation with UK and Swiss
regulators, we have implemented the first stages of a revised
business and operating model for UBS Limited in the second
quarter of 2014 with a follow-up phase scheduled for imple-
mentation during the second quarter of 2015. This change
entails UBS Limited bearing and retaining a greater degree of
the risk and reward of its business activities. We have increased
the capitalization of UBS Limited accordingly.
– In the United States, new rules for foreign banks promulgated
by the Federal Reserve System under Sections 165 and 166 of
Dodd-Frank will require an intermediate holding company to
own all of our operations other than US branches of UBS AG
by 1 July 2016. As a result, we will designate an intermediate
holding company to hold all our US subsidiaries.
We may consider further changes to our legal structure in re-
sponse to regulatory requirements in Switzerland or in other
countries in which we operate, including to further improve our
resolvability, to respond to Swiss and other capital requirements
and to respond to regulatory required changes in legal structure.
Such changes may include the transfer of operating subsidiaries
65
Operating environment and strategy Operating environment and strategy
Risk factors
of UBS AG to become direct subsidiaries of UBS Group AG, the
transfer of shared service and support functions to service compa-
nies and adjustments to booking entity or location of services or
products. Structural changes are being discussed on an ongoing
basis with FINMA and other regulatory authorities and remain
subject to a number of uncertainties that may affect feasibility,
scope and timing. Movement of businesses to a new subsidiary
(subsidiarization) will require significant time and resources to im-
plement. Subsidiarization in Switzerland and elsewhere may cre-
ate operational, capital, funding and tax inefficiencies and in-
crease our and counterparties’ credit risk. Refer to “Regulatory
and legislative changes outside Switzerland” for a description of
other regulatory and legislative developments that may affect
these decisions and further discussion of these risks. There can be
no assurance that the execution of the changes we have planned
or may implement in the future will result in a material reduction
in the progressive capital buffer as permitted under the Swiss
TBTF law or that these changes will satisfy existing or future re-
quirements for resolvability or mandatory structural change in
banking organizations.
Market regulation: The Swiss government has also held a con-
sultation on proposed regulations that would affect the terms of
client relationships, including providing clients of financial inter-
mediaries and consumer groups a right of collective action against
a financial intermediary. These laws may, if enacted, have a mate-
rial impact on the market infrastructure that we use, available
platforms, collateral management and the way we interact with
clients. In addition, these initiatives may cause us to incur material
implementation costs. ▲
Regulatory and legislative changes outside Switzerland
EDTF | Regulatory and legislative changes in other locations in which
we operate may subject us to a wide range of new restrictions
both in individual jurisdictions and, in some cases, globally.
Banking structure and activity limitations: Some of these regu-
latory and legislative changes may subject us to requirements to
move activities from UBS AG branches into subsidiaries. Such
“subsidiarization” can create operational, capital and tax ineffi-
ciencies, increase our aggregate credit exposure to counterparties
as they transact with multiple entities within UBS, expose our
businesses to higher local capital requirements, and potentially
give rise to client and counterparty concerns about the credit
quality of individual subsidiaries. Such changes could also nega-
tively affect our funding model and severely limit our booking
flexibility.
For example, we have significant operations in the UK and we
currently use UBS AG’s London branch as a global booking center
for many types of products. We have been required by the Pru-
dential Regulatory Authority (PRA) and by FINMA to increase very
substantially the capitalization of our UK bank subsidiary, UBS
Limited, and may be required to change our booking practices to
reduce or even eliminate our utilization of UBS AG’s London
branch as a global booking center for the ongoing business of the
Investment Bank. In addition, the UK Independent Commission
on Banking has recommended structural and non-structural re-
forms of the banking sector, most of which have been endorsed
by the UK government and implemented in the Financial Services
(Banking Reform) Act. Key proposed measures include the
ring-fencing of retail banking activities in the UK (which we do
not expect to affect us directly), additional common equity tier 1
capital requirements of up to 3% of RWA for retail banks, and the
issuance by UK banks of debt subject to bail-in provisions. Fur-
thermore, the European Commission published its proposal for a
“Regulation on bank structural reform” in January 2014. The ob-
jectives of the Regulation center on the reduction of the systemic
impact of banks and addressing the too big to fail problem. Pro-
posals include the separation of retail banking activities from
wholesale banking activities together with a ban on proprietary
trading and lending to hedge funds and private equity funds. Sig-
nificant divergence in views on the scope and application of these
proposals persists at the EU level with full potential political agree-
ment not likely before early 2016. Issues that remain the subject
of debate include how prescriptive to be as to separation require-
ments and which trading activities entities can and cannot en-
gage in. The applicability and implications of such changes to
branches and subsidiaries of foreign banks are also not yet en-
tirely clear, but they could have a material adverse effect on our
businesses located or booked in the UK and other EU locations.
In February 2014, the Federal Reserve Board issued final rules
for foreign banking organizations (FBO) operating in the US (un-
der Section 165 of Dodd-Frank) that include the following: (i) a
requirement for FBO with more than USD 50 billion of US non-
branch assets to establish an intermediate holding company (IHC)
to hold all US subsidiary operations, (ii) risk-based capital and
leverage requirements for the IHC, (iii) liquidity requirements, in-
cluding a 30-day onshore liquidity requirement for the IHC, (iv)
risk management requirements including the establishment of a
risk committee and the appointment of a US chief risk officer, (v)
stress test and capital planning requirements and (vi) a debt-to-
equity limit for institutions that pose “a grave threat” to US finan-
cial stability. Requirements differ based on the overall size of the
foreign banking organization and the amount of its US-based as-
sets. We expect that we will be subject to the most stringent re-
quirements based on our current operations. We will have to es-
tablish an IHC by 1 July 2016 and meet many of the new
requirements. The IHC will not need to comply with the US lever-
age ratio until 1 January 2018.
US regulators published final regulations implementing the
Volcker Rule in December 2013 and generally extended until
2015 the time to conform to this rule and the related regulations.
In general, the Volcker Rule prohibits any banking entity from en-
gaging in proprietary trading and from owning interests in hedge
funds and other private fund vehicles. The Volcker Rule also
broadly limits investments and other transactional activities be-
tween a bank and funds that the bank has sponsored or with
which the bank has certain other relationships. The Volcker Rule
permits us and other non-US banking entities to engage in certain
activities that would otherwise be prohibited to the extent that
66
they are conducted solely outside the US and certain other condi-
tions are met. We will be required to establish an extensive global
compliance framework to ensure compliance with the Volcker
Rule and the available exemptions. Moreover, the Volcker Rule
may affect the way in which we conduct certain business lines.
We continue to evaluate the final rule and its impact on our activ-
ities. The Volcker Rule could have a substantial impact on market
liquidity and the economics of market-making activities.
OTC derivatives regulation: In 2009, the G20 countries com-
mitted to require all standardized over-the-counter (OTC) deriva-
tive contracts to be traded on exchanges or trading facilities and
cleared through central counterparties by the end of 2012. This
commitment is being implemented through Dodd-Frank in the US
and corresponding legislation in the EU, Switzerland and other
jurisdictions, and has and will continue to have a significant effect
on our OTC derivatives business, which is conducted primarily in
the Investment Bank. For example, we expect that, as a rule, the
shift of OTC derivatives trading to a central clearing model will
tend to reduce profit margins in these products, although some
market participants may be able to offset this effect with higher
trading volumes in commoditized products. Although we are pre-
paring for these thematic market changes, the changes are likely
to reduce the revenue potential of certain lines of business for
market participants generally, and we may be adversely affected.
These mandatory clearing requirements will be supplemented
by mandatory requirements to trade such clearable instruments
on regulated venues under the forthcoming Markets in Financial
Instruments Directive (MiFID II) and the Markets in Financial Instru-
ments Regulation (MiFIR). These two pieces of legislation, to-
gether with the more detailed implementing measures, due to
take effect in early 2017, have the potential to bring about a ma-
jor change to many aspects of the way financial services are pro-
vided in and into the European Economic Area. All areas of the
provision of financial services are impacted across all client types.
Some notable areas covered include increased pre and post-trade
transparency, particularly into the area of fixed income products;
further restrictions on the provision of inducements; the introduc-
tion of a new discretionary trading venue with the aim of regulat-
ing broker crossing networks; trading controls for algorithmic
trading activities; increased conduct of business requirements and
strengthened supervisory powers which include powers for au-
thorities to ban products or services in particular situations. We
will not know the full effect of this legislation until the details of
the implementing legislation and national implementation (where
applicable) are completed. We expect that this legislation will ne-
cessitate changes in business models and procedures in a number
of areas. This will likely entail the expenditure of significant time
and resources on an on-going basis and, in common with some
other legislative proposals in this area, may also reduce the reve-
nue potential of some of our businesses.
UBS AG registered as a swap dealer with the Commodity Fu-
tures Trading Commission (CFTC) in the US at the end of 2012,
enabling the continuation of its swaps business with US persons.
We expect to register UBS AG as a securities-based swap dealer
with the SEC, when its registration is required. Regulations issued
by the CFTC impose substantial new requirements on registered
swap dealers for clearing, trade execution, transaction reporting,
recordkeeping, risk management and business conduct. Certain
of the CFTC’s regulations, including those relating to swap data
reporting, recordkeeping, compliance and supervision, apply to
UBS AG globally. Application of these requirements to UBS AG’s
swaps business with non-US persons continues to present a sub-
stantial implementation burden, will likely duplicate or conflict
with legal requirements applicable to us outside the US, including
in Switzerland, and may place us at a competitive disadvantage to
firms that are not CFTC-registered swap dealers.
Regulation of cross-border provision of financial services: In
many instances we provide services on a cross-border basis. We
are therefore sensitive to barriers restricting market access for
third-country firms. In particular, efforts in the European Union
(EU) to harmonize the regime for third-country firms to access the
European market may have the effect of creating new barriers
that adversely affect our ability to conduct business in these juris-
dictions from Switzerland. In addition, a number of jurisdictions
are increasingly regulating cross-border activities on the basis of
some notion of comity (e.g., substituted compliance and equiva-
lence determination). While the issuance of such determinations
in particular jurisdictions may ensure our access to markets in
those jurisdictions, a negative determination in other jurisdictions
may negatively influence our ability to act as a global firm. In ad-
dition, as jurisdictions tend to apply such determinations on a ju-
risdictional level rather than on an entity level, we will generally
need to rely on jurisdictions’ willingness to collaborate. ▲
Resolution and recovery; bail-in
EDTF | We are currently required to produce recovery and resolution
plans in the US, the UK, Switzerland and Germany and are likely
to face similar requirements for our operations in other jurisdic-
tions, including our operations in the EU as a whole as part of the
proposed EU Bank Recovery and Resolution Directive. Resolution
plans may increase the pressure on us to make structural changes,
such as the creation of separate legal entities, if the resolution
plan in any jurisdiction identifies impediments that are not accept-
able to the relevant regulators. Such structural changes may neg-
atively impact our ability to benefit from synergies between busi-
ness units, and if they include the creation of separate legal
entities, may have the other negative consequences mentioned
above with respect to subsidiarization more generally.
The Financial Stability Board (FSB) and the BCBS have issued pro-
posed standards on Total Loss-Absorbing Capacity (TLAC) that aims
to build up adequate loss-absorbing capacity for global systemically
important banks to ensure that an orderly wind-down is possible.
The FSB proposes that a minimum Pillar 1 TLAC requirement be set
within the range of 16% to 20% of RWA and at least twice the
Basel III tier 1 leverage ratio requirement. In addition, a number of
jurisdictions, including Switzerland, the US, the UK and the EU, have
implemented or are considering implementing changes that would
allow resolution authorities to write down or convert into equity
67
Operating environment and strategy Operating environment and strategy
Risk factors
unsecured debt to execute a bail-in. The scope of bail-in authority
and the legal mechanisms that would be utilized for the purpose are
subject to a great deal of development and interpretation. Regula-
tory requirements to maintain minimum TLAC, including potential
requirements to maintain TLAC at subsidiaries, as well as the power
of resolution authorities to bail in TLAC and other debt obligations
and uncertainty as to how such powers will be exercised, may in-
crease the total amount and cost of funding for us. ▲
Possible consequences of regulatory and
legislative developments
EDTF | Planned and potential regulatory and legislative develop-
ments in Switzerland and in other jurisdictions in which we have
operations may have a material adverse effect on our ability to
execute our strategic plans, on the profitability or viability of cer-
tain business lines globally or in particular locations, and in some
cases on our ability to compete with other financial institutions.
The developments have been, and are likely to continue to be,
costly to implement and could also have a negative impact on our
legal structure or business model, potentially generating capital
inefficiencies and affecting our profitability. Finally, the uncer-
tainty related to, or the implementation of, legislative and regula-
tory changes may have a negative impact on our relationships
with clients and our success in attracting client business. ▲
Our capital strength is important in supporting our
strategy, client franchise and competitive position
EDTF | Our capital position, as measured by the fully applied com-
mon equity tier 1 and total capital ratios under Basel III require-
ments, is determined by: (i) RWA (credit, non-counterparty re-
lated, market and operational risk positions, measured and
risk-weighted according to regulatory criteria) and (ii) eligible cap-
ital. Both RWA and eligible capital may fluctuate based on a num-
ber of factors. RWA are driven by our business activities and by
changes in the risk profile of our exposures, as well as regulatory
requirements. For instance, substantial market volatility, a widen-
ing of credit spreads (a major driver of our value-at-risk), adverse
currency movements, increased counterparty risk, deterioration in
the economic environment, or increased operational risk could
result in a rise in RWA. Our eligible capital would be reduced if we
experience net losses or losses through other comprehensive in-
come, as determined for the purpose of the regulatory capital
calculation, which may also render it more difficult or more costly
for us to raise new capital. In addition, eligible capital can be re-
duced for a number of other reasons, including certain reductions
in the ratings of securitization exposures, acquisitions and divest-
ments changing the level of goodwill, adverse currency move-
ments affecting the value of equity, prudential adjustments that
may be required due to the valuation uncertainty associated with
certain types of positions, 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 our net defined
benefit obligation recognized in other comprehensive income.
See “Fluctuation in foreign exchange rates and continuing low or
negative interest rates may have a detrimental effect on our capi-
tal strength, our liquidity and funding position, and our profitabil-
ity.” Any such increase in RWA or reduction in eligible capital
could materially reduce our capital ratios.
Risks captured in the operational risk component of RWA have
become increasingly significant as a component of our overall
RWA as a result of significant reductions in market and credit risk
RWA, as we execute our strategy, and increased operational risk
charges arising from operational risk events (including charges
arising from litigation, regulatory and similar matters). We have
agreed with FINMA on a supplemental analysis that is used to
calculate an incremental operational risk capital charge to be held
for litigation, regulatory and similar matters and other contingent
liabilities. The incremental RWA calculated based on this supple-
mental analysis as of 31 December 2014 was CHF 17.5 billion.
Future developments in and the ultimate elimination of the incre-
mental RWA attributable to the supplemental analysis will depend
on provisions charged to earnings for litigation, regulatory and
similar matters and other contingent liabilities and on develop-
ments in these matters. There can be no assurance that we will be
successful in addressing these matters and reducing or eliminat-
ing the incremental operational risk component of RWA.
The required levels and calculation of our regulatory capital
and the calculation of our RWA are also subject to changes in
regulatory requirements or their interpretation, as well as the ex-
ercise of regulatory discretion. Changes in the calculation of RWA
under Basel III and Swiss requirements (such as the revised treat-
ment of certain securitization exposures under the Basel III frame-
work) have significantly increased the level of our RWA and,
therefore, have adversely affected our capital ratios. We have
achieved substantial reductions in RWA, in part to mitigate the
effects of increased capital requirements. Further changes in the
calculation of RWA, imposition of additional supplemental RWA
charges, or imposition of an RWA floor based on the standardized
approach or other methodology could substantially increase our
RWA. In addition, we may not be successful in our plans to further
reduce RWA, either because we are unable to carry out fully the
actions we have planned or because other business or regulatory
developments or actions to some degree counteract the benefit
of our actions.
In addition to the risk-based capital requirements, we are sub-
ject to a minimum leverage ratio requirement for Swiss systemi-
cally relevant banks. The leverage ratio operates separately from
the risk-based capital requirements, and, accordingly, under cer-
tain circumstances could constrain our business activities even if
we satisfy other risk-based capital requirements. We have achieved
substantial reductions in our balance sheet and expect to make
further reductions as we wind down our Non-core and Legacy
Portfolio positions. These reductions have improved our leverage
ratio and contributed to our ability to comply with the more strin-
gent leverage ratio requirements. There is also a risk that the min-
imum leverage ratio requirement will be increased significantly
beyond the levels currently scheduled to come into effect, which
68
would make it more difficult for us to satisfy the requirements
without adversely affecting certain of our businesses. The lever-
age ratio is a simple balance sheet measure and therefore limits
balance sheet intensive activities, such as lending, more than ac-
tivities that are less balance sheet intensive.
Changes in international or Swiss requirements for risk-based
capital, leverage ratios, LCR or NSFR, including changes in mini-
mum levels, method of calculation or supervisory add-ons could
have a material adverse effect on our capital position and our
business. Any such changes that are implemented only in Switzer-
land or more quickly in Switzerland may have an adverse effect on
our competitive position compared with institutions regulated un-
der different regimes. ▲
We may not be successful in completing our announced
strategic plans or in implementing changes in
our businesses to meet changing market, regulatory
and other conditions
EDTF | In October 2012, we announced a significant acceleration in
the implementation of our strategy. The strategy included trans-
forming our Investment Bank to focus it on its traditional
strengths, very significantly reducing Basel III RWA and further
strengthening our capital position, and significantly reducing
costs and improving efficiency. We have substantially completed
the transformation of our business, but elements remain that are
not complete. There continues to be a risk that we will not be
successful in completing the execution of our plans, that our
plans may be delayed, that market events may adversely affect
the implementation of our plan or that the effects of our plans
may differ from those intended.
We have substantially reduced the RWA and balance sheet us-
age of our Non-core and Legacy Portfolio positions, but there can
be no assurance that we will continue to be able to exit them as
quickly as our plans suggest or that we will not incur significant
losses in doing so. The continued illiquidity and complexity of
many of our legacy risk positions in particular could make it diffi-
cult to sell or otherwise exit these positions and reduce the RWA
and the balance sheet usage associated with these exposures. As
the size of the Non-core and Legacy Portfolio decreases, achieving
a complete exit of particular classes of transactions will be neces-
sary to achieve the reductions of RWA, balance sheet and costs
associated with the positions. At the same time, our ability to
meet our future capital targets and requirements depends in part
on our ability to reduce RWA and balance sheet usage without
incurring unacceptable losses.
As part of our strategy, we have a program underway to
achieve significant incremental cost reductions. The success of our
strategy and our ability to reach certain of the targets we have
announced depends on the success of the effectiveness and effi-
ciency measures we are able to carry out. As is often the case with
major effectiveness and efficiency programs, our plans involve sig-
nificant risks. Included among these are the risks that restructur-
ing costs may be higher and may be recognized sooner than we
have projected, that we may not be able to identify feasible cost
reduction opportunities that are also consistent with our business
goals and that cost reductions may be realized later or may be less
than we anticipate. Changes in workforce location or reductions
in workforce can lead to charges to the income statement well in
advance of the cost savings intended to be achieved through such
workforce strategy. For example, under IFRS we are required to
recognize provisions for real estate lease contracts when the un-
avoidable costs of meeting the obligations under the contracts are
considered to exceed the future economic benefits expected to be
received under them. In addition, as we implement our effective-
ness and efficiency programs we may experience unintended con-
sequences such as the loss or degradation of capabilities that we
need in order to maintain our competitive position and achieve
our targeted returns.
We are exposed to possible outflows of client assets in our as-
set-gathering businesses and to changes affecting the profitability
of our Wealth Management business division and we may not be
successful in implementing the business changes needed to ad-
dress them. We experienced substantial net outflows of client as-
sets in our wealth management and asset management busi-
nesses in 2008 and 2009. The net outflows resulted from a
number of different factors, including our substantial losses, dam-
age to our reputation, the loss of client advisors, difficulty in re-
cruiting qualified client advisors and tax, legal and regulatory de-
velopments concerning our cross-border private banking business.
Many of these factors have been successfully addressed. Our
Wealth Management and Wealth Management Americas business
divisions recorded substantial net new money inflows in 2013 and
2014. Long-term changes affecting the cross-border private bank-
ing business model will, however, continue to affect client flows in
the Wealth Management business division for an extended period
of time. One of the important drivers behind the longer-term re-
duction in the amount of cross-border private banking assets, par-
ticularly in Europe but increasingly also in other regions, is the
heightened focus of fiscal authorities on cross-border investments.
Changes in local tax laws or regulations and their enforcement
and the implementation of cross-border tax information exchange
regimes may affect the ability or the willingness of our clients to do
business with us or the viability of our strategies and business
model. For the last three years, we have experienced net with-
drawals in our Swiss booking center from clients domiciled else-
where in Europe, in many cases related to the negotiation of tax
treaties between Switzerland and other countries.
The net new money inflows in recent years in our Wealth Man-
agement business division have come predominantly from clients
in Asia Pacific and in the ultra high net worth segment globally.
Over time, inflows from these lower-margin segments and mar-
kets have been replacing outflows from higher-margin segments
and markets, in particular cross-border European clients. This dy-
namic, combined with changes in client product preferences as a
result of which low-margin products account for a larger share of
our revenues than in the past, put downward pressure on our re-
turn on invested assets and adversely affect the profitability of our
69
Operating environment and strategy Operating environment and strategy
Risk factors
Wealth Management business division. We have implemented
changes in our product offerings and service improvements, and
will continue our efforts to adjust to client trends and market dy-
namics as necessary, in an effort to overcome the effects of these
changes in the business mix on our profitability, but there can be
no assurance that we will be able to counteract those effects. In
addition, we have made changes to our business offerings and
pricing practices in line with the Swiss Supreme Court case con-
cerning “retrocessions” (fees paid to a bank for distributing third-
party and intra-group investment funds and structured products)
and other industry developments. These changes may adversely
affect our margins on these products and the current offering
may be less attractive to clients than the products it replaces.
There can be no assurance that we will be successful in our efforts
to offset the adverse impact of these trends and developments.
Global Asset Management experienced net outflows of client
assets in 2012 and 2013, although it had net inflows for the first
three quarters of 2014 and for full year 2014. Further net out-
flows of client assets could adversely affect the results of this busi-
ness division. ▲
Material legal and regulatory risks arise in the
conduct of our business
EDTF | The nature of our business subjects us to significant regula-
tory oversight and liability risk. As a global financial services firm
operating in more than 50 countries, we are subject to many dif-
ferent legal, tax and regulatory regimes. We are involved in a va-
riety of claims, disputes, legal proceedings and government inves-
tigations. These proceedings expose us to substantial monetary
damages and legal defense costs, injunctive relief and criminal
and civil penalties, in addition to potential regulatory restrictions
on our businesses. The outcome of most of these matters, and
their potential effect on our future business or financial results, is
extremely difficult to predict.
In December 2012, we announced settlements totaling ap-
proximately CHF 1.4 billion in fines by and disgorgements to US,
UK and Swiss authorities to resolve investigations by those au-
thorities relating to LIBOR and other benchmark interest rates. We
entered into a non-prosecution agreement with the US Depart-
ment of Justice (DOJ) and UBS Securities Japan Co. Ltd. also pled
guilty to one count of wire fraud relating to the manipulation of
certain benchmark interest rates. The settlements do not resolve
investigations by other authorities or civil claims that have been or
may in the future be asserted by private and governmental claim-
ants with respect to submissions regarding LIBOR or other bench-
mark interest rates. The extent of our financial exposure to these
remaining matters is extremely difficult to estimate and could be
material.
Our settlements with governmental authorities in connection
with LIBOR and benchmark interest rates starkly illustrate the
much-increased level of financial and reputational risk now asso-
ciated with regulatory matters in major jurisdictions. Very large
fines and disgorgement amounts were assessed against us, and
the guilty plea of our subsidiary was required, despite our full
cooperation with the authorities in the investigations relating to
LIBOR and other benchmark interest rates, and despite our receipt
of conditional leniency or conditional immunity from antitrust
authorities in a number of jurisdictions, including the US and
Switzerland. We understand that, in determining the conse-
quences to us, the authorities considered the fact that it has in the
recent past been determined that we have engaged in serious
misconduct in several other matters. The heightened risk level
was further illustrated by the European Commission (EC) an-
nouncement in December 2013 of fines against other financial
institutions related to its Yen Interest Rate Derivatives (YIRD) inves-
tigation. The EC stated that we would have been subject to fines
of approximately EUR 2.5 billion had we not received full immu-
nity for disclosing to the EC the existence of infringements relat-
ing to YIRD. Recent resolution of enforcement matters involving
other financial institutions further illustrates the continued in-
crease in the financial and other penalties, reputational risk and
other consequences of regulatory matters in major jurisdictions,
particularly the US, and the resulting difficulty in predicting in this
environment the financial and other terms of resolutions of pend-
ing government investigations and similar proceedings. In 2014,
Credit Suisse AG (CS) and BNP Paribas (BNPP) each pleaded guilty
to criminal charges in the United States and simultaneously en-
tered into settlements with other US agencies, including the Fed-
eral Reserve and the New York Department of Financial Services
(DFS). These resolutions involved the payment of substantial pen-
alties (USD 1.8 billion in the case of CS and USD 8.8 billion in the
case of BNPP), agreements with respect to future operation of
their businesses and actions with respect to relevant personnel. In
the case of BNPP, the DFS suspended for a one-year period BNPP’s
ability to conduct through its New York branch business activity
related to the business line that gave rise to the illegal conduct,
namely US dollar clearing for specified BNPP business units. In
addition, the US Department of Justice (DOJ) has announced a
series of resolutions related to the conduct of major financial in-
stitutions in packaging, marketing, issuing and selling residential
mortgage-backed securities. In these resolutions, financial institu-
tions have been required to pay penalties ranging from USD 7 to
USD 16.7 billion and, in many cases, were also required to provide
relief to consumers who were harmed by the relevant conduct.
We continue to be subject to a large number of claims, dis-
putes, legal proceedings and government investigations, includ-
ing the matters described in the notes to the financial statements
included herein and we expect that our ongoing business activi-
ties will continue to give rise to such matters in the future. The
extent of our financial exposure to these and other matters is ma-
terial and could substantially exceed the level of provisions that
we have established for litigation, regulatory and similar matters.
We are not able to predict the financial and other terms on which
some of these matters may be resolved. Litigation, regulatory and
similar matters may also result in non-monetary penalties and
consequences. Among other things, the non-prosecution agree-
ment we entered into with the DOJ in connection with LIBOR (the
70
NPA) may be terminated by the DOJ if we commit any US crime or
otherwise fail to comply with the NPA and the DOJ may obtain a
criminal conviction of UBS AG in relation to the matters covered
by the NPA. A guilty plea to, or conviction of, a crime (including as
a result of termination of the NPA) could have material conse-
quences 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, sus-
pend 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. In con-
nection with discussions of a possible resolution of investigations
relating to our foreign exchange business with the Antitrust and
Criminal Division of the DOJ, we and the DOJ have extended the
term of the NPA by one year to 18 December 2015. As a result of
this history and our ongoing obligations under the NPA, our level
of risk with respect to regulatory enforcement may be greater
than that of some of our peer institutions.
At this point in time, we believe that the industry continues to
operate in an environment where charges associated with litiga-
tion, 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.
Ever since our losses in 2007 and 2008, we have been subject
to a very high level of regulatory scrutiny and to certain regulatory
measures that constrain our strategic flexibility. While we believe
that we have remediated the deficiencies that led to the material
losses during the 2007–2009 financial crisis, the unauthorized
trading incident announced in September 2011, the LIBOR-re-
lated settlements of 2012 and settlements with some regulators
of matters related to our foreign exchange and precious metals
business, the resulting effects of these matters on our reputation
and relationships with regulatory authorities have proven to be
more difficult to overcome. For example, following the unautho-
rized trading incident, FINMA placed restrictions (since removed)
on acquisitions or business expansions in our Investment Bank
unit. We are determined to address the issues that have arisen in
the above and other matters in a thorough and constructive man-
ner. We are in active dialogue with our regulators concerning the
actions that we are taking to improve our operational risk man-
agement and control framework, but there can be no assurance
that our efforts will have the desired effects. ▲
Operational risks affect our business
EDTF | Our businesses are dependent on our ability to process a
large number of complex transactions across multiple and diverse
markets in different currencies, to comply with requirements of
many different legal and regulatory regimes to which we are sub-
ject and to prevent, or promptly detect and stop, unauthorized,
fictitious or fraudulent transactions. Our operational risk manage-
ment and control systems and processes are designed to help en-
sure that the risks associated with our activities, including those
arising from process error, failed execution, misconduct, unautho-
rized trading, fraud, system failures, financial crime, cyber-attacks,
breaches of information security and failure of security and phys-
ical protection, are appropriately controlled.
For example, cyber-crime is a fast growing threat to large orga-
nizations that rely on technology to support their business. Cy-
ber-crime can range from internet-based attacks that interfere
with the organizations’ internet websites, to more sophisticated
crimes that target the organizations, as well as their clients, and
seek to gain unauthorized access to technology systems in efforts
to disrupt business, steal money or obtain sensitive information.
A major focus of US governmental policy relating to financial
institutions in recent years has been fighting money laundering
and terrorist financing. Regulations applicable to us impose obliga-
tions to maintain effective policies, procedures and controls to de-
tect, prevent and report money laundering and terrorist financing,
and to verify the identity of our clients. Failure to maintain and
implement adequate programs to combat money laundering and
terrorist financing could have serious consequences both from le-
gal enforcement action and from damage to our reputation.
Although we seek to continuously adapt our capability to de-
tect and respond to the risks described above, if our internal con-
trols fail or prove ineffective in identifying and remedying these
risks, we could suffer operational failures that might result in ma-
terial losses, such as the loss from the unauthorized trading inci-
dent announced in September 2011.
Participation in high-volume and high-frequency trading activ-
ities, even in the execution of client-driven business, can also ex-
pose us to operational risks. Our loss in 2012 relating to the Face-
book initial public offering illustrates the exposure participants in
these activities have to unexpected results arising not only from
their own systems and processes but also from the behavior of
exchanges, clearing systems and other third parties and from the
performance of third-party systems.
Our wealth and asset management businesses operate in an
environment of increasing regulatory scrutiny and changing stan-
dards. Legislation and regulators have changed and are likely to
continue to change fiduciary and other standards of care for asset
managers and advisers and have increased focus on mitigating or
eliminating conflicts of interest between a manager or adviser and
the client. These changes have and likely will continue to present
regulatory and operational risks if not implemented effectively
across the global systems and processes of investment managers
and other industry participants. If we fail to effectively implement
controls to ensure full compliance with new, rising standards in
the wealth and asset management industry, we could be subject
to additional fines and sanctions as a result. These could have an
impact on our ability to operate or grow our wealth and asset
management businesses in line with our strategy.
Certain types of operational control weaknesses and failures
could also adversely affect our ability to prepare and publish accu-
rate and timely financial reports. Following the unauthorized trad-
ing incident announced in September 2011, management deter-
71
Operating environment and strategy Operating environment and strategy
Risk factors
mined that we had a material weakness in our internal control
over financial reporting as of the end of 2010 and 2011, although
this did not affect the reliability of our financial statements for
either year.
In addition, despite the contingency plans we have in place,
our ability to conduct business may be adversely affected by a
disruption in the infrastructure that supports our businesses and
the communities in which we are located. This may include a dis-
ruption due to natural disasters, pandemics, civil unrest, war or
terrorism and involve electrical, communications, transportation
or other services used by us or third parties with whom we con-
duct business. ▲
Our reputation is critical to the success of our business
EDTF | Our reputation is critical to the success of our strategic plans.
Damage to our reputation can have fundamental negative effects
on our business and prospects. Reputational damage is difficult to
reverse, and improvements tend to be slow and difficult to mea-
sure. This was demonstrated in recent years, as our very large losses
during the financial crisis, the US cross-border matter (relating to
the governmental inquiries and investigations relating to our
cross-border private banking services to US private clients during
the years 2000–2007 and the settlements entered into with US
authorities with respect to this matter) and other events seriously
damaged our reputation. Reputational damage was an important
factor in our loss of clients and client assets across our asset-gath-
ering businesses, and contributed to our loss of and difficulty in
attracting staff in 2008 and 2009. These developments had short-
term and also more lasting adverse effects on our financial perfor-
mance, and we recognized that restoring our reputation would be
essential to maintaining our relationships with clients, investors,
regulators and the general public, as well as with our employees.
More recently, the unauthorized trading incident announced in
September 2011 and our involvement in the LIBOR matter and in-
vestigations relating to our foreign exchange and precious metals
business have also adversely affected our reputation. Any further
reputational damage could have a material adverse effect on our
operational results and financial condition and on our ability to
achieve our strategic goals and financial targets. ▲
Performance in the financial services industry is affected
by market conditions and the macroeconomic climate
EDTF | The financial services industry prospers in conditions of eco-
nomic growth, stable geopolitical conditions, transparent, liquid
and buoyant capital markets and positive investor sentiment. An
economic downturn, continued low interest rates or weak or
stagnant economic growth in our core markets, or a severe finan-
cial crisis can negatively affect our revenues and ultimately our
capital base.
A market downturn and weak macroeconomic conditions can
be precipitated by a number of factors, including geopolitical
events, changes in monetary or fiscal policy, trade imbalances,
72
natural disasters, pandemics, civil unrest, war or terrorism. Be-
cause financial markets are global and highly interconnected,
even local and regional events can have widespread impact well
beyond the countries in which they occur. A crisis could develop,
regionally or globally, as a result of disruptions in emerging mar-
kets as well as developed markets that are susceptible to macro-
economic and political developments, or as a result of the failure
of a major market participant. We have material exposures to a
number of these markets, both as a wealth manager and as an
investment bank. Moreover, our strategic plans depend more
heavily upon our ability to generate growth and revenue in
emerging markets, causing us to be more exposed to the risks
associated with them. The continued absence of sustained and
credible improvements to unresolved issues in Europe, continued
US fiscal and monetary policy issues, emerging markets fragility
and the mixed outlook for global growth demonstrate that mac-
roeconomic and political developments can have unpredictable
and destabilizing effects. Adverse developments of these kinds
have affected our businesses in a number of ways, and may con-
tinue to have further adverse effects on our businesses as follows:
– a general reduction in business activity and market volumes, as
we have recently experienced, affects fees, commissions and
margins; local or regional economic factors, such as the ongo-
ing European sovereign debt concerns and negative interest
rates, could also have an effect on us;
– a market downturn is likely to reduce the volume and valua-
tions of assets we manage on behalf of clients, reducing our
asset and performance-based fees;
– the ongoing low interest rate environment will further erode
interest margins in several of our businesses and adversely af-
fect our net defined benefit obligations in relation to our pen-
sion plans;
– negative interest rates announced by central banks in Switzer-
land or elsewhere may also affect client behavior and changes
to our deposit and lending pricing and structure that we may
make to respond to negative interest rates and client behavior
may cause deposit outflows, reduced business volumes or oth-
erwise adversely affect our businesses;
– reduced market liquidity or volatility limits trading and arbi-
trage opportunities and impedes our ability to manage risks,
impacting both trading income and performance-based fees;
– deteriorating market conditions could cause a decline in the
value of assets that we own and account for as investments or
trading positions;
– worsening economic conditions and adverse market develop-
ments could lead to impairments and defaults on credit expo-
sures and on our trading and investment positions, and losses
may be exacerbated by declines in the value of collateral we
hold; and
– if individual countries impose restrictions on cross-border pay-
ments or other exchange or capital controls, or change their
currency (for example, if one or more countries should leave
the euro), we could suffer losses from enforced default by
counterparties, be unable to access our own assets, or be im-
peded in, or prevented from, managing our risks.
Because we have very substantial exposures to other major fi-
nancial institutions, the failure of one or more such institutions
could have a material effect on us.
The developments mentioned above have in the past affected
and could materially affect the performance of the business units
and of UBS as a whole, and ultimately our financial condition.
There are related risks that, as a result of the factors listed above,
carrying value of goodwill of a business unit might suffer impair-
ments, deferred tax asset levels may need to be adjusted or our
capital position or regulatory capital ratios could be adversely af-
fected. ▲
We hold legacy and other risk positions that may be
adversely affected by conditions in the financial markets;
legacy risk positions may be difficult to liquidate
EDTF | We, like other financial market participants, were severely
affected by the financial crisis that began in 2007. The deteriora-
tion of financial markets since the beginning of the crisis was ex-
tremely severe by historical standards, and we recorded substantial
losses on fixed income trading positions, particularly in 2008 and
2009. Although we have significantly reduced our risk exposures
starting in 2008, and more recently as we progress our strategy
and focus on complying with Basel III capital standards, we con-
tinue to hold substantial legacy risk positions, primarily in our Non-
core and Legacy Portfolio. In many cases these risk positions re-
main illiquid, and we continue to be exposed to the risk that the
remaining positions may again deteriorate in value. In the fourth
quarter of 2008 and the first quarter of 2009, certain of these
positions were reclassified for accounting purposes from fair value
to amortized cost; these assets are subject to possible impairment
due to changes in market interest rates and other factors.
Moreover, we hold positions related to real estate in various
countries, and could suffer losses on these positions. These posi-
tions include a substantial Swiss mortgage portfolio. Although
management believes that this portfolio has been very prudently
managed, we could nevertheless be exposed to losses if the con-
cerns expressed by the Swiss National Bank and others about un-
sustainable price escalation in the Swiss real estate market come
to fruition. Other macroeconomic developments, such as the im-
plications on export markets of dramatic appreciation of the Swiss
franc following recent announcements by the Swiss National
Bank, adoption of negative interest rates by the Swiss National
Bank or other central banks or any return of crisis conditions
within the eurozone and the potential implications of the recent
decision in Switzerland to reinstate immigration quotas for
EU / EEA countries, could also adversely affect the Swiss economy,
our business in Switzerland in general and, in particular, our Swiss
mortgage and corporate loan portfolios.
In addition, we are exposed to risk in our prime brokerage, re-
verse repo and Lombard lending activities, as the value or liquidity
of the assets against which we provide financing may decline
rapidly. ▲
Our global presence subjects us to risk from currency
fluctuations
EDTF | We prepare our consolidated financial statements in Swiss
francs. However, a substantial portion of our assets, liabilities, in-
vested assets, revenues and expenses are denominated in other
currencies, particularly the US dollar, the euro and the British
pound. Accordingly, changes in foreign exchange rates, particu-
larly between the Swiss franc and the US dollar (US dollar reve-
nues account for the largest portion of our non-Swiss franc reve-
nues) have an effect on our reported income and expenses, and
on other reported figures such as other comprehensive income,
invested assets, balance sheet assets, RWA and Basel III CET1 cap-
ital. These effects may adversely affect our income, balance sheet,
capital and liquidity ratios. The effects described in the sidebar
“Impact of Swiss National Bank actions” in the “Current market
climate and industry drivers” section of this report clearly illustrate
the potential effect of significant currency movements, particu-
larly of the Swiss Franc. ▲
We are dependent upon our risk management and control
processes to avoid or limit potential losses in our counter-
party credit and trading businesses
EDTF | Controlled risk-taking is a major part of the business of a
financial services firm. Credit risk is an integral part of many of our
retail, corporate, wealth management and Investment Bank activ-
ities, and our non-core activities that were transferred to Corpo-
rate Center – Non-core and Legacy Portfolio, including lending,
underwriting and derivatives activities. Changes in interest rates,
credit spreads, securities’ prices, market volatility and liquidity, for-
eign exchange levels and other market fluctuations can adversely
affect our earnings. Some losses from risk-taking activities are in-
evitable, but to be successful over time, we must balance the risks
we take against the returns we generate. We must, therefore,
diligently identify, assess, manage and control our risks, not only
in normal market conditions but also as they might develop under
more extreme (stressed) conditions, when concentrations of ex-
posures can lead to severe losses.
As seen during the financial crisis of 2007–2009, we are not
always able to prevent serious losses arising from extreme or sud-
den market events that are not anticipated by our risk measures
and systems. Value-at-risk, a statistical measure for market risk, is
derived from historical market data, and thus by definition could
not have anticipated the losses suffered in the stressed conditions
of the financial crisis. Moreover, stress loss and concentration con-
trols and the dimensions in which we aggregated risk to identify
potentially highly correlated exposures proved to be inadequate.
Notwithstanding the steps we have taken to strengthen our risk
management and control framework, we could suffer further
losses in the future if, for example:
– we do not fully identify the risks in our portfolio, in particular
risk concentrations and correlated risks;
73
Operating environment and strategy Operating environment and strategy
Risk factors
– our assessment of the risks identified or our response to nega-
tive trends proves to be untimely, inadequate, insufficient or
incorrect;
– markets move in ways that we do not expect – in terms of their
speed, direction, severity or correlation – and our ability to man-
age risks in the resulting environment is, therefore, affected;
– third parties to whom we have credit exposure or whose secu-
rities we hold for our own account are severely affected by
events not anticipated by our models, and accordingly we suf-
fer defaults and impairments beyond the level implied by our
risk assessment; or
– collateral or other security provided by our counterparties
proves inadequate to cover their obligations at the time of
their default.
We also manage risk on behalf of our clients in our asset and
wealth management businesses. The performance of assets we
hold for our clients in these activities could be adversely affected
by the same factors. If clients suffer losses or the performance of
their assets held with us is not in line with relevant benchmarks
against which clients assess investment performance, we may
suffer reduced fee income and a decline in assets under manage-
ment, or withdrawal of mandates.
If we decide to support a fund or another investment that we
sponsor in our asset or wealth management businesses, we
might, depending on the facts and circumstances, incur charges
that could increase to material levels.
Investment positions, such as equity investments made as part
of strategic initiatives and seed investments made at the inception
of funds that we manage, 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.
They are subject to a distinct control framework. Deteriorations in
the fair value of these positions would have a negative impact on
our earnings. ▲
Valuations of certain positions rely on models; models
have inherent limitations and may use inputs which have
no observable source
EDTF | If available, the fair value of a financial instrument or non-finan-
cial asset or liability is determined using quoted prices in active
markets for identical assets or liabilities. Where the market is not
active, fair value is established using a valuation technique, in-
cluding pricing models. Where available, valuation techniques use
market observable assumptions and inputs. If such information is
not available, inputs may be derived by reference to similar instru-
ments in active markets, from recent prices for comparable trans-
actions or from other observable market data. If market observ-
able data is not available, we select non-market observable inputs
to be used in our valuation techniques. We also use internally
developed models. Such models have inherent limitations; differ-
ent assumptions and inputs would generate different results, and
these differences could have a significant impact on our financial
results. We regularly review and update our valuation models to
incorporate all factors that market participants would consider in
setting a price, including factoring in current market conditions.
Judgment is an important component of this process, and failure
to make the changes necessary to reflect evolving market condi-
tions could have a material adverse effect on our financial results.
Moreover, evolving market practice may result in changes to valu-
ation techniques that could have a material impact on our finan-
cial results. Changes in model inputs or calibration, changes in the
valuation methodology incorporated in models, or failure to make
the changes necessary to reflect evolving market conditions could
have a material adverse effect on our financial results. ▲
Liquidity and funding management are critical to
our ongoing performance
EDTF | The viability of our business depends on the availability of
funding sources, and our success depends on our ability to obtain
funding at times, in amounts, for tenors and at rates that enable
us to efficiently support our asset base in all market conditions. A
substantial part of our liquidity and funding requirements is met
using short-term unsecured funding sources, including retail and
wholesale deposits and the regular issuance of money market
securities. The volume of our funding sources has generally been
stable, but could change in the future due to, among other things,
general market disruptions or widening credit spreads, which
could also influence the cost of funding. A change in the availabil-
ity of short-term funding could occur quickly.
Reductions in our credit ratings can increase our funding costs,
in particular with regard to funding from wholesale unsecured
sources, and can affect the availability of certain kinds of funding.
In addition, as we experienced in connection with Moody’s down-
grade of our long-term rating in June 2012, rating downgrades
can require us to post additional collateral or make additional cash
payments under master trading agreements relating to our deriva-
tives businesses. Our credit ratings, together with our capital
strength and reputation, also contribute to maintaining client and
counterparty confidence and it is possible that ratings changes
could influence the performance of some of our businesses.
More stringent capital and liquidity requirements will likely lead
to increased competition for both secured funding and deposits
as a stable source of funding, and to higher funding costs. The
addition of loss-absorbing debt as a component of capital require-
ments and potential future requirements to maintain senior unse-
cured debt that could be written down in the event of our insol-
vency or other resolution, may increase our funding costs or limit
the availability of funding of the types required. ▲
We may be unable to identify or capture revenue or
competitive opportunities, or retain and attract qualified
employees
EDTF | The financial services industry is characterized by intense
competition, continuous innovation, detailed (and sometimes
74
fragmented) regulation and ongoing consolidation. We face com-
petition at the level of local markets and individual business lines,
and from global financial institutions that are comparable to us in
their size and breadth. Barriers to entry in individual markets and
pricing levels are being eroded by new technology. We expect
these trends to continue and competition to increase. Our com-
petitive strength and market position could be eroded if we are
unable to identify market trends and developments, do not re-
spond to them by devising and implementing adequate business
strategies, adequately developing or updating our technology,
particularly in trading businesses, or are unable to attract or retain
the qualified people needed to carry them out.
The amount and structure of our employee compensation are
affected not only by our business results but also by competitive
factors and regulatory considerations. 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 our ability to
retain and attract key employees, and may in turn negatively af-
fect our business performance. We have made changes to the
terms of compensation awards to reflect the demands of various
stakeholders, including regulatory authorities and shareholders.
These terms include the introduction of a deferred contingent
capital plan with many of the features of the loss-absorbing capi-
tal that we have issued in the market but with a higher capital
ratio write-down trigger, increased average deferral periods for
stock awards, and expanded forfeiture provisions for certain
awards linked to business performance. These changes, while in-
tended to better align the interests of our staff with those of other
stakeholders, increase the risk that key employees will be at-
tracted by competitors and decide to leave us, and that we may
be less successful than our competitors in attracting qualified em-
ployees. The loss of key staff and the inability to attract qualified
replacements, depending upon which and how many roles are
affected, could seriously compromise our ability to execute our
strategy and to successfully improve our operating and control
environment.
In a referendum in March 2013, the Swiss cantons and voters
approved an initiative to give shareholders of Swiss listed compa-
nies more influence over board and management compensation
(the “Minder Initiative”). In November 2013, the Swiss Federal
Council issued the final transitional ordinance implementing the
constitutional amendments resulting from this initiative, which
came into force on 1 January 2014. The ordinance requires public
companies to specify in their articles of association (AoA) a mech-
anism to permit a “say-on-pay” vote, setting out three require-
ments: (i) the vote on compensation must be held annually, (ii) the
vote on compensation must be binding rather than advisory and
(iii) the vote on compensation must be held separately for the
board of directors and members of the executive board. In addi-
tion, shareholders will need to determine the details of the “say-
on-pay” vote in the AoA, in particular the nature of the vote,
timing aspects and the consequences of a “no” vote. Each com-
pany affected by the Minder Initiative must undertake a first bind-
ing vote on management compensation and remuneration of the
board of directors at its 2015 annual general meeting.
The EU has adopted legislation that caps the amount of vari-
able compensation in proportion to the amount of fixed compen-
sation for employees of a bank active within the EU. This legisla-
tion will apply to employees of UBS in the EU. These and other
similar initiatives may require us to make further changes to our
compensation structure and may increase the risks described
above. ▲
Our financial results may be negatively affected by
changes to accounting standards
EDTF | We report our results and financial position in accordance with
IFRS as issued by the IASB. Changes to IFRS or interpretations
thereof may cause our 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
our regulatory capital and ratios. We monitor potential accounting
changes and when these are finalized by the IASB, we determine
the potential impact and disclose significant future changes in our
financial statements. Currently, there are a number of issued but
not yet effective IFRS changes, as well as potential IFRS changes,
some of which could be expected to impact our reported results,
financial position and regulatory capital in the future. ▲
Our financial results may be negatively affected by
changes to assumptions supporting the value of our
goodwill
EDTF | The goodwill that we have recognized on the respective bal-
ance sheets of our operating segments is tested for impairment at
least annually. Our impairment test in respect of the assets recog-
nized as of 31 December 2014 indicated that the value of our
goodwill is not impaired. The impairment test is based on assump-
tions regarding estimated earnings, discount rates and long-term
growth rates impacting the recoverable amount of each segment
and on estimates of the carrying amounts of the segments to which
the goodwill relates. If the estimated earnings and other assump-
tions in future periods deviate from the current outlook, the value
of our goodwill may become impaired in the future, giving rise to
losses in the income statement. For example, in the third quarter of
2012, the carrying amount of goodwill and certain other non-
financial assets of the Investment Bank was written down, resulting
in a pre-tax impairment loss of almost CHF 3.1 billion. ▲
The effect of taxes on our financial results is significantly
influenced by reassessments of our deferred tax assets
EDTF | The deferred tax assets (DTA) that we have recognized on our
balance sheet as of 31 December 2014 in respect of prior years’
tax losses reflect the probable recoverable level based on future
taxable profit as informed by our business plans. If the business
75
Operating environment and strategy Operating environment and strategy
Risk factors
plan earnings and assumptions in future periods substantially de-
viate from current forecasts, the amount of recognized deferred
tax assets may need to be adjusted in the future. These adjust-
ments may include write-downs of deferred tax assets through
the income statement.
Our effective tax rate is highly sensitive both to our perfor-
mance as well as our expectation of future profitability as re-
flected in our business plans. Our results in recent periods have
demonstrated that changes in the recognition of deferred tax as-
sets can have a very significant effect on our reported results. If
our performance is expected to improve, particularly in the US,
the UK or Switzerland, we could potentially recognize additional
deferred tax assets as a result of that assessment. The effect of
doing so would be to significantly reduce our effective tax rate in
years in which additional deferred tax assets are recognized. Con-
versely, if our performance in those countries is expected to pro-
duce diminished taxable profit in future years, we may be required
to write down all or a portion of the currently recognized deferred
tax assets through the income statement. This would have the
effect of increasing our effective tax rate in the year in which any
write-downs are taken.
In 2015, notwithstanding the effects of any potential reassess-
ment of the level of deferred tax assets, we expect our effective
tax rate to be approximately 25%. Consistent with past practice,
we expect to revalue our overall level of deferred tax assets in the
second half of 2015 based on a reassessment of future profitabil-
ity taking into account updated business plan forecasts, including
consideration of a possible further extension of the forecast pe-
riod used for US DTA recognition purposes to seven years from
the six years used at 31 December 2014. The full year effective tax
rate could change significantly on the basis of this reassessment.
It could also change if aggregate tax expenses for locations other
than Switzerland, the US and the UK differ from what is expected.
Our effective tax rate is also sensitive to any future reductions in
statutory tax rates, particularly in the US and Switzerland. Reduc-
tions in the statutory tax rate 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 deferred tax assets.
In addition, statutory and regulatory changes, as well as
changes to the way in which courts and tax authorities interpret
tax laws could cause the amount of taxes ultimately paid by us to
materially differ from the amount accrued.
We are currently considering changes to our legal structure in
the US, the UK, Switzerland and other countries in response to
regulatory changes. Tax laws or the tax authorities in these
countries may prevent the transfer of tax losses incurred in one
legal entity to newly organized or reorganized subsidiaries or
affiliates or may impose limitations on the utilization of tax
losses that are expected to carry on businesses formerly con-
ducted by the transferor. Were this to occur in situations where
there were also limited planning opportunities to utilize the tax
losses in the originating entity, the deferred tax assets associated
with such tax losses could be written down through the income
statement.
A net charge of CHF 123 million was recognized in operating
expenses (within operating profit before tax) in 2014 in relation to
the UK bank levy. This is a balance sheet levy, payable by banks
operating in the UK. Our bank levy expense for future years will
depend on both the rate of the levy and our taxable UK liabilities
at each year-end; changes to either factor could increase the cost.
This expense could increase if organizational changes involving
UBS Limited and/or UBS AG alter the level or profile of our bank
levy tax base. We expect that the annual bank levy charge will
continue to be recognized for IFRS purposes as an expense arising
in the final quarter of each financial year, rather than being ac-
crued throughout the year, as it is charged by reference to the
year-end balance sheet position. ▲
As UBS Group AG is a holding company, our operating
results, financial condition and ability to pay dividends,
other distributions or to pay our obligations in the future
is dependent on funding, dividends and other distribu-
tions received from UBS AG or any other future direct
subsidiary, which may be subject to restrictions
EDTF | UBS Group’s ability to pay dividends and other distributions
and to pay our obligations in the future will depend on the level
of funding, dividends and other distributions, if any, received from
UBS AG and any new subsidiaries established by UBS Group in the
future. The ability of such subsidiaries to make loans or distribu-
tions (directly or indirectly) to UBS Group may be restricted as a
result of several factors, including restrictions in financing agree-
ments and the requirements of applicable laws and regulatory
and fiscal or other restrictions. UBS Group’s subsidiaries, including
UBS AG, UBS Switzerland AG, UBS Limited and the US IHC (when
designated) are subject to laws that restrict dividend payments,
authorize regulatory bodies to block or reduce the flow of funds
from those subsidiaries to UBS Group, or limit or prohibit transac-
tions with affiliates. Restrictions and regulatory action of this kind
could impede access to funds that UBS Group may need to make
payments.
In addition, UBS Group’s right to participate in a distribution of
assets upon a subsidiary’s liquidation or reorganization is subject
to all prior claims of the subsidiary’s creditors.
UBS Group’s credit rating could be lower than the rating of
UBS AG, which may adversely affect the market value of the secu-
rities and other obligations of UBS Group on a standalone basis.
Furthermore, we expect that UBS Group may guarantee some
of the payment obligations of certain of our subsidiaries from
time to time. These guarantees may require UBS Group to provide
substantial funds or assets to subsidiaries or their creditors or
counterparties at a time when UBS Group is in need of liquidity to
fund its own obligations. ▲
76
Our stated capital returns objective is based, in part, on
capital ratios that are subject to regulatory change and
may fluctuate significantly
EDTF | UBS has committed to return at least 50% of its net profit to
shareholders as capital returns, provided its fully applied CET1 capital
ratio is at least 13% and our post-stress fully applied CET1 capital ra-
tio is at least 10%. As of 31 December 2014, our post-stress CET1
capital ratio exceeded this 10% objective, and the actions of the Swiss
National Bank did not cause a breach of this objective in either Janu-
ary or February 2015. However, our ability to maintain a fully applied
CET1 capital ratio of at least 13% is subject to numerous risks, includ-
ing the results of our business, changes to capital standards, method-
ologies and interpretation that may adversely affect our calculated
fully applied CET1 capital ratio, imposition of risk add-ons or addi-
tional capital requirements such as additional capital buffers.
Changes in the methodology, assumptions, stress scenario and
other factors may result in material changes in our post-stress fully
applied CET1 capital ratio. Our objective to maintain a post-stress
fully applied CET1 capital ratio of at least 10% is a condition to our
capital returns commitment. To calculate our post-stress CET1 capi-
tal ratio, we forecast capital one year ahead based on internal pro-
jections of earnings, expenses, distributions to shareholders and
other factors affecting CET1 capital, including our net defined ben-
efit assets and liabilities. We also forecast one-year developments in
RWA. We adjust these forecasts based on assumptions as to how
they may change as a result of a severe stress event. We then further
deduct from capital the stress loss estimated using our combined
stress test (CST) framework to arrive at the post-stress CET1 capital
ratio. Changes to our results, business plans and forecasts, in the
assumptions used to reflect the effect of a stress event on our busi-
ness forecasts or in the results of our CST, could have a material ef-
fect on our stress scenario results and on our calculated fully applied
post-stress CET1 capital ratio. Our CST framework relies on various
risk exposure measurement methodologies which are predomi-
nantly proprietary, on our selection and definition of potential stress
scenarios and on our assumptions regarding estimates of changes in
a wide range of macroeconomic variables and certain idiosyncratic
events for each of those scenarios. We periodically review these
methodologies, and assumptions are subject to periodic review and
change on a regular basis. Our risk exposure measurement method-
ologies may change in response to developing market practice and
enhancements to our own risk control environment, and input pa-
rameters for models may change due to changes in positions, mar-
ket parameters and other factors. Our stress scenarios, the events
comprising a scenario and the assumed shocks and market and eco-
nomic consequences applied in each scenario are subject to periodic
review and change. A change in the CST scenario used to calculate
the fully applied post-stress CET1 capital ratio, or in the assumptions
used in a particular scenario, may cause the post-stress CET1 capital
ratio to fluctuate materially from period to period. Our business
plans and forecasts are subject to inherent uncertainty, our choice of
stress test scenarios and the market and macroeconomic assump-
tions used in each scenario are based on judgments and assump-
tions about possible future events. Our risk exposure methodologies
are subject to inherent limitations, rely on numerous assumptions as
well as on data which may have inherent limitations. In particular,
certain data are not available on a monthly basis and we may there-
fore rely on prior month / quarter data as an estimate. All of these
factors may result in our post-stress CET1 capital ratio, as calculated
using our methodology for any period, being materially higher or
lower than the actual effect of a stress scenario. ▲
We may fail to realize the anticipated benefits of the
exchange offer
EDTF | We established UBS Group AG as a holding company for UBS
AG because we believe that it will, along with other measures al-
ready announced, substantially improve the resolvability of the
Group in response to evolving regulatory requirements. These
measures may also qualify us for a rebate on the progressive buf-
fer capital requirements applicable to us as a systemically relevant
Swiss bank under applicable Swiss TBTF requirements. We may,
however, encounter substantial difficulties in achieving these an-
ticipated benefits or these anticipated benefits may not material-
ize. For example, the relevant regulators may find the measures
that we are undertaking or their implementation to be ineffective
or insufficient (especially in the context of market turbulence or in
distressed situations), or they may not grant potential relief to the
full extent we anticipate. We may also be required to adopt fur-
ther measures to meet existing or new regulatory requirements.
UBS Group has acquired approximately 97 percent of the out-
standing shares of UBS AG. Delay in acquiring full ownership of
UBS AG could adversely affect the anticipated benefits of the ex-
change offer and the liquidity and market value of UBS Group AG
shares. Such a delay may occur if we determine that the squeeze-
out merger cannot be implemented or is not advisable for any
reason, including, among other things, disruption to the business,
the negative impact on regulatory consents, approvals and licenses
or required third-party rights. The existence of minority sharehold-
ers in UBS AG may, among other things, make it more difficult or
delay UBS Group’s ability to implement changes to our legal struc-
ture and interfere with our day-to-day business operations and our
corporate governance. In addition, any holders of UBS AG shares
will have a pro rata claim upon any dividends or other distributions
of UBS AG and would receive a proportionate share of any divi-
dend payments or other distributions made by UBS AG, reducing
the amount of any dividend payments or other distributions that
UBS Group might make to holders of UBS Group AG shares. ▲
Risks associated with a squeeze-out merger
EDTF | If UBS Group conducts a squeeze-out merger under Swiss
law, UBS AG will merge into a merger subsidiary of UBS Group,
77
Operating environment and strategy Operating environment and strategy
which will survive the transaction. Although UBS Group expects
that the surviving entity will in most cases succeed to UBS AG’s
banking licenses, permits and other authorizations, such entity
may need to re-apply for or seek specific licenses, permits and
authorizations, as well as third-party consents. Furthermore, al-
though we expect this occurrence to be unlikely given that mi-
nority shareholders subject to the squeeze-out will be offered
listed securities in UBS Group and the consideration to be offered
in the squeeze-out merger will be identical to the consideration
offered in the exchange offer, under Swiss law, a minority share-
holder subject to the squeeze-out merger could theoretically
seek to claim, within two months of the publication of the
squeeze-out merger, that the consideration offered is “inade-
quate” and petition a Swiss competent court to determine what
is “adequate” consideration. Each of these circumstances, if it
were to happen, may generate costs, delay the implementation
of the squeeze-out merger or disrupt or negatively impact our
business. ▲
78
Financial and
operating
performance
79
Financial and operating performance Financial and operating performance
Critical accounting policies
Critical accounting policies
Basis of accounting
We prepare our consolidated financial statements in accordance
with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB). The applica-
tion of these accounting standards requires the use of judgment,
based upon estimates and assumptions that may involve signifi-
cant uncertainty at the time they are made. Such judgments, in-
cluding the underlying estimates and assumptions, which reflect
historical experience, expectations of the future and other factors,
or some combination thereof, are regularly evaluated to determine
their continuing relevance under the circumstances. Using differ-
ent assumptions could cause the reported results to differ. Changes
in assumptions may have a significant impact on the financial
statements in the periods when changes occur.
We believe that the assumptions we have made are appropri-
ate under the circumstances, and that our financial statements
therefore present fairly the financial position, financial perfor-
mance and cash flows, in all material respects. Alternative out-
comes and sensitivity analyses discussed or referred to in this sec-
tion are included solely to assist the reader in understanding the
uncertainty inherent in the estimates and assumptions used in our
financial statements. They are not intended to suggest that other
estimates and assumptions would be more appropriate.
This section discusses accounting policies that are deemed crit-
ical to our financial position, financial performance and cash flows,
because they are material in terms of the items to which they ap-
ply, and they involve significant assumptions and estimates. A
broader and more detailed description of our significant account-
ing policies is included in “Note 1 Summary of significant account-
ing policies” in the “Financial information” section of this report.
Consolidation of structured entities
returns. UBS consolidates an entity when all three elements of
control are present. Where UBS has an interest in an SE that
absorbs variability, we consider whether UBS has power over the
SE which allows it to affect the variability of its returns. Consider-
ation is given to all facts and circumstances to determine whether
the Group has power over the SE, that is, the current ability to di-
rect the relevant activities of the SE when decisions about those
activities need to be made. Determining whether we have power
to direct the relevant activities requires a significant degree of
judgment in light of all facts and circumstances. In making that
determination, we consider a range of factors, including the pur-
pose and design of the SE, any rights held through contractual
arrangements such as call rights, put rights or liquidation rights, as
well as potential decision-making rights. Where the Group has
power over the relevant activities, a further assessment is made to
determine whether, through that power, it has the ability to affect
its own returns, that is, assessing whether power is held in a prin-
cipal or agent capacity. Consideration is given to the overall rela-
tionship between UBS, the SE and other parties involved in the SE.
In particular, we assess the following: (i) the scope of decision-mak-
ing authority, (ii) rights held by other parties, including removal or
other participating rights and (iii) exposure to variability, including
remuneration, relative to the total variability of the SE, as well as
whether UBS’s exposure is different from that of other investors.
Appropriate weightings are applied to each of these factors on the
basis of the particular facts and circumstances.
➔ Refer to “Note 1a item 3 Subsidiaries and structured entities”
and “Note 30 Interests in subsidiaries and other entities”
in the “Financial information” section of this report for more
information
Fair value of financial instruments
We sponsor the formation of structured entities (SEs) and interact
with non-sponsored SEs for a variety of reasons, including allow-
ing clients to obtain or be exposed to particular risk profiles, to
provide funding or to sell or purchase credit risk. An SE is an entity
that has been designed so that voting or similar rights are not the
dominant factor in deciding who controls the entity. Such entities
generally have a narrow and well-defined objective and include
those historically referred to as special purpose entities and some
investment funds.
In accordance with IFRS, UBS consolidates only SEs that it con-
trols, with control being defined as a function of three elements:
power over the relevant activities of the entity, exposure to variable
returns and an investor’s ability to use its power to affect its
UBS accounts for a significant portion of its assets and liabilities at
fair value. Under IFRS, the relative degree of uncertainty associ-
ated with the measurement of fair value is reflected by use of a
three-level valuation hierarchy. The best evidence of fair value is a
quoted price in an actively traded market (Level 1). In the event
that the market for a financial instrument is not active, or where
quoted prices are not otherwise available, a valuation technique is
used. In these cases, fair value is estimated using observable data
in respect of similar financial instruments as well as financial mod-
els. Level 2 of the hierarchy pertains to instruments for which in-
puts to a valuation technique are principally based on observable
market data. Level 3 applies to instruments that are measured by
a valuation technique that incorporates one or more significant
unobservable inputs. Valuation techniques that rely to a greater
80
extent on unobservable inputs require a higher level of judgment
to calculate a fair value than those based wholly on observable
inputs. Substantially all of UBS’s financial assets and financial lia-
bilities are based on observable prices and inputs and hence are
classified in Levels 1 and 2 of the hierarchy.
Where valuation techniques, including models, are used to de-
termine fair values, they are periodically reviewed and validated
by qualified personnel, independent of those who sourced them.
Models are calibrated to ensure that outputs reflect actual data
and comparable market prices. Also, models prioritize the use of
observable inputs, when available, over unobservable inputs.
Judgment is required in selecting appropriate models as well as
inputs for which observable data is less readily or not available.
The valuation techniques employed may not fully reflect all
the factors relevant to the positions we hold. Valuations are
therefore adjusted, where appropriate, to allow for additional
factors, including model risk, liquidity risk and credit risk. We use
different approaches to calculate the credit risk, depending on
the nature of the instrument. A credit-valuation-adjustment ap-
proach based on an expected exposure profile is used to adjust
the fair value of derivative instruments, including funded deriva-
tive instruments which are classified as Financial assets desig-
nated at fair value, to reflect counterparty credit risk. Corre-
spondingly, a debit-valuation-adjustment approach is applied to
incorporate UBS’s own credit risk, where applicable, in the fair
value of derivative instruments. Own credit risk for financial
liabilities designated at fair value is calculated using the funds
transfer price curve.
In 2014, the Group incorporated funding valuation adjust-
ments (FVA) into its valuation estimates for certain OTC deriva-
tives, consistent with the industry’s migration towards reflecting
the market cost of unsecured funding in the valuation of such
instruments. Recognition and measurement of FVA derives from
several important management judgments, including estimation
of relevant market clearing prices for funding, the interaction be-
tween FVA and DVA (DVA previously incorporated the full UBS
credit spread including a funding component which is now cap-
tured in FVA), and the determination as to when the weight of
market evidence becomes sufficiently compelling to justify the
change in estimate.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Financial information” section of
this report for more information
As of 31 December 2014, financial assets and financial liabili-
ties for which valuation techniques are used and whose signifi-
cant inputs are considered observable (Level 2) amounted to CHF
304 billion and CHF 333 billion, respectively, (67% and 89% of
total financial assets measured at fair value and total financial lia-
bilities measured at fair value, respectively). Financial assets and
financial liabilities whose valuations include significant unobserv-
able inputs (Level 3) amounted to CHF 12 billion and CHF 17 bil-
lion, respectively, (3% and 5% of total financial assets measured
at fair value and total financial liabilities measured at fair value,
respectively). These amounts reflect the effect of offsetting, wher-
ever such presentation is required under IFRS.
Uncertainty inherent to estimating unobservable market inputs
can affect the amount of gain or loss recorded for a particular
position. While the Group believes its valuation techniques are
appropriate and consistent with those of other market partici-
pants, the use of different techniques or assumptions to deter-
mine the fair value of certain financial instruments could result in
a different estimate of fair value at the reporting date. As of
31 December 2014, the total favorable and unfavorable effects of
changing one or more of the unobservable inputs to reflect rea-
sonably possible alternative assumptions for financial instruments
classified as Level 3 were CHF 965 million and CHF 824 million,
respectively. Further discussion of the Group’s use of valuation
techniques, the critical estimates and adjustments applied to
reflect uncertainties within the fair value measurement process,
and its governance over the fair value measurement process can
be found in “Note 24 Fair value measurement” in the “Financial
information” section of this report.
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information
Allowances for credit losses on loans and receivables
measured at amortized cost
Allowances for credit losses represent management’s best estimate
of credit losses incurred in the lending portfolio at the balance
sheet date due to credit deterioration of the issuer or counterparty.
The loan portfolio, which is measured at amortized cost less impair-
ment, consists of financial assets presented on the balance sheet
lines Due from banks and Loans. In addition, irrevocable loan com-
mitments are tested for impairment as described below.
A credit loss expense is recognized if there is objective evidence
that the Group will be unable to collect all amounts due (or the
equivalent thereof) on a claim based on the original contractual
terms due to credit deterioration of the issuer or counterparty.
Allowances for credit losses are evaluated at both a counterpar-
ty-specific level and collectively. Under this incurred loss model, a
financial asset or group of financial assets is impaired if there is
objective evidence that a credit loss has occurred by the balance
sheet date. Judgment is used in making assumptions when calcu-
lating impairment losses both on a counterparty-specific level and
collectively.
The impairment loss for a loan is the excess of the carrying
value of the financial asset over the estimated recoverable
amount. The estimated recoverable amount is the present value,
calculated using the loan’s original effective interest rate, of ex-
pected future cash flows, including amounts that may result from
restructuring or the liquidation of collateral. If a loan has a vari-
able interest rate, the discount rate for calculating the recoverable
amount is the current effective interest rate. An allowance for
81
Financial and operating performance Financial and operating performance
Critical accounting policies
credit losses is reported as a reduction of the carrying value of the
financial asset on the balance sheet.
The collective allowances for credit losses are calculated for
portfolios with similar credit risk characteristics, taking into ac-
count historical loss experience and current conditions. The meth-
odology and assumptions used are reviewed regularly to reduce
any differences between estimated and actual loss experience. For
all of our portfolios, we also assess whether there have been any
unforeseen developments which might result in impairments but
which are not immediately observable. To determine whether an
event-driven collective allowance for credit losses is required, we
consider global economic drivers to assess the most vulnerable
countries and industries.
As of 31 December 2014, the gross loan portfolio was CHF 316
billion and the related allowances for credit losses amounted to
CHF 0.7 billion, consisting of specific and collective allowances of
CHF 687 million and CHF 8 million, respectively.
➔ Refer to “Note 1a item 11 Allowances and provisions for credit
losses,” “Note 10 Due from banks and loans (held at amortized
cost),” “Note 12 Allowances and provisions for credit losses”
and "Note 27a Measurement categories of financial assets and
liabilities” in the “Financial information” section of this report
for more information
➔ Refer to “Policies for past due, non-performing and impaired
claims” in the “Risk management and control” section of this
report for more information
Goodwill impairment test
UBS performs an impairment test on its goodwill assets on an
annual basis, or when indicators of impairment exist. UBS consid-
ers the segments, as reported in “Note 2 Segment reporting,” as
separate cash-generating units. The impairment test is performed
for each segment to which goodwill is allocated by comparing the
recoverable amount, based on its value-in-use, to the carrying
amount of the respective segment. An impairment charge is rec-
ognized if the carrying amount exceeds the recoverable amount.
The impairment test is based on the assumptions described below.
The recoverable amounts are determined using a discounted
cash flow model, which has been adapted to use inputs that con-
sider features of the banking business and its regulatory environ-
ment. The recoverable amount of a segment is the sum of the
discounted earnings attributable to shareholders from the first
five forecasted years and the terminal value.
The carrying amount for each segment is determined by refer-
ence to the Group’s equity attribution framework described in the
“Capital management” section of this report. The attributed eq-
uity methodology is aligned with the business planning process,
the inputs from which are used in calculating the recoverable
amounts of the respective cash-generating units.
Valuation parameters used within the Group’s impairment test
model are linked to external market information, where applica-
ble. The model used to determine the recoverable amount is most
sensitive to changes in the forecast earnings available to share-
holders in years one to five, to changes in the discount rates, and
to changes in the long-term growth rate.
Key assumptions used to determine the recoverable amounts
of each segment are tested for sensitivity by applying a reason-
ably possible change to those assumptions. Forecast earnings
available to shareholders were changed by 10%, the discount
rates were changed by 1.0 percentage point and the long-term
growth rates were changed by 0.5 percentage point. Under all
scenarios, the recoverable amounts for each segment exceeded
the respective carrying amount, such that the reasonably possible
changes in key assumptions would not result in impairment as of
31 December 2014.
If the estimated earnings and other assumptions in future peri-
ods deviate from the current outlook, the value of our goodwill
may become impaired in the future, giving rise to losses in the in-
come statement. Recognition of any impairment of goodwill
would reduce IFRS equity attributable to UBS shareholders and net
profit. It would not impact cash flows and, as goodwill is required
to be deducted from capital under the Basel capital framework, no
impact would be expected on the Group total capital ratios.
As of 31 December 2014, total goodwill recognized on the
balance sheet was CHF 6.4 billion, of which CHF 1.4 billion, CHF
3.5 billion and CHF 1.5 billion was carried by Wealth Manage-
ment, Wealth Management Americas and Global Asset Manage-
ment, respectively. On the basis of the impairment testing meth-
odology described above, UBS concluded that the year-end 2014
balances of goodwill allocated to its segments remain recoverable
and thus were not impaired.
➔ Refer to “Note 1a item 21 Goodwill and intangible assets,”
“Note 2 Segment reporting” and “Note 17 Goodwill and
intangible assets” in the “Financial information” section of this
report for more information
Deferred taxes
Deferred tax assets arise from a variety of sources, the most signif-
icant being the following: (i) tax losses that can be carried forward
to be utilized against profits in future years and (ii) expenses rec-
ognized in our income statement that are not deductible until the
associated cash flows occur.
We record a valuation allowance to reduce our deferred tax as-
sets to the amount which can be recognized in line with IAS 12 In-
come Taxes. The level of deferred tax asset recognition is influenced
by management’s assessment of our future profitability based on
relevant business plan forecasts. Existing assessments are reviewed
and, if necessary, revised to reflect changed circumstances. This re-
view is conducted annually, in the second half of each year, but ad-
justments may be made at other times, if required. In a situation
where recent losses have been incurred, IAS 12 requires convincing
evidence that there will be sufficient future profitability.
82
Swiss tax losses may be carried forward for seven years, US
federal tax losses for 20 years and UK and Jersey tax losses for an
unlimited period. The deferred tax assets recognized as of 31 De-
cember 2014 have been based on future profitability assump-
tions, adjusted to take into account the recognition criteria of IAS
12. The level of deferred tax assets recognized may, however,
need to be adjusted in the future in the event of changes in those
profitability assumptions. As of 31 December 2014, the deferred
tax assets amounted to CHF 11 billion, which included CHF 7.5
billion in respect of tax losses (mainly in Switzerland and the US)
that may be utilized to offset taxable income in future years.
➔ Refer to “Note 1a item 22 Income taxes” and “Note 8 Income
taxes” in the “Financial information” section of this report for
likely than not that an obligation exists as a result of a past event
and in assessing the probability, timing and amount of any poten-
tial outflows.
As of 31 December 2014, total provisions amounted to CHF
4,366 million, of which CHF 3,053 million pertained to the litiga-
tion, regulatory and similar matters class. Since the future out-
flow of resources in respect of these matters cannot be deter-
mined with certainty based on currently available information,
the actual outflows may ultimately prove to be substantially
greater (or may be less) than the provisions recognized.
➔ Refer to “Note 1a item 27 Provisions” and “Note 22 Provisions
and contingent liabilities” in the “Financial information” section
of this report for more information
more information
Provisions
Provisions are liabilities of uncertain timing or amount, and are
recognized when UBS has a present obligation as a result of a past
event, it is probable that an outflow of resources will be required
to settle the obligation and a reliable estimate of the amount of
the obligation can be made. Provisions are recognized for the best
estimate of the consideration required to settle the present obli-
gation at the balance sheet date.
Recognition of provisions often involves significant judgment
in assessing the existence of an obligation resulting from past
events and in estimating the probability, timing and amount of
any outflows of resources. This is particularly the case with litiga-
tion, regulatory and similar matters which, because of their na-
ture, are subject to many uncertainties, making their outcome
difficult to predict. Such matters may involve unique fact patterns
or novel legal theories, proceedings which have not yet been ini-
tiated or are at early stages of adjudication, or as to which alleged
damages have not been quantified by the claimants. Determining
whether an obligation exists as a result of a past event and esti-
mating the probability, timing and amount of any potential out-
flows is based on a variety of assumptions, variables, and known
and unknown uncertainties. The amount of any provision recog-
nized can be very sensitive to the assumptions used and there
could be a wide range of possible outcomes for any particular
matter. Statistical or other quantitative analytical tools are of lim-
ited use in determining whether to establish or determine the
amount of provisions in the case of litigation, regulatory or similar
matters. Furthermore, information currently available to manage-
ment may be incomplete or inaccurate increasing the risk of erro-
neous assumptions with regards to the future developments of
such matters. Management regularly reviews all the available in-
formation regarding such matters, including advice from legal
advisors, to assess whether the recognition criteria for provisions
have been satisfied for those matters and, if not, to evaluate
whether such matters represent contingent liabilities. Legal advice
is a significant consideration in determining whether it is more
Pension and other post-employment benefit plans
The full defined benefit obligation, net of plan assets, relating to
our pension and other-post employment benefits is recognized on
the balance sheet, with changes resulting from re-measurements
recorded immediately in other comprehensive income. The net
defined benefit liability (asset) at the end of the year and the re-
lated personnel expense depend on the expected future benefits
to be provided, determined using a number of economic and de-
mographic assumptions. The most significant assumptions in-
clude life expectancy, the discount rate, expected salary increases,
pension rates, and in addition, for the Swiss plan, interest credits
on retirement savings account balances.
Life expectancy is determined by reference to published mor-
tality tables. The discount rate is determined by reference to the
rates of return on high-quality fixed-income investments of ap-
propriate currency and term at the measurement date. The as-
sumption for salary increases reflects the long-term expectations
for salary growth and takes into account inflation, seniority, pro-
motion and other relevant factors such as supply and demand in
the labor market. For a sensitivity analysis of the defined benefit
obligation to these significant actuarial assumptions, refer to
“Note 28 Pension and other post-employment benefit plans” in
the “Financial information” section of this report.
The most significant plan is the Swiss pension plan. Consistent
with 2013, life expectancy for this plan has been based on the
2010 BVG generational mortality tables. The assumption for the
discount rate has changed from 2.30% in the prior year to 1.15%
in the current year, as a result of lower market yields on corporate
bonds.
➔ Refer to “Note 1a item 24 Pension and other post-employment
benefit plans” and “Note 28 Pension and other post-employment
benefit plans” in the “Financial information” section of this
report for more information
83
Financial and operating performance Financial and operating performance
Critical accounting policies
Equity compensation
We recognize shares, performance shares, options and share-set-
tled stock appreciation rights awarded to employees as compensa-
tion expense based on their fair value at grant date. The fair value
of UBS Group AG shares issued to employees is determined by
reference to quoted market prices, adjusted, when relevant, to take
into account the terms and conditions inherent in the award. Op-
tions, stock appreciation rights, and certain performance shares is-
sued by UBS to its employees have features which are not directly
comparable with our shares and options traded in active markets.
Accordingly, we determine the fair value using suitable valuation
models. Several recognized valuation models exist. The models we
apply have been selected because they are able to accommodate
the specific features included in the various instruments granted to
our employees. If we were to use different models, the values pro-
duced would differ, even if the same inputs were used.
The models we use require inputs such as expected dividends,
share price volatility and historical employee exercise behavior
patterns. Some of the model inputs we use are not market ob-
servable and have to be estimated or derived from available data.
Use of different estimates would produce different valuations,
which in turn would result in recognition of higher or lower com-
pensation expense.
➔ Refer to “Note 1a item 25 Equity participation and other
compensation plans” and “Note 29 Equity participation and
other compensation plans” in the “Financial information” section
of this report for more information
84
Significant accounting and
financial reporting changes
Significant accounting changes
Fair value measurements – funding valuation adjustments
In 2014, we incorporated funding valuation adjustments (FVA)
into our fair value measurements. This resulted in a net loss of
CHF 267 million when the change was adopted as of 30 Septem-
ber 2014, of which CHF 252 million was attributable to Corporate
Center – Non-core and Legacy Portfolio, CHF 12 million to the
Investment Bank and CHF 3 million to Retail & Corporate.
➔ Refer to the “Critical accounting policies” section, “Note 1b
Changes in accounting policies, comparability and other
adjustments” and “Note 24d Valuation adjustments” in
the “Financial information” section of this report for more
information
Offsetting Financial Assets and Financial Liabilities (Amendments
to IAS 32, Financial Instruments: Presentation)
On 1 January 2014, UBS adopted Offsetting Financial Assets and
Financial Liabilities (Amendments to IAS 32, Financial Instruments:
Presentation). The amended IAS 32 restricts offsetting on the
balance sheet to only those arrangements in which a right of set-
off exists that is unconditional and legally enforceable, in the nor-
mal course of business and in the event of the default, bankruptcy
or insolvency of the Group and its relevant counterparties and for
which the Group intends to either settle on a net basis, or to real-
ize the asset and settle the liability simultaneously.
The amendments also provide incremental guidance for deter-
mining when gross settlement systems result in the functional
equivalent of net settlement. UBS is no longer able to offset cer-
tain derivative arrangements under the revised rules. The prior
period balance sheet information as of 31 December 2013 has
been restated to reflect the effects of adopting these amend-
ments. There was no impact on total equity, net profit or earnings
per share. In addition, there was no material impact on the
Group’s Basel III capital, capital ratios and Swiss SRB leverage
ratio.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” for more information
ETD client cash balances removed from balance sheet
We provide clearing and execution services to clients entering into
exchange-traded derivatives (ETD). In 2014, we changed our
accounting policy with respect to recognizing cash initial margin
collected and remitted (together, client cash balances) to more
closely align with evolving market practices.
Client cash balances that are legally isolated from UBS’s estate,
and that UBS neither benefits from nor controls, are not deemed
assets and corresponding liabilities of the Group. Consequently,
they are no longer reflected within Cash collateral payables on
derivative instruments for the amounts due to clients, Cash collat-
eral receivables on derivative instruments in relation to amounts
posted to central counterparties, and Due from banks for any
amounts that are deposited at third-party deposit banks. The
comparative balance sheets as of 31 December 2013 have been
restated accordingly.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” for more information
85
Financial and operating performance Financial and operating performance
Significant accounting and financial reporting changes
Financial reporting changes
Refinement to the allocation of operating costs for internal services
At the beginning of 2014, we refined the way operating costs for
internal services are allocated from Corporate Center – Core
Functions to the business divisions and Corporate Center – Non-
core and Legacy Portfolio. Under this refinement, each year, as
part of the annual business planning cycle, Corporate Center –
Core Functions agrees with the business divisions and Non-core
and Legacy Portfolio cost allocations for services at fixed amounts
or at variable amounts based on fixed formulas, depending on
capital and service consumption levels as well as the nature of the
services performed. These pre-agreed cost allocations are de-
signed with the expectation that Corporate Center – Core Func-
tions recovers its costs, without a mark-up. Because actual costs
incurred may differ from those expected, however, Corporate
Center – Core Functions may recognize significant under- or
over-allocations depending on various factors, including Corpo-
rate Center – Core Functions’ ability to manage the delivery of its
services and achieve cost savings. Each year, these cost allocations
will be reset, taking account of the prior year’s experience and
plans for the forthcoming period. We expect the refined approach
to strengthen the effectiveness and efficiency of the services per-
formed by Corporate Center – Core Functions, and in particular to
facilitate the achievement of cost savings, by better aligning cost
accountability with the management of these services. Prior peri-
ods have not been adjusted for this refinement.
Operating income
In 2014, we amended our management discussion and analysis of
operating income for Wealth Management, Wealth Management
Americas and Retail & Corporate to disclose “recurring net fee
income,” which is part of total net fee and commission income in
the UBS Group financial statements, as a separate line in the busi-
ness division reporting tables. This includes fees for services pro-
vided on an ongoing basis such as portfolio management fees,
asset-based investment fund fees, custody fees and account
keeping fees, which are generated on the respective business di-
vision’s client assets. The non-recurring portion of the net fee and
commission income for these business divisions, which mainly
consists of brokerage and transaction-based investment fund fees
as well as credit card fees and fees for payment transactions, is
now presented together with net trading income as “transac-
tion-based income.” With these changes, we aim to enhance the
transparency of operating income disclosure for our client as-
set-gathering businesses.
In addition, we have added a tabular disclosure in the “Group
performance” section with the operating income breakdown for
Wealth Management, Wealth Management Americas and Retail
& Corporate, as well as specific commentary on the new operat-
ing income lines of recurring net fee income and transaction-based
income for these business divisions.
86
Changes to internal funding and fund transfer pricing
methodology
Effective July 2014, we changed our fund transfer pricing meth-
odology for the divisions Wealth Management and Retail & Cor-
porate. Under the revised methodology, the divisions share in the
benefits of raising liabilities and originating assets, with the pric-
ing curve incentivizing a balanced funding position from a cur-
rency and tenor perspective. The new methodology better aligns
the economics of flows originated in Wealth Management and
Retail & Corporate with UBS’s liquidity and funding appetite and
supports initiatives aimed at achieving the right mix of assets and
liabilities across the two divisions in response to the evolving reg-
ulatory liquidity and funding landscape. The change in fund trans-
fer pricing methodology in Wealth Management and Retail &
Corporate falls under the governance of Group Treasury.
➔ Refer to the “Treasury management” section in this report for more
information on the internal funding and funds transfer pricing
Client shifts and referrals between Retail & Corporate and
Wealth Management
In 2014, we implemented a remuneration framework for net cli-
ent shifts and referrals between Retail & Corporate and Wealth
Management, consistent with our strategy of collaboration across
our various businesses. Under this framework, a fee is paid from
one business division to the other for the overall net volume of
client shifts and referrals. Clients are mostly shifted from Retail &
Corporate to Wealth Management when they reach a certain
level of wealth following our objective to develop our client rela-
tionships.
Investment bank – Fixed Income Exchange-Traded Derivatives
During 2014, we transferred the fixed income exchange-traded
derivatives execution team from our equities business into our for-
eign exchange, rates and credit (FRC) business within the Invest-
ment Bank’s Investor Client Service business unit. The change is
intended to facilitate the build-out of our FRC execution services
platform. Prior period operating income numbers for equities and
FRC have been restated accordingly. The transfer had no impact
on total operating income for either Investor Client Services or the
overall Investment Bank.
Disclosure of regional performance in financial reports
Throughout 2014, our quarterly results presentations included
disclosure of the regional performance of our business divisions,
including a breakdown of regional operating income, operating
expenses and performance before tax by business division.
Starting with this Annual Report, we also provide such
disclosure in the “Group performance” section of our financial
reports, including our interim reports.
➔ Refer to the “Group performance” section and “Note 2 Segment
reporting” in the “Financial information” section of this report
for more information
New structure of the Corporate Center
As of 1 January 2015, Corporate Center – Core Functions was
reorganized into two new components, Corporate Center – Ser-
vices and Corporate Center – Group Asset and Liability Manage-
ment (Group ALM), each of which will be reported separately. In
our first quarter 2015 report, we will reflect this change and pro-
vide more information. Our presentation of Corporate Center –
Non-core and Legacy Portfolio is not affected by this change.
87
Financial and operating performance Financial and operating performance
Group performance
Group performance
Net profit attributable to UBS Group AG shareholders was CHF 3,466 million compared with CHF 3,172 million in 2013.
We recorded an operating profit before tax of CHF 2,461 million compared with CHF 3,272 million, largely reflecting an
increase of CHF 1,106 million in operating expenses, driven by CHF 893 million higher charges for provisions for litiga-
tion, regulatory and similar matters. Operating income increased by CHF 295 million, due to higher net fee and commis-
sion income, largely offset by a decline in net interest and trading income. We recorded a net tax benefit of CHF 1,180
million compared with a net tax benefit of CHF 110 million in the prior year, reflecting net upward revaluations of
deferred tax assets in both years, which more than offset tax expenses for taxable profits.
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
6,555
(78)
6,477
17,076
3,842
3,551
292
632
28,027
15,280
9,387
817
0
83
25,567
2,461
(1,180)
3,640
142
32
3,466
5,220
221
79
4,920
5,786
(50)
5,736
16,287
5,130
5,413
(283)
580
27,732
15,182
8,380
816
0
83
24,461
3,272
(110)
3,381
204
5
3,172
2,524
559
4
1,961
5,978
(118)
5,860
15,396
3,526
5,728
(2,202)
641
25,423
14,737
8,653
689
3,030
106
27,216
(1,794)
461
(2,255)
220
5
(2,480)
(1,767)
179
20
(1,966)
13
56
13
5
(25)
(34)
9
1
1
12
0
0
5
(25)
973
8
(30)
540
9
107
(60)
151
Income statement
CHF million
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss expense
Net fee and commission income
Net trading income
of which: net trading income excluding own credit
of which: own credit on financial liabilities designated at fair value
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS Group AG shareholders
Comprehensive income
Total comprehensive income
Total comprehensive income attributable to preferred noteholders
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to UBS Group AG shareholders
88
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
For the year ended 31.12.14
Global
Asset
Retail &
Corporate
Manage-
ment
Investment
Bank
7,901
6,998
3,741
1,902
8,346
Adjusted results 1, 2
CHF million
Operating income as reported
of which: own credit on financial liabilities
designated at fair value 4
of which: gains on sales of real estate
of which: gain from the partial sale of
our investment in Markit
of which: impairment of a financial investment
available-for-sale
For the year ended 31.12.13
Wealth
Manage-
ment
7,563
Wealth
Manage-
ment
Americas
Retail &
Corporate
6,538
3,756
Global
Asset
Manage-
ment
1,935
Investment
Bank
8,601
CC – Core
Functions 3
(1,007)
Operating income (adjusted)
7,901
6,998
3,741
1,902
Operating expenses as reported
of which: personnel-related restructuring charges 5
of which: other restructuring charges 5
of which: credit related to changes to
retiree benefit plans in the US 6
Operating expenses (adjusted)
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
5,574
70
116
0
5,389
2,326
2,511
6,099
2,235
1,435
23
33
(9)
29
34
0
37
13
(8)
6,053
2,171
1,393
900
946
1,506
1,570
467
509
CHF million
Operating income as reported
of which: own credit on financial liabilities
designated at fair value 4
of which: gains on sales of real estate
of which: net losses related to the buyback of debt
in public tender offers
of which: gain on sale of Global AM’s
Canadian domestic business
of which: net gain on sale of remaining proprietary
trading business
34
Operating income (adjusted)
7,563
6,538
3,756
1,901
Operating expenses as reported
of which: personnel-related restructuring charges 5
of which: other restructuring charges 5
Operating expenses (adjusted)
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
5,316
71
107
5,138
2,247
2,425
5,680
2,298
1,359
14
45
19
35
10
33
5,621
2,244
1,316
858
917
1,458
1,512
576
585
CC – Core
Functions 3
(39)
292
44
CC – Non-
core and
Legacy
Portfolio
UBS
(821)
28,027
292
44
43
(48)
(375)
(821)
27,696
688
21
9
0
1,144
25,567
17
14
(3)
327
350
(41)
658
1,116
24,931
(728)
(1,034)
(1,965)
(1,937)
2,461
2,766
CC – Non-
core and
Legacy
Portfolio
347
27
UBS
27,732
(283)
288
(167)
34
31
320
27,829
2,660
35
200
2,425
24,461
156
616
23,689
3,272
4,141
(283)
288
(194)
(24) 7
(794)
847
(2)
(4)
853
(1,854)
(1,647)
(2,312)
(2,104)
43
(48)
8,351
8,392
130
131
(20)
8,151
(47)
199
55
8,546
6,300
9
201
6,090
2,300
2,455
1 Adjusted results are non-GAAP financial measures as defined by SEC regulations. 2 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments fol-
lowing organizational changes, and restatements due to the retrospective adoption of new accounting standards or changes in accounting policies. 3 Corporate Center – Core Functions operating expenses presented
in this table are after service allocations to business divisions and Corporate Center – Non-core and Legacy Portfolio. 4 Refer to “Note 24 Fair value measurement” in the “Financial information” section of this report
for more information. 5 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for more information. 6 Refer to “Note 28 Pension and other post-employment benefit plans”
in the “Financial information” section of this report for more information. 7 Reflects a foreign currency translation loss.
89
Financial and operating performance Financial and operating performance
Group performance
Adjusted results 1, 2 (continued)
CHF million
Operating income as reported
of which: own credit on financial liabilities
designated at fair value 4
of which: gains on sales of real estate
For the year ended 31.12.12
Wealth
Manage-
ment
7,041
Wealth
Manage-
ment
Americas
Retail &
Corporate
5,877
3,728
Global
Asset
Manage-
ment
1,883
Investment
Bank
7,144
CC – Core
Functions 3
(1,689)
CC – Non-
core and
Legacy
Portfolio
1,439
UBS
25,423
(2,202)
112
27,513
(2,202)
112
401
1,439
2,008
5,202
27,216
(1)
(6)
(3)
(1)
58
0
(2)
(7)
3,064
2,089
(3,764)
(651)
358
14
(730)
(116)
3,064
24,627
(1,794)
2,885
Operating income (adjusted)
7,041
5,877
3,728
1,883
7,144
Operating expenses as reported
4,634
5,281
1,901
1,314
of which: personnel-related restructuring charges 5
of which: other restructuring charges 5
of which: credit related to changes to
the Swiss pension plan
of which: credit related to changes to
retiree benefit plans in the US
of which: impairment of goodwill and
other non-financial assets
25
0
(357)
(1)
3
0
(287)
3
(5)
(2)
20
0
(30)
(16)
6,877
250
24
(51)
(91)
Operating expenses (adjusted)
4,966
5,284
2,185
1,340
6,746
2,020
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
2,407
2,075
597
594
1,827
1,543
569
543
267
398
(3,698)
(1,620)
1 Adjusted results are non-GAAP financial measures as defined by SEC regulations. 2 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments fol-
lowing organizational changes, and restatements due to the retrospective adoption of new accounting standards or changes in accounting policies. 3 Corporate Center – Core Functions operating expenses presented
in this table are after service allocations to business divisions and Corporate Center – Non-core and Legacy Portfolio. 4 Refer to “Note 24 Fair value measurement” in the “Financial information” section of this report
for more information. 5 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for more information.
2014 compared with 2013
Results
We recorded an operating profit before tax of CHF 2,461 million
compared with CHF 3,272 million, largely reflecting an increase of
CHF 1,106 million in operating expenses, driven by CHF 893 mil-
lion higher charges for provisions for litigation, regulatory and
similar matters. Operating income increased by CHF 295 million,
due to CHF 789 million higher net fee and commission income,
largely offset by a CHF 518 million decline in net interest and
trading income. We recorded a net tax benefit of CHF 1,180 mil-
lion compared with a net tax benefit of CHF 110 million in the
prior year, reflecting net upward revaluations of deferred tax as-
sets in both years, which more than offset tax expenses in respect
of taxable profits.
In addition to reporting our results in accordance with IFRS,
we report adjusted results that exclude items that management
believes are not representative of the underlying performance of
our businesses. Such adjusted results are non-GAAP financial
measures as defined by SEC regulations. For 2014, the items we
excluded were an own credit gain of CHF 292 million, gains on
sales of real estate of CHF 44 million, a gain of CHF 43 million
from the partial sale of our investment in Markit, a loss of CHF 48
million related to the impairment of a financial investment avail-
able-for-sale, net restructuring charges of CHF 677 million and a
credit of CHF 41 million related to changes to retiree benefit
plans in the US. For 2013, the items we excluded were an own
credit loss of CHF 283 million, gains on sales of real estate of CHF
288 million, net losses related to the buyback of debt in public
tender offers of CHF 167 million, a gain on the sale of Global
Asset Management’s Canadian domestic business of CHF 34 mil-
lion, a net gain on the sale of our remaining proprietary trading
business of CHF 31 million and net restructuring charges of
CHF 772 million.
On this adjusted basis, profit before tax was CHF 2,766 million
compared with CHF 4,141 million in the prior year.
Adjusted operating income decreased by CHF 133 million to
CHF 27,696 million, mainly reflecting a decline of CHF 1,066 mil-
lion in adjusted net interest and trading income, largely offset by
an increase in net fee and commission income of CHF 789 million
and CHF 172 million higher adjusted other income.
Adjusted operating expenses increased by CHF 1,242 million
to CHF 24,931 million, mainly due to CHF 893 million higher net
charges for provisions for litigation, regulatory and similar matters
as well as CHF 381 million higher other non-personnel expenses.
Adjusted personnel expenses were largely unchanged.
90
Operating income
Total operating income was CHF 28,027 million compared with
CHF 27,732 million. On an adjusted basis, total operating income
decreased by CHF 133 million to CHF 27,696 million. Adjusted
net interest and trading income declined CHF 1,066 million,
largely in Corporate Center – Non-core and Legacy Portfolio and
in the Investment Bank, partly offset by an increase in Corporate
Center – Core Functions. Net fee and commission income in-
creased by CHF 789 million, mainly in our wealth management
businesses, as well as in the Investment Bank. Adjusted other in-
come increased by CHF 172 million.
Net interest and trading income
Net interest and trading income decreased by CHF 518 million to
CHF 10,397 million. 2014 included an own credit gain on financial
liabilities designated at fair value of CHF 292 million, primarily as
life-to-date own credit losses partially reversed due to time decay.
The prior year included an own credit loss on financial liabilities of
CHF 283 million. Adjusted for the effect of own credit in both
years and a gain related to the buyback of debt in a public tender
offer of CHF 27 million in 2013, net interest and trading income
decreased by CHF 1,066 million to CHF 10,105 million, mainly in
Non-core and Legacy Portfolio and in the Investment Bank, partly
offset by an increase in Corporate Center – Core Functions.
In Wealth Management, net interest and trading income de-
creased by CHF 23 million. Net interest income increased by CHF
104 million to CHF 2,165 million, mainly due to higher net inter-
est income from Lombard loans and mortgages as well as a posi-
tive effect from methodology changes in the allocation of liquidity
and funding costs and benefits for loans and deposits between
Wealth Management and Group Treasury. These effects were
partly offset by lower net interest income from client deposits and
lower allocated revenues from Group Treasury. Net trading in-
come decreased by CHF 127 million to CHF 680 million, largely
driven by lower revenues from structured products and decreases
in foreign exchange trading revenues.
In Wealth Management Americas, net interest and trading in-
come increased by CHF 29 million to CHF 1,352 million. Net inter-
est income increased by CHF 47 million to CHF 983 million, due
to continued growth in loan and deposit balances. Net trading
income decreased by CHF 18 million to CHF 369 million.
In Retail & Corporate, net interest and trading income in-
creased by CHF 51 million to CHF 2,536 million. Net interest in-
come increased by CHF 40 million to CHF 2,184 million, mainly
due to higher revenues allocated from Group Treasury and a
higher loan margin. This was partly offset by a decline in the de-
posit margin, despite selective pricing measures, as the per-
sistently low interest rate environment continued to have an ad-
verse effect on our replication portfolios. Net trading income
increased by CHF 11 million to CHF 352 million.
In the Investment Bank, net interest and trading income de-
creased by CHF 461 million to CHF 4,554 million. Within Investor
Client Services, foreign exchange, rates and credit net interest and
trading income decreased by CHF 246 million, with lower reve-
nues across most products as client activity and volatility levels de-
creased compared with 2013, reflecting the ongoing macroeco-
nomic uncertainty. Also within Investor Client Services, equities net
interest and trading income decreased by CHF 120 million, largely
due to lower derivatives revenues, reflecting lower volatility levels
during 2014, as well as reduced cash revenues. This was partly
offset by higher revenues in financing services, mainly due to
Net interest and trading income
CHF million
Net interest and trading income
Net interest income
Net trading income
Total net interest and trading income
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
of which: Corporate Client Solutions 1
of which: Investor Client Services 1
Corporate Center
of which: Core Functions
of which: own credit on financial liabilities designated at fair value
of which: Non-core and Legacy Portfolio
Total net interest and trading income
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
6,555
3,842
10,397
2,845
1,352
2,536
0
4,554
1,047
3,507
(891)
(28)
292
(864)
10,397
5,786
5,130
10,915
2,868
1,323
2,485
9
5,015
1,142
3,873
(784)
(1,045)
(283)
261
10,915
5,978
3,526
9,504
2,728
1,265
2,467
9
3,574
706
2,868
(540)
(1,992)
(2,202)
1,452
9,504
13
(25)
(5)
(1)
2
2
(100)
(9)
(8)
(9)
14
(97)
(5)
1 In 2014, comparative period figures were corrected. As a result, net interest and trading income for Investment Bank Corporate Client Solutions increased by CHF 107 million and CHF 131 million for 2013 and 2012,
respectively, with an equal and offsetting decrease for Investment Bank Investor Client Services.
91
Financial and operating performance Financial and operating performance
Group performance
higher equity finance revenues. Corporate Client Solutions net in-
terest and trading income declined by CHF 95 million, largely due
to lower revenues within equities capital markets, which included
revenues from a large private transaction in 2013. This was partly
offset by higher revenues in debt capital markets, due to higher
revenues from leveraged finance, as well as reduced negative risk
management revenues, mainly due to the positive effect of wid-
ening credit spreads during 2014.
Corporate Center – Core Functions net interest and trading
income, adjusted for the effect of own credit in both years and a
gain related to the buyback of debt in a public tender offer of CHF
27 million in 2013, increased by CHF 469 million. 2014 included
gains of CHF 113 million on cross-currency basis swaps held as
economic hedges compared with losses of CHF 222 million in the
prior year. Furthermore, 2014 included gains related to our macro
cash flows hedges of CHF 47 million compared with losses of CHF
153 million in the prior year.
In Corporate Center – Non-core and Legacy Portfolio, net inter-
est and trading income decreased by CHF 1,125 million. Non-core
net interest and trading income decreased by CHF 444 million,
partly as 2014 included a net loss of CHF 175 million from the im-
plementation of funding valuation adjustments (FVA) on derivatives.
Further, 2014 included losses in rates of CHF 197 million, mainly
from novation and unwind activities compared with gains of CHF
23 million in the prior year. In addition, 2014 included a loss of CHF
97 million in structured credit as a result of the exit of the majority
of the correlation trading portfolio. This was partly offset by a valu-
ation gain of CHF 68 million on certain equity positions.
Legacy Portfolio net interest and trading income decreased by
CHF 680 million. In 2013, we exercised our option to acquire the
SNB StabFund’s equity and recorded total option revaluation gains
of CHF 431 million prior to the exercise. 2014 included a loss of
CHF 108 million resulting from the termination of certain credit
default swap (CDS) contracts and a net loss from the implemen-
tation of FVA on derivatives of CHF 77 million.
➔ Refer to the “Significant accounting and financial reporting
changes” section as well as “Note 1b Changes in accounting
policies, comparability and other adjustments” and “Note 24 Fair
value measurement” in the “Financial information” section of
this report for more information on the implementation of
funding valuation adjustments
➔ Refer to the “Liquidity and funding management” section of this
report for more information on the changed methodology for
the allocation of liquidity and funding costs and benefits
➔ Refer to “Note 3 Net interest and trading income” in the “Financial
information” section of this report for more information
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information on own
credit
Credit loss expense / recovery
We recorded net credit loss expenses of CHF 78 million compared
with CHF 50 million in the prior year.
Net credit loss expenses in Retail & Corporate were CHF 95 mil-
lion compared with CHF 18 million in the prior year. 2014 included
net specific credit loss allowances of CHF 105 million compared
with CHF 113 million in the prior year, which was primarily related
to corporate clients in both periods. In addition, 2014 included a
release of CHF 10 million in collective loan loss allowances com-
pared with a release of CHF 95 million in 2013, which partly re-
flected the overall improved outlook for relevant industries.
Wealth Management Americas recorded a net credit loss re-
covery of CHF 15 million in 2014, mainly reflecting the full release
of a loan loss allowance for a single client as well as releases of
loan loss allowances on securities-backed lending facilities collat-
eralized by Puerto Rico municipal securities and related funds. In
the prior year, Wealth Management Americas recorded a net
credit loss expense of CHF 27 million, largely due to loan loss al-
lowances on securities-backed lending facilities collateralized by
Puerto Rico municipal securities and related funds.
Net fee and commission income
Net fee and commission income increased by CHF 789 million to
CHF 17,076 million.
Portfolio management and advisory fees increased by CHF 718
million to CHF 7,343 million, primarily in Wealth Management
Americas, largely reflecting an increase in managed account fees
reflecting higher invested asset levels. Portfolio management and
advisory fees also increased in Wealth Management, primarily due
to an increase in invested assets, the positive effect of pricing
measures and continued growth in discretionary and advisory
mandates. These increases were partly offset by lower income
Credit loss (expense) / recovery
CHF million
Wealth Management
Wealth Management Americas
Retail & Corporate
Investment Bank
Corporate Center
of which: Non-core and Legacy Portfolio
Total
92
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
(1)
15
(95)
2
2
2
(78)
(10)
(27)
(18)
2
3
3
(50)
1
(14)
(27)
0
(78)
(78)
(118)
(90)
428
0
(33)
(33)
56
due to the effect of ongoing outflows of assets from cross-border
clients and due to the migration into retrocession-free products
for investment mandates during 2013.
offers of CHF 194 million in 2013 and a gain on the sale of Global
Asset Management’s Canadian domestic business of CHF 34 mil-
lion in 2013.
Merger and acquisitions and corporate finance fees increased
by CHF 118 million to CHF 731 million, predominantly in the
Investment Bank, mainly reflecting an increased volume of merg-
ers and acquisition transactions in 2014.
Underwriting fees rose by CHF 96 million, mainly reflecting
higher equity underwriting fees, largely in the Investment Bank,
due to higher revenues from public offerings as the fee pool
increased.
In January 2015, UBS sold a real estate property in Geneva,
Switzerland for a sales price of CHF 535 million, resulting in a gain
on sale of CHF 377 million which will be recognized in the income
statement within Corporate Center in the first quarter of 2015.
This gain will be treated as an adjusting item for the purpose of
calculating adjusted results.
➔ Refer to “Note 5 Other income” in the “Financial information”
section of this report for more information
➔ Refer to “Note 4 Net fee and commission income” in
➔ Refer to “Note 37 Events after the reporting period” in the
the “Financial information” section of this report for more
“Financial information” section of this report for more informa-
information
tion
Other income
Other income was CHF 632 million compared with CHF 580 mil-
lion in the prior year. Adjusted other income increased by CHF
172 million.
Income related to associates and subsidiaries increased by CHF
90 million when adjusted for a net gain of CHF 31 million on the
sale of our remaining proprietary trading business in 2013. 2014
included a gain of CHF 65 million in Corporate Client Solutions
within the Investment Bank on an investment in an associate
which was reclassified to a financial investment available-for-sale
following its initial public offering. 2014 also included a credit of
CHF 58 million related to the release of a provision for litigation,
regulatory and similar matters, which was recorded as other in-
come in Corporate Center – Core Functions, compared with a
credit of CHF 21 million in 2013.
Excluding a gain of CHF 43 million from the partial sale of our
investment in Markit and a loss of CHF 48 million related to the
impairment of a financial investment available-for-sale, both in
2014, adjusted income from financial investments available-for-
sale decreased by CHF 20 million.
Adjusted other income other than income related to associates
and subsidiaries and from financial investments available-for-sale
increased by CHF 102 million when excluding gains on sales of
real estate of CHF 44 million in 2014 and CHF 288 million in
2013, net losses related to the buyback of debt in public tender
Recurring net fee and transaction-based income in
Wealth Management, Wealth Management Americas and
Retail & Corporate
Recurring net fee income for Wealth Management, Wealth Man-
agement Americas and Retail & Corporate includes fees for ser-
vices provided on an ongoing basis such as portfolio management
fees, asset-based investment fund fees, custody fees and account
keeping fees, which are generated on the respective business divi-
sion’s client assets. This is part of total net fee and commission in-
come in the UBS Group financial statements. Transaction-based
income includes the non-recurring portion of the net fee and com-
mission income for these business divisions, mainly consisting of
brokerage and transaction-based investment fund fees, as well as
credit card fees and fees for payment transactions, together with
the respective divisional net trading income.
In Wealth Management, recurring net fee income increased by
CHF 216 million to CHF 3,783 million, primarily due to an in-
crease in invested assets, the positive effect of pricing measures
and continued growth in discretionary and advisory mandates.
These increases were partly offset by lower income due to ongo-
ing outflows of assets from cross-border clients and due to the
migration into retrocession-free products for investment man-
dates during 2013. Transaction-based income increased by CHF
41 million to CHF 1,928 million. The overall increase was mainly
related to structured products, mandates, wealth planning ser-
Operating income Wealth Management, Wealth Management Americas and Retail & Corporate
CHF million
Net interest income
Recurring net fee income
Transaction-based income
Other income
Income
Credit loss (expense) / recovery
Total operating income
Wealth Management
Wealth Management Americas
Retail & Corporate
For the year ended
31.12.14
31.12.13
31.12.12
31.12.14
31.12.13
31.12.12
31.12.14
31.12.13
31.12.12
2,165
3,783
1,928
25
7,902
(1)
7,901
2,061
3,567
1,887
57
7,573
(10)
7,563
1,951
3,309
1,744
37
7,040
1
7,041
983
4,294
1,678
30
6,984
15
6,998
936
3,796
1,800
33
6,565
(27)
6,538
792
3,199
1,871
30
5,891
(14)
5,877
2,184
556
1,022
75
3,836
(95)
3,741
2,144
511
1,034
86
3,774
(18)
3,756
2,186
512
967
90
3,756
(27)
3,728
93
Financial and operating performance
Financial and operating performance
Group performance
vices and hedge funds, partly offset by lower income from for-
eign exchange trading and investment funds. In addition, 2014
included first-time fees paid to Retail & Corporate for net client
shifts and referrals.
In Wealth Management Americas, recurring net fee income
increased by CHF 498 million to CHF 4,294 million, mainly due to
an increase in managed account fees reflecting higher invested
asset levels. Transaction-based income decreased by CHF 122 mil-
lion to CHF 1,678 million, mainly due to lower client activity.
In Retail & Corporate, recurring net fee income increased by
CHF 45 million to CHF 556 million, mainly as certain fees related
to retail bank accounts were recorded as recurring net fee income
in 2014, totaling CHF 58 million in 2014, while these fees were
recorded as transaction-based income in 2013. Transaction-based
income decreased by CHF 12 million to CHF 1,022 million, mainly
reflecting the aforementioned change in classification of certain
fees related to retail bank accounts. This was partly offset by first-
time fees received from Wealth Management for net client shifts
and referrals.
Operating expenses
Total operating expenses increased by CHF 1,106 million to CHF
25,567 million. Restructuring charges were CHF 677 million com-
pared with CHF 772 million in the prior year. Personnel-related
restructuring charges increased by CHF 171 million to CHF 327
million, while non-personnel-related restructuring charges de-
creased by CHF 266 million to CHF 350 million.
On an adjusted basis, excluding restructuring charges in both
years as well as credits related to changes to retiree benefit plans in
the US of CHF 41 million in 2014, total operating expenses in-
creased by CHF 1,242 million to CHF 24,931 million. This increase
was mainly due to CHF 893 million higher net charges for provisions
for litigation, regulatory and similar matters as well as CHF 381 mil-
lion higher other non-personnel expenses, due to higher costs for
outsourcing of IT and other services as well as higher professional
fees. Adjusted personnel expenses were largely unchanged.
➔ Refer to “Note 32 Changes in organization” in the “Financial
information” section of this report for more information on
➔ Refer to the “Wealth Management,” “Wealth Management
restructuring charges
Americas” and “Retail & Corporate” sections of this report for
more information
Operating expenses
CHF million
Personnel expenses (adjusted) 1
Salaries
Total variable compensation
of which: relating to current year 2
of which: relating to prior years 3
Wealth Management Americas: Financial advisor compensation 4
Other personnel expenses 5
Total personnel expenses (adjusted) 1
Non-personnel expenses (adjusted) 1
Provisions for litigation, regulatory and similar matters
Other non-personnel expenses 6
Total non-personnel expenses (adjusted) 1
Adjusting items
of which: personnel-related restructuring charges
of which: other restructuring charges
of which: credits related to changes to retiree benefit plans in the US 7
of which: credits related to changes to the Swiss pension plan
of which: impairment of goodwill and other non-financial assets
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
6,124
3,113
2,338
775
3,385
2,372
6,203
3,201
2,369
832
3,140
2,481
6,750
3,005
1,901
1,104
2,873
2,595
14,994
15,026
15,225
2,594
7,343
9,937
636
327
350
(41)
1,701
6,962
8,662
772
156
616
2,549
6,852
9,401
2,589
358
14
(116)
(730)
3,064
27,216
(1)
(3)
(1)
(7)
8
(4)
0
52
5
15
(18)
110
(43)
5
Total operating expenses as reported
25,567
24,461
1 Excluding adjusting items. 2 Includes expenses relating to performance awards and other variable compensation for the respective performance year. 3 Consists of amortization of prior years’ awards relating to
performance awards and other variable compensation. 4 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemen-
tal compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes charges related to compensation commitments with financial advisors entered into at the time
of recruitment which are subject to vesting requirements. 5 Consists of expenses related to contractors, social security, pension and other post-employment benefit plans and other personnel expenses. Refer to “Note 6
Personnel expenses” in the “Financial information” section of this report for more information. 6 Includes general and administrative expenses (excluding charges for provisions for litigation, regulatory and similar
matters) as well as depreciation and impairment of property and equipment and amortization and impairment of intangible assets. 7 Refer to “Note 28 Pension and other post-employment benefit plans” in the
“Financial information” section of this report for more information.
94
Personnel expenses
Personnel expenses increased by CHF 98 million to CHF 15,280
million and included CHF 327 million personnel-related restruc-
turing charges compared with CHF 156 million in the prior year.
On an adjusted basis, excluding restructuring charges and the
aforementioned credits related to changes to retiree benefit plans
in the US in 2014, personnel expenses decreased slightly by CHF
32 million to CHF 14,994 million.
Expenses for salaries, excluding the effect of restructuring, de-
creased by CHF 79 million to CHF 6,124 million, mainly reflecting
an increase in the capitalization of personnel expenses related to
internally generated computer software, partly offset by charges
for role-based allowances.
Adjusted for the effect of restructuring, total variable compen-
sation expenses decreased by CHF 88 million to CHF 3,113 mil-
lion. Expenses for current year awards declined by CHF 31 million
and expenses for prior-year awards decreased by CHF 57 million.
Financial advisor compensation in Wealth Management Amer-
icas increased by CHF 245 million to CHF 3,385 million, corre-
sponding with higher compensable revenues.
Other personnel expenses, adjusted for the effect of restruc-
turing and the aforementioned credits related to changes to re-
tiree benefit plans in the US, decreased by CHF 109 million to CHF
2,372 million, largely due to a decline of CHF 98 million in costs
for pension and other post-employment benefits plans.
➔ Refer to “Note 6 Personnel expenses” in the
“Financial information” section of this report for more
information
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Financial information” section of this report for
more information
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of this report for
more information
➔ Refer to the “Compensation” section of this report for more
information
General and administrative expenses
General and administrative expenses increased by CHF 1,007 mil-
lion to CHF 9,387 million. On an adjusted basis, excluding net
restructuring charges of CHF 319 million in 2014 compared with
CHF 548 million in the prior year, general and administrative ex-
penses increased by CHF 1,236 million, mainly due to CHF 893
million higher net charges for provisions for litigation, regulatory
and similar matters, as well as higher costs for outsourcing of IT
and other services and higher professional fees.
At this point in time, we believe that the industry continues to
operate in an environment where charges associated with litiga-
tion, 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.
Outsourcing of IT and other services, adjusted for the effect of
restructuring, increased by CHF 240 million.
General and administrative expense also included a net charge
of CHF 123 million for the annual UK bank levy for 2014, mainly
in the Investment Bank and in Non-core and Legacy Portfolio,
compared with a net charge of CHF 124 million in the prior year.
Further, 2014 included net charges of CHF 120 million in Non-
core and Legacy Portfolio related to certain disputed receivables
compared with an impairment charge of CHF 87 million in the
prior year.
➔ Refer to “Note 7 General and administrative expenses”
in the “Financial information” section of this report for more
information
➔ Refer to “Note 22 Provisions and contingent liabilities”
in the “Financial information” section of this report for more
information
Tax
We recognized a net income tax benefit of CHF 1,180 million for
2014, which included a Swiss tax expense of CHF 1,395 million
and a net foreign tax benefit of CHF 2,574 million.
The Swiss tax expense included a current tax expense of CHF
46 million related to taxable profits, against which no losses were
available to offset, mainly earned by Swiss subsidiaries. In addi-
tion, it included a deferred tax expense of CHF 1,348 million,
mainly reflecting the net decrease of deferred tax assets (DTA)
previously recognized in relation to tax losses carried forward.
The net foreign tax benefit included current tax expense of
CHF 409 million in respect of taxable profits earned by non-Swiss
subsidiaries and branches, against which no losses were available
to offset. This was more than offset by a net deferred tax benefit
of CHF 2,983 million, primarily reflecting an increase of DTA relat-
ing to the US.
In 2015, notwithstanding the effects of any potential reassess-
ment of the level of DTA, we expect the effective tax rate to be
approximately 25%. Consistent with past practice, we expect to
revalue the overall level of DTA in the second half of 2015 based
on a reassessment of future profitability taking into account up-
dated business plan forecasts, including consideration of a possi-
ble further extension of the forecast period used for US DTA rec-
ognition purposes to seven years from the six years used at
31 December 2014. The full year effective tax rate could change
significantly on the basis of this reassessment. It could also change
if aggregate tax expenses for locations other than Switzerland,
the US and the UK differ from what is expected.
➔ Refer to “Note 8 Income taxes” in the “Financial information”
section of this report for more information
Total comprehensive income attributable to UBS Group AG
shareholders
Total comprehensive income attributable to UBS Group AG share-
holders includes all changes in equity (including net profit) at-
tributed to UBS Group AG shareholders during a period, except
95
Financial and operating performance Financial and operating performance
Group performance
those resulting from investments by and distributions to UBS
Group AG shareholders as well as equity-settled share-based pay-
ments. Items included in comprehensive income, but not in net
profit, are reported under other comprehensive income (OCI).
These items will be reclassified to net profit when the underlying
item is sold or realized, with the exception of gains and losses on
defined benefit plans and certain property revaluations.
In 2014, total comprehensive income attributable to UBS
Group AG shareholders was CHF 4,920 million, reflecting net
profit attributable to UBS Group AG shareholders of CHF 3,466
million and OCI attributable to UBS Group AG shareholders of
CHF 1,453 million (net of tax).
In 2014, OCI included foreign currency translation gains of
CHF 1,795 million (net of tax), primarily related to the significant
strengthening of the US dollar against the Swiss franc. OCI related
to cash flow hedges was positive CHF 689 million (net of tax),
mainly reflecting decreases in long-term interest rates across all
major currencies. OCI associated with financial investments avail-
able-for-sale was positive CHF 141 million (net of tax), mainly due
to an increase in net unrealized gains following decreases in long-
term interest rates, partly offset by previously unrealized net gains
that were reclassified from OCI to the income statement upon
sale of investments.
These OCI gains were partly offset by negative OCI on defined
benefit plans of CHF 1,172 million (net of tax). A pre-tax OCI loss
of CHF 995 million was recorded for the Swiss pension plan,
which was mainly due to an increase in the defined benefit obli-
gation, resulting from a significant decline in the applicable dis-
count rate, which is linked to the returns on Swiss AA-rated cor-
porate bonds and decreased from 2.3% as of 31 December 2013
to 1.2% as of 31 December 2014. This was partly offset by an
increase in the fair value of the underlying plan assets and the
reversal of the asset ceiling effect. Net pre-tax OCI losses on non-
Swiss pension plans amounted to CHF 414 million and primarily
related to the UK and US pension plans.
➔ Refer to the “Statement of comprehensive income” in the
“Financial information” section of this report for more information
➔ Refer to “Note 28 Pension and other post-employment bene-
fit plans” in the “Financial information” section of this report for
more information on OCI related to defined benefit plans
Net profit attributable to preferred noteholders and
non-controlling interests
event which resulted in accruals for future distributions to pre-
ferred noteholders of CHF 31 million. Subsequent to the exchange
offer, the preferred notes issued by UBS AG were re-classified to
equity attributable to non-controlling interests from a UBS Group
AG perspective.
We expect to attribute approximately CHF 80 million in net
profit to these non-controlling interests in both 2015 and 2016.
Net profit attributable to non-controlling interests was CHF 32
million in 2014, which largely reflects net profit attributable to
non-controlling interests in UBS AG and was related to the
non-tendered or not subsequently exchanged UBS AG shares.
➔ Refer to the “UBS Group – Changes to our legal structure” section
for more information on the establishment of UBS Group AG
Key figures
Cost / income ratio
The cost / income ratio was 91.0% in 2014 compared with 88.0%
in the prior year. On an adjusted basis, the cost / income ratio was
89.8% compared with 85.0%.
Risk-weighted assets
During 2014, our phase-in Basel III risk-weighted assets (RWA) de-
creased by CHF 7.7 billion to CHF 220.9 billion. Phase-in credit risk
RWA decreased by CHF 15.7 billion, primarily driven by the sale of
securitization exposures, as well as a reduction in RWA for ad-
vanced and standardized credit valuation adjustments (CVA),
mainly due to derivative trade unwinds and trade compressions.
Furthermore, credit risk RWA of CHF 3.0 billion related to defined
benefit plans were reclassified from credit risk to non-counterpar-
ty-related risk. Non-counterparty-related risk RWA increased by
CHF 6.5 billion, mainly due to the aforementioned reclassification,
as well as higher RWA relating to DTA recognized. Phase-in market
risk RWA increased by CHF 2.8 billion, mainly due to higher RWA
relating to risks-not-in-VaR. Phase-in operational risk RWA de-
creased by CHF 1.2 billion. Incremental operational risk RWA
based on the supplemental operational risk capital analysis mutu-
ally agreed to by UBS and FINMA decreased by CHF 5.0 billion,
which was partly offset by a higher capital requirement based on
the advanced measurement approach (AMA) model output using
the latest FINMA-approved model parameters.
➔ Refer to the “Investment Bank,” “Corporate Center” and “Capital
management” sections of this report for more information
Net profit attributable to preferred noteholders was CHF 142 mil-
lion in 2014 compared with CHF 204 million in the prior year.
Dividends of CHF 81 million were paid to preferred noteholders,
for which no accrual was required in a prior period. In addition,
2014 included an accrual of CHF 30 million for future dividend
payments triggered by the dividend payment to UBS shareholders
in May 2014. Furthermore, the purchase of UBS AG shares by UBS
Group AG pursuant to the exchange offer caused a triggering
Net new money
In Wealth Management, net new money was CHF 34.4 billion
with strongest net inflows in Asia Pacific followed by Switzerland
and emerging markets. Net outflows in Europe mainly reflected
ongoing cross-border asset outflows, partly offset by net inflows
from domestic markets. On a global basis, net new money from
ultra high net worth clients was CHF 29.8 billion compared with
CHF 33.6 billion in the prior year.
96
In Wealth Management Americas, net new money totaled CHF
9.6 billion (USD 10.0 billion) and was predominantly made up of
net inflows from financial advisors employed with UBS for more
than one year. In 2013, net new money was CHF 17.6 billion (USD
19.0 billion).
In Global Asset Management, excluding money market flows,
net new money inflows were CHF 22.6 billion compared with net
new money outflows of CHF 4.8 billion. By channel, net inflows
from third parties were CHF 11.3 billion compared with CHF 0.7
billion in 2013. Net inflows were mainly from clients serviced from
Switzerland, Asia Pacific and Europe. Net new money inflows
from clients of UBS’s wealth management businesses were CHF
11.3 billion compared with net outflows of CHF 5.5 billion in the
prior year. This improvement mainly resulted from better match-
ing of available and attractive Global Asset Management products
to wealth management clients’ changing needs. The net inflows
were mainly from clients serviced from Asia Pacific and Europe.
➔ Refer to the “Wealth Management,” “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
Invested assets
In Wealth Management, invested assets were CHF 987 billion as
of 31 December 2014, representing an increase of CHF 101 billion
from 31 December 2013, due to positive market performance of
CHF 38 billion, net new money inflows of CHF 34 billion and pos-
itive currency translation effects of CHF 32 billion.
In Wealth Management Americas, invested assets increased by
CHF 162 billion to CHF 1,027 billion during 2014, mainly due to
the strengthening of the USD dollar versus the Swiss franc. In US
dollar terms, invested assets increased by USD 62 billion to USD
1,032 billion, reflecting positive market performance of USD 52
billion and net new money inflows of USD 10 billion.
In Global Asset Management, invested assets were CHF 664
billion as of 31 December 2014 compared with CHF 583 billion as
of 31 December 2013. Positive currency translation effects of CHF
36 billion, favorable market performance of CHF 30 billion, and
net new money inflows of CHF 16 billion all contributed to the
overall increase of CHF 81 billion.
➔ Refer to the “Wealth Management,” “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
Net new money 1
CHF billion
Wealth Management
Wealth Management Americas
Global Asset Management
of which: excluding money market flows
of which: money market flows
For the year ended
31.12.14
31.12.13
31.12.12
34.4
9.6
15.9
22.6
(6.7)
35.9
17.6
(19.9)
(4.8)
(15.1)
26.3
20.6
(13.3)
(5.9)
(7.4)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. Net new money excludes interest and dividend income.
Invested assets 1
CHF billion
Wealth Management
Wealth Management Americas
Global Asset Management
of which: excluding money market funds
of which: money market funds
As of
% change from
31.12.14
31.12.13
31.12.12
31.12.13
987
1,027
664
600
64
886
865
583
518
65
821
772
581
497
83
11
19
14
16
(2)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies.
97
Financial and operating performance Financial and operating performance
Group performance
Regional performance
The operating regions shown in the “Regional performance”
table below, i.e., Americas, Asia Pacific, Europe, Middle East and
Africa, and Switzerland, correspond to the management struc-
ture of the Group from a regional perspective. The allocation of
income and expenses to these regions reflects, and is consistent
with, the basis on which the business is managed and perfor-
mance evaluated. These allocations involve assumptions and
judgments which management considers to be reasonable. The
main principles of the allocation methodology are that client
revenues are attributed to the domicile of the client, with global
clients being split into relevant countries and trading and portfo-
lio management revenues attributed to the country where the
risk is managed. This revenue attribution is consistent with the
mandate of the country and regional Presidents. Expenses are
aligned to the revenues. Certain revenues and expenses, such as
those related to the Corporate Center – Non-core and Legacy
Portfolio, certain litigation expenses and restructuring charges
and other items, are managed at a Group level. These revenues
and expenses are included in the Global column.
Americas
Asia Pacific
Europe, Middle East
and Africa
Switzerland
Global
Total
For the year ended
31.12.14
31.12.13 31.12.14
31.12.13 31.12.14
31.12.13 31.12.14
31.12.13 31.12.14
31.12.13 31.12.14
31.12.13
1.9
0.0
0.0
0.3
2.4
0.0
4.6
1.3
0.0
0.0
0.2
1.7
0.0
3.2
0.6
0.0
0.0
0.1
0.7
0.0
1.4
1.7
0.0
0.0
0.3
2.6
0.0
4.5
1.2
0.0
0.0
0.2
1.6
0.0
3.0
0.5
0.0
0.0
0.1
1.0
0.0
1.5
4.0
0.0
0.0
0.4
2.4
0.0
6.8
3.0
0.0
0.0
0.4
1.9
0.0
5.2
1.0
0.0
0.0
0.0
0.5
0.0
1.5
3.9
0.0
0.0
0.4
2.2
0.0
6.6
2.9
0.0
0.0
0.4
1.8
0.0
5.0
1.1
0.0
0.0
0.0
0.4
0.0
1.5
1.5
0.0
3.7
0.5
1.0
0.0
6.8
0.9
0.0
2.2
0.3
0.7
0.0
4.1
0.7
0.0
1.5
0.2
0.3
0.0
2.7
1.5
0.0
3.8
0.5
1.1
0.0
6.8
0.8
0.0
2.3
0.3
0.7
0.0
4.1
0.6
0.0
1.5
0.2
0.4
0.0
2.7
0.0
0.0
0.0
0.0
(0.1)
(0.9)
(0.9)
0.0
0.0
0.0
0.1
2.1
1.8
4.1
0.0
0.0
0.0
(0.1)
(2.2)
(2.7)
(5.0)
0.1
0.0
0.0
0.0
0.2
(0.7)
(0.4)
0.0
0.0
0.0
0.0
0.3
3.5
3.8
0.0
0.0
0.0
0.0
(0.1)
(4.2)
(4.2)
7.9
7.0
3.7
1.9
8.3
(0.9)
28.0
5.6
6.1
2.2
1.4
8.4
1.8
7.6
6.5
3.8
1.9
8.6
(0.7)
27.7
5.3
5.7
2.3
1.4
6.3
3.5
25.6
24.5
2.3
0.9
1.5
0.5
0.0
(2.7)
2.5
2.2
0.9
1.5
0.6
2.3
(4.2)
3.3
Regional performance
CHF billion
Operating income
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
0.5
7.0
0.0
0.7
2.6
0.0
0.4
6.5
0.0
0.7
2.5
0.0
Total operating income
10.7
10.2
Operating expenses
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
Total operating expenses
Operating profit / (loss) before tax
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
Operating profit / (loss) before tax
0.4
6.1
0.0
0.5
2.0
0.0
9.0
0.1
0.9
0.0
0.2
0.6
0.0
1.8
0.4
5.7
0.0
0.5
2.0
0.0
8.5
0.1
0.9
0.0
0.2
0.6
0.0
1.7
98
2013 compared with 2012
Results
Operating profit before tax was CHF 3,272 million in 2013 com-
pared with a loss of CHF 1,794 million in the prior year, reflecting
a CHF 2,309 million increase in operating income and a CHF
2,755 million reduction in operating expenses.
In addition to reporting our results in accordance with IFRS, we
report adjusted results that exclude items that management be-
lieves are not representative of the underlying performance of our
businesses. Such adjusted results are non-GAAP financial mea-
sures as defined by SEC regulations. For 2013, the items we ex-
cluded were an own credit loss of CHF 283 million, gains on sales
of real estate of CHF 288 million, net losses related to the buyback
of debt in public tender offers of CHF 167 million, a gain on the
sale of Global Asset Management’s Canadian domestic business
of CHF 34 million, a net gain on the sale of our remaining propri-
etary trading business of CHF 31 million and net restructuring
charges of CHF 772 million. For 2012, the items we excluded
were an own credit loss of CHF 2,202 million, gains on sales of
real estate of CHF 112 million, net restructuring charges of CHF
371 million, a credit related to changes to our Swiss pension plan
of CHF 730 million, a credit related to changes to our retiree ben-
efit plans in the US of CHF 116 million and the impairment of
goodwill and other non-financial assets of CHF 3,064 million.
On this adjusted basis, profit before tax was CHF 4,141 million
in 2013 compared with CHF 2,885 million in the prior year. Ad-
justed operating income increased by CHF 316 million, mainly
reflecting an increase of CHF 891 million in net fee and commis-
sion income, largely in our wealth management businesses. Ad-
justed net interest and trading income declined by CHF 535 mil-
lion, mainly as a result of reductions in Corporate Center – Non-core
and Legacy Portfolio as well as Corporate Center – Core Func-
tions, partly offset by higher revenues in the Investment Bank.
Adjusted other income decreased by CHF 108 million, mainly due
to lower net gains on financial investments available-for-sale.
Adjusted operating expenses decreased by CHF 938 million to
CHF 23,689 million, mainly due to a decline of CHF 848 million in
charges for provisions for litigation, regulatory and similar matters
as well as a CHF 199 million reduction in personnel expenses, partly
offset by CHF 110 million higher other non-personnel expenses.
Operating income
Total operating income was CHF 27,732 million compared with
CHF 25,423 million. On an adjusted basis, total operating income
increased by CHF 316 million to CHF 27,829 million from CHF
27,513 million, as we recorded an increase of CHF 891 million in
net fee and commission income, largely in our wealth manage-
ment businesses. This increase was largely offset by a CHF 535
million decline in adjusted net interest and trading income, mainly
as a result of reductions in Non-core and Legacy Portfolio as well
as Corporate Center – Core Functions, partly offset by higher rev-
enues in the Investment Bank. Adjusted other income decreased
by CHF 108 million, mainly due to lower net gains on financial
investments available-for-sale.
Net interest and trading income
Net interest and trading income increased by CHF 1,411 million to
CHF 10,915 million. 2013 included an own credit loss on financial
liabilities designated at fair value of CHF 283 million, primarily due
to further tightening of our funding spreads, compared with an
own credit loss of CHF 2,202 million in the prior year when our
funding spreads tightened significantly. Excluding the effect of
own credit and a net interest and trading income gain related to
the buyback of debt in a public tender offer of CHF 27 million in
2013, net interest and trading income decreased by CHF 535 mil-
lion to CHF 11,171 million, mainly as a result of reductions in Non-
core and Legacy Portfolio as well as Corporate Center – Core Func-
tions, partly offset by higher revenues in the Investment Bank.
Net interest and trading income in Wealth Management in-
creased by CHF 140 million. Net interest income increased by CHF
110 million to CHF 2,061 million, mainly due to revenues of CHF
110 million allocated from the repurchase agreement unit within
Group Treasury in Corporate Center – Core Functions. Previously,
such revenues were not allocated to the business divisions. The
increase in net interest income was also due to lower costs related
to the multi-currency portfolio of unencumbered, high-quality,
short-term assets managed centrally by Group Treasury through
the end of 2014 and effective 1 January 2015 by Group ALM.
These factors, together with higher income resulting from in-
creased loan and client deposit volumes, more than offset the neg-
ative effect of a lower deposit margin resulting from the ongoing
low interest rate environment. Net trading income increased by
CHF 29 million to CHF 807 million and included higher income
from foreign exchange-related products and increased treasury-
related income, partly offset by lower income from precious metals.
In Wealth Management Americas, net interest and trading in-
come increased by CHF 58 million, reflecting a CHF 144 million
increase in net interest income primarily due to higher client bal-
ances in securities-backed lending and mortgages. Furthermore,
net funding costs related to the goodwill and intangible assets
that arose from the PaineWebber acquisition are retained in Cor-
porate Center – Core Functions with effect from 1 January 2013.
These increases were partly offset by lower net interest income
from the available-for-sale portfolio, primarily due to lower aver-
age balances. Net trading income decreased by CHF 86 million to
CHF 387 million, mainly due to trading losses related to the Puerto
Rico municipal market as well as lower income from taxable fixed
income and US municipal bond trading.
Net interest and trading income in Retail & Corporate increased
by CHF 18 million.
Within the Investment Bank, Investor Client Services net inter-
est and trading income increased by CHF 1,005 million, primarily
due to higher derivatives revenues, mainly as a result of higher
revenues in Asia Pacific and Europe, Middle East and Africa. Fur-
99
Financial and operating performance Financial and operating performance
Group performance
thermore, cash revenues increased, largely as 2012 included a loss
of CHF 349 million related to the Facebook initial public offering.
Revenues in financing services and other equities also increased.
These increases were partly offset by lower revenues in rates and
credit, primarily due to weaker trading performance in the flow
businesses, and by slightly lower foreign exchange revenues. Cor-
porate Client Solutions net interest and trading income increased
by CHF 436 million, largely due to higher revenues in equity capi-
tal markets, mainly as a result of a large private transaction re-
corded in the first half of 2013.
Corporate Center – Core Functions net interest and trading in-
come, excluding the effect of own credit, decreased by CHF 972
million, partly due to losses of CHF 153 million related to our macro
cash flow hedge models compared with gains of CHF 152 million in
the prior year. The decrease in net interest and trading income was
also due to a decline in revenues to CHF 22 million from CHF 245
million in the repurchase agreement unit, which was transferred
from the Investment Bank to Corporate Center – Core Functions in
2013 and for which prior-period information was restated. Whereas
restated results reflected no allocation of revenues from the repur-
chase agreement unit to the business divisions, from 2013 onwards
revenues from this unit are allocated to the business divisions,
mainly to Wealth Management. In addition, 2013 included losses
from cross-currency basis swaps of CHF 222 million which are held
as economic hedges and central funding costs retained in Group
Treasury increased. Furthermore, 2013 included CHF 102 million in
net funding costs related to the goodwill and intangible assets that
arose from the PaineWebber acquisition which are retained in Cor-
porate Center – Core Functions with effect from 1 January 2013.
In Non-core and Legacy Portfolio, net interest and trading in-
come decreased by CHF 1,191 million. Non-core net interest and
trading income decreased by CHF 1,146 million, largely due to
lower revenues in rates and credit as we focused on risk-weighted
assets (RWA) and balance sheet reduction, as well as on reducing
operational complexity as part of the accelerated implementation
of our strategy. In 2012, portfolios were actively traded and ben-
efited from increased liquidity, with strong two-way client flow
that resulted in higher revenues. Legacy Portfolio net interest and
trading income decreased by CHF 45 million. In 2013, we exer-
cised our option to acquire the SNB StabFund’s equity and re-
corded an option revaluation gain of CHF 431 million prior to the
exercise compared with a gain of CHF 526 million in the prior
year. Trading revenues also decreased due to an interest charge of
CHF 34 million in 2013 relating to tax obligations of the SNB Stab-
Fund. Legacy Portfolio net interest and trading income, excluding
the SNB StabFund option, increased by CHF 83 million, mainly as
2012 included losses on collateralized debt obligations (CDO) and
related hedging swaps of CHF 171 million as we exited certain
CDO positions to reduce RWA.
Credit loss expense / recovery
We recorded net credit loss expenses of CHF 50 million compared
with CHF 118 million in the prior year.
In Wealth Management, net credit loss expenses were CHF 10
million compared with net credit loss recoveries of CHF 1 million
in the prior year.
In Wealth Management Americas, 2013 included net credit
loss expenses of CHF 27 million compared with net credit loss
expenses of CHF 14 million in the prior year. The 2013 expenses
were largely due to loan loss allowances on securities-backed
lending facilities collateralized by Puerto Rico municipal securities
and related funds.
In Retail & Corporate, net credit loss expenses were CHF 18
million compared with net credit loss expenses of CHF 27 million
in the prior year. 2013 included net specific loan loss allowances
of CHF 113 million, reflecting a number of new workout cases
that were individually reviewed, downgraded and impaired as
well as adjustments on existing positions. This was largely offset
by a net release of CHF 95 million of collective loan loss allow-
ances based on the ongoing review of the portfolio, as well as the
overall improved outlook for relevant industries. The prior year
included net specific loan loss allowances of CHF 43 million, partly
offset by a net decrease in collective loan loss allowances of CHF
16 million.
In Non-core and Legacy Portfolio, net credit loss recoveries
were CHF 3 million compared with net credit loss expenses of CHF
78 million in the prior year, which mainly reflected an impairment
charge related to certain student loan auction rate securities, sub-
sequently sold to reduce RWA.
Net fee and commission income
Net fee and commission income increased by CHF 891 million to
CHF 16,287 million.
Portfolio management and advisory fees increased by CHF 730
million to CHF 6,625 million, mainly in Wealth Management
Americas and in Wealth Management, largely due to higher aver-
age invested assets as well as pricing adjustments.
Net brokerage fees increased by CHF 231 million to CHF 3,196
million, mainly in the Investment Bank due to improved market
activity levels, and in Wealth Management Americas due to higher
client activity levels.
Investment fund fees increased by CHF 177 million to CHF
3,803 million, primarily due to higher managed account fees cal-
culated on higher invested asset levels in Wealth Management
Americas and higher client activity levels in Wealth Management.
Total underwriting fees decreased by CHF 165 million to CHF
1,374 million, reflecting a decrease of CHF 208 million in debt
underwriting fees, mainly in the Investment Bank.
➔ Refer to “Note 4 Net fee and commission income”
➔ Refer to “Note 3 Net interest and trading income” in the “Financial
in the “Financial information” section of this report for more
information” section of this report for more information
information
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information on own
credit
100
Other income
Other income was CHF 580 million compared with CHF 641 mil-
lion in the prior year.
Income from financial investments available-for-sale was CHF
168 million compared with CHF 308 million in the prior year.
Net gains from disposals of financial investments available-for-
sale in 2013 included gains of CHF 74 million resulting from the
divestment of our participation in Euroclear Plc., of which CHF 27
million was allocated to Retail & Corporate, CHF 25 million to
Wealth Management and CHF 22 million to the Investment Bank.
Further, net gains from disposals of financial investments avail-
able-for-sale included net gains of CHF 61 million in Corporate
Center – Core Functions in 2013. 2012 included net gains of CHF
272 million in Corporate Center – Core Functions, as well as gains
of CHF 101 million in Non-core and Legacy Portfolio, mainly re-
lated to the sale of an equity investment.
Income related to associates and subsidiaries increased by CHF
79 million to CHF 160 million, mainly due to lower charges for
certain provisions for litigation, regulatory and similar matters re-
corded within other income, partly offset by lower income related
to our participation in the SIX Group. Furthermore, 2013 included
a net gain on sale of our remaining proprietary trading business of
CHF 31 million.
Other income excluding income from financial investments
available-for-sale and income related to associates and subsidiar-
ies was unchanged at CHF 252 million. Gains on sales of real es-
tate were CHF 288 million compared with CHF 112 million in the
prior year. Net gains on sales of loans and receivables were CHF
53 million compared with net losses of CHF 11 million in the prior
year. Furthermore, 2013 included losses related to the buyback of
debt in public tender offers of CHF 194 million.
Personnel expenses
Personnel expenses increased by CHF 445 million to CHF 15,182
million. 2013 included net charges of CHF 156 million in person-
nel-related restructuring expenses compared with CHF 358 mil-
lion in the prior year. Furthermore, 2012 included a credit related
to changes to our Swiss pension plan of CHF 730 million and a
credit related to changes to our retiree benefit plans in the US of
CHF 116 million. On an adjusted basis, personnel expenses de-
creased by CHF 199 million to CHF 15,026 million.
Expenses for salaries, excluding the effects of restructuring, de-
creased by CHF 547 million, largely due to a reduction in the num-
ber of personnel as a result of our ongoing cost reduction pro-
grams.
Excluding the effects of restructuring, total variable compensa-
tion expenses increased by CHF 196 million. Expenses for perfor-
mance awards increased by CHF 116 million, due to higher ex-
penses for current year performance awards reflecting a 28%
increase in the overall performance award pool, partly offset by a
lower charge for the amortization of deferred compensation
awards from prior years. Including restructuring, expenses for per-
formance awards were virtually unchanged. Other variable com-
pensation expenses excluding restructuring increased by CHF 80
million, mainly due to increased expenses for retention payments.
Financial advisor compensation in Wealth Management Amer-
icas increased by CHF 267 million, corresponding with higher
compensable revenues.
Other personnel expenses decreased by CHF 114 million on an
adjusted basis, mainly due to lower expenses for pension and
other post-employment benefits plans and reduced expenses for
contractors.
➔ Refer to “Note 6 Personnel expenses” in the “Financial informa-
➔ Refer to “Note 5 Other income” in the “Financial information”
tion” section of this report for more information
section of this report for more information
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Financial information” section of this report for
Operating expenses
more information
Total operating expenses decreased by CHF 2,755 million to CHF
24,461 million. Restructuring charges were CHF 772 million com-
pared with CHF 371 million in the prior year, mainly related to
increased non-personnel-related restructuring charges, partly off-
set by lower personnel-related restructuring charges.
Furthermore, 2012 included a credit related to changes to our
Swiss pension plan of CHF 730 million and a credit related to
changes to our retiree benefit plans in the US of CHF 116 million,
as well as impairment losses on goodwill and other non-financial
assets of CHF 3,064 million. On an adjusted basis, total operating
expenses decreased by CHF 938 million to CHF 23,689 million,
mainly due to a reduction of CHF 848 million in charges for provi-
sions for litigation, regulatory and similar matters as well as a de-
crease of CHF 199 million in personnel expenses, partly offset by
an increase of CHF 110 million in other non-personnel expenses.
➔ Refer to “Note 32 Changes in organization” in the “Financial
information” section of this report for more information on
restructuring charges
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of this report for
more information
➔ Refer to the “Compensation” section of this report for more
information
General and administrative expenses
General and administrative expenses decreased by CHF 273 mil-
lion to CHF 8,380 million. On an adjusted basis, excluding net
restructuring charges of CHF 548 million in 2013 compared with
zero in 2012, general and administrative expenses decreased by
CHF 821 million.
Net charges for provisions for litigation, regulatory and similar
matters decreased by CHF 848 million to CHF 1,701 million, pri-
marily as the prior year included charges arising from fines and
disgorgement resulting from regulatory investigations concerning
LIBOR and other benchmark rates. This was partly offset by higher
provisions in 2013 for claims related to sales of residential mort-
gage-backed securities and mortgages.
101
Financial and operating performance Financial and operating performance
Group performance
2013 expenses included a net charge of CHF 124 million for the
UK bank levy, mainly in Non-core and Legacy Portfolio and the In-
vestment Bank, compared with a net charge of CHF 127 million
recognized in the prior year, as well as a charge of CHF 110 million
related to the Swiss-UK tax agreement, allocated primarily to
Wealth Management, and an impairment charge of CHF 87 mil-
lion in Non-core and Legacy Portfolio related to certain disputed
receivables. Furthermore, excluding the effects of restructuring,
expenses decreased for outsourcing of information technology
and other services, occupancy, and marketing and public relations,
by CHF 76 million, CHF 66 million and CHF 50 million, respectively.
➔ Refer to “Note 7 General and administrative expenses” in the
“Financial information” section of this report for more information
➔ Refer to “Note 22 Provisions and contingent liabilities” in the
“Financial information” section of this report for more information
Depreciation, impairment and amortization
Depreciation and impairment of property and equipment was
CHF 816 million compared with CHF 689 million in the prior year,
partly as restructuring-related charges increased to CHF 68 million
from CHF 14 million.
Impairment of goodwill was zero compared with CHF 3,030
million in the prior year.
Amortization and impairment of intangible assets was CHF 83
million compared with CHF 106 million in the prior year. We re-
corded impairment charges of CHF 3 million compared with CHF
17 million.
➔ Refer to “Note 17 Goodwill and intangible assets” in the “Financial
information” section of this report for more information
Tax
We recognized a net income tax benefit of CHF 110 million for
2013, which included a Swiss tax expense of CHF 548 million and
a net foreign tax benefit of CHF 658 million.
The Swiss tax expense included a current tax expense of CHF
93 million related to taxable profits, against which no losses were
available to offset, earned by Swiss subsidiaries and also from the
sale of real estate. In addition, it included a deferred tax expense
of CHF 455 million, mainly reflecting the amortization of DTA pre-
viously recognized in relation to tax losses carried forward used to
offset taxable profits for the year.
The net foreign tax benefit included a current tax expense of
CHF 342 million in respect of taxable profits earned by non-Swiss
subsidiaries and branches, against which no losses were available
to offset. This was more than offset by a net deferred tax benefit
of CHF 1,000 million reflecting a net upward revaluation of de-
ferred tax assets, partially offset by the amortization of DTA, as tax
losses were used against taxable profits.
➔ Refer to “Note 8 Income taxes” in the “Financial information”
section of this report for more information
Total comprehensive income attributable to UBS Group AG
shareholders
Total comprehensive income attributable to UBS Group AG share-
holders was CHF 1,961 million, reflecting net profit attributable to
UBS Group AG shareholders of CHF 3,172 million, partly offset by
negative OCI attributable to UBS Group AG shareholders of CHF
1,211 million (net of tax).
OCI in 2013 included negative cash flow hedge OCI of CHF
1,520 million (net of tax), mainly reflecting significant increases in
long-term interest rates across all major currencies.
Foreign currency translation losses amounted to CHF 471 mil-
lion (net of tax), primarily related to a weakening of the US dollar,
Indian rupee and Australian dollar against the Swiss franc.
OCI associated with financial investments available-for-sale
was negative CHF 154 million (net of tax), mainly as previously
unrealized net gains were reclassified from OCI to the income
statement upon sale of investments.
These decreases in OCI were partly offset by net OCI gains on
defined benefit plans of CHF 939 million (net of tax), mainly re-
lated to our Swiss pension plan which recorded a pre-tax OCI gain
of CHF 1,119 million. This OCI gain on the Swiss pension plan
reflected a gain of CHF 1,124 million due to a reduction of the
defined benefit obligation and a gain of CHF 803 million related
to an increase in the fair value of plan assets, partly offset by an
OCI reduction of CHF 808 million representing the excess of the
pension surplus over the estimated future economic benefit. The
net pre-tax OCI gains on non-Swiss pension plans amounted to
CHF 49 million.
➔ Refer to the “Statement of comprehensive income” in the
“Financial information” section of this report for more information
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Financial information” section of this report for
more information on OCI related to defined benefit plans
Net profit attributable to preferred noteholders
Net profit attributable to preferred noteholders was CHF 204
million compared with CHF 220 million in the prior year.
Key figures
Cost / income ratio
The cost / income ratio improved to 88.0% in 2013 compared with
106.6% in the prior year. On an adjusted basis, the cost / income
ratio improved to 85.0% from 89.1%.
Risk-weighted assets
Our phase-in Basel III RWA decreased by CHF 33 billion to CHF
229 billion, mainly due to a CHF 41 billion reduction in credit risk
RWA and a CHF 17 billion reduction in market risk RWA, partly
102
offset by a CHF 25 billion increase in operational risk RWA. The
CHF 41 billion decrease in credit risk RWA was mainly due to a
CHF 24 billion reduction related to Other exposure segments,
primarily driven by a reduction in RWA for advanced and stan-
dardized credit valuation adjustments (CVA) of CHF 18 billion,
mainly due to benefits from economic CVA hedges, ratings
migration, reduced exposures and market-driven reductions in
the Investment Bank and Non-core and Legacy Portfolio. Further-
more, a decline of CHF 6 billion was realized due to the sale of
securitization exposures in Non-core and Legacy Portfolio. Credit
risk RWA for exposures to corporates decreased by CHF 10 billion,
primarily due to a reduction in drawn loans, undrawn loan com-
mitments and derivative exposures in Wealth Management Amer-
icas, the Investment Bank and Non-core and Legacy Portfolio.
Credit risk RWA for exposures to banks declined by CHF 6 billion,
mainly due to lower derivative exposures in the Investment Bank
and Non-core and Legacy Portfolio. The CHF 17 billion decrease in
market risk RWA was due to a CHF 5 billion decrease in the com-
prehensive risk measure, a decline of CHF 4 billion in the incre-
mental risk charge and reductions of CHF 2 billion, CHF 3 billion
and CHF 1 billion in RWA related to value-at-risk (VaR), stressed
VaR and risks-not-in-VaR, respectively. The CHF 25 billion increase
in operational risk RWA was primarily due to incremental RWA of
CHF 22.5 billion resulting from the supplemental operational risk
capital analysis mutually agreed to by UBS and FINMA.
➔ Refer to the “Investment Bank,” “Corporate Center” and “Capital
management” sections of this report for more information
Net new money
In Wealth Management, all regions contributed to net inflows of
CHF 35.9 billion in 2013, compared with CHF 26.3 billion in the
prior year. The strongest net inflows were recorded in Asia Pacific
followed by emerging markets, Switzerland and Europe. Net in-
flows in the European onshore and the Swiss-based Global Family
Office business in Europe more than offset net outflows in the
European cross-border business, which was negatively affected by
ongoing asset outflows in the context of fiscal and regulatory
concerns. On a global basis, net new money from ultra high net
worth clients was CHF 33.6 billion compared with CHF 19.9 bil-
lion in the prior year.
In Wealth Management Americas, net new money totaled CHF
17.6 billion, or USD 19.0 billion, compared with CHF 20.6 billion,
or USD 22.1 billion, in the prior year, due to lower inflows from
financial advisors employed with UBS for more than one year as
well as lower inflows from net recruiting of financial advisors. This
decrease was partly offset by higher inflows from the Global Fam-
ily Office.
Excluding money market flows, Global Asset Management re-
corded net new money inflows from third parties of CHF 0.7 bil-
lion compared with net outflows of CHF 0.6 billion in 2012. Net
inflows, notably from clients serviced from Europe, Middle East
and Africa and from Switzerland, were partly offset by net out-
flows from clients serviced from the Americas. Net new money
outflows from clients of UBS’s wealth management businesses,
excluding money market flows, were CHF 5.5 billion compared
with CHF 5.2 billion in the prior year. Net outflows, mainly from
clients serviced from Switzerland, were partly offset by net inflows
from clients serviced from the Americas. Money market net out-
flows from third parties were CHF 1.5 billion compared with net
inflows of CHF 0.9 billion in the prior year and were mainly from
clients serviced from the Americas. Money market net outflows
from clients of UBS’s wealth management businesses were CHF
13.6 billion compared with CHF 8.3 billion in the prior year. In
both years, net outflows were primarily due to an ongoing initia-
tive by Wealth Management Americas to increase deposit account
balances in UBS banking entities. This led to CHF 8.3 billion in
outflows from money market funds managed by Global Asset
Management in 2013 and CHF 6.2 billion in 2012. The corre-
sponding increase in deposit account balances in Wealth Man-
agement Americas does not constitute net new money. Total net
new money outflows were CHF 19.9 billion compared with CHF
13.3 billion in the prior year.
➔ Refer to the “Wealth Management,” “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
Invested assets
In Wealth Management, invested assets were CHF 886 billion as
of 31 December 2013, representing an increase of CHF 65 billion
from 31 December 2012. Net new money inflows of CHF 36 bil-
lion and positive market performance of CHF 34 billion were
slightly offset by negative currency translation effects of CHF 4
billion.
In Wealth Management Americas, invested assets were CHF
865 billion as of 31 December 2013, an increase of CHF 93 billion
from 31 December 2012. In US dollar terms, invested assets in-
creased by USD 127 billion to USD 970 billion, reflecting positive
market performance of USD 108 billion and continued strong net
new money inflows of USD 19 billion.
In Global Asset Management, invested assets were CHF 583
billion as of 31 December 2013 compared with CHF 581 billion as
of 31 December 2012. Net new money outflows of CHF 20 bil-
lion, combined with negative currency translation effects of CHF
15 billion and a reduction of CHF 7 billion related to the afore-
mentioned sale of the Canadian domestic business, were more
than offset by positive market performance of CHF 44 billion.
➔ Refer to the “Wealth Management,” “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
103
Financial and operating performance Financial and operating performance
Balance sheet
Balance sheet
As of 31 December 2014, our balance sheet assets stood at CHF 1,062 billion, an increase of CHF 49 billion or 5% from
31 December 2013, mainly due to currency effects resulting from the strengthening of the US dollar versus the Swiss
franc. Funded assets, which represent total assets excluding positive replacement values and collateral delivered against
over-the-counter derivatives, increased by CHF 41 billion to CHF 775 billion, also primarily resulting from currency
effects. Excluding these currency effects, funded assets were broadly unchanged.
Balance sheet
CHF million
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Provisions
Other liabilities
Total liabilities
104
31.12.14
31.12.13
31.12.13
% change from
104,073
13,334
24,063
68,414
138,156
56,018
256,978
30,979
4,951
315,757
57,159
927
6,854
6,785
11,060
22,988
1,062,478
10,492
9,180
11,818
27,958
254,101
42,372
75,297
410,207
91,207
4,366
71,112
1,008,110
80,879
13,874
27,496
91,563
122,848
42,449
254,084
26,548
7,364
286,959
59,525
842
6,006
6,293
8,845
20,228
1,013,355
12,862
9,491
13,811
26,609
248,079
44,507
69,901
390,825
81,586
2,971
62,777
963,419
29
(4)
(12)
(25)
12
32
1
17
(33)
10
(4)
10
14
8
25
14
5
(18)
(3)
(14)
5
2
(5)
8
5
12
47
13
5
Balance sheet (continued)
CHF million
Equity
Share capital
Share premium
Treasury shares
Equity classified as obligation to purchase own shares
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
Equity attributable to UBS Group AG shareholders
Equity attributable to preferred noteholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
31.12.14
31.12.13
31.12.13
% change from
372
32,590
(1,393)
(1)
22,134
(3,093)
50,608
0
3,760
54,368
384
33,952
(1,031)
(46)
20,608
(5,866)
48,002
1,893
41
49,936
1,062,478
1,013,355
(3)
(4)
35
(98)
7
(47)
5
(100)
9
5
Asset development – divisional view
Investment Bank
Investment Bank total assets increased by CHF 52 billion to CHF
292 billion, primarily within our foreign exchange, rates and
credit businesses and mainly due to fair value changes on both
foreign exchange and interest rate derivatives, which increased
due to currency movements and downward shifts in yield curves,
respectively. Funded assets increased by CHF 14 billion to CHF
171 billion, mainly due to currency effects, and remained within
our limit of CHF 200 billion. Excluding currency effects, Invest-
ment Bank funded assets increased by approximately CHF 3 bil-
lion, mainly due to higher trading assets in the equities business.
Corporate Center – Non-core and Legacy Portfolio
Non-core and Legacy Portfolio total assets decreased by CHF 45
billion to CHF 170 billion, largely due to a CHF 33 billion decline in
positive replacement values (PRV) in Non-core. During the year, we
executed a series of risk transfers to exit the majority of the correla-
tion trading portfolio, which involved entering into a large number
of back-to-back trades to transfer market risk. We subsequently
derecognized these trades from our balance sheet via novations to
third parties, thereby transferring credit risk, and reducing PRV by
approximately CHF 11 billion. The originally targeted novations are
now complete. Within our rates portfolio, PRV decreased due to
negotiated bilateral settlements with specific counterparties, third-
party novations, including transfers to central clearing houses, and
agreements to net down trades with other dealer counterparties,
partly offset by currency and interest rate movements. Non-core
and Legacy Portfolio funded assets decreased by CHF 10 billion to
CHF 11 billion, mainly due to the full repayment of the loan to the
BlackRock fund, the full exit of precious metal holdings held on
behalf of clients and the maturing of the last remaining trade in
the structured reverse repo portfolio. Furthermore, funded assets
declined following the final exit from student loan auction rate
securities, the sale of CMBS assets used to hedge certain CDS con-
tracts facing monolines that were terminated during the year and
a number of smaller position reductions.
Corporate Center – Core Functions
Corporate Center – Core Functions total assets increased by CHF
10 billion to CHF 258 billion, primarily reflecting an increase in
cash and balances with central banks, which mainly resulted from
rebalancing of our multi-currency portfolio of unencumbered,
Total assets and funded assets
CHF billion
Total assets
Less: positive replacement values
Less: collateral delivered against OTC derivatives 1
Funded assets
Investment
Bank
CC – Core
Functions
292
(109)
(12)
171
258
0
0
257
31.12.14
CC – Non-
core and
Legacy
Portfolio
170
(141)
(18)
11
Other
business
divisions
343
(7)
0
336
Investment
Bank
CC – Core
Functions
240
(76)
(7)
157
247
0
0
247
UBS
1,062
(257)
(31)
775
31.12.13
CC – Non-
core and
Legacy
Portfolio
215
(174)
(19)
22
Other
business
divisions
311
(3)
0
307
1 Mainly consists of cash collateral receivables on derivative instruments and reverse repurchase agreements.
UBS
1,013
(254)
(26)
734
105
Financial and operating performance Financial and operating performance
Balance sheet
(cid:36)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:115)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:14)(cid:22)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:18)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:25)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:21)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:26)(cid:26)(cid:23)(cid:149)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:25)
(cid:22)(cid:26)(cid:25)
(cid:26)(cid:21)
(cid:23)(cid:21)
(cid:19)(cid:26)(cid:20)
(cid:20)(cid:25)(cid:20)
(cid:21)(cid:18)(cid:18)
(cid:22)(cid:19)
(cid:19)(cid:14)(cid:20)(cid:24)(cid:18)
(cid:22)(cid:19)(cid:27)
(cid:24)(cid:27)
(cid:24)(cid:24)
(cid:19)(cid:24)(cid:19)
(cid:19)(cid:24)(cid:26)
(cid:21)(cid:19)(cid:18)
(cid:24)(cid:24)
(cid:19)(cid:14)(cid:18)(cid:19)(cid:21)
(cid:20)(cid:24)
(cid:20)(cid:21)
(cid:19)(cid:23)
(cid:19)(cid:19)
(cid:21)
(cid:10)(cid:20)(cid:25)(cid:11)
(cid:10)(cid:20)(cid:11)
(cid:26)(cid:18)(cid:23)(cid:149)
(cid:25)(cid:21)(cid:22)(cid:149)
(cid:20)(cid:23)(cid:22)
(cid:24)(cid:27)
(cid:24)(cid:18)
(cid:19)(cid:20)(cid:21)
(cid:19)(cid:19)(cid:27)
(cid:21)(cid:18)(cid:26)
(cid:26)(cid:19)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:46)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:85)
(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:69)(cid:71)(cid:80)(cid:86)(cid:84)(cid:67)(cid:78)(cid:2)
(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:124)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:124)
(cid:50)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)
(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)
(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)
(cid:67)(cid:88)(cid:67)(cid:75)(cid:78)(cid:67)(cid:68)(cid:78)(cid:71)(cid:15)
(cid:72)(cid:81)(cid:84)(cid:15)(cid:85)(cid:67)(cid:78)(cid:71)
(cid:25)(cid:25)(cid:23)(cid:149)
(cid:19)(cid:14)(cid:18)(cid:24)(cid:20)
(cid:20)(cid:23)(cid:25)
(cid:26)(cid:18)
(cid:23)(cid:25)
(cid:19)(cid:21)(cid:26)
(cid:27)(cid:20)
(cid:21)(cid:21)(cid:22)
(cid:19)(cid:18)(cid:22)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:69)(cid:71)(cid:80)(cid:86)(cid:84)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:46)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73) (cid:20)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73) (cid:21)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:88)(cid:67)(cid:75)(cid:78)(cid:67)(cid:68)(cid:78)(cid:71)(cid:15)(cid:72)(cid:81)(cid:84)(cid:15)(cid:85)(cid:67)(cid:78)(cid:71)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84) (cid:22)(cid:2)
(cid:50)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
(cid:19)(cid:2)(cid:40)(cid:87)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:14)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:84)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:70)(cid:71)(cid:78)(cid:75)(cid:88)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:49)(cid:54)(cid:37)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:14)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:70)(cid:71)(cid:85)(cid:75)(cid:73)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:72)(cid:67)(cid:75)(cid:84)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:78)(cid:81)(cid:67)(cid:80)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:84)(cid:85)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:71)(cid:70)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:22)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:71)(cid:75)(cid:88)(cid:67)(cid:68)(cid:78)(cid:71)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
high-quality, liquid assets managed centrally by Group Treasury
through the end of 2014 and effective 1 January 2015 by Group
ALM, a majority of which are short-term, combined with several
long-term debt issuances throughout the year and a reduction in
collateral trading assets. The overall size of our multi-currency
portfolio of unencumbered, high-quality, liquid assets was broadly
unchanged.
Other business divisions
Wealth Management and Wealth Management Americas total
assets increased by CHF 18 billion and CHF 11 billion to CHF 128
billion and CHF 56 billion, respectively, mainly reflecting increased
lending activities and currency effects. Retail & Corporate and
Global Asset Management total assets were broadly unchanged
at CHF 144 billion and CHF 15 billion, respectively.
Assets and liabilities development – product view
repayment of the loan to the BlackRock fund and the sale of the
remaining student loan auction rate securities positions in the
Legacy Portfolio. Financial assets designated at fair value were re-
duced by CHF 2 billion, primarily in the Investment Bank. Inter-
bank lending was broadly unchanged at CHF 13 billion.
Collateral trading
Collateral trading assets, which consist of reverse repurchase
agreements and cash collateral on securities borrowed, decreased
by CHF 27 billion to CHF 92 billion, mainly within Group Treasury
in Corporate Center – Core Functions, reflecting a reduction in
externally sourced collateral, combined with a rebalancing of our
multi-currency portfolio of unencumbered, high-quality, liquid
assets.
Collateral trading liabilities, which consist of repurchase agree-
ments and cash collateral on securities lent, were reduced by CHF
2 billion to CHF 21 billion.
Cash and balances with central banks
Cash and balances with central banks increased by CHF 23 billion
to CHF 104 billion as of 31 December 2014, primarily due to the
abovementioned rebalancing of our multi-currency portfolio of
unencumbered, high-quality, liquid assets, combined with several
long-term debt issuances throughout the year and a reduction in
collateral trading assets.
Trading portfolio
Trading portfolio assets increased CHF 15 billion to CHF 138 bil-
lion, primarily within the Investment Bank and mainly reflected
currency effects and client-driven increases in equity instruments
held. The increases in the Investment Bank were partly offset by
reductions within Non-core and Legacy Portfolio, which primarily
resulted from ongoing sales and unwinds.
Lending
Loans increased by CHF 29 billion to CHF 316 billion, predomi-
nantly in our wealth management businesses and mainly reflect-
ing increased Lombard and residential mortgage lending, as well
as currency effects. These increases were partly offset by the full
Trading portfolio liabilities were broadly unchanged at CHF 28
billion.
Replacement values
Positive and negative replacement values were higher on both
sides of the balance sheet, increasing by CHF 3 billion and CHF 6
106
1640
1312
984
656
328
0
billion to CHF 257 billion and CHF 254 billion, respectively, despite
a reduction in notional volumes. Positive and negative replace-
ment values within the Investment Bank increased by CHF 33 bil-
lion and CHF 32 billion, respectively, reflecting fair value changes
resulting from currency movements and downward shifts in yield
curves. These increases were mostly offset by positive and nega-
tive replacement value reductions in Non-core and Legacy Portfo-
lio of CHF 34 billion and CHF 27 billion, respectively, primarily due
to trade migrations, compressions and market movements.
Financial investments available-for-sale
Financial investments available-for-sale decreased by CHF 2 billion
to CHF 57 billion, mainly reflecting the aforementioned rebalanc-
ing of our multi-currency portfolio of unencumbered, high-qual-
ity, liquid assets.
Short-term borrowings
Short-term borrowings, which include short-term debt issued and
interbank borrowing, decreased by CHF 3 billion to CHF 38 billion,
primarily due to lower interbank lending within Retail & Corpo-
rate. Short-term debt issued was broadly unchanged at CHF 27
billion.
➔ Refer to the “Treasury management” section of this report for
more information
Due to customers
Customer deposits increased by CHF 19 billion to CHF 410 billion,
reflecting currency effects and as Wealth Management, Wealth
Management Americas and Retail & Corporate all continued to
attract client money into both current and deposit accounts.
➔ Refer to the “Treasury management” section of this report for
more information
Long-term debt issued
Long-term debt issued increased by CHF 15 billion to CHF 139
billion, primarily reflecting the issuance of a variety of instruments
during the year, including several fixed-rate bonds, additional
loss-absorbing Basel III-compliant tier 2 subordinated notes and
new extendible money market certificates, which are held at fair
value within the Investment Bank.
➔ Refer to the “Treasury management” section of this report for
more information
Other
Other assets increased by CHF 11 billion, primarily due to a CHF 4
billion increase in cash collateral receivables on derivative instru-
ments, a CHF 2 billion increase in recognized deferred tax assets
and a CHF 1 billion increase in prime brokerage receivables.
Other liabilities increased by CHF 8 billion, primarily due to a
CHF 6 billion increase in prime brokerage payables.
(cid:36)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:115)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:14)(cid:22)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:18)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:25)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:21)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:25)
(cid:22)(cid:25)(cid:21)
(cid:19)(cid:25)(cid:26)
(cid:19)(cid:18)(cid:20)
(cid:19)(cid:19)(cid:19)
(cid:21)(cid:22)(cid:20)
(cid:19)(cid:23)(cid:26)
(cid:23)(cid:21)
(cid:19)(cid:14)(cid:20)(cid:24)(cid:18)
(cid:21)(cid:27)(cid:23)
(cid:19)(cid:25)(cid:22)
(cid:23)(cid:24)
(cid:22)(cid:26)
(cid:21)(cid:25)(cid:21)
(cid:19)(cid:24)(cid:22)
(cid:22)(cid:27)
(cid:19)(cid:14)(cid:18)(cid:19)(cid:21)
(cid:20)(cid:22)(cid:26)
(cid:19)(cid:21)(cid:25)
(cid:21)(cid:27)(cid:19)
(cid:19)(cid:20)(cid:22)
(cid:23)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:21)
(cid:19)(cid:27)
(cid:19)(cid:23)
(cid:27)
(cid:24)
(cid:22)
(cid:10)(cid:21)(cid:11)
(cid:10)(cid:20)(cid:11)
(cid:19)(cid:14)(cid:18)(cid:24)(cid:20)
(cid:20)(cid:23)(cid:22)
(cid:19)(cid:22)(cid:24)
(cid:22)(cid:19)(cid:18)
(cid:19)(cid:21)(cid:27)
(cid:23)(cid:22)
(cid:21)(cid:26)
(cid:20)(cid:19)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:38)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)
(cid:69)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:85)
(cid:46)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)
(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:48)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
(cid:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)
(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:85)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)
(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91) (cid:19)
(cid:46)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70) (cid:20)
(cid:38)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:69)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:85)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73) (cid:21)
(cid:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:85)(cid:22)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84) (cid:23)
(cid:48)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)(cid:2)
(cid:19)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:86)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:86)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:78)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:78)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:70)(cid:71)(cid:85)(cid:75)(cid:73)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:72)(cid:67)(cid:75)(cid:84)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:21)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:86)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:22)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:23)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:82)(cid:67)(cid:91)(cid:67)(cid:68)(cid:78)(cid:71)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)
(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
107
1640
1312
984
656
328
0
Financial and operating performance Financial and operating performance
Balance sheet
Equity development
Equity attributable to UBS Group AG shareholders increased by
CHF 2,606 million to CHF 50,608 million as of 31 December 2014
from CHF 48,002 million a year earlier. Total comprehensive income
attributable to UBS Group AG shareholders was CHF 4,920 million,
reflecting the net profit attributable to UBS Group AG shareholders
of CHF 3,466 million and other comprehensive income (OCI) attrib-
utable to UBS Group AG shareholders of CHF 1,453 million (net of
tax). OCI included foreign currency translation gains of CHF 1,795
million as well as positive OCI movements related to cash flow
hedges and financial investments available-for-sale of CHF 689 mil-
lion and CHF 141 million, respectively, partly offset by net losses on
defined benefit plans of CHF 1,172 million.
Employee share-based compensation increased share premium
by CHF 619 million, primarily due to the amortization of deferred
equity compensation awards. This increase was more than offset
by the distribution of CHF 938 million out of the capital contribu-
tion reserve of UBS AG.
Net treasury share activity decreased equity attributable to UBS
Group AG shareholders by CHF 400 million, mainly reflecting the
net acquisition of treasury shares in relation to employee share-
based compensation awards.
The establishment of UBS Group AG resulted in a net reduction
in equity attributable to UBS Group AG shareholders of CHF
1,669 million, reflecting non-controlling interests in UBS AG
shares as of 31 December 2014.
➔ Refer to the “UBS Group – Changes to our legal structure” section
for more information on the establishment of UBS Group AG
➔ Refer to the “Statement of changes in equity” in the “Financial
information” section of this report for more information
➔ Refer to “Total comprehensive income attributable to UBS Group
AG shareholders” in the “Group performance” section of this
report for more information
Intra-period balances
Balance sheet positions disclosed in this section represent year-
end positions. Intra-period balance sheet positions fluctuate in
the ordinary course of business and may differ from quarter-end
and year-end positions.
Equity attributable to UBS Group AG shareholders: development during 2014
CHF million
3,466
48,002
31.12.13
Net profit
1,795
141
689
619
(1,172)
(938)
(400)
75
50,608
(1,669)
Foreign
currency
translation
(OCI)
Financial
investments
available-
for-sale (OCI)
Cash flow
hedges
(OCI)
Defined
benefit plans
(OCI)
Employee share
and share options
plans (within
share premium)
Distribution of
capital contri-
bution reserve
(within share
premium)
Treasury
shares
Other
Non-controlling
interest effect
of the establishment
of UBS Group AG
31.12.14
55000
52500
47500
45000
50000
55,000
52,500
50,000
47,500
0
108
Off-balance sheet
Off-balance sheet arrangements
In the normal course of business, we enter into transactions that
may not be fully recognized on the balance sheet due to the Inter-
national Financial Reporting Standards (IFRS) accounting treatment
adopted for the specific transaction entered into. These transactions
include derivative instruments, guarantees and similar arrange-
ments, as well as some purchased and retained interests in non-con-
solidated structured entities (SEs), which are transacted for a num-
ber of reasons, including market-making and hedging activities, to
meet specific needs of our clients or to offer investment opportuni-
ties to clients through entities that are not controlled by us.
When we, through these arrangements, incur an obligation or
become entitled to an asset, we recognize these on the balance
sheet. It should be noted that in certain instances the amount
recognized on the balance sheet does not represent the full gain
or loss potential inherent in such arrangements.
➔ Refer to “Note 1a Significant accounting policies items 3 and 5”
in the “Financial information” section of this report for more
information on accounting policies regarding consolidation and
deconsolidation of subsidiaries, including structured entities,
and recognition and derecognition of financial instruments,
respectively
➔ Refer to “Note 30 Interests in subsidiaries and other entities” in
the “Financial information” section of this report for more
information on our interests in, and maximum exposure to loss
from, unconsolidated structured entities
The following paragraphs provide more information on several
distinct off-balance sheet arrangements. Additional off-balance
sheet information is primarily provided in Notes 14, 22, 25, 30 and
33 in the “Financial information” section of this report, as well as
in the “UBS Group AG consolidated supplemental disclosures
required under Basel III Pillar 3 regulations” section of this report.
Risk disclosures, including our involvement with off-balance
sheet vehicles
Refer to the “Risk, treasury and capital management” section of
this report for comprehensive liquidity, market and credit risk in-
formation related to risk positions, which includes our exposures
to off-balance sheet vehicles.
Guarantees and similar arrangements
In the normal course of business, we issue various forms of guaran-
tees, commitments to extend credit, standby and other letters of
credit to support our clients, commitments to enter into forward
starting transactions, note issuance facilities and revolving under-
writing facilities. With the exception of related premiums, generally
these guarantees and similar obligations are kept as off-balance
sheet items unless a provision to cover probable losses is required.
As of 31 December 2014, the net exposure (gross values less
sub-participations) from guarantees and similar instruments was
CHF 14.9 billion, compared with CHF 15.8 billion as of 31 Decem-
ber 2013. Fee income from issuing guarantees was not significant
to total revenues in 2014.
Guarantees represent irrevocable assurances, that, subject to
the satisfaction of certain conditions, we will make a payment in
the event that clients fail to fulfill their obligations to third parties.
We also enter into commitments to extend credit in the form of
credit lines that are available to secure the liquidity needs of cli-
ents. The majority of these unutilized credit lines range in maturity
from one month to five years. If customers fail to meet their obli-
gations, our maximum exposure to credit risk is the contractual
amount of these instruments. The risk is similar to the risk involved
in extending loan facilities and is subject to the same risk manage-
ment and control framework. For the year ended 31 December
2014, we recognized net credit loss recoveries of CHF 49 million,
compared with net credit loss recoveries of CHF 2 million for the
year ended 31 December 2013, related to obligations incurred for
guarantees and loan commitments. Provisions recognized for
guarantees and loan commitments were CHF 23 million as of
31 December 2014 and CHF 61 million as of 31 December 2013.
For certain obligations, we enter into partial sub-participations
to mitigate various risks from guarantees and loan commitments.
A sub-participation is an agreement by another party to take a
share of the loss in the event that the obligation is not fulfilled by
the obligor and, where applicable, to fund a part of the credit fa-
cility. We retain the contractual relationship with the obligor, and
the sub-participant has only an indirect relationship. We will only
enter into sub-participation agreements with banks to which we
ascribe a credit rating equal to or better than that of the obligor.
Furthermore, we provide representations, warranties and in-
demnifications to third parties in the normal course of business.
Support provided to non-consolidated investment funds
In 2014, the Group did not provide material support, financial or
otherwise, to unconsolidated investment funds when the Group
was not contractually obligated to do so, nor does the Group
have an intention to do so.
Clearing house and exchange memberships
We are a member of numerous securities and derivative exchanges
and clearing houses. In connection with some of those member-
ships, we may be required to pay a share of the financial obliga-
tions of another member who defaults, or we may be otherwise
109
Financial and operating performance Financial and operating performance
Off-balance sheet
Guarantees, commitments and forward starting transactions
The table below shows the maximum irrevocable amount of guarantees, commitments and forward starting transactions.
CHF million
Guarantees
Credit guarantees and similar instruments
Performance guarantees and similar instruments
Documentary credits
Total guarantees
Commitments
Loan commitments
Underwriting commitments
Total commitments
Forward starting transactions 1
Reverse repurchase agreements
Securities borrowing agreements
Repurchase agreements
1 Cash to be paid in the future by either UBS or the counterparty.
31.12.14
Gross
Sub-
participations
Net
Gross
31.12.13
Sub-
participations
(346)
(706)
(1,740)
(2,792)
(1,256)
(329)
(1,586)
6,780
2,579
5,543
14,902
49,431
342
49,773
7,126
3,285
7,283
17,694
50,688
671
51,359
10,304
125
5,368
(670)
(706)
(1,599)
(2,975)
(1,227)
(225)
(1,452)
7,731
3,423
7,644
18,798
54,913
760
55,673
9,376
46
8,191
Net
7,061
2,717
6,044
15,823
53,686
535
54,221
exposed to additional financial obligations. While the member-
ship rules vary, obligations generally would arise only if the ex-
change or clearing house had exhausted its resources. We con-
sider the probability of a material loss due to such obligations to
be remote.
Underwriting commitments
Gross equity underwriting commitments as of 31 December 2014
and 31 December 2013 amounted to CHF 0.7 billion and CHF 0.8
billion, respectively. Gross debt and private equity underwriting
commitments as of 31 December 2013 and 31 December 2012
were not material.
Swiss deposit insurance
Swiss banking law and the deposit insurance system require Swiss
banks and securities dealers to jointly guarantee an amount of up
to CHF 6 billion for privileged client deposits in the event that a
Swiss bank or securities dealer becomes insolvent. The Swiss
Financial Market Supervisory Authority (FINMA) estimates our
share in the deposit insurance system to be CHF 0.9 billion. The
deposit insurance is a guarantee and exposes us to additional risk.
This is not reflected in the table above due to its unique character-
istics. As of 31 December 2014, we consider the probability of a
material loss from our obligation to be remote.
Contractual obligations
The table below summarizes payments due by period under
contractual obligations as of 31 December 2014.
All contracts included in this table, with the exception of pur-
chase obligations (i.e., those in which we are committed to pur-
chasing determined volumes of goods and services), are either
recognized as liabilities on our balance sheet or, in the case of
operating leases, disclosed in “Note 33 Operating leases and fi-
nance leases” in the “Financial information” section of this report.
Contractual obligations
CHF million
Long-term debt obligations
Finance lease obligations
Operating lease obligations
Purchase obligations
Other liabilities
Total
110
< 1 year
44,338
30
766
1,131
114
46,380
Payment due by period
1–3 years
38,594
29
1,374
771
1
40,769
3–5 years
21,268
5
949
337
0
> 5 years
49,626
2
2,080
139
0
Total
153,827
66
5,170
2,378
115
22,559
51,847
161,556
Long-term debt obligations as of 31 December 2014 were
CHF 154 billion and consisted of financial liabilities designated at
fair value (CHF 79 billion) and long-term debt issued (CHF 75
billion) and represent both estimated future interest and principal
payments on an undiscounted basis. Refer to “Note 27b Maturity
analysis of financial liabilities” in the “Financial information” sec-
tion of this report for more information. Approximately half of
total long-term debt obligations had a variable rate of interest.
Amounts due on interest rate swaps used to hedge interest rate
risk inherent in fixed-rate debt issued, and designated in fair
value hedge accounting relationships, are not included in the ta-
ble on the previous page. The notional amount of these interest
rate swaps was CHF 41 billion as of 31 December 2014. Financial
liabilities designated at fair value (CHF 79 billion on an undis-
counted cash flow basis) mostly consist of structured notes and
are generally economically hedged, but it would not be practicable
to estimate the amount and / or timing of the payments on inter-
est swaps used to hedge these instruments as interest rate risk
inherent in respective liabilities is generally risk managed on a
portfolio level.
Within purchase obligations, the obligation to employees un-
der mandatory notice periods is excluded (i.e., the period in
which we must pay contractually agreed salaries to employees
leaving the firm).
Our obligations recognized on the balance sheet as Due to
banks, Cash collateral on securities lent, Repurchase agreements,
Trading portfolio liabilities, Negative replacement values, Cash
collateral payables on derivative instruments, Due to customers,
Provisions and Other liabilities are excluded from the table on the
previous page. Refer to the respective Notes in the “Financial
information” section of this report for more information on these
liabilities.
111
Financial and operating performance Financial and operating performance
Cash flows
Cash flows
As a global financial institution, our cash flows are complex and bear little relation to our net earnings and net assets.
Consequently, we believe that traditional cash flow analysis is less meaningful in evaluating our liquidity position than
the liquidity, funding and capital management policies described within the “Risk, treasury and capital management”
section of this report.
Statement of cash flows (condensed)
CHF million
Net cash flow from / (used in) operating activities
Net cash flow from / (used in) investing activities
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the end of the year
For the year ended
31.12.14
8,400
2,596
2,108
8,611
21,714
126,980
31.12.13
50,959
5,457
(47,555)
(2,702)
6,158
105,266
2014
Investing activities
As of 31 December 2014, cash and cash equivalents totaled CHF
127.0 billion, an increase of CHF 21.7 billion from 31 December
2013, partly due to foreign currency translation effects of CHF 8.6
billion.
Operating activities
In 2014, net cash inflows from operating activities were CHF 8.4
billion, reflecting net cash inflows of CHF 11.1 billion generated by
an overall decrease in operating assets and liabilities, partly offset
by net operating cash outflows (before changes in operating as-
sets and liabilities and income taxes paid, net of refunds) of CHF
2.1 billion. The net inflows related to the decrease in operating
assets and liabilities of CHF 11.1 billion resulted from gross cash
inflows of CHF 37.0 billion, primarily due to a reduction in collat-
eral trading assets, partly offset by gross cash outflows of CHF 25.9
billion, mainly due to an increase in loans and a reduction in cash
collateral payables on derivative instruments.
Compared with 2013, net cash flow from operating activities
declined to an inflow of CHF 8.4 billion from CHF 51.0 billion,
mainly as the reduction in operating assets, net of operating liabil-
ities, was moderate in 2014 compared with the pronounced de-
cline in 2013. In 2014, the growth in loans exceeded the increase
in due to customer balances generating cash outflows of CHF 11.6
billion, whereas in 2013 the growth in due to customer balances
outpaced the increase in loans causing inflows of CHF 12.1 billion.
In addition, significant reductions in trading portfolio assets and
replacement values net of collateral resulted in cash inflows of CHF
18.3 billion in 2013 compared with cash outflows of CHF 9.3 bil-
lion related to these assets and liabilities in 2014.
112
Net cash inflows from investing activities were CHF 2.6 billion in
2014, primarily related to the net divestment of financial invest-
ments available-for-sale of CHF 4.1 billion, partly offset by out-
flows of CHF 1.9 billion related to the purchase of property and
equipment.
Compared with 2013, net cash flow from investing activities
declined by CHF 2.9 billion, mainly due to CHF 1.9 billion lower
net inflows from the divestment of financial investments avail-
able-for-sale and CHF 0.7 billion higher outflows related to the
purchase of property and equipment.
Financing activities
The net cash flow from financing activities was an inflow of CHF
2.1 billion in 2014, mainly due to net issuances (issuances less
redemptions) of long-term debt, including financial liabilities des-
ignated at fair value, of CHF 6.8 billion, partly offset by the net
redemption of short-term debt of CHF 2.9 billion, the distribution
of capital contribution reserves of CHF 0.9 billion and the net ac-
quisition of treasury shares and own equity derivative activity of
CHF 0.7 billion.
Compared with 2013, net cash flow from financing activities
increased to a net inflow of CHF 2.1 billion from a net outflow
CHF 47.6 billion, mainly as the net issuance of long-term debt,
including financial liabilities designated at fair value, accounted
for an inflow of CHF 6.8 billion in 2014 compared with an out-
flow of CHF 40.9 billion in 2013 related to net repayments.
Wealth Management
Profit before tax was CHF 2,326 million in 2014, an increase of CHF 79 million compared with the prior year. Adjusted for
restructuring charges, profit before tax increased by CHF 86 million to CHF 2,511 million, mainly due to an increase in
operating income of CHF 338 million, largely as a result of both higher recurring net fee income and net interest income.
This was partly offset by CHF 251 million higher operating expenses, mainly due to a CHF 305 million increase in charges
for provisions for litigation, regulatory and similar matters. The gross margin on invested assets declined by 3 basis
points to 85 basis points. Net new money was CHF 34.4 billion compared with CHF 35.9 billion in the prior year.
Business division reporting 1
CHF million, except where indicated
Net interest income
Recurring net fee income
Transaction-based income
Other income
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 2
Business division operating profit / (loss) before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%)
Gross margin on invested assets (bps) 4
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
2,165
3,783
1,928
25
7,902
(1)
7,901
3,369
1,937
58
205
5
5,574
2,326
3.5
70.5
3.9
85
2,061
3,567
1,887
57
7,573
(10)
7,563
3,371
1,650
97
190
8
5,316
2,247
(6.6)
70.2
4.4
88
1,951
3,309
1,744
37
7,040
1
7,041
2,865
1,360
243
159
7
4,634
2,407
(8.6)
65.8
3.5
89
5
6
2
(56)
4
(90)
4
0
17
(40)
8
(38)
5
4
(3)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for information on restructuring charges. 3 Refer to
the “Measurement of performance” section of this report for the definitions of our key performance indicators. 4 Excludes any effect on profit or loss from a property fund (2014: gain of CHF 2 million, 2013: loss of
CHF 10 million, 2012: gain of CHF 4 million).
113
Financial and operating performance Financial and operating performance
Wealth Management
Business division reporting 1 (continued)
CHF million, except where indicated
Additional information
Recurring income
Recurring income as a % of income (%)
Average attributed equity (CHF billion) 2
Return on attributed equity (%)
Risk-weighted assets (fully applied, CHF billion) 3
Risk-weighted assets (phase-in, CHF billion) 3
Return on risk-weighted assets, gross (%) 4
Leverage ratio denominator (phase-in, CHF billion) 5
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion)
Invested assets (CHF billion)
Client assets (CHF billion)
Loans, gross (CHF billion)
Due to customers (CHF billion)
Personnel (full-time equivalents)
Client advisors (full-time equivalents)
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
5,949
75.3
3.4
67.9
25.4
25.8
33.8
138.3
1.4
34.4
987
1,160
112.7
191.3
16,760
4,250
5,628
74.3
3.5
64.2
20.9
21.4
38.7
122.1
1.3
35.9
886
1,023
96.8
189.4
16,414
4,164
5,259
74.7
4.0
60.9
18.2
18.6
41.4
1.4
26.3
821
951
86.6
180.2
16,210
4,128
6
(3)
22
21
13
8
11
13
16
1
2
2
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 3 Based on the Basel III framework
as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 4 Based on phase-in
Basel III risk-weighted assets for 2014 and 2013. Based on Basel 2.5 risk-weighted assets for 2012. 5 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance
with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Refer to the ”Capital management”
section of this report for more information.
Regional breakdown of key figures 1, 2
As of or for the year ended 31.12.14
Europe
Asia Pacific
Switzerland Emerging markets
Net new money (CHF billion)
Net new money growth (%)
Invested assets (CHF billion)
Gross margin on invested assets (bps)
Client advisors (full-time equivalents)
(3.3)
(1.0) 4
363
83 4
1,473
26.7
12.2
269
80
1,186
7.1
4.4
177
90
761
4.1
2.7 4
168
94 4
773
of which: ultra
high net worth
29.8
7.2
497
55
729 6
of which: Global
Family Office 3
1.5
2.5
73
44 5
1 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators. 2 Based on the Wealth Management business area structure, and excluding minor functions with
57 client advisors, and CHF 10 billion of invested assets, and CHF 0.2 billion of net new money outflows in 2014. 3 Joint venture between Wealth Management and the Investment Bank. Global Family Office is reported
as a sub-segment of ultra high net worth and is included in the ultra high net worth figures. 4 Net new money growth rate and gross margin of 2014 for Europe and emerging markets are calculated based on invested
assets as of 31 December 2013 adjusted for organizational shifts. 5 Gross margin includes income booked in the Investment Bank. Gross margin only based on income booked in Wealth Management is 25 basis
points. 6 Represents client advisors who exclusively serve ultra high net worth clients. In addition to these, other client advisors may also serve certain ultra high net worth clients, but not exclusively.
114
2014 compared with 2013
Results
Operating income
Total operating income was CHF 7,901 million compared with
CHF 7,563 million in 2013, primarily due to both higher recurring
net fee income and net interest income.
Net interest income increased by CHF 104 million to CHF 2,165
million, mainly due to higher net interest income from Lombard
loans and mortgages as well as a positive effect from methodol-
ogy changes in the allocation of liquidity and funding costs and
benefits for loans and deposits between Wealth Management
and Group Treasury. These effects were partly offset by lower net
interest income from client deposits and lower allocated revenues
from Group Treasury.
➔ Refer to the “Liquidity and funding management” section of this
report for more information on the changed methodology for
the allocation of liquidity and funding costs and benefits
Recurring net fee income increased by CHF 216 million to CHF
3,783 million, primarily due to an increase in invested assets, the
positive effect of pricing measures and continued growth in dis-
cretionary and advisory mandates. These increases were partly
offset by lower income due to ongoing outflows of assets from
cross-border clients and due to the migration into retroces-
sion-free products for investment mandates during 2013.
Transaction-based income increased by CHF 41 million to CHF
1,928 million. The overall increase was mainly related to struc-
tured products, mandates, wealth planning services and hedge
funds, partly offset by lower income from foreign exchange trad-
ing and investment funds. In addition, 2014 included first-time
fees paid to Retail & Corporate for net client shifts and referrals.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on the
implementation of a remuneration framework for net client
shifts and referrals between Retail & Corporate and Wealth
Management
Other income decreased by CHF 32 million to CHF 25 million,
mainly due to a decline in revenues for other services and as the
prior year included a gain of CHF 25 million related to the divest-
ment of our participation in Euroclear Plc.
Operating expenses
Total operating expenses were CHF 5,574 million, an increase of
CHF 258 million from the prior year. Adjusted for restructuring
charges of CHF 185 million compared with CHF 178 million, op-
erating expenses increased by CHF 251 million to CHF 5,389 mil-
lion, mainly due to an increase in charges for provisions for litiga-
tion, regulatory and similar matters to CHF 394 million from CHF
89 million while the prior year included a charge in relation to the
Swiss-UK tax agreement of CHF 107 million. Changes to alloca-
tions of Corporate Center costs in 2014 had the effect of increas-
ing personnel, general and administrative expenses and, to a
lesser extent, depreciation and impairment of property and equip-
ment by a total of approximately CHF 40 million, which was offset
by lower net charges from other business divisions.
➔ Refer to the “Regulatory and legal developments” section of our
Annual Report 2013 for more information on the charge related
to the Swiss-UK tax agreement
Personnel expenses decreased slightly to CHF 3,369 million.
Adjusted for restructuring charges of CHF 70 million compared
with CHF 71 million, personnel expenses decreased by CHF 1 mil-
lion, predominantly due to reduced pension-related expenses,
lower Corporate Center costs, mainly due to personnel-related
technology expenses and outsourcing initiatives, as well as cur-
rency effects. This was almost entirely offset by higher expenses
due to salary increases, staff hires for our strategic and regulatory
priorities, higher variable compensation expenses as well as the
aforementioned changes to allocations of Corporate Center costs.
General and administrative expenses increased by CHF 287
million to CHF 1,937 million. Adjusted for restructuring charges of
CHF 113 million compared with CHF 100 million, general and
administrative expenses increased by CHF 274 million, mainly due
to the aforementioned increase in charges for provisions for litiga-
tion, regulatory and similar matters to CHF 394 million from CHF
89 million while the prior year included a charge in relation to the
aforementioned Swiss-UK tax agreement. In addition, general
and administrative expenses increased due to higher technology
expenses, mainly following outsourcing initiatives, and due to the
aforementioned changes to allocations of Corporate Center costs
in 2014.
Net charges for services from other business divisions de-
creased by CHF 39 million to CHF 58 million, mainly due to the
impact of the aforementioned changes to allocations of Corpo-
rate Center costs in 2014.
Depreciation increased by CHF 15 million to CHF 205 million.
Adjusted for restructuring charges of CHF 1 million compared
with CHF 7 million, depreciation increased by CHF 21 million,
largely due to higher amortization expenses for capitalized soft-
ware and the aforementioned changes to allocations of Corpo-
rate Center costs in 2014.
Cost / income ratio
The cost / income ratio was 70.5% compared with 70.2% in the
prior year. Adjusted for restructuring charges, the cost / income
ratio increased to 68.2% from 67.8% and remained within our
target range of 60% to 70%.
Net new money
The net new money growth rate decreased to 3.9% from 4.4%
and was within our target range of 3% to 5%. Net new money
was CHF 34.4 billion with strongest net inflows in Asia Pacific
followed by Switzerland and emerging markets. Net outflows in
Europe mainly reflected ongoing cross-border asset outflows,
115
Financial and operating performance Financial and operating performance
Wealth Management
partly offset by net inflows from domestic markets. On a global
basis, net new money from ultra high net worth clients was CHF
29.8 billion compared with CHF 33.6 billion in the prior year.
outflows of assets from cross-border clients, partly offset by con-
tinued growth in discretionary and advisory mandates, the posi-
tive effect of pricing measures and Lombard lending growth.
Invested assets
Invested assets were CHF 987 billion as of 31 December 2014,
representing an increase of CHF 101 billion from 31 December
2013, due to positive market performance of CHF 38 billion, net
new money inflows of CHF 34 billion and positive currency trans-
lation effects of CHF 32 billion.
Gross margin on invested assets
The gross margin on invested assets declined by 3 basis points to
85 basis points and was below our target range of 95 to 105 basis
points, mainly due to a historically low interest rate environment,
client segment and regional mix changes coupled with ongoing
Personnel
Wealth Management employed 16,760 personnel as of 31 De-
cember 2014 compared with 16,414 as of 31 December 2013,
reflecting an increase in both non-client facing staff and client
advisors.
The number of client advisors increased by 86 to 4,250, mainly
reflecting an increase in our key strategic growth area Asia Pacific,
partly offset by reductions in Europe.
The number of non-client facing staff increased by 261 to
12,510, mainly due to staff hires for our strategic and regulatory
priorities.
116
2013 compared with 2012
Results
Operating income
Total operating income was CHF 7,563 million compared with CHF
7,041 million in 2012, mainly due to higher recurring net fee in-
come, transaction-based income as well as higher net interest in-
come.
Net interest income increased by CHF 110 million to CHF 2,061
million, mainly due to revenues of CHF 110 million allocated from
the repurchase agreement unit within Group Treasury in Corpo-
rate Center – Core Functions. Previously, such revenues were not
allocated to the business divisions. The increase in net interest in-
come was also due to lower costs related to the multi-currency
portfolio of unencumbered, high-quality, short-term assets man-
aged centrally by Group Treasury. These factors, together with
higher income resulting from increased loan and client deposit
volumes, more than offset the negative effect of a lower deposit
margin resulting from the ongoing low interest rate environment.
Recurring net fee income increased by CHF 258 million to CHF
3,567 million, which primarily resulted from a 10% increase in
average invested assets, the positive effect of pricing measures
and continued growth in discretionary and advisory mandates.
These positive effects were partly offset by the negative effect of
the migration to retrocession-free products for investment man-
dates during 2013, as well as due to ongoing outflows of assets
from cross- border clients.
Transaction-based income increased by CHF 143 million to CHF
1,887 million, mainly in Asia Pacific in the first half of 2013. Over-
all, higher transaction-based income from mandates and invest-
ment funds was partly offset by a decrease related to structured
products as well as from foreign exchange trading.
Other income increased to CHF 57 million from CHF 37 million
and included higher revenues for other services, as well as a gain
of CHF 25 million related to the divestment of our participation in
Euroclear Plc. This was partly offset by impairments of CHF 10
million related to our global property fund compared with gains
of CHF 4 million in 2012.
Operating expenses
Total operating expenses were CHF 5,316 million, an increase of
CHF 682 million from the prior year. Restructuring charges were
CHF 178 million compared with CHF 26 million in 2012. Adjusted
for restructuring charges and the aforementioned credit related to
changes to our pension and retiree benefit plans of CHF 358 mil-
lion, operating expenses increased by CHF 172 million to CHF
5,138 million, mainly as 2013 included a charge in relation to the
Swiss-UK tax agreement of CHF 107 million.
Personnel expenses increased to CHF 3,371 million from CHF
2,865 million. Adjusted for restructuring charges and the credit
related to changes to our pension and retiree benefit plans, per-
sonnel expenses increased by CHF 102 million to CHF 3,300 mil-
lion. This increase included CHF 120 million higher personnel ex-
penses due to the centralization of our operations units and
higher variable compensation expenses, partly offset by lower
personnel expenses related to technology and control functions.
The centralization of our operations units from the business divi-
sions in the Corporate Center in July 2012 and the subsequent
reallocation of the operations units resulted in increased person-
nel expenses and general and administrative expenses, offset by
decreased net charges from other business divisions as Retail &
Corporate previously provided significant services to Wealth Man-
agement, which are now provided by the Corporate Center.
General and administrative expenses increased by CHF 290
million to CHF 1,650 million. This included restructuring charges
of CHF 100 million compared with zero in the prior year. Adjusted
for restructuring charges, general and administrative expenses in-
creased by CHF 190 million, mainly due to the aforementioned
Swiss-UK tax agreement, CHF 36 million higher expenses related
to the aforementioned centralization of operations units as well
as slightly higher marketing and branding expenses.
Charges for services from other business divisions decreased to
CHF 97 million from CHF 243 million, mainly due to CHF 157
million lower allocations following the aforementioned centraliza-
tion of operations units.
Depreciation was CHF 190 million compared with CHF 159
million, largely due to higher amortization of capitalized software,
an impairment of capitalized software and restructuring charges
of CHF 7 million compared with zero in the prior year. Amortiza-
tion of intangible assets was CHF 8 million, a slight increase from
CHF 7 million.
117
Financial and operating performance Financial and operating performance
Wealth Management
Cost / income ratio
The cost / income ratio was 70.2% compared with 65.8% in the
prior year. Adjusted for restructuring charges and the effect from
the credit related to changes to our pension and retiree benefit
plans in 2012, the cost / income ratio improved to 67.8% from
70.5% and was within our target range of 60% to 70%.
Net new money
The net new money growth rate increased to 4.4% from 3.5%
and was near the higher end of our target range of 3% to 5%. All
regions contributed to net inflows of CHF 35.9 billion in 2013. The
strongest net inflows were recorded in Asia Pacific followed by
emerging markets, Switzerland and Europe. Net inflows in the Eu-
ropean onshore and the Swiss-based Global Family Office business
in Europe more than offset net outflows in the European cross-bor-
der business, which was negatively affected by ongoing asset out-
flows in the context of fiscal and regulatory concerns. On a global
basis, net new money from ultra high net worth clients was CHF
33.6 billion compared with CHF 19.9 billion in the prior year.
Invested assets
Invested assets were CHF 886 billion as of 31 December 2013,
representing an increase of CHF 65 billion from 31 December
2012. Net new money inflows of CHF 36 billion and positive mar-
ket performance of CHF 34 billion were slightly offset by negative
currency translation effects of CHF 4 billion.
Gross margin on invested assets
The gross margin on invested assets decreased by 1 basis point to
88 basis points, as the increase in average invested assets out-
paced the increase in revenues. The gross margin was below our
target range of 95 to 105 basis points. The calculation excludes
any effect on profit or loss from a property fund.
Personnel
Wealth Management employed 16,414 personnel as of 31 De-
cember 2013 compared with 16,210 as of 31 December 2012,
mainly reflecting an increase in non-client facing staff.
The number of client advisors increased to 4,164 from 4,128,
primarily in the key strategic growth areas of Asia Pacific and
emerging markets, partly offset by reductions in Switzerland. The
number of client advisors in Europe remained stable. The increase
in non-client facing staff was mainly recorded in Asia Pacific and
emerging markets, in line with the increase in the number of cli-
ent advisors.
118
Wealth Management Americas
Profit before tax was a record USD 981 million in 2014 compared with the prior record of USD 927 million in 2013.
Adjusted for the effects of restructuring in both years as well as a credit in 2014 related to changes to our retiree benefit
plans in the US, profit before tax increased to USD 1,030 million from USD 991 million. The adjusted result reflected an
8% increase in revenues due to higher recurring income and an 8% increase in operating expenses due to higher
financial advisor related compensation and higher charges for provisions for litigation, regulatory and similar matters.
Net new money inflows were USD 10.0 billion compared with USD 19.0 billion in the prior year.
Business division reporting – in US dollars 1
USD million, except where indicated
Net interest income
Recurring net fee income
Transaction-based income
Other income
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
Financial advisor compensation
Compensation commitments with recruited financial advisors 2
Salaries and other personnel costs 3
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 4
Business division operating profit / (loss) before tax
Key performance indicators 5
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%)
Gross margin on invested assets (bps)
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
1,067
4,666
1,825
33
7,590
16
7,606
5,218
2,944
733
1,540
1,204
11
140
52
6,625
981
5.8
87.3
1.0
76
1,014
4,109
1,946
36
7,105
(30)
7,075
4,949
2,708
690
1,551
1,001
14
130
53
6,147
927
45.3
86.5
2.3
79
849
3,427
2,004
32
6,312
(15)
6,297
4,556
2,399
679
1,477
958
(16)
107
55
5,659
638
21.3
89.7
2.9
78
5
14
(6)
(8)
7
8
5
9
6
(1)
20
(21)
8
(2)
8
6
(4)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and sup-
plemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. 3 Compensation commitments with recruited financial advisors represents charges related to com-
pensation commitments granted to financial advisors at the time of recruitment which are subject to vesting requirements. 4 Refer to “Note 32 Changes in organization” in the “Financial information” section of this
report for information on restructuring charges. 5 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators.
119
Financial and operating performance Financial and operating performance
Wealth Management Americas
Business division reporting – in US dollars 1 (continued)
USD million, except where indicated
Additional information
Recurring income
Recurring income as a % of income (%)
Average attributed equity (USD billion) 2
Return on attributed equity (%)
Risk-weighted assets (fully applied, USD billion) 3
Risk-weighted assets (phase-in, USD billion) 3
Return on risk-weighted assets, gross (%) 4
Leverage ratio denominator (phase-in, USD billion) 5
Goodwill and intangible assets (USD billion)
Net new money (USD billion)
Net new money including interest and dividend income (USD billion) 6
Invested assets (USD billion)
Client assets (USD billion)
Loans, gross (USD billion)
Due to customers (USD billion)
Recruitment loans to financial advisors
Other loans to financial advisors
Personnel (full-time equivalents)
Financial advisors (full-time equivalents)
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
5,733
5,122
75.5
2.9
33.8
21.8
22.0
29.2
63.7
3.8
10.0
37.2
1,032
1,087
44.6
73.5
2,925
374
16,134
6,997
72.1
3.0
30.9
27.3
27.5
30.0
64.1
3.8
19.0
44.2
970
1,025
39.1
67.3
3,063
401
16,344
7,137
4,276
67.7
6.6
9.6
25.3
25.6
24.9
3.9
22.1
44.8
843
885
34.1
56.6
3,241
532
16,094
7,059
12
(3)
(20)
(20)
(1)
0
6
6
14
9
(5)
(7)
(1)
(2)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 3 Based on the Basel III framework
as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro- forma basis. Refer to the ”Capital management” section of this report for more information. 4 Based on phase-in
Basel III risk-weighted assets for 2014 and 2013. Based on Basel 2.5 risk-weighted assets for 2012. 5 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance
with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Refer to the ”Capital management”
section of this report for more information. 6 Presented in line with historical reporting practice in the US market.
Business division reporting – in Swiss francs 1
CHF million, except where indicated
Net interest income
Recurring net fee income
Transaction-based income
Other income
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
Financial advisor compensation 2
Compensation commitments with recruited financial advisors 3
Salaries and other personnel costs
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 4
Business division operating profit / (loss) before tax
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
983
4,294
1,678
30
6,984
15
6,998
4,802
2,710
675
1,418
1,109
10
129
48
6,099
900
936
3,796
1,800
33
6,565
(27)
6,538
4,574
2,503
638
1,433
924
13
121
49
5,680
858
792
3,199
1,871
30
5,891
(14)
5,877
4,252
2,239
634
1,379
893
(15)
100
51
5,281
597
5
13
(7)
(9)
6
7
5
8
6
(1)
20
(23)
7
(2)
7
5
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and sup-
plemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. 3 Compensation commitments with recruited financial advisors represents charges related to com-
pensation commitments granted to financial advisors at the time of recruitment which are subject to vesting requirements. 4 Refer to “Note 32 Changes in organization” in the “Financial information” section of this
report for information on restructuring charges.
120
Business division reporting – in Swiss francs 1 (continued)
CHF million, except where indicated
Key performance indicators 2
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%)
Gross margin on invested assets (bps)
Additional information
Recurring income
Recurring income as a % of income (%)
Average attributed equity (CHF billion) 3
Return on attributed equity (%)
Risk-weighted assets (fully applied, CHF billion) 4
Risk-weighted assets (phase-in, CHF billion) 4
Return on risk-weighted assets, gross (%) 5
Leverage ratio denominator (phase-in, CHF billion) 6
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion)
Net new money including interest and dividend income (CHF billion) 7
Invested assets (CHF billion)
Client assets (CHF billion)
Loans, gross (CHF billion)
Due to customers (CHF billion)
Recruitment loans to financial advisors
Other loans to financial advisors
Personnel (full-time equivalents)
Financial advisors (full-time equivalents)
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
4.9
87.3
1.1
76
43.7
86.5
2.3
79
5,276
4,732
75.5
2.7
33.6
21.7
21.9
29.4
63.3
3.7
9.6
35.0
1,027
1,081
44.4
73.1
2,909
372
16,134
6,997
72.1
2.8
30.9
24.3
24.5
30.0
57.2
3.4
17.6
40.8
865
914
34.8
60.0
2,733
358
16,344
7,137
28.9
89.6
2.9
78
3,991
67.7
6.2
9.7
23.2
23.5
25.0
3.5
20.6
41.7
772
810
31.2
51.8
2,967
487
16,094
7,059
(4)
11
(4)
(11)
(11)
11
9
19
18
28
22
6
4
(1)
(2)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators. 3 Refer to the “Capital man-
agement” section of this report for more information on the equity attribution framework. 4 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012
are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 5 Based on phase-in Basel III risk-weighted assets for 2014 and 2013. Based on Basel 2.5 risk-weighted assets
for 2012. 6 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted
exposure at the end of the three months preceding the end of the reporting period. Refer to the ”Capital management” section of this report for more information. 7 Presented in line with historical reporting practice
in the US market.
121
Financial and operating performance Financial and operating performance
Wealth Management Americas
2014 compared with 2013
Results
Operating income
Total operating income increased by USD 531 million to USD
7,606 million due to continued growth in managed account fees
within recurring net fee income and higher net interest income,
partly offset by lower transaction-based income.
Net interest income increased by USD 53 million to USD 1,067
million due to continued growth in loan and deposit balances. The
average mortgage portfolio balance increased 37% and the aver-
age securities-backed lending portfolio balance increased 12%.
Recurring net fee income increased by USD 557 million to USD
4,666 million, mainly due to a 21% increase in managed account
fees reflecting higher invested asset levels.
Transaction-based income decreased by USD 121 million to
USD 1,825 million, mainly due to lower client activity.
Net credit recoveries were USD 16 million compared with net
loss expenses of USD 30 million in the prior year. 2014 included
the full release of a loan loss allowance for a single client as well
as releases of loan loss allowances on securities-backed lending
facilities collateralized by Puerto Rico municipal securities and re-
lated funds. The expenses in the prior year were largely due to
loan loss allowances on securities-backed lending facilities collat-
eralized by Puerto Rico municipal securities and related funds.
➔ Refer to the “Risk management and control” section of this
report for more information on our exposure to Puerto Rico
municipal securities and related funds
Operating expenses
Operating expenses increased by USD 478 million to USD 6,625
million from USD 6,147 million. On an adjusted basis, operating
expenses increased by USD 493 million to USD 6,576 million,
primarily due to USD 236 million higher financial advisor compen-
sation corresponding to higher compensable revenues as well as
USD 141 million higher charges for provisions for litigation, regu-
latory and similar matters.
Adjusted for restructuring charges of USD 25 million and credits
of USD 10 million related to changes to retiree benefit plans in the
US in 2014 as well as restructuring charges of USD 16 million in
2013, personnel expenses increased by USD 270 million to USD
5,203 million, mainly due to USD 236 million higher financial advi-
sor compensation corresponding to higher compensable revenues.
Adjusted for restructuring charges of USD 35 million in 2014
compared with USD 49 million in the prior year, general and ad-
ministrative expenses increased by USD 217 million to USD 1,169
million, mainly due to aforementioned higher charges for provisions
for litigation, regulatory and similar matters and higher Corporate
Center costs.
Cost / income ratio
The cost / income ratio was 87.3% compared with 86.5% in
2013. On an adjusted basis, the cost / income ratio increased to
86.6% from 85.6% and remained within our target range of
80% to 90%.
Net new money
In 2014, the net new money growth rate was 1.0%, which was
below the target range of 2% to 4%, mainly due to net outflows
resulting from financial advisor attrition and lower than expected
inflows from recruited financial advisors. In 2014, net new money
totaled USD 10.0 billion and was predominantly made up of net
inflows from financial advisors employed with UBS for more than
one year. Net new money was USD 19.0 billion in the prior year.
Including interest and dividend income, net new money inflows
were USD 37.2 billion compared with USD 44.2 billion in the prior
year.
Invested assets
Invested assets were USD 1,032 billion as of 31 December 2014,
an increase of USD 62 billion from 31 December 2013, reflecting
positive market performance of USD 52 billion and net new
money inflows of USD 10 billion. During 2014, managed account
assets increased by USD 38 billion to USD 346 billion as of 31 De-
cember 2014, and comprised 34% of invested assets compared
with 32% as of 31 December 2013.
Gross margin on invested assets
The gross margin on invested assets was 76 basis points in 2014,
a decrease of 3 basis points from 79 basis points in 2013, and
remained within our target range of 75 to 85 basis points. This
reflected a 7% increase in income compared with an 11% in-
crease in average invested assets. The gross margin from recurring
income was unchanged from 2013, while the gross margin from
non-recurring income decreased by 3 basis points, primarily due
to lower transaction-based income.
Personnel
As of 31 December 2014, Wealth Management Americas em-
ployed 16,134 personnel, a decrease of 210 from 31 December
2013. Financial advisor headcount decreased by 140 to 6,997
mainly due to attrition of lower-producing advisors. Non-financial
advisor headcount decreased by 70 to 9,137.
122
2013 compared with 2012
Results
Operating income
Total operating income increased to USD 7,075 million from USD
6,297 million in 2012.
Net interest income increased by USD 165 million to USD
1,014 million, primarily due to continued growth in loan and de-
posit balances. The average securities-backed lending portfolio
balance increased 14% and the average mortgage portfolio bal-
ance nearly doubled from 2012. Furthermore, net funding costs
related to the goodwill and intangible assets that arose from the
PaineWebber acquisition are retained in Corporate Center – Core
Functions with effect from 1 January 2013. These increases were
partly offset by lower net interest income from the available-for-
sale portfolio, primarily due to lower average balances.
Recurring net fee income increased by USD 682 million to USD
4,109 million, mainly due to higher managed account fees which
were calculated on higher invested asset levels.
Transaction-based income decreased by USD 58 million to USD
1,946 million, mainly due to trading losses related to the Puerto
Rico municipal market as well as lower income from taxable fixed
income, US municipal bond trading and annuity products partially
offset by higher income from equities and structured products.
Other income increased by USD 4 million to USD 36 million.
Net credit loss expenses were USD 30 million compared with
net credit loss expenses of USD 15 million in the prior year. The
2013 expenses were largely due to loan loss allowances on secu-
rities-backed lending facilities collateralized by Puerto Rico munic-
ipal securities and related funds.
➔ Refer to the “Risk management and control” section of this
report for more information on our exposure to Puerto Rico
municipal securities and related funds
Operating expenses
Operating expenses increased by USD 488 million to USD 6,147
million from USD 5,659 million. On an adjusted basis, operating
expenses increased by USD 421 million mainly due to higher fi-
nancial advisor compensation corresponding to higher compensa-
ble revenues.
Excluding the effects of restructuring in both years as well as a
credit to personnel expenses of USD 2 million related to changes
to our retiree benefit plans in the US in 2012, adjusted personnel
expenses were USD 4,933 million, an increase of USD 379 million
from USD 4,554 million due to a 13% increase in financial advisor
compensation corresponding to higher compensable revenues,
and a 2% increase in expenses for compensation commitments
with recruited financial advisors. Recruitment loans to financial
advisors were USD 3,063 million as of 31 December 2013, a de-
crease of USD 178 million from 31 December 2012. On an ad-
justed basis, salaries and other personnel costs increased 4% due
to higher other variable compensation expenses and USD 20 mil-
lion of costs related to the partial settlement of a previously dis-
continued US defined benefit pension plan.
Adjusted for restructuring charges, general and administrative
expenses decreased by USD 11 million to USD 952 million from
USD 963 million, due to lower charges for provisions for litigation,
regulatory and similar matters, partly offset by increases in alloca-
tion of Corporate Center costs. On an adjusted basis, services
to / from other business divisions increased by USD 30 million
mainly due to lower net charges to the Investment Bank.
Cost / income ratio
The cost / income ratio improved to 86.5% from 89.7% in 2012.
On an adjusted basis, the cost / income ratio improved to 85.6%
from 89.7% and remained within our target range of 80% to
90%.
Net new money
The net new money growth rate was 2.3% compared with 2.9%
in 2012, and was within the target range of 2% to 4%. Net new
money totaled USD 19.0 billion compared with USD 22.1 billion
in the prior year due to lower inflows from financial advisors em-
ployed with UBS for more than one year as well as lower inflows
from net recruiting of financial advisors, partly offset by higher
inflows from the Global Family Office. Including interest and divi-
dend income, net new money inflows were USD 44.2 billion com-
pared with USD 44.8 billion in the prior year.
123
Financial and operating performance Financial and operating performance
Wealth Management Americas
Invested assets
Invested assets were USD 970 billion as of 31 December 2013, an
increase of USD 127 billion from USD 843 billion as of 31 Decem-
ber 2012, reflecting positive market performance of USD 108 bil-
lion and continued strong net new money inflows. During 2013,
managed account assets increased by USD 60 billion to USD 308
billion as of 31 December 2013, and comprised 32% of invested
assets compared with 29% as of 31 December 2012.
Gross margin on invested assets
The gross margin on invested assets was 79 basis points in 2013,
an increase of 1 basis point from 78 basis points in 2012, and re-
mained within our target range of 75 to 85 basis points. This re-
flected a 13% increase in income compared with a 12% increase
in average invested assets. The gross margin from recurring in-
come increased by 4 basis points due to higher managed account
fees and higher net interest income, while the gross margin from
non-recurring income decreased by 3 basis points, primarily due
to lower trading income.
Personnel
As of 31 December 2013, Wealth Management Americas em-
ployed 16,344 personnel, an increase of 250 from 31 December
2012. Financial advisor headcount increased by 78 to 7,137,
mainly reflecting the hiring of experienced financial advisors and
trainees as well as continued low financial advisor attrition. The
number of non-financial advisor employees increased by 172 to
9,207, mainly due to hiring of wealth strategy associates to fur-
ther enhance advice-based wealth management solutions offered
to target client segments.
124
Retail & Corporate
Profit before tax increased to CHF 1,506 million in 2014 from CHF 1,458 million in the prior year. Adjusted for restructur-
ing charges, profit before tax increased by CHF 58 million to CHF 1,570 million, mainly reflecting CHF 73 million lower
adjusted operating expenses. The net new business volume growth rate for retail business increased to 2.3% from 1.9%.
Business division reporting 1
CHF million, except where indicated
Net interest income
Recurring net fee income
Transaction-based income
Other income
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 2
Business division operating profit / (loss) before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Net interest margin (bps)
Net new business volume growth for retail business (%)
Additional information
Average attributed equity (CHF billion) 4
Return on attributed equity (%)
Risk-weighted assets (fully applied, CHF billion) 5
Risk-weighted assets (phase-in, CHF billion) 5
Return on risk-weighted assets, gross (%) 6
Leverage ratio denominator (phase-in, CHF billion) 7
Goodwill and intangible assets (CHF billion)
Business volume for retail business (CHF billion)
Net new business volume for retail business (CHF billion)
Client assets (CHF billion)
Due to customers (CHF billion)
Loans, gross (CHF billion)
Secured loan portfolio as a % of total loan portfolio, gross (%)
Impaired loan portfolio as a % of total loan portfolio, gross (%) 8
Personnel (full-time equivalents)
As of or for the year ended
31.12.14
31.12.13
2,184
556
1,022
75
3,836
(95)
3,741
1,363
859
(126)
139
0
2,235
1,506
3.3
58.3
159
2.3
4.1
36.7
33.1
34.4
11.3
165.9
0.0
143
3.2
434
137.3
137.4
93.1
0.8
9,200
2,144
511
1,034
86
3,774
(18)
3,756
1,442
875
(162)
143
0
2,298
1,458
(20.2)
60.9
156
1.9
4.1
35.6
29.7
31.4
11.7
164.7
0.0
141
2.6
404
133.2
136.5
93.1
0.7
9,463
31.12.12
2,186
512
967
90
3,756
(27)
3,728
1,287
857
(370)
128
0
1,901
1,827
(3.0)
50.6
160
3.3
4.5
40.6
30.2
31.9
13.8
0.0
140
4.5
381
131.1
137.3
91.7
0.7
10,156
% change from
31.12.13
2
9
(1)
(13)
2
428
0
(5)
(2)
(22)
(3)
(3)
3
2
0
11
10
1
1
23
7
3
1
(3)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for information on restructuring charges. 3 Refer to
the “Measurement of performance” section of this report for the definitions of our key performance indicators. 4 Refer to the “Capital management” section of this report for more information on the equity attribution
framework. 5 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this
report for more information. 6 Based on phase-in Basel III risk-weighted assets for 2014 and 2013. Based on Basel 2.5 risk-weighted assets for 2012. 7 The leverage ratio denominator is also referred to as “total
adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the report-
ing period. Refer to the ”Capital management” section of this report for more information. 8 Refer to the “Risk management and control” section of this report for more information on impairment ratios.
125
Financial and operating performance Financial and operating performance
Retail & Corporate
2014 compared with 2013
Results
Operating income
Total operating income decreased by CHF 15 million to CHF 3,741
million, reflecting increased credit loss expenses, largely offset by
higher recurring net fee income and increased net interest in-
come.
Net interest income increased by CHF 40 million to CHF 2,184
million, mainly due to higher revenues allocated from Group Trea-
sury and a higher loan margin. This was partly offset by a decline
in the deposit margin, despite selective pricing measures, as the
persistently low interest rate environment continued to have an
adverse effect on our replication portfolios.
Recurring net fee income increased by CHF 45 million to CHF
556 million, mainly as certain fees related to retail bank accounts
were recorded as recurring net fee income in 2014, totaling CHF
58 million in 2014, while these fees were recorded as transac-
tion-based income in 2013.
Transaction-based income decreased by CHF 12 million to CHF
1,022 million, mainly reflecting the aforementioned change in
classification of certain fees related to retail bank accounts. This
was partly offset by first-time fees received from Wealth Manage-
ment for net client shifts and referrals.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on the
implementation of a remuneration framework for net client
shifts and referrals between Retail & Corporate and Wealth
Management
Other income decreased by CHF 11 million to CHF 75 million,
mainly as 2013 included a CHF 27 million gain related to the di-
vestment of our participation in Euroclear Plc., partly offset by
higher income from our participation in the SIX Group in 2014.
Net credit loss expenses were CHF 95 million in 2014 com-
pared with CHF 18 million in the prior year. 2014 included net
specific credit loss allowances of CHF 105 million compared with
CHF 113 million in the prior year, which was primarily related to
corporate clients in both periods. In addition, 2014 included a
release of CHF 10 million in collective loan loss allowances
compared with a release of CHF 95 million in 2013, which partly
reflected the overall improved outlook for relevant industries. The
remaining balance of the collective loan loss allowances amounted
to CHF 5 million as of 31 December 2014.
➔ Refer to “Note 12 Allowances and provisions for credit losses”
in the “Financial information” section of this report for more
information
➔ Refer to the "Current market climate and industry drivers"
section of this report for more information on the impact of
Swiss National Bank actions in January 2015
Operating expenses
Operating expenses decreased by CHF 63 million to CHF 2,235
million. Adjusted for restructuring charges of CHF 64 million in
2014 and CHF 54 million in the prior year, operating expenses
decreased by CHF 73 million to CHF 2,171 million, reflecting
lower personnel expenses as well as reduced general and admin-
istrative expenses, partly offset by lower net charges to other busi-
ness divisions. Changes to allocations of Corporate Center costs
in 2014 had the effect of decreasing personnel as well as general
and administrative expenses and, to a lesser extent, depreciation
and impairment of property and equipment by a total of approxi-
mately CHF 40 million, which was offset by lower net charges to
other business divisions.
Personnel expenses decreased by CHF 79 million to CHF 1,363
million. Adjusted for restructuring charges of CHF 29 million com-
pared with CHF 19 million in the prior year, personnel expenses
decreased by CHF 89 million to CHF 1,334 million, partly reflect-
ing our outsourcing initiatives, which led to reduced personnel
expenses but higher general and administrative expenses. Fur-
thermore, personnel expenses decreased due to lower pension-re-
lated expenses and personnel-related technology expenses as well
as the aforementioned changes to allocations of Corporate Cen-
ter costs in 2014.
General and administrative expenses decreased by CHF 16 mil-
lion to CHF 859 million, mainly due to lower marketing expenses,
which included a one-time reversal of an accrual, lower expenses
for real estate and the aforementioned changes to allocations of
Corporate Center costs. This was partly offset by higher profes-
sional fees.
Net charges for services to other business divisions decreased
by CHF 36 million to CHF 126 million, mainly as a result of
the aforementioned changes to allocations of Corporate Center
costs.
126
Cost / income ratio
The cost / income ratio was 58.3% compared with 60.9% in the
prior year. On an adjusted basis excluding restructuring charges,
the cost / income ratio was 56.6% compared with 59.5% in the
prior year and remained within our target range of 50% to 60%.
Net interest margin
The net interest margin increased 3 basis points to 159 basis
points, reflecting the aforementioned increase in net interest in-
come partly offset by a slightly higher average loan volume. The
net interest margin remained within the target range of 140 to
180 basis points.
Net new business volume growth for retail business
The growth rate for net new business volume for our retail busi-
ness was 2.3% compared with 1.9% in 2013 and remained
within the target range of 1% to 4%. In the retail business, both
net new client assets and, to a lesser extent, net new loans were
positive. The slight increase in loans reflected our strategy to grow
our business in high-quality loans moderately and selectively.
Personnel
Retail & Corporate employed 9,200 personnel as of 31 December
2014, a decrease of 263 compared with 9,463 as of 31 Decem-
ber 2013, mainly reflecting our ongoing cost reduction programs
as well as changes to allocations of centralized shared services
units’ personnel, which led to a decrease of approximately 140
personnel.
127
Financial and operating performance Financial and operating performance
Retail & Corporate
2013 compared with 2012
Results
Operating income
Total operating income increased by CHF 28 million to CHF 3,756
million.
Net interest income was CHF 2,144 million compared with
CHF 2,186 million. The ongoing low interest rate environment
continued to adversely affect the deposit margin. The resulting
lower interest income was partly offset by pricing adjustments
and substantial growth in average deposit volumes. Interest in-
come from loans increased, reflecting slightly higher average vol-
ume and an improved margin. Furthermore, costs related to the
multi-currency portfolio of unencumbered, high-quality, short-
term assets managed centrally by Group Treasury decreased.
Recurring net fee income was CHF 511 million, almost un-
changed from CHF 512 million. Transaction-based income in-
creased by CHF 67 million to CHF 1,034 million, mainly reflecting
higher treasury-related income as well as higher client activity lev-
els in 2013.
Other income was CHF 86 million, broadly unchanged from
CHF 90 million in the prior year, and included a CHF 27 million
gain related to the divestment of our participation in Euroclear
Plc., almost entirely offset by lower income related to our partici-
pation in the SIX Group.
Credit loss expenses were CHF 18 million in 2013 compared
with CHF 27 million in the prior year. 2013 included net specific
loan loss allowances of CHF 113 million, reflecting a number of
new workout cases that were individually reviewed, downgraded
and impaired as well as adjustments on existing positions. This
was largely offset by a net release of CHF 95 million of collective
loan loss allowances based on the ongoing review of the portfo-
lio, as well as the overall improved outlook for relevant industries.
The prior year included net specific loan loss allowances of CHF
43 million, partly offset by a net decrease in collective loan loss
allowances of CHF 16 million. The remaining balance of the col-
lective loan loss allowances amounted to CHF 15 million as of
31 December 2013.
Operating expenses
Operating expenses increased to CHF 2,298 million from CHF
1,901 million, mainly as 2012 included a credit to personnel ex-
penses of CHF 287 million related to changes to our Swiss pen-
sion plan. Adjusted for this and restructuring charges of CHF 54
million in 2013 and CHF 3 million in the prior year, operating ex-
penses increased by CHF 59 million to CHF 2,244 million, mainly
as a result of CHF 45 million higher charges for provisions for liti-
gation, regulatory and similar matters.
Personnel expenses increased by CHF 155 million to CHF 1,442
million, due to the aforementioned credit in 2012 related to
changes to our Swiss pension plan. Adjusted for this item and
restructuring charges, personnel expenses decreased by CHF 148
million to CHF 1,423 million, mainly due to the centralization of
operations units in Corporate Center in July 2012. This centraliza-
tion and subsequent reallocation of the operations units had the
effect of reducing personnel expenses as well as general and ad-
ministrative expenses, and decreasing net charges to other busi-
ness divisions. Moreover, personnel expenses decreased as 2013
included a credit from the release of accruals for untaken vacation
compared with a charge in 2012 when accruals for untaken vaca-
tion were increased. These decreases were partly offset by higher
variable compensation expenses.
General and administrative expenses were CHF 875 million
compared with CHF 857 million in 2012. Adjusted for restructur-
ing charges, general and administrative expenses decreased by
CHF 15 million to CHF 842 million, reflecting the abovementioned
centralization of operations units. This was partly offset by CHF 45
million higher net charges for provisions for litigation, regulatory
and similar matters. Moreover, costs rose as a result of increased
expenses related to the refurbishment of our branch network and
our multi-channel offering, as well as due to higher marketing
expenses.
Net charges to other business divisions were CHF 162 million,
a decrease from CHF 370 million in the prior year, primarily as a
result of the abovementioned centralization of operations units in
2012.
Depreciation was CHF 143 million, an increase of CHF 15 mil-
lion from the prior year, reflecting higher software depreciation
expenses.
Cost / income ratio
The cost / income ratio was 60.9% compared with 50.6% in the
prior year. On an adjusted basis excluding the credit related to
changes to our Swiss pension plan in 2012 as well as restructuring
charges, the cost / income ratio was 59.5% compared with 58.2%
in the prior year and was within our target range of 50% to 60%.
128
Net interest margin
The net interest margin decreased 4 basis points to 156 basis
points, reflecting the aforementioned reduction in net interest in-
come on a slightly higher average loan volume. The net interest
margin remained within the target range of 140 to 180 basis
points.
Net new business volume growth for retail business
The net new business volume growth rate in our retail business
was 1.9% compared with 3.3% in 2012 and remained within the
target range of 1% to 4%. In the retail business, both net new
client assets and, to a lesser extent, net new loans were again
positive. The slight increase in loans reflected our strategy to grow
our business in high-quality loans moderately and selectively.
Personnel
Retail & Corporate employed 9,463 personnel as of 31 December
2013, a decrease of 693 compared with 10,156 as of 31 Decem-
ber 2012, mainly reflecting changes to allocations of Corporate
Center shared services units’ personnel, which led to a decrease
of approximately 500 personnel.
129
Financial and operating performance Financial and operating performance
Global Asset Management
Global Asset Management
Profit before tax was CHF 467 million in 2014 compared with CHF 576 million in 2013. Adjusted for restructuring charges
in both years, a gain on the sale of our Canadian domestic business in 2013, and credits related to changes to retiree
benefit plans in the US in 2014, profit before tax was CHF 509 million compared with CHF 585 million in the prior year.
This decrease was mainly due to charges for provisions for litigation, regulatory and similar matters of CHF 55 million.
Excluding money market flows, net new money inflows were CHF 22.6 billion compared with net outflows of CHF 4.8
billion in the prior year.
Business division reporting 1
CHF million, except where indicated
Net management fees 2
Performance fees
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 3
Business division operating profit / (loss) before tax
Key performance indicators 4
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth excluding money market flows (%)
Gross margin on invested assets (bps)
Information by business line
Operating Income
Traditional investments
O’Connor and A&Q
Global real estate
Infrastructure and private equity
Fund services
Total operating income
Gross margin on invested assets (bps)
Traditional investments
O’Connor and A&Q
Global real estate
Infrastructure and private equity
Total gross margin
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
1,756
146
1,902
887
516
(20)
43
9
1,435
467
(18.9)
75.4
4.4
31
1,118
210
353
42
178
1,902
21
66
84
49
31
1,739
196
1,935
873
448
(17)
47
8
1,359
576
1.2
70.2
(1.0)
33
1,144
266
317
38
171
1,935
22
95
76
48
33
1,721
162
1,883
885
395
(10)
37
8
1,314
569
32.3
69.8
(1.2)
33
1,119
268
293
35
169
1,883
23
91
74
44
33
1
(26)
(2)
2
15
18
(9)
13
6
(19)
(6)
(2)
(21)
11
11
4
(2)
(5)
(31)
11
2
(6)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 Net management fees include transaction fees, fund administration revenues (including net interest and trading income from lending activities and for-
eign exchange hedging as part of the fund services offering), gains or losses from seed money and co-investments, funding costs and other items that are not performance fees. In addition, in 2013 net management fees
included a gain on disposal of CHF 34 million from the divestment of our Canadian domestic business. 3 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for information
on restructuring charges. 4 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators. In the second quarter of 2014, the definition of the net new money
growth key performance indicator was amended. Refer to the “Regulatory and legal developments and financial reporting changes” section of our second quarter report for more information.
130
Business division reporting 1 (continued)
CHF million, except where indicated
Net new money (CHF billion)
Traditional investments
O’Connor and A&Q
Global real estate
Infrastructure and private equity
Total net new money
Net new money excluding money market flows
of which: from third parties
of which: from UBS’s wealth management businesses
Money market flows
of which: from third parties
of which: from UBS’s wealth management businesses
Invested assets (CHF billion)
Traditional investments
O’Connor and A&Q
Global real estate
Infrastructure and private equity
Total invested assets
of which: excluding money market funds
of which: money market funds
Assets under administration by fund services
Assets under administration (CHF billion) 2
Net new assets under administration (CHF billion) 3
Gross margin on assets under administration (bps)
Additional information
Average attributed equity (CHF billion) 4
Return on attributed equity (%)
Risk-weighted assets (fully applied, CHF billion) 5
Risk-weighted assets (phase-in, CHF billion) 5
Return on risk-weighted assets, gross (%) 6
Leverage ratio denominator (phase-in, CHF billion) 7
Goodwill and intangible assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
10.7
3.3
2.3
(0.5)
15.9
22.6
11.3
11.3
(6.7)
0.0
(6.7)
574
35
46
9
664
600
64
520
43.9
4
1.7
27.5
3.8
3.9
51.2
14.9
1.5
(18.5)
(2.5)
1.2
0.0
(19.9)
(4.8)
0.7
(5.5)
(15.1)
(1.5)
(13.6)
506
27
42
8
583
518
65
432
3.8
4
1.8
32.0
3.7
3.8
51.1
14.0
1.4
3,817
3,729
(11.6)
(2.7)
1.3
(0.2)
(13.3)
(5.9)
(0.6)
(5.2)
(7.4)
0.9
(8.3)
504
28
40
8
581
497
83
410
7.7
4
2.2
25.9
3.6
3.7
54.4
1.5
3,781
13
30
10
13
14
16
(2)
20
0
(6)
3
3
6
7
2
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards or changes in accounting policies. 2 This includes UBS and third-party fund assets, for which the fund services unit provides professional services, including fund set-up, accounting and re-
porting for traditional investment funds and alternative funds. 3 Inflows of assets under administration from new and existing funds less outflows from existing funds or fund exits. 4 Refer to the “Capital manage-
ment” section of this report for more information on the equity attribution framework. 5 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are
on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 6 Based on phase-in Basel III risk-weighted assets for 2014 and 2013. Based on Basel 2.5 risk-weighted assets
for 2012. 7 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted
exposure at the end of the three months preceding the end of the reporting period. Refer to the ”Capital management” section of this report for more information.
131
Financial and operating performance Financial and operating performance
Global Asset Management
2014 compared with 2013
Results
Operating income
Total operating income was CHF 1,902 million compared with
CHF 1,935 million in 2013. Performance fees were CHF 50 million
lower at CHF 146 million compared with CHF 196 million, mainly
in the O’Connor and A&Q business line. This was partly offset by
higher net management fees, which increased to CHF 1,756 mil-
lion from CHF 1,739 million in 2013. Net management fees in
2013 included a gain of CHF 34 million on the sale of our Cana-
dian domestic business. Excluding this gain in 2013, net manage-
ment fees were CHF 51 million higher in 2014, primarily in global
real estate and traditional investments.
Operating expenses
Total operating expenses were CHF 1,435 million in 2014 com-
pared with CHF 1,359 million in 2013. Adjusted for restructuring
charges of CHF 50 million in 2014 and CHF 43 million in 2013, as
well as credits of CHF 8 million in 2014 related to changes to re-
tiree benefit plans in the US, operating expenses were CHF 77
million higher at CHF 1,393 million compared with CHF 1,316
million. The increase was mainly due to charges for provisions for
litigation, regulatory and similar matters of CHF 55 million com-
pared with zero in 2013.
Personnel expenses were CHF 887 million compared with CHF
873 million. Adjusted for restructuring charges of CHF 37 million
compared with CHF 10 million and the abovementioned credits
related to retiree benefit plans in the US in 2014, personnel
expenses were CHF 5 million lower at CHF 858 million compared
with CHF 863 million.
General and administrative expenses were CHF 516 million
compared with CHF 448 million. Adjusted for restructuring
charges of CHF 11 million in 2014 and CHF 26 million in 2013,
general and administrative expenses were CHF 83 million higher
at CHF 505 million compared with CHF 422 million. The increase
was mainly due to the abovementioned charges for provisions for
litigation, regulatory and similar matters, a CHF 14 million provi-
sion for a possible settlement related to a fund liquidation and
higher professional fees.
Cost / income ratio
The cost / income ratio was 75.4% compared with 70.2% in the
prior year. Adjusted for the abovementioned restructuring
charges, the gain on sale of our Canadian domestic business, and
the credits related to changes to retiree benefit plans in the US,
the cost / income ratio was 73.2% compared with 69.2% and was
above our target range of 60% to 70%.
Net new money
The net new money growth rate, excluding money market flows,
was within the target range of 3% to 5% at positive 4.4% com-
pared with negative 1.0% in the prior year.
Excluding money market flows, net new money inflows were
CHF 22.6 billion compared with net new money outflows of CHF
4.8 billion. By channel, net inflows from third parties were CHF
11.3 billion compared with CHF 0.7 billion in 2013. Net inflows
were mainly from clients serviced from Switzerland, Asia Pacific
and Europe. Net new money inflows from clients of UBS’s wealth
management businesses were CHF 11.3 billion compared with
net outflows of CHF 5.5 billion in the prior year. This improvement
mainly resulted from better matching of available and attractive
Global Asset Management products to wealth management cli-
ents’ changing needs. The net inflows were mainly from clients
serviced from Asia Pacific and Europe.
Money market net outflows were CHF 6.7 billion compared
with CHF 15.1 billion. By channel, net flows from third parties
were zero compared with net outflows of CHF 1.5 billion in the
prior year. Net inflows in Asia Pacific and Switzerland were offset
by net outflows in the Americas and Europe. Net outflows from
clients of UBS’s wealth management businesses were CHF 6.7 bil-
lion compared with CHF 13.6 billion in the prior year. In both
years, net outflows were primarily due to an ongoing initiative by
Wealth Management Americas to increase deposit account bal-
ances in UBS banking entities. This led to outflows of CHF 3.9
billion from money market funds managed by Global Asset Man-
agement in 2014 and CHF 8.3 billion in 2013. The corresponding
increase in deposit account balances in Wealth Management
Americas does not constitute net new money.
Invested assets
Invested assets were CHF 664 billion as of 31 December 2014
compared with CHF 583 billion as of 31 December 2013. Positive
currency translation effects of CHF 36 billion, favorable market
performance of CHF 30 billion, and net new money inflows of
CHF 16 billion all contributed to the overall increase of CHF 81
billion.
As of 31 December 2014, CHF 209 billion, or 31%, of invested
assets were managed in indexed strategies and CHF 64 billion, or
10%, of invested assets were money market assets. The remain-
ing 59% of invested assets were managed in active, non-money
market strategies. On a regional basis, 32% of invested assets
related to clients serviced from Switzerland, 24% from Europe,
Middle East and Africa, 23% from the Americas, and 21% from
Asia Pacific.
Gross margin on invested assets
The gross margin was 31 basis points compared with 33 basis
points in 2013, and below our target range of 32 to 38 basis
points. This decrease was mainly due to lower performance fees,
changes in the asset mix, and as 2013 included the aforemen-
tioned gain on sale of our Canadian domestic business.
132
Results by business line
Traditional investments
Operating income was CHF 1,118 million compared with CHF
1,144 million in 2013. Excluding the abovementioned gain on
sale of our Canadian domestic business in 2013, net manage-
ment fees were CHF 14 million higher than in the prior year. Per-
formance fees were CHF 6 million lower.
The gross margin was 21 basis points compared with 22 basis
points, due to changes in the asset mix and 2013 having included
the aforementioned gain on sale of our Canadian domestic busi-
ness.
Net new money inflows were CHF 10.7 billion compared with
net outflows of CHF 18.5 billion in the prior year. Excluding money
market flows, net new money inflows were CHF 17.4 billion com-
pared with net outflows of CHF 3.5 billion. The improvement was
seen across all asset classes and in flows from both third party
clients and clients of UBS’s wealth management businesses. Equi-
ties net inflows, notably to indexed strategies, were CHF 9.2 bil-
lion compared with CHF 2.6 billion. Fixed income net inflows
were CHF 4.6 billion compared with net outflows of CHF 6.0 bil-
lion. Multi-asset net inflows (which included flows related to al-
ternative investments not managed by the O’Connor and A&Q,
global real estate or infrastructure and private equity investment
areas) were CHF 3.6 billion compared with net outflows of CHF
0.1 billion.
Invested assets were CHF 574 billion as of 31 December 2014
compared with CHF 506 billion as of 31 December 2013. By man-
date type, CHF 235 billion of invested assets related to equities,
CHF 154 billion to fixed income, CHF 64 billion to money markets
and CHF 121 billion to multi-asset mandates (including CHF 6
billion of alternative investments not managed by the O’Connor
and A&Q, global real estate or infrastructure and private equity
investment areas).
O’Connor and A&Q
Operating income was CHF 210 million compared with CHF 266
million in 2013 due to lower performance fees in both O'Connor
single-manager funds and A&Q multi-manager funds as well as
slightly lower net management fees. The gross margin decreased
to 66 basis points from 95 basis points due to lower performance
fees. Net new money inflows were CHF 3.3 billion compared with
net outflows of CHF 2.5 billion in the prior year. Net inflows were
mainly to A&Q’s multi-manager funds from clients of UBS’s wealth
management businesses. Invested assets were CHF 35 billion as of
31 December 2014 compared with CHF 27 billion as of 31 De-
cember 2013.
Global real estate
Operating income was CHF 353 million compared with CHF 317
million in 2013, due to higher net management fees, including
higher transaction fees, as well as higher performance fees. The
gross margin increased to 84 basis points compared with 76 basis
points due to the higher performance and transaction fees. Net
new money inflows were CHF 2.3 billion compared with CHF 1.2
billion in 2013. Invested assets were CHF 46 billion as of 31 De-
cember 2014 compared with CHF 42 billion as of 31 December
2013.
Infrastructure and private equity
Operating income was CHF 42 million compared with CHF 38
million in 2013, with the increase mainly reflecting higher net
management fees. The gross margin was 49 basis points com-
pared with 48 basis points. Net new money outflows were CHF
0.5 billion compared with zero in the prior year. Invested assets
were CHF 9 billion as of 31 December 2014 compared with CHF
8 billion as of 31 December 2013.
Fund services
Operating income was CHF 178 million compared with CHF 171
million in 2013, due to higher administration fees resulting from
higher average assets under administration. The gross margin on
assets under administration was 4 basis points, in line with the
prior year. Net new assets under administration inflows were CHF
43.9 billion compared with CHF 3.8 billion in the prior year. Total
assets under administration increased to CHF 520 billion as of
31 December 2014 from CHF 432 billion as of 31 December
2013, mainly due to net new assets under administration, favor-
able market performance of CHF 25 billion and positive currency
translation effects of CHF 20 billion.
133
Financial and operating performance Financial and operating performance
Global Asset Management
Personnel
Global Asset Management employed 3,817 personnel as of
31 December 2014 compared with 3,729 as of 31 December
2013. The net increase of 88 personnel primarily reflected in-
creases in traditional investments and fund services, partly offset
by decreases in personnel allocated from Corporate Center units.
Investment performance
Although it was another challenging year for active managers in
general, our active equity funds maintained their strong rankings
versus peers over one year and longer-term. Strongly-performing
strategies versus benchmark for 2014 included US equity, pan Eu-
ropean concentrated alpha equity, emerging markets and Asia
equity. Our core global equity strategy underperformed versus
benchmark for the year mainly due to stock selection in US en-
ergy, and indeed our global ex-US equity strategy outperformed.
Indexed strategies met their objectives in 2014 by closely tracking
benchmarks.
In fixed income, developed market bond strategies had a
mixed year with some outperforming and some underperforming
their benchmarks. Yields across developed sovereign markets de-
clined sharply, interest rates reached unprecedented low levels in
many segments and our defensive duration positioning in some
strategies detracted. Emerging market debt strategies underper-
formed as overweights to Venezuelan and Russian US dollar-
denominated bonds were a drag on performance. Overall, fixed
income fund peer rankings remained strong longer-term. Liquidity
and money market funds continued to achieve their capital pres-
ervation objectives.
In global investment solutions, absolute return strategies had a
positive year and income focused strategies also performed well.
Benchmark-relative strategies had a mixed year with a wide range
of relative returns as asset allocation effects were mixed and stock
selection generally detracted. Currency positioning was also a de-
tractor for the year. Multi-asset fund peer rankings remained
strong longer-term. Global convertible strategies were modestly
behind their benchmarks for the year but, longer-term, retained
good peer rankings.
O’Connor’s flagship multi-strategy hedge fund performed in
line with its multi-strategy peers and was ahead of the broad
hedge fund average. In a strong year for A&Q, core multi-man-
ager hedge funds delivered positive absolute returns and finished
the year ahead of peer indices, in some cases significantly ahead.
Global real estate’s US, Swiss, German and UK direct invest-
ment strategies, Japanese J-REIT and multi-manager strategies
delivered strong positive absolute returns – in most cases dou-
ble-digit – for the year. Pan-European direct funds produced more
mixed results. The Swiss real estate securities composite was
slightly negative versus benchmark but generated strong positive
absolute returns for the year.
In infrastructure and private equity, the direct infrastructure eq-
uity portfolio delivered consistent cash distributions in line with its
investment objectives. Longer-term total returns faced downward
pressure from the sustained low interest rate environment, which
impacted returns in regulated core infrastructure investments.
From private equity portfolios, it was another year of very high
distributions and strong performance. Infrastructure multi-man-
ager portfolios continued to be built out, with investors benefit-
ing from increased distributions from portfolio companies.
134
2013 compared with 2012
Results
Operating income
Total operating income was CHF 1,935 million compared with
CHF 1,883 million in 2012. Performance fees were higher at CHF
196 million compared with CHF 162 million, mainly due to strong
investment performance in O’Connor and A&Q. Net manage-
ment fees included a gain of CHF 34 million on the sale of our
Canadian domestic business. Excluding this gain, net manage-
ment fees were CHF 16 million lower, as lower fees in O’Connor
and A&Q more than offset higher fees in global real estate.
Operating expenses
Total operating expenses were CHF 1,359 million in 2013 com-
pared with CHF 1,314 million in 2012. Adjusted for restructuring
charges of CHF 43 million in 2013 and CHF 20 million in 2012, as
well as credits of CHF 30 million and CHF 16 million in 2012 re-
lated to changes to our Swiss pension plan and our retiree benefit
plans in the US, respectively, operating expenses were lower at
CHF 1,316 million compared with CHF 1,340 million.
Personnel expenses were CHF 873 million compared with CHF
885 million. Adjusted for restructuring charges and the above-
mentioned credits related to our Swiss pension plan and US re-
tiree benefit plans, personnel expenses were lower at CHF 863
million compared with CHF 911 million, mainly due to lower vari-
able compensation expenses.
General and administrative expenses were CHF 448 million in
2013 compared with CHF 395 million. Adjusted for restructuring
charges of CHF 26 million in 2013, general and administrative
expenses were CHF 422 million compared with CHF 395 million.
This increase was mainly due to higher professional fees, higher
ETF-related index licensing fees, and higher fund promotion activ-
ity. Restructuring charges in 2013 included CHF 19 million real
estate-related provisions for onerous lease contracts as we ratio-
nalized our office space in some principal locations.
Cost / income ratio
The cost / income ratio was 70.2% compared with 69.8% in the
prior year. Adjusted for restructuring charges, the gain on sale of
our Canadian domestic business and credits related to our Swiss
pension plan and US retiree benefit plans, the cost / income ratio
improved to 69.2% from 71.2% and was within our target range
of 60% to 70%.
Net new money
The net new money growth rate, excluding money market flows,
was negative 1.0% compared with negative 1.2%. Our target net
new money growth rate range is 3% to 5%.
Excluding money market flows, net new money outflows were
CHF 4.8 billion compared with CHF 5.9 billion. By channel, net
inflows from third parties were CHF 0.7 billion compared with net
outflows of CHF 0.6 billion in 2012. Net inflows, notably from
clients serviced from Europe, Middle East and Africa and from
Switzerland, were partly offset by net outflows from clients ser-
viced from the Americas. Net new money outflows from clients of
UBS’s wealth management businesses were CHF 5.5 billion com-
pared with CHF 5.2 billion in the prior year. Net outflows, mainly
from clients serviced from Switzerland, were partly offset by net
inflows from clients serviced from the Americas.
Money market net outflows were CHF 15.1 billion compared
with CHF 7.4 billion. By channel, net outflows from third parties
were CHF 1.5 billion compared with net inflows of CHF 0.9 billion
in the prior year and were mainly from clients serviced from the
Americas. Money market net outflows from clients of UBS’s
wealth management businesses were CHF 13.6 billion compared
with CHF 8.3 billion in the prior year. In both years, net outflows
were primarily due to an ongoing initiative by Wealth Manage-
ment Americas to increase deposit account balances in UBS bank-
ing entities. This led to CHF 8.3 billion in outflows from money
market funds managed by Global Asset Management in 2013
and CHF 6.2 billion in 2012. The corresponding increase in de-
posit account balances in Wealth Management Americas does
not constitute net new money.
Depreciation and impairment of property and equipment in-
creased to CHF 47 million from CHF 37 million in the prior year,
primarily due to asset impairments related to the abovementioned
office space rationalization and higher depreciation of software
and information technology equipment.
Invested assets
Invested assets were CHF 583 billion as of 31 December 2013
compared with CHF 581 billion as of 31 December 2012. Net new
money outflows, combined with negative currency translation ef-
fects of CHF 15 billion and a reduction of CHF 7 billion related to
135
Financial and operating performance Financial and operating performance
Global Asset Management
the aforementioned sale of our Canadian domestic business,
were more than offset by positive market performance of CHF 44
billion.
As of 31 December 2013, CHF 166 billion, or 28%, of invested
assets were managed in indexed strategies and CHF 65 billion, or
11%, of invested assets were money market assets. The remain-
ing 61% of invested assets were managed in active, non-money
market strategies. On a regional basis, 34% of invested assets
related to clients serviced from Switzerland, 24% from the Amer-
icas, 22% from Europe, Middle East and Africa and 20% from
Asia Pacific.
Gross margin on invested assets
The gross margin of 33 basis points was in line with 2012 and
within our target range of 32 to 38 basis points.
Results by business line
Traditional investments
Operating income was CHF 1,144 million compared with CHF
1,119 million in 2012. Excluding the abovementioned gain on
sale of our Canadian domestic business, net management fees
were in line with the prior year, while performance fees were
lower.
The gross margin was 22 basis points compared with 23 basis
points, reflecting lower performance fees.
Net new money outflows were CHF 18.5 billion compared
with CHF 11.6 billion in the prior year. Excluding money market
flows, net new money outflows were CHF 3.5 billion compared
with CHF 4.3 billion. Equities net inflows, notably to indexed
strategies, were CHF 2.6 billion compared with net outflows of
CHF 1.3 billion. Fixed income net outflows were CHF 6.0 billion
compared with net inflows of CHF 2.4 billion. Multi-asset net out-
flows (which included flows related to alternative investments not
managed by the O’Connor and A&Q, global real estate or infra-
structure and private equity investment areas) were CHF 0.1 bil-
lion compared with CHF 5.4 billion.
Invested assets were CHF 506 billion as of 31 December 2013
compared with CHF 504 billion as of 31 December 2012. By man-
date type, CHF 196 billion of invested assets related to equities,
CHF 135 billion to fixed income, CHF 65 billion to money markets
and CHF 109 billion to multi-asset mandates (including CHF 5
billion of alternative investments not managed by the O’Connor
and A&Q, global real estate or infrastructure and private equity
investment areas).
hedge funds business. The two businesses continue to be re-
ported together as O’Connor and A&Q.
Operating income was CHF 266 million compared with CHF
268 million in the prior year. Higher performance fees as a result
of strong investment performance, in both A&Q multi-manager
funds and O’Connor single-manager funds, were offset by lower
net management fees as a result of net new money outflows.
The gross margin increased to 95 basis points from 91 basis
points due to higher performance fees.
Net new money outflows were CHF 2.5 billion compared with
CHF 2.7 billion in the prior year.
Invested assets were CHF 27 billion as of 31 December 2013
compared with CHF 28 billion as of 31 December 2012.
Global real estate
Operating income was CHF 317 million compared with CHF 293
million, due to higher net management and performance fees.
The gross margin increased to 76 basis points compared with 74
basis points in 2012, due to higher operating income. Net new
money inflows were CHF 1.2 billion compared with CHF 1.3 bil-
lion in 2012. Invested assets were CHF 42 billion as of 31 Decem-
ber 2013 compared with CHF 40 billion as of 31 December 2012.
Infrastructure and private equity
Operating income was CHF 38 million compared with CHF 35
million, with the increase reflecting higher net management fees.
The gross margin was 48 basis points compared with 44 basis
points. Net new money flows were zero compared with net out-
flows of CHF 0.2 billion in the prior year. Invested assets were CHF
8 billion as of 31 December 2013, in line with the prior year-end.
Fund services
Operating income was CHF 171 million compared with CHF 169
million, due to higher administration fees resulting from higher
average assets under administration. The gross margin on assets
under administration was 4 basis points, in line with the prior
year. Net new assets under administration inflows were CHF 3.8
billion compared with CHF 7.7 billion in the prior year. Total assets
under administration increased to CHF 432 billion as of 31 De-
cember 2013 from CHF 410 billion as of 31 December 2012,
mainly due to positive market performance and net new assets
under administration inflows.
Personnel
O’Connor and A&Q
During 2013, the management of the former alternative and
quantitative investments business line was split into its two con-
stituent parts – O’Connor, the single-manager hedge funds busi-
ness, and A&Q hedge fund solutions (A&Q), the multi-manager
Global Asset Management employed 3,729 personnel as of
31 December 2013 compared with 3,781 as of 31 December
2012, a net decrease of 52 personnel. The decrease was primarily
due to cost reduction programs in Corporate Center units, and a
net reduction in O’Connor and A&Q, partly offset by headcount
increases in fund services and global real estate.
136
Investment Bank
The Investment Bank recorded a loss before tax of CHF 47 million in 2014 compared with a profit of CHF 2,300 million in
2013. On an adjusted basis, the Investment Bank recorded a profit before tax of CHF 199 million compared with CHF
2,455 million, mainly due to CHF 1,846 million higher charges for provisions for litigation, regulatory and similar matters
and lower revenues in Investor Client Services, partly offset by higher Corporate Client Solutions revenues. Fully applied
risk-weighted assets increased by CHF 4 billion to CHF 67 billion as of 31 December 2014.
Business division reporting 1
CHF million, except where indicated
Corporate Client Solutions
Advisory
Equity Capital Markets
Debt Capital Markets
Financing Solutions
Risk Management
Investor Client Services
Equities
Foreign Exchange, Rates and Credit
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 2
Business division operating profit / (loss) before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Return on attributed equity (%)
Return on assets, gross (%) 4
Average VaR (1-day, 95% confidence, 5 years of historical data) 5
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
3,206
708
1,021
1,005
514
(42)
5,137
3,695
1,442
8,343
2
8,346
4,065
4,037
3
272
15
8,392
(47)
100.6
(0.6)
3.2
12
2,979
588
1,142
888
599
(239)
5,619
3,915
1,704
8,599
2
8,601
3,984
2,040
3
260
14
6,300
2,300
761.4
73.3
28.7
3.3
13
2,826
638
777
1,009
685
(283)
4,319
2,440
1,879
7,144
0
7,144
4,539
2,312
(202)
214
13
6,877
267
96.3
2.4
2.4
30
8
20
(11)
13
(14)
(82)
(9)
(6)
(15)
(3)
0
(3)
2
98
0
5
7
33
(8)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to retrospective adoption of new
accounting standards, changes in accounting policies or due to a change to report own credit gains and losses as part of Corporate Center – Core Functions. 2 Refer to “Note 32 Changes in organization” in the
“Financial information” section of this report for information on restructuring charges. 3 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators.
4 In the fourth quarter of 2014, UBS removed exchange-traded derivative (ETD) client cash balances from the balance sheet. Balance sheet assets as of 31 December 2013 were restated from CHF 245.0 billion to
CHF 240.0 billion. The average leverage ratio denominator for fourth quarter 2013 was restated from CHF 275.3 billion to CHF 270.3 billion. Associated ratios were restated accordingly. Other prior periods were not
restated. Refer to “Note 1 Basis of accounting” in the “Financial information” section of this report for more information. 5 Average VaR has not been restated for periods prior to 2013.
137
Financial and operating performance Financial and operating performance
Investment Bank
Business division reporting 1 (continued)
CHF million, except where indicated
Additional information
Total assets (CHF billion) 2, 3
Funded assets (CHF billion) 2, 4
Average attributed equity (CHF billion) 5
Risk-weighted assets (fully applied, CHF billion) 6
Risk-weighted assets (phase-in, CHF billion) 6
Return on risk-weighted assets, gross (%) 7
Leverage ratio denominator (phase-in, CHF billion) 2, 8
Goodwill and intangible assets (CHF billion)
Compensation ratio (%)
Impaired loan portfolio as a % of total loan portfolio, gross (%) 9
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
292.3
170.7
7.6
66.7
67.0
12.9
288.3
0.1
48.7
0.3
240.0
157.2
8.0
62.3
62.6
13.2
270.3
0.1
46.3
0.2
261.5
184.8
10.9
64.3
64.9
12.8
0.1
63.5
0.3
11,794
11,615
13,595
22
9
(5)
7
7
7
0
2
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to retrospective adoption of new
accounting standards, changes in accounting policies or due to a change to report own credit gains and losses as part of Corporate Center – Core Functions. 2 In the fourth quarter of 2014, UBS removed
exchange-traded derivative (ETD) client cash balances from the balance sheet. Balance sheet assets as of 31 December 2013 were restated from CHF 245.0 billion to CHF 240.0 billion. The average leverage ratio de-
nominator for fourth quarter 2013 was restated from CHF 275.3 billion to CHF 270.3 billion. Associated ratios were restated accordingly. Other prior periods were not restated. Refer to “Note 1 Basis of accounting” in
the “Financial information” section of this report for more information. 3 Based on third-party view, i.e., without intercompany balances. 4 Funded assets are defined as total IFRS balance sheet assets less positive
replacement values (PRV) and collateral delivered against over-the-counter (OTC) derivatives. 5 Refer to the “Capital management” section of this report for more information on the equity attribution frame-
work. 6 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report
for more information. 7 Based on phase-in Basel III risk-weighted assets for 2014 and 2013. Based on Basel 2.5 risk-weighted assets for 2012. 8 The leverage ratio denominator is also referred to as “total adjusted
exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period.
Refer to the ”Capital management” section of this report for more information. 9 Refer to the “Risk management and control” section of this report for more information on impairment ratios.
138
2014 compared with 2013
Results
Operating income
Total operating income decreased CHF 255 million or 3% to CHF
8,346 million from CHF 8,601 million, as revenues in Investor Cli-
ent Services declined CHF 482 million, partly offset by CHF 227
million higher revenues in Corporate Client Solutions. On an ad-
justed basis, excluding an impairment loss of CHF 48 million on a
financial investment available-for-sale and a gain of CHF 43 mil-
lion from the partial sale of our investment in the financial services
company Markit, both in 2014, as well as a CHF 55 million gain
from the sale of our remaining proprietary trading business in
2013, total operating income decreased CHF 195 million or 2%
to CHF 8,351 million from CHF 8,546 million. In US dollar terms,
adjusted operating income decreased 1%.
Operating expenses
Total operating expenses increased by CHF 2,092 million or 33%
to CHF 8,392 million compared with CHF 6,300 million. Adjusted
for restructuring charges of CHF 261 million in 2014 and CHF 210
million in 2013, and credits of CHF 20 million related to changes
to retiree benefit plans in the US in 2014, total operating expenses
increased by CHF 2,061 million or 34% to CHF 8,151 million com-
pared with CHF 6,090 million. This increase was mainly due to
CHF 1,846 million higher charges for provisions for litigation, reg-
ulatory and similar matters, as well as higher professional fees,
and was partly offset by lower personnel expenses. In US dollar
terms, adjusted operating expenses also increased 34%.
Personnel expenses increased to CHF 4,065 million from CHF
3,984 million. Adjusted for restructuring charges of CHF 130 mil-
lion in 2014 and CHF 9 million in 2013, as well as the aforemen-
tioned credits related to changes to retiree benefit plans in the US
in 2014, personnel expenses decreased slightly to CHF 3,955 mil-
lion from CHF 3,975 million.
General and administrative expenses increased to CHF 4,037
million from CHF 2,040 million. Adjusted for restructuring charges
of CHF 125 million in 2014 and CHF 177 million in 2013, general
and administrative expenses increased to CHF 3,912 million from
CHF 1,863 million, mainly due to the aforementioned increase in
charges for provisions for litigation, regulatory and similar mat-
ters, and higher professional fees, partly offset by the effects of
our ongoing cost reduction programs.
Cost / income ratio
The cost / income ratio increased to 100.6% from 73.3%. On an
adjusted basis, the cost / income ratio increased to 97.6% from
71.3% and was above our target range of 65% to 85%.
Risk-weighted assets
Fully applied risk-weighted assets (RWA) increased by CHF 4 bil-
lion to CHF 67 billion as of 31 December 2014 from CHF 62 billion
as of 31 December 2013 and remained within our limit of CHF 70
billion. The increase was mainly due to CHF 6 billion higher mar-
ket risk RWA related to risks-not-in-VaR and stressed value-at-risk,
partly offset by CHF 1 billion lower operational risk RWA, resulting
from a reduction in the incremental RWA based on the supple-
mental operational risk capital analysis mutually agreed to by UBS
and FINMA.
➔ Refer to the “Capital management” section of this report for
more information
Funded assets
Funded assets increased to CHF 171 billion as of 31 December
2014 from CHF 157 billion as of 31 December 2013, mainly due
to currency effects, and remained within our limit of CHF 200
billion. Excluding currency effects, funded assets increased by ap-
proximately CHF 3 billion, mainly due to higher trading assets in
the equities business.
➔ Refer to the “Balance sheet” section of this report for more
information
➔ Refer to the “Significant accounting and financial reporting
changes “ section of this report for more information
on the removal of ETD client cash balances from our balance
sheet
Return on attributed equity
Return on attributed equity (RoAE) for 2014 was negative 0.6%,
and 2.6% on an adjusted basis, below our target of over 15%.
➔ Refer to the discussion of “Equity attribution and return on
attributed equity” in the “Capital management” section of this
report for more information
139
Financial and operating performance Financial and operating performance
Investment Bank
Operating income by business unit
Corporate Client Solutions
Corporate Client Solutions revenues increased 8% to CHF 3,206
million from CHF 2,979 million, largely due to higher revenues in
advisory and debt capital markets and lower risk management
charges, partly offset by lower revenues in equity capital markets
and financing solutions. In US dollar terms, revenues increased
9%.
and gain on a partial sale of a financial investment available-for-
sale in 2014, as well as a gain from the sale of our remaining
proprietary trading business in 2013, revenues decreased 3% to
CHF 3,739 million from CHF 3,860 million due to lower revenues
in derivatives, other equities and cash, partly offset by higher rev-
enues in financing services.
Cash revenues decreased slightly to CHF 1,352 million com-
pared with CHF 1,374 million, mainly due to lower commission
income as client activity levels declined.
Advisory revenues increased 20% to CHF 708 million from CHF
588 million, mainly reflecting an increased volume of mergers and
acquisition transactions in 2014.
Derivatives revenues decreased to CHF 1,126 million from CHF
1,350 million, mainly as a result of lower trading revenues, reflect-
ing lower volatility levels during 2014.
Equity capital markets revenues decreased 11% to CHF 1,021
million from CHF 1,142 million. This decrease was mainly due to
a large private transaction recorded in 2013, partly offset by
higher revenues from public offerings in 2014 as the fee pool in-
creased 19%.
Debt capital markets revenues increased 13% to CHF 1,005
million from CHF 888 million, due to higher revenues from lever-
aged finance, partly offset by slightly lower investment grade rev-
enues. Excluding a gain on an investment in an associate, which
was reclassified to a financial investment available-for-sale follow-
ing its initial public offering in 2014, adjusted leveraged finance
revenues were broadly in line with 2013.
Financing solutions revenues decreased 14% to CHF 514 mil-
lion compared with CHF 599 million, mainly due to a reduction in
revenues in the real estate finance business.
Risk management revenues improved to negative CHF 42 mil-
lion from negative CHF 239 million, mainly due to the positive
effect of widening credit spreads during 2014.
Investor Client Services
Investor Client Services revenues decreased 9% to CHF 5,137 mil-
lion from CHF 5,619 million, due to lower revenues in both the
equities and foreign exchange, rates and credit businesses. In US
dollar terms, revenues decreased 8%.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on the
transfer of our exchange-traded fixed income derivatives
Financing services revenues increased to CHF 1,289 million from
CHF 1,084 million, mainly due to higher equity finance revenues.
Other equities revenues decreased to negative CHF 70 million
from positive CHF 108 million. Adjusted for an impairment loss of
CHF 48 million on a financial investment available-for-sale in 2014
and a gain from the sale of our former proprietary trading busi-
ness in 2013, other equities revenues decreased to negative CHF
22 million from positive CHF 53 million. This decrease was mainly
due to higher revenues in 2013 related to equity investments prior
to their transfer to Corporate Center – Non-core and Legacy Port-
folio, as well as a gain related to the divestment of our participa-
tion in Euroclear Plc.
Foreign exchange, rates and credit
Foreign exchange, rates and credit revenues decreased 15% to
CHF 1,442 million from CHF 1,704 million. Adjusted for gains re-
lated to the aforementioned partial sale of a financial investment
available-for-sale, revenues decreased to CHF 1,403 million from
CHF 1,704 million, with lower revenues across most products as
client activity and volatility levels decreased compared with 2013,
reflecting the ongoing macroeconomic uncertainty.
Foreign exchange revenues declined, mainly due to lower rev-
enues from the foreign exchange spot and options businesses,
reflecting the lower client activity and volatility levels.
Rates and credit revenues declined, primarily due to weaker
trading performance in the credit business.
execution business from equities into foreign exchange, rates
Personnel
and credit
Equities
Equities revenues decreased 6% to CHF 3,695 million from CHF
3,915 million. Adjusted for the aforementioned impairment loss
The Investment Bank employed 11,794 personnel as of 31 De-
cember 2014, an increase of 179 compared with 11,615 as of
31 December 2013, mainly due to an increase in personnel allo-
cated from Corporate Center shared services units.
140
2013 compared with 2012
Results
Operating income
Total operating income increased 20% to CHF 8,601 million from
CHF 7,144 million, mainly as a result of higher equities revenues
within Investor Client Services. On an adjusted basis, excluding a
gain from the sale of our remaining proprietary trading business
in the first half of 2013, total operating income increased 20% to
CHF 8,546 million from CHF 7,144 million. In US dollar terms,
adjusted operating income increased 21%.
Operating expenses
Total operating expenses decreased 8% to CHF 6,300 million
compared with CHF 6,877 million. Adjusted for restructuring
charges of CHF 210 million in 2013 and CHF 273 million in 2012,
a credit of CHF 91 million related to changes to our retiree benefit
plans in the US and a credit of CHF 51 million related to changes
to our Swiss pension plan in 2012, total operating expenses de-
creased 10% to CHF 6,090 million compared with CHF 6,746
million. This reduction was mainly due to our ongoing cost reduc-
tion programs and CHF 241 million lower charges for provisions
for litigation, regulatory and similar matters. These decreases
were partly offset by higher variable compensation expenses, re-
flecting improved business performance. In US dollar terms, ad-
justed operating expenses decreased 9%.
Personnel expenses declined to CHF 3,984 million from CHF
4,539 million. Adjusted for restructuring charges of CHF 9 million
in 2013 and CHF 250 million in 2012, as well as the abovemen-
tioned credits related to changes to our retiree benefit plans in the
US and our Swiss pension plan in 2012, personnel expenses de-
creased to CHF 3,975 million from CHF 4,431 million, largely due
to savings resulting from our ongoing cost reduction programs,
partly offset by higher variable compensation expenses, in line
with improved business performance.
General and administrative expenses decreased to CHF 2,040
million from CHF 2,312 million. Adjusted for restructuring charges
of CHF 177 million in 2013 and CHF 11 million in 2012, general
and administrative expenses decreased to CHF 1,863 million from
CHF 2,301 million, largely due to CHF 241 million lower charges
for provisions for litigation, regulatory and similar matters and
lower professional fees.
Risk-weighted assets
Fully applied RWA decreased to CHF 62 billion as of 31 December
2013 from CHF 64 billion as of 31 December 2012, primarily due
to a reduction in credit risk RWA, partly offset by the incremental
RWA resulting from the supplemental operational risk capital
analysis mutually agreed to by UBS and FINMA. Year-end 2013
RWA were within our target of less than CHF 70 billion.
Funded assets
Funded assets decreased to CHF 157 billion as of 31 December
2013 from CHF 185 billion as of 31 December 2012 and were
within our limit of less than CHF 200 billion. This decline was
largely due to lower collateral trading assets across businesses as
well as due to a reduction in trading portfolio assets in our foreign
exchange, rates and credit business and a reduction in lending
assets in Corporate Client Solutions.
Return on attributed equity
Return on attributed equity for 2013 was 28.7%, and 30.6% on
an adjusted basis, consistent with our target of more than 15%.
Operating income by business unit
Corporate Client Solutions
Corporate Client Solutions revenues increased 5% to CHF 2,979
million from CHF 2,826 million, largely due to higher revenues in
equity capital markets. In US dollar terms, revenues increased
6%.
Advisory revenues declined 8% to CHF 588 million from CHF
638 million, mainly as the market fee pool decreased 11%.
Equity capital markets revenues increased 47% to CHF 1,142
million from CHF 777 million. This increase was mainly due to a
large private transaction recorded in the first half of 2013.
Debt capital markets revenues decreased 12% to CHF 888 mil-
lion from CHF 1,009 million, largely due to a decline in investment
grade revenues. Leveraged finance revenues were broadly in line
with the prior year.
Financing solutions revenues decreased 13% to CHF 599 mil-
lion compared with CHF 685 million, mainly due to a reduction in
revenues in both the structured financing and real estate finance
businesses.
Risk management revenues improved to negative CHF 239 mil-
lion from negative CHF 283 million, mainly due to lower mark-to-
market losses.
Cost / income ratio
The cost / income ratio improved to 73.3% from 96.3%. On an
adjusted basis, the cost / income ratio improved to 71.3% from
94.4%, within our target range of 65% to 85%.
Investor Client Services
Investor Client Services revenues increased 30% to CHF 5,619 mil-
lion from CHF 4,319 million, due to higher revenues in the equities
businesses. In US dollar terms, revenues also increased 30%.
141
Financial and operating performance Financial and operating performance
Investment Bank
Equities
Equities revenues increased to CHF 3,915 million from CHF 2,440
million, as a result of higher revenues across all businesses and
regions.
Cash revenues increased to CHF 1,374 million compared with
CHF 879 million. Revenues increased due to higher commission
income and an improvement in client trading revenues. In addi-
tion, 2012 included a loss of CHF 349 million related to the Face-
book initial public offering.
Derivatives revenues increased to CHF 1,350 million from CHF
660 million, mainly as a result of higher revenues in Asia Pacific
and Europe, Middle East and Africa. In addition, 2012 included
negative adjustments related to the refinement of our own credit
calculation methodology.
In financing services revenues increased to CHF 1,084 million
from CHF 944 million, mainly as a result of higher trading reve-
nues in equity finance.
Other equities revenues increased to CHF 108 million from
negative CHF 44 million. Adjusted for a gain from the sale of our
former proprietary trading business in 2013, other equities reve-
nues increased to CHF 53 million from negative CHF 44 million.
This improvement was mainly due to both higher revenues on
equity investments prior to their transfer to Corporate Center –
Non-core and Legacy Portfolio, and a gain related to the divest-
ment of our participation in Euroclear Plc.
Foreign exchange, rates and credit
Foreign exchange, rates and credit revenues decreased to CHF
1,704 million from CHF 1,879 million, mainly due to lower rates
and credit revenues.
Foreign exchange revenues declined slightly, primarily due to a
decrease in revenues from the emerging market short-term inter-
est rate business, partly offset by an increase in electronic trading
revenues as volumes rose.
Rates and credit revenues declined, primarily due to weaker
trading performance in the flow businesses. This was partly offset
by negative debit valuation adjustments of CHF 18 million in 2013
compared with negative debit valuation adjustments of CHF 115
million in the prior year.
Personnel
The Investment Bank employed 11,615 personnel as of 31 De-
cember 2013, a decrease of 1,980 compared with 13,595 as of
31 December 2012, mainly as a result of our ongoing cost reduc-
tion programs.
142
Corporate Center
Corporate Center reporting – Total 1
CHF million, except where indicated
Income excluding own credit
Own credit 2
Credit loss (expense) / recovery 3
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses 4
Operating profit / (loss) before tax
Additional information
Average attributed equity (CHF billion) 5
Total assets (CHF billion) 6
Risk-weighted assets (fully applied, CHF billion) 7
Risk-weighted assets (phase-in, CHF billion) 7
Leverage ratio denominator (phase-in, CHF billion) 8
Personnel before allocations (full-time equivalents)
Allocations to business divisions (full-time equivalents)
Personnel after allocations (full-time equivalents)
As of or for the year ended
% change from
31.12.14
(1,153)
292
2
(860)
794
929
75
29
0
6
1,832
(2,692)
20.5
427.6
65.8
67.9
334.2
23,773
(21,324)
2,450
31.12.13
31.12.12
(380)
(283)
3
(660)
939
2,443
67
55
0
3
3,507
(4,167)
23.3
462.5
84.2
84.9
394.5
24,082
(21,441)
2,640
2,029
(2,202)
(78)
(251)
910
2,837
355
51
3,030
28
7,210
(7,461)
23.1
691.5
118.7
119.3
25,892
(23,100)
2,792
31.12.13
203
(33)
30
(15)
(62)
12
(47)
100
(48)
(35)
(12)
(8)
(22)
(20)
(15)
(1)
(1)
(7)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of
new accounting standards, changes in accounting policies or due to a change to report own credit gains and losses as part of Corporate Center – Core Functions. 2 Represents own credit changes on financial liabilities
designated at fair value through profit or loss. The cumulative own credit loss for such debt held on 31 December 2014 amounts to CHF 0.3 billion. This loss has increased the fair value of financial liabilities designated
at fair value recognized on our balance sheet. Refer to “Note 24 Fair value measurement” in the “Financial information” section of this report for more information. 3 Includes credit loss (expense) / recovery on reclas-
sified and acquired securities. 4 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for information on restructuring charges. 5 Refer to the “Capital management” section
of this report for more information on the equity attribution framework. 6 Based on third-party view, i.e., without intercompany balances. 7 Based on the Basel III framework as applicable for Swiss systemically rele-
vant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 8 The leverage ratio denominator is also referred to as ”to-
tal adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the
reporting period. Refer to the “Capital management” section of this report for more information.
143
Financial and operating performance Financial and operating performance
Corporate Center
Corporate Center – Core Functions
Corporate Center – Core Functions recorded a loss before tax of CHF 728 million in 2014 compared with a loss of
CHF 1,854 million in the prior year. 2014 included total operating expenses remaining in Corporate Center – Core
Functions after service allocations of CHF 688 million. Total operating income was negative CHF 39 million and included
treasury income remaining in Corporate Center – Core Functions of negative CHF 367 million and an own credit gain
of CHF 292 million.
Corporate Center reporting – Core Functions 1
CHF million, except where indicated
Treasury income remaining in Corporate Center – Core Functions
Own credit 2
Other
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 3
Operating profit / (loss) before tax
Additional information
Average attributed equity (CHF billion) 4
Total assets (CHF billion) 5
Risk-weighted assets (fully applied, CHF billion) 6
Risk-weighted assets (phase-in, CHF billion) 6
Leverage ratio denominator (phase-in, CHF billion) 7
Personnel before allocations (full-time equivalents)
Allocations to business divisions and CC – Non-core and Legacy Portfolio (full-time equivalents)
Personnel after allocations (full-time equivalents)
As of or for the year ended
31.12.14
(367)
292
36
(39)
423
245
13
2
6
688
(728)
15.5
257.8
30.1
32.2
240.8
23,637
(22,667)
970
31.12.13
(902)
(283)
178
(1,007)
424
422
1
0
0
847
(1,854)
12.5
247.4
20.7
21.3
234.5
23,860
(22,804)
1,055
31.12.12
688
(2,202)
(175)
(1,689)
282
1,696
21
9
0
2,008
(3,698)
6.6
262.9
16.2
16.7
25,351
(24,863)
488
Corporate Center – Core Functions – expenses before service allocation to business divisions and CC – Non-core and Legacy Portfolio
Personnel expenses
General and administrative expenses
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses before service allocation to business divisions and
CC – Non-core and Legacy Portfolio 3
Net allocations to business divisions
of which: Wealth Management
of which: Wealth Management Americas
of which: Retail & Corporate
of which: Global Asset Management
of which: Investment Bank
of which: Non-core and Legacy Portfolio
3,937
4,144
762
6
4,110
5,236
647
2
4,199
4,263
761
4
8,849
(8,161)
(2,115)
(1,127)
(1,194)
(498)
(2,707)
(519)
688
9,227
(8,381)
(2,068)
(1,132)
(1,301)
(538)
(2,515)
(827)
847
9,995
(7,986)
(1,937)
(1,054)
(1,140)
(499)
(2,694)
(663)
2,008
Total operating expenses 3
% change from
31.12.13
(59)
(80)
(96)
0
(42)
(19)
(61)
24
4
45
51
3
(1)
(1)
(8)
(6)
(3)
0
50
(4)
(3)
2
0
(8)
(7)
8
(37)
(19)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to retrospective adoption of new
accounting standards, changes in accounting policies or due to a change to report own credit gains and losses as part of Corporate Center – Core Functions. 2 Represents own credit changes on financial liabilities
designated at fair value through profit or loss. The cumulative own credit loss for such debt held on 31 December 2014 amounts to CHF 0.3 billion. This loss has increased the fair value of financial liabilities designated at
fair value recognized on our balance sheet. Refer to “Note 24 Fair value measurement” in the “Financial information” section of this report for more information. 3 Refer to “Note 32 Changes in organization” in the
“Financial information” section of this report for information on restructuring charges. 4 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 5 Based on
third-party view, i.e., without intercompany balances. 6 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the
”Capital management” section of this report for more information. 7 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio require-
ments. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Refer to the ”Capital management” section of this report for more information.
144
2014 compared with 2013
Results
Operating income
Total operating income was negative CHF 39 million in 2014.
Treasury income remaining in Corporate Center – Core Functions
of negative CHF 367 million was partly offset by an own credit
gain on financial liabilities designated at fair value of CHF 292
million and income related to other items of CHF 36 million. Total
operating income in the prior year was negative CHF 1,007 mil-
lion.
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information on own
credit
Treasury income remaining in Corporate Center – Core Func-
tions, after allocations to the business divisions, was negative
CHF 367 million in 2014. This mainly reflected central funding
costs related to our long-term debt portfolio of CHF 771 million,
which were retained in Group Treasury, partly offset by interest
income of CHF 129 million related to preferred securities, gains
of CHF 113 million from cross-currency basis swaps which are
held as economic hedges and a gain of CHF 47 million related to
our macro cash flow hedges. Treasury income also included re-
tained revenues from the investment of the Group’s equity.
Compared with the prior year, treasury income remaining in
Corporate Center – Core Functions improved to negative CHF
367 million from negative CHF 902 million. This improvement was
mainly due to the aforementioned gains from cross-currency basis
swaps and our macro cash flow hedges compared with the prior-
year losses of CHF 222 million and CHF 153 million, respectively.
In addition, 2013 included net losses of 194 million related to the
buyback of debt. These positive effects were partly offset by in-
creased central funding costs retained in Group Treasury of CHF
771 million compared with CHF 510 million, partly due to new
debt issuances.
➔ Refer to the “Treasury management” section of this report for
more information on funding costs
We recorded an own credit gain on financial liabilities desig-
nated at fair value of CHF 292 million, primarily as life-to-date
own credit losses partially reversed due to time decay. The prior
year included an own credit loss of CHF 283 million.
Operating income excluding own credit and treasury income de-
clined to CHF 36 million from CHF 178 million in 2013, mainly due
to lower gains on sales of real estate of CHF 44 million compared
with CHF 288 million. In addition, 2014 included a credit of CHF 58
million related to the release of a provision for litigation, regulatory
and similar matters which was recorded within other income.
Operating expenses before service allocations
On a gross basis, before service allocations to the business divi-
sions and Corporate Center – Non-core and Legacy Portfolio, total
operating expenses decreased by CHF 378 million to CHF 8,849
million. Restructuring charges were CHF 484 million compared
with CHF 707 million in the prior year. 2014 also included credits
of CHF 16 million related to changes to retiree benefit plans in the
US. Adjusted for these items, operating expenses before service
allocations were CHF 8,381 million compared with CHF 8,520
million in the prior year. This decrease of CHF 139 million was
mainly due to CHF 338 million lower personnel expenses and a
net release of CHF 125 million for provisions for litigation, regula-
tory and similar matters compared with charges of CHF 187 mil-
lion. These decreases were partly offset by higher professional
fees related to our strategic and regulatory priorities and increased
outsourcing activities.
Personnel expenses decreased by CHF 262 million to CHF
3,937 million. On an adjusted basis, excluding net restructuring
charges of CHF 221 million in 2014 and CHF 129 million in 2013,
as well as the aforementioned credits of CHF 16 million related to
changes to retiree benefit plans in the US, personnel expenses
were CHF 3,732 million in 2014 compared with CHF 4,070 million
in the prior year. This decrease of CHF 338 million was mainly due
to outsourcing and offshoring initiatives, lower variable compen-
sation accruals as well as our ongoing cost reduction programs.
General and administrative expenses decreased by CHF 119
million to CHF 4,144 million. On an adjusted basis, excluding net
restructuring charges of CHF 240 million in 2014 and CHF 513
million in 2013, general and administrative expenses increased by
145
Financial and operating performance Financial and operating performance
Corporate Center
CHF 154 million, mainly due to higher professional fees related to
our strategic and regulatory priorities as well as increased out-
sourcing activities. These increases were partly offset by a net re-
lease of CHF 125 million for provisions for litigation, regulatory
and similar matters compared with charges of CHF 187 million.
Depreciation and impairment of property and equipment in-
creased marginally to CHF 762 million, mainly reflecting higher
depreciation charges related to capitalized software, largely offset
by CHF 42 million lower restructuring charges.
The business divisions and Non-core and Legacy Portfolio were
charged CHF 8,161 million for shared services, a decrease of CHF
220 million.
Operating expenses after service allocations
Total operating expenses remaining in Corporate Center – Core
Functions, after allocations to the business divisions and Non-core
and Legacy Portfolio, decreased to CHF 688 million from CHF 847
million. This decrease of CHF 159 million was mainly due to a net
release of CHF 125 million for provisions for litigation, regulatory
and similar matters compared with charges of CHF 187 million in
the prior year, partly offset by additional expenses related to our
strategic and regulatory priorities.
Operating expenses remaining in Corporate Center – Core
Functions related mainly to Group governance functions and
other corporate activities, as well as the difference between the
actual costs incurred for internal services and the associated
guaranteed cost allocations to the business divisions and Non-
core and Legacy Portfolio. This difference amounted to CHF 38
million in 2014.
Risk-weighted assets
Fully applied Basel III risk-weighted assets (RWA) increased by CHF
9 billion to CHF 30 billion as of 31 December 2014, primarily due
to CHF 3 billion higher incremental RWA resulting from the sup-
plemental operational risk capital analysis mutually agreed to by
UBS and FINMA and CHF 3 billion higher market risk RWA, mainly
reflecting reduced diversification benefits.
➔ Refer to the “Capital management” section of this report for
more information on risk-weighted assets
Personnel
As of 31 December 2014, Corporate Center – Core Functions
employed 23,637 personnel compared with 23,860 at the end of
the prior year. This decrease of 223 personnel was mainly related
to our ongoing cost reduction programs and outsourcing activi-
ties. As of 31 December 2014, 22,667 personnel were allocated
to the business divisions and Non-core and Legacy Portfolio,
based on services consumed. Personnel remaining in Corporate
Center – Core Functions after allocations decreased to 970 from
1,055 and related to Group governance functions and other cor-
porate activities.
146
2013 compared with 2012
Operating income
Total operating income was negative CHF 1,007 million in 2013.
Treasury income remaining in Corporate Center – Core Functions
of negative CHF 902 million and an own credit loss on financial
liabilities designated at fair value of CHF 283 million were partly
offset by income related to other items of CHF 178 million. Total
operating income in the prior year was negative CHF 1,689 mil-
lion.
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information on own
credit
Treasury income remaining in Corporate Center – Core Func-
tions, after allocations to the business divisions, was negative CHF
902 million. This was mainly due to central funding costs of CHF
510 million, which were retained in Group Treasury, losses of CHF
222 million from cross-currency basis swaps which are held as
economic hedges and net losses of CHF 194 million related to the
buyback of debt in public tender offers. Furthermore, we recorded
losses of CHF 153 million related to our macro cash flow hedge
models. These negative effects were partly offset by net gains of
CHF 47 million, related to high-quality liquid asset portfolios
which represent the difference between the financial costs in-
curred and the economic charges to the business divisions and
Corporate Center – Non-core and Legacy Portfolio. This differ-
ence arises mainly due to fair value movements on derivative in-
struments used to economically hedge high-quality liquid finan-
cial investments available-for-sale on which unrealized fair value
changes are recorded directly in equity.
Compared with the prior year, treasury income remaining in
Corporate Center – Core Functions decreased to negative CHF
902 million from positive CHF 688 million. The 2012 result in-
cluded gains of CHF 152 million related to our macro cash flow
hedge models, as opposed to the abovementioned losses in 2013,
and central funding costs retained in Group Treasury of CHF 268
million compared with CHF 510 million. Furthermore, 2013 in-
cluded the aforementioned losses from cross-currency basis swaps
and net losses related to the buyback of debt as well as a decline
in revenues to CHF 22 million from CHF 245 million in the repur-
chase agreement unit, which was transferred from the Investment
Bank to Corporate Center – Core Functions in 2013 and for which
prior period information was restated. Whereas restated results
reflected no allocation of revenues from the repurchase agree-
ment unit to the business divisions, from 2013 onwards revenues
from this unit are allocated to the business divisions, mainly to
Wealth Management. 2013 also included CHF 206 million lower
realized gains on sales of financial investments held in the avail-
able-for-sale portfolio which was transferred from Wealth Man-
agement Americas to Group Treasury during 2013.
➔ Refer to the “Treasury management” section of this report for
more information on funding costs
We recorded an own credit loss on financial liabilities designated
at fair value of CHF 283 million, primarily due to tightening of our
funding spreads. The prior year included an own credit loss of CHF
2,202 million when our funding spreads tightened significantly.
Operating income excluding own credit and treasury income
was CHF 178 million, largely due to gains on sales of real estate
of CHF 288 million, partly offset by CHF 102 million in net funding
costs related to the goodwill and intangible assets that arose from
the PaineWebber acquisition which are retained in Corporate
Center – Core Functions with effect from 1 January 2013. In
2012, income related to other items was negative CHF 175 mil-
lion, mainly due to charges related to our multi-currency portfolio
of unencumbered, high-quality, short-term assets managed cen-
trally by Group Treasury and charges for certain provisions for liti-
gation, regulatory and similar matters which were recorded within
other income, partly offset by gains on sales of real estate of CHF
112 million.
147
Financial and operating performance Financial and operating performance
Corporate Center
Operating expenses before service allocations
On a gross basis, before service allocations to the business divi-
sions and Corporate Center – Non-core and Legacy Portfolio, total
operating expenses decreased by CHF 768 million to CHF 9,227
million, including net restructuring charges of CHF 707 million
compared with CHF 37 million in the prior year. The prior year
included the positive effects from changes to our Swiss pension
plan and our retiree benefit plans in the US of CHF 276 million
and CHF 16 million, respectively. Adjusted for these items, operat-
ing expenses before allocations to the business divisions and Non-
core and Legacy Portfolio were CHF 8,520 million compared with
CHF 10,250 million in the prior year. This decrease of CHF 1,730
million was mainly due to CHF 1,283 million lower charges for
provisions for litigation, regulatory and similar matters, our ongo-
ing cost reduction programs and lower marketing costs.
Personnel expenses increased by CHF 89 million to CHF 4,199
million. Adjusted for net restructuring charges of CHF 129 million
compared with CHF 24 million in 2012, as well as the abovemen-
tioned positive effects from changes to our Swiss pension plan
and our retiree benefit plans in the US, personnel expenses were
CHF 4,070 million in 2013 compared with CHF 4,378 million in
the prior year. This decrease of CHF 308 million was mainly due to
further headcount reductions related to our ongoing cost reduc-
tion programs.
General and administrative expenses decreased by CHF 973
million to CHF 4,263 million. On an adjusted basis, excluding net
restructuring charges of CHF 513 million in 2013 and restructur-
ing releases of CHF 1 million in 2012, general and administrative
expenses decreased by CHF 1,487 million, mainly due to CHF
1,283 million lower charges for provisions for litigation, regula-
tory and similar matters and lower marketing costs.
Depreciation and impairment of property and equipment in-
creased to CHF 761 million from CHF 647 million, mainly due to
real estate-related restructuring charges of CHF 65 million com-
pared with CHF 14 million as well as higher amortization and an
impairment of capitalized software.
The business divisions and Non-core and Legacy Portfolio were
charged CHF 8,381 million for shared services costs, an increase
of CHF 395 million, mainly related to higher restructuring charges,
partly offset by lower cost allocations following reduced person-
nel expenses incurred.
Operating expenses after service allocations
Total operating expenses remaining after allocations to the busi-
ness divisions and Non-core and Legacy Portfolio decreased to
CHF 847 million from CHF 2,008 million. This decrease of CHF
1,161 million was mainly due to CHF 1,283 million lower charges
for provisions for litigation, regulatory and similar matters.
Operating expenses remaining in Corporate Center – Core
Functions are related to Group governance functions and other
corporate activities.
Risk-weighted assets
Fully applied Basel III risk-weighted assets (RWA) were CHF 21
billion as of 31 December 2013, CHF 5 billion higher than at the
end of the prior year, mainly due to incremental RWA resulting
from the supplemental operational risk capital analysis mutually
agreed to by UBS and FINMA.
➔ Refer to the “Capital management” section of this report for
more information on risk-weighted assets
Personnel
As of 31 December 2013, Corporate Center – Core Functions em-
ployed 23,860 personnel compared with 25,351 as of 31 Decem-
ber 2012. This decrease of 1,491 personnel was mainly related to
our ongoing cost reduction programs. As of 31 December 2013,
22,804 personnel were allocated to the business divisions as well
as Non-core and Legacy Portfolio, based on services consumed.
The 1,055 personnel remaining in Corporate Center – Core Func-
tions after allocations were related to Group governance func-
tions and other corporate activities.
148
Corporate Center – Non-core and Legacy Portfolio
Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 1,965 million in 2014 compared with
a loss of CHF 2,312 million in the prior year. Operating income was negative CHF 821 million, and included negative
funding and debit valuation adjustments on derivatives of CHF 345 million, as well as losses from unwind and novation
activity. Operating expenses decreased to CHF 1,144 million from CHF 2,660 million, mainly due to lower charges for
provisions for litigation, regulatory and similar matters. Risk-weighted assets decreased significantly, by CHF 28 billion
to CHF 36 billion.
Corporate Center reporting – Non-core and Legacy Portfolio 1
As of or for the year ended
% change from
CHF million, except where indicated
Non-core
Legacy Portfolio
of which: SNB StabFund option
Income
Credit loss (expense) / recovery 2
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses 3
Operating profit / (loss) before tax
Additional information
Average attributed equity (CHF billion) 4
Total assets (CHF billion) 5
Risk-weighted assets (fully applied, CHF billion) 6
Risk-weighted assets (phase-in, CHF billion) 6
Leverage ratio denominator (phase-in, CHF billion) 7
Personnel before allocations (full-time equivalents)
Allocations from business divisions (full-time equivalents)
Personnel after allocations (full-time equivalents)
31.12.14
31.12.13
31.12.12
(519)
(304)
0
(823)
2
(821)
371
684
62
27
0
0
1,144
(1,965)
4.9
169.8
35.7
35.7
93.4
137
1,343
1,480
(50)
394
412
344
3
347
515
2,022
65
55
0
3
2,660
(2,312)
10.8
215.1
63.5
63.5
160.0
222
1,363
1,585
1,135
381
539
1,516
(78)
1,439
628
1,141
335
41
3,030
28
5,202
(3,764)
16.5
428.6
102.5
102.5
541
1,763
2,304
31.12.13
938
(100)
(33)
(28)
(66)
(5)
(51)
(100)
(57)
(15)
(55)
(21)
(44)
(44)
(42)
(38)
(1)
(7)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to retrospective adoption of new
accounting standards or changes in accounting policies. 2 Includes credit loss (expense) / recovery on reclassified and acquired securities. 3 Refer to “Note 32 Changes in organization” in the “Financial information”
section of this report for information on restructuring charges. 4 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 5 Based on third-party view, i.e.,
without intercompany balances. 6 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital manage-
ment” section of this report for more information. 7 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data
represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Refer to the ”Capital management” section of this report for more information.
149
Financial and operating performance Financial and operating performance
Corporate Center
2014 compared with 2013
Operating expenses
Operating income by business unit
Non-core
Income was negative CHF 519 million in 2014, mainly due to a
net loss of CHF 260 million related to funding and debit valuation
adjustments (FVA / DVA) on derivatives, of which CHF 175 million
was recorded upon the implementation of FVA. In addition, the
year included negative revenues of CHF 202 million mainly due to
novation and unwind activity in rates, as well as a loss of CHF 97
million in structured credit as a result of the exit of the majority of
the correlation trading portfolio. This was partly offset by a valua-
tion gain of CHF 68 million on certain equity positions.
In the prior year, Non-core revenues were negative CHF 50 mil-
lion, mainly due to a negative debit valuation adjustment of CHF
99 million, partly offset by slightly positive revenues in rates and
credit.
➔ Refer to the “Significant accounting and financial reporting
changes” section as well as “Note 1b Changes in accounting
policies, comparability and other adjustments“ and “Note 24 Fair
value measurement” in the “Financial information” section of
this report for more information on the implementation of
funding valuation adjustments
Legacy Portfolio
Income was negative CHF 304 million in 2014, mainly due to a
loss of CHF 108 million resulting from the termination of certain
credit default swap (CDS) contracts and a net loss of CHF 85 mil-
lion related to FVA / DVA on derivatives, of which CHF 77 million
was recorded upon the implementation of FVA. In addition, 2014
included valuation losses on financial assets designated at fair
value and losses related to the sale of the remaining student loan
auction rate securities positions.
Compared with the prior year, income in the Legacy Portfolio
decreased to negative CHF 304 million from positive CHF 394
million, mainly due to the abovementioned losses in 2014. In
2013, we exercised our option to acquire the SNB StabFund’s eq-
uity and recorded total option revaluation gains of CHF 431 mil-
lion prior to the exercise.
Total operating expenses decreased to CHF 1,144 million from
CHF 2,660 million in the prior year.
Personnel expenses declined by CHF 144 million to CHF 371
million, mainly due to a decrease in front office personnel and
restructuring charges of CHF 17 million in 2014 compared with
CHF 35 million in the prior year.
General and administrative expenses decreased by CHF 1,338
million to CHF 684 million, largely as charges for provisions for
litigation, regulatory and similar matters declined by CHF 1,127
million to CHF 193 million. Furthermore, restructuring charges de-
clined by CHF 159 million to CHF 14 million. 2014 included a
charge of CHF 52 million for the annual UK bank levy compared
with CHF 68 million in 2013. Also, 2014 included CHF 120 million
in net charges related to certain disputed receivables compared
with CHF 88 million in 2013.
Charges for services from other business divisions decreased by
CHF 3 million to CHF 62 million, mainly as a result of reduced
consumption of shared services.
Depreciation and impairment of property and equipment de-
creased to CHF 27 million from CHF 55 million, mainly due to the
absence of restructuring charges compared with CHF 26 million in
the prior year.
Risk-weighted assets
Risk-weighted assets (RWA) decreased significantly by CHF 28 bil-
lion to CHF 36 billion.
Non-core RWA decreased by CHF 16 billion to CHF 16 billion
as a result of reductions of outstanding over-the-counter deriva-
tive transactions by means of negotiated bilateral settlements
with specific counterparties, third-party novations or trade com-
pressions. Furthermore, incremental RWA resulting from the sup-
plemental operational risk capital analysis mutually agreed to by
UBS and FINMA reduced by CHF 3 billion. Lastly, the aforemen-
tioned exit of the majority of the correlation trading portfolio re-
sulted in a CHF 1 billion RWA reduction.
Legacy Portfolio RWA decreased by CHF 12 billion to CHF 19
billion, mainly resulting from the aforementioned termination of
certain CDS contracts, the sale of the remaining student loan auc-
150
tion rate securities positions as well as due to the exit of certain
positions across the collateralized
loan obligations, refer-
ence-linked notes and real estate securities portfolios. Further-
more, incremental RWA resulting from the supplemental opera-
tional risk capital analysis mutually agreed to by UBS and FINMA
reduced by CHF 1 billion.
➔ Refer to the discussions of “Corporate Center – Non-core and
Legacy Portfolio“ and “Capital management” in the “Risk,
fund, the full exit of precious metal holdings held on behalf of
clients and the maturing of the last remaining trade in the struc-
tured reverse repo portfolio. Furthermore, funded assets declined
following the final exit from student loan auction rate securities,
the sale of CMBS assets used to hedge certain CDS contracts fac-
ing monolines that were terminated during the year and a num-
ber of smaller position reductions.
➔ Refer to the “Balance sheet” section of this report for more
treasury and capital management” section of this report for
information
more information on risk-weighted assets
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio”
in the “Risk management and control” section of this report
Balance sheet assets
for more information
During 2014, balance sheet assets decreased by CHF 45 billion to
CHF 170 billion, largely due to a CHF 33 billion decline in positive
replacement values in Non-core. During the year, we executed a
series of risk transfers to exit the majority of the correlation trad-
ing portfolio, which involved entering into a large number of
back-to-back trades to transfer market risk. We subsequently
derecognized these trades from our balance sheet via novations
to third parties, thereby transferring credit risk, and reducing PRV
by approximately CHF 11 billion The originally targeted novations
are now complete. Within our rates portfolio, PRV decreased due
to negotiated bilateral settlements with specific counterparties,
third-party novations, including transfers to central clearing
houses, and agreements to net down trades with other dealer
counterparties, partly offset by currency and interest rate move-
ments. Funded assets decreased by CHF 10 billion to CHF 11 bil-
lion, mainly due to the full repayment of the loan to the BlackRock
Leverage ratio denominator
The leverage ratio denominator decreased to CHF 93 billion as of
31 December 2014 from CHF 160 billion at the end of the prior
year, mainly due to a reduction in average balance sheet assets.
➔ Refer to the “Capital management” section of this report for
more information on the leverage ratio denominator
Personnel
As of 31 December 2014, a total of 1,480 personnel were em-
ployed within Non-core and Legacy Portfolio compared with
1,585 at the end of the prior year. Front office personnel de-
creased to 137 from 222 and personnel allocated from Corporate
Center shared services units decreased by 20 to 1,343.
151
Financial and operating performance Financial and operating performance
Corporate Center
2013 compared with 2012
Operating expenses
Operating income by business unit
Non-core
Total income was negative CHF 50 million in 2013, mainly due to
a negative debit valuation adjustment of CHF 99 million, partly
offset by slightly positive revenues in rates of CHF 19 million and
credit of CHF 15 million. These modestly positive revenues demon-
strate that significant reductions in RWA and balance sheet as-
sets, as well as operational complexity, following the accelerated
implementation of our strategy, were achieved at negligible cost.
In the prior year, Non-core revenues were positive CHF 1,135
million as, during 2012, the portfolios were actively traded and
benefited from increased liquidity, with strong two-way client
flow that resulted in higher revenues.
Legacy Portfolio
Total income was CHF 394 million in 2013. We exercised our op-
tion to acquire the SNB StabFund’s equity and recorded total op-
tion revaluation gains of CHF 431 million prior to the exercise,
partly offset by a reduction in trading revenues due to an interest
charge of CHF 34 million relating to tax obligations of the SNB
StabFund.
Legacy Portfolio income excluding the SNB StabFund option
was negative CHF 18 million, mainly due to mark-to-market losses
of CHF 122 million in the municipal portfolios, partly offset by
gains of CHF 84 million from reference-linked note portfolios.
Compared with the prior year, income in the Legacy Portfolio
increased to CHF 394 million from CHF 381 million, mainly as
2012 included losses on collateralized debt obligations (CDO) and
related hedging swaps of CHF 171 million as we exited certain
CDO positions to reduce RWA. In 2012, we recorded gains of CHF
526 million on the revaluation of our option to acquire the SNB
StabFund’s equity.
Credit loss expense / recovery
In 2013, we recorded credit loss recoveries of CHF 3 million,
mainly in the Legacy Portfolio, due to sales and redemptions of
student loan auction rate securities impaired in prior periods. Net
credit loss expenses were CHF 78 million in 2012, which mainly
reflected an impairment charge related to certain student loan
auction rate securities, subsequently sold to reduce RWA.
Total operating expenses decreased to CHF 2,660 million from
CHF 5,202 million in the prior year.
Personnel expenses declined by CHF 113 million to CHF 515
million, mainly due to a decrease in front office personnel follow-
ing the accelerated implementation of our strategy and head-
count reductions related to our ongoing cost reduction programs,
as well as restructuring charges of CHF 35 million in 2013 com-
pared with CHF 58 million in the prior year.
General and administrative expenses increased by CHF 881
million to CHF 2,022 million, largely due to charges for provisions
for litigation, regulatory and similar matters of CHF 1,320 million
compared with CHF 634 million, restructuring charges of CHF
173 million compared with zero, as well as an impairment charge
of CHF 87 million related to certain disputed receivables.
Charges for services from other business divisions decreased by
CHF 270 million to CHF 65 million, mainly as a result of reduced
consumption of shared services.
Depreciation and impairment of property and equipment in-
creased to CHF 55 million from CHF 41 million, mainly due to re-
structuring charges of CHF 26 million compared with zero in the
prior year.
An impairment of goodwill of CHF 3,030 million was recog-
nized in 2012.
Risk-weighted assets
RWA for Corporate Center – Non-core and Legacy Portfolio de-
creased by CHF 39 billion to CHF 64 billion, significantly below
our year-end 2013 target of CHF 85 billion.
Non-core RWA decreased by CHF 32 billion to CHF 33 billion
as a result of continued activity targeted at reducing the number
of outstanding over-the-counter derivative transactions by means
of negotiated bilateral settlements with specific counterparties,
third-party novations or trade compressions. These reductions
were partly offset by the effect of the supplemental operational
risk capital analysis mutually agreed to by UBS and FINMA.
Legacy Portfolio RWA decreased by CHF 7 billion to CHF 31 bil-
lion, mainly due to sales and redemptions of student loan auction
rate securities and sales of bonds within the reference-linked notes
portfolios. These reductions were partly offset by the effect of the
supplemental operational risk capital analysis referred to above.
152
Balance sheet assets
Personnel
Balance sheet assets decreased 50% to CHF 215 billion as of
31 December 2013 from CHF 429 billion as of 31 December
2012. This decrease was mainly due to a CHF 166 billion reduc-
tion in positive replacement values, largely in Non-core, primarily
as a result of significant ongoing unwind, novation and compres-
sion activity during 2013. Funded assets decreased by CHF 39
billion, mainly as a result of exiting government and other liquid
bond positions along with the sale of distressed assets in Non-
core, as well as sales and redemptions of student loan auction
rate securities in the Legacy Portfolio.
As of 31 December 2013, a total of 1,585 personnel were em-
ployed within Non-core and Legacy Portfolio compared with
2,304 as of 31 December 2012. Front office personnel decreased
to 222 from 541 and personnel allocated from Corporate Center
shared services units decreased by 400 to 1,363.
153
Financial and operating performance Risk, treasury
and capital
management
Audited information according to IFRS 7 and IAS 1
Risk and capital disclosures provided in line with the requirements of International Financial Reporting Standard 7 (IFRS 7) Financial
Instruments: Disclosures, and International Accounting Standard 1 (IAS 1) Financial Statements: Presentation form part of the finan-
cial statements audited by the independent registered public accounting firm, Ernst & Young Ltd, Basel. Information that has been
subject to audit is marked as “Audited” within this section of the report and is considered part of the audited financial statements
included in the “Financial information” section of this report. Audited information provided in this section applies to both UBS Group
AG (consolidated) and UBS AG (consolidated). Differences between these two scopes of consolidation are provided where applicable.
Risk, treasury and capital management
Table of contents
158
159
Implementation of EDTF recommendations
EDTF index
166
Key developments
Risk management and control
Overview of risks arising from our business activities
Risk categories
Top and emerging risks
Risk governance
Risk appetite framework
Risk principles and risk culture
Quantitative risk appetite objectives
Risk measurement
Stress testing
Statistical measures
Portfolio and position limits
Risk concentrations
Credit risk
Key developments during the period
181
181 Main sources of credit risk
181
Overview of measurement, monitoring and
management techniques
Credit risk profile of the Group – IFRS view
Impaired assets
Past due but not impaired loans
Credit risk profile of the Group – Internal risk view
Banking products
Traded products
Credit risk mitigation
Credit risk models
Policies for past due, non-performing and impaired claims
168
168
170
171
173
174
175
177
178
178
179
180
180
181
182
185
190
191
191
196
198
199
204
156
Key developments during the period
206 Market risk
206
206 Main sources of market risk
206
Overview of measurement, monitoring and management
techniques
216
214
219
219
218
217
221
207 Market risk exposures arising from our business activities
209 Market risk stress loss
Value-at-risk
209
Stressed VaR
Risks-not-in-VaR
Incremental risk charge
Comprehensive risk measure
Securitization positions in the trading book
Interest rate risk in the banking book
Other market risk exposures
Country risk
Key developments during the period
Country risk framework
Country risk exposure
Operational risk
Key developments during the period
Operational risk framework
Advanced measurement approach model
Corporate Center – Non-core and Legacy Portfolio
Non-core
Legacy Portfolio
223
223
228
229
223
223
230
232
232
232
228
235
235
235
235
236
Treasury management
Liquidity and funding management
Strategy and objectives
Liquidity and funding regulatory requirements
Governance
236
236
237
239
239
240
241
242
242
244
244
244
244
245
245
245
245
246
247
247
249
249
250
252
252
252
Liquidity management
Contingency funding
Asset encumbrance
Stress testing
Funding management
Internal funding and funds transfer pricing
Changes in sources of funding during the
reporting period
Credit ratings
Maturity analysis of assets and liabilities
Currency management
Currency-matched funding and investment of
non-Swiss franc assets and liabilities
Sell-down of non-Swiss franc reported profits
and losses
Hedging of anticipated future reported non-Swiss franc
profits and losses
Capital management
Capital management objectives
Annual strategic and ongoing capital planning process
Consideration of stress scenarios
Capital management activities
Active management of RWA
Active management of sensitivity to currency
movements
Swiss SRB Basel III capital framework
Regulatory framework
Capital requirements
Swiss SRB Basel III capital information (UBS Group)
Capital ratios
Eligible capital
252
253
256
256
258
261
262
262
263
263
264
265
265
265
265
266
268
268
269
272
274
276
276
276
278
279
Tier 1 capital
Tier 2 capital
Additional capital information
Differences between Swiss SRB and BIS Basel III capital
Swiss SRB Basel III capital information
(UBS AG consolidated)
Risk-weighted assets (UBS Group)
RWA movement by risk type, exposure and
reporting segment
Credit risk
Non-counterparty-related risk
Market risk
Operational risk
RWA movement by key driver, risk type and
reporting segment
Credit risk
Non-counterparty-related risk
Market risk
Key drivers of RWA movement by risk type
Swiss SRB leverage ratio framework
Swiss SRB leverage ratio requirements
Swiss SRB leverage ratio (UBS Group)
Swiss SRB leverage ratio (UBS AG consolidated)
Equity attribution framework
UBS shares
UBS Group AG shares
UBS AG shares
Holding of UBS Group AG shares
Listing of UBS shares
157
Risk, treasury and capital management
Risk, treasury and capital management
Implementation of the recommendations of the Enhanced Disclosure Task Force (EDTF)
Implementation of EDTF recommendations
The Enhanced Disclosure Task Force (EDTF) was established by the
Financial Stability Board (FSB) in 2012 to facilitate discussion
among users, authors and other interested parties as to how dis-
closure can be enhanced to help restore investor confidence in
banks. We are a member and endorse the work of the EDTF. In its
“Enhancing the Risk Disclosure of Banks” report issued on
29 October 2012, the EDTF set out recommendations designed to
guide banks in disclosing their risk, liquidity and funding, and
capital management in a more transparent and comprehensible
way.
The EDTF recommendations are based on seven principles,
which emphasize the importance of clear, balanced, comprehen-
sive and relevant disclosures. Further, they require that disclosures
be based on the same information that senior management uses
for making its strategic decisions and managing the bank’s risks.
These principles are closely aligned with our own financial disclo-
sure principles of transparency, consistency, simplicity, relevance
and best practice.
We began to incorporate the EDTF recommendations in our
Annual Report 2012 and made significant further improvements
to our disclosures in our Annual Report 2013, including making
structural changes to the “Risk, treasury and capital manage-
ment” section and introducing a large number of new and en-
hanced quantitative and qualitative disclosures. Consistent with
Recommendation 1 of the EDTF, where appropriate, we brought
together those related risk disclosures we consider to be most
relevant to a particular component of our business, including in-
tegrating certain disclosures, which had been previously pre-
sented separately within our Pillar 3 disclosures or our consoli-
dated financial statements.
In 2014, the EDTF examined how its recommendations were
implemented in the 2013 annual reports published by 41 selected
banks, including UBS, and its findings were published by the FSB
on 30 September 2014 in its 2014 Progress Report on Implemen-
tation of the EDTF Principles and Recommendations. Several dis-
closures from our Annual Report 2013 were provided as examples
of leading practice in the progress report, and bilateral feedback
from the EDTF affirmed our implementation of other key recom-
mendations, ranking us very favorably relative to the other sur-
veyed banks.
Consistent with our financial disclosure principles, we regard
the enhancement of our disclosures as an ongoing commitment.
We continue to regularly review our disclosures for further amend-
ments that may be necessary to better reflect the developments in
our business, as well as the principles and recommendations es-
tablished by the EDTF.
The index on the following pages contains a short summary of
each of the 32 EDTF recommendations and the cross-references
to the locations in our Annual Report 2014 and Pillar 3 disclosures
that support the objectives of each recommendation.
➔ Refer to “Information policy” in the “Corporate governance,
responsibility and compensation” section of this report for more
information on our financial disclosure principles
Signposts
Throughout the Annual Report, signposts
that are displayed at the beginning of a
section, table or chart – Audited | EDTF | Pillar 3 |
– indicate that those items have been
audited, have addressed the recommenda-
tions of the Enhanced Disclosure Task
Force, or are Basel Pillar 3 disclosure
requirements, respectively. A “triangle”
symbol – ▲▲▲ – indicates the end of the
signpost.
158
EDTF index
EDTF recommendations and our disclosures
Location of the disclosures
Operating environment and
strategy / risk, treasury and capital
management / corporate governance,
responsibility and compensation
Financial information
UBS Group AG
consolidated
supplemental
disclosures required
under Basel III Pillar 3
regulations
General
1. Presentation of related information
Table with cross-references to the locations of the
disclosures in our Annual Report 2014 and Pillar 3 section
➔ EDTF index p. 159 – 165
2. Risk terminology
Definition of the risk terms and risk
measures which we use, including
indication of key parameters in our
risk models
Risk terms
➔ Risk definitions p. 170
➔ Risk concentrations p. 180
Risk measures
➔ Risk measurement p. 178 –180
Key parameters
and
measurement
models
➔ Credit risk: Credit risk models p. 199;
Probability of default p. 200 / 201; Internal
UBS rating scale and mapping of external
ratings, Key features of our main credit
risk models p. 200;
Loss given default, Exposure at default,
Expected loss p. 201, Stress loss p. 201
➔ Market risks: Market risk stress loss,
Value-at-Risk (VaR) p. 209; Stressed VaR
p. 214; Incremental Risk Charge p. 217;
Comprehensive Risk Measure p. 218
➔ Country risk exposure measure p. 223
➔ Operational risk: Advanced measurement
approach model p. 230 – 231
➔ Pro-forma LCR, Pro-forma NSFR p. 235–237
➔ Asset funding p. 241
➔ Business risk: Measurement of
performance p. 43 / 45
3. Top and emerging risks
Qualitative and quantitative description of top and
emerging risks in relation to our business activities and
developments of such risks during the reporting period
➔ Risk factors p. 63 – 77
➔ Risk, treasury and capital management
– Key developments p. 166 / 167
➔ Top and emerging risks p. 171 / 172
4. Regulatory ratio developments
Description of new key regulatory
ratios, pro-forma disclosures for
these ratios in accordance with
FINMA guidance, and information
on UBS’s implementation plan for
adopting the new requirements
Liquidity
Capital
➔ Strategy and objectives p. 235
➔ Liquidity management p. 236
➔ Liquidity and funding regulatory
requirements p. 235
➔ Our capital ratios and targets p. 246
➔ Our capital requirements p. 249
➔ Capital requirements, Capital ratios
p. 250, p. 252
➔ Swiss SRB leverage ratio framework,
Swiss SRB leverage ratio (UBS Group)
p. 268–270
Risk governance and risk management strategies / business model
5. Risk management organization
Summary overview of our key roles
and responsibilities for managing
risks
Organization
and
responsibilities
Processes for
managing key
risks
➔ Risk definitions p. 170
➔ Risk governance p. 173 / 174
➔ Risk appetite framework p. 174 – 177
➔ Overview of measurement, monitoring
and management techniques: Credit risk
p. 181; Market risk p. 206
➔ Country risk framework p. 223
➔ Operational risk framework p. 229
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
159
Risk, treasury and capital management Risk, treasury and capital management
Implementation of the recommendations of the Enhanced Disclosure Task Force (EDTF)
EDTF recommendations and our disclosures
Location of the disclosures
Operating environment and
strategy / risk, treasury and capital
management / corporate governance,
responsibility and compensation
Financial information
UBS Group AG
consolidated
supplemental
disclosures required
under Basel III Pillar 3
regulations
–
–
–
–
–
–
–
–
–
–
Credit risks:
➔ Table 3: Regulatory
gross credit risk
by exposure segment
and RWA
➔ Table 4: Regulatory
gross credit exposure
by geographical region
➔ Table 5: Regulatory
gross credit exposure
by counterparty type
➔ Table 6: Regulatory
gross credit exposure
by residual contractual
maturity
➔ Table 14: Equity
instruments in the
banking book
–
Risk culture
➔ Risk principles and risk culture p. 175 – 177
6. Risk culture
Overview of our principles with
respect to risk-taking measures
in place to maintain the desired
risk culture
Procedures
and strategies
applied to
support the
culture
7. Business model
Risk origination resulting from our
business activities and description of
how the risks relate to line items
in the balance sheet and income
statement
Sources of risk
and risk
management
➔ Organizational principles and structure
(Audit Committee, Human Resources and
Compensation Committee, Risk
Committee) p. 299 – 300
➔ Corporate responsibility p. 315
➔ Qualitative measures used in determining
compensation p. 342 / 343, 345, 348, 351
and 360
➔ Risk factors p. 63 – 77
➔ Overview of risks arising from our
business activities p. 168
➔ Key risks, risk measures and performance
by business division and Corporate Center
p. 169
➔ Risk measures and performance p. 169
➔ Main sources of credit risk p. 181
➔ Main sources of market risk p. 206
➔ Currency management p. 244
➔ Risk, treasury and capital management
– Key developments p. 166 / 167
➔ Risk appetite framework p. 174 – 177
Market risks:
➔ Market risk exposures arising from our
business activities p. 207 – 208
Risk appetite in
the context
of the business
model
Risk measures
and relation of
risk measures to
line items in the
balance sheet
and income
statement
8. Stress testing
Information on the use of stress testing within our risk
governance and appetite framework, on scenarios
applied and agreed with the regulators and the
linkage of stress testing results to our risk appetite
➔ Risk appetite framework p. 174 – 177
➔ Stress testing p. 178 / 179
➔ Credit risk: stress loss p. 201
➔ Market risk stress loss p. 209
➔ Stress testing p. 239
➔ Consideration of stress scenarios
p. 245 / 246
160
EDTF recommendations and our disclosures
Location of the disclosures
Operating environment and
strategy / risk, treasury and capital
management / corporate governance,
responsibility and compensation
Financial information
Capital adequacy and risk-weighted assets
9. Minimum capital requirements
Pillar 1 capital requirements, including capital
surcharges for G-SIBs and the application
of counter-cyclical and capital conservation buffers
10. Components of capital
Summary of the information as disclosed in
the Pillar 3 report on capital
➔ Swiss SRB Basel III capital framework (UBS
Group), Regulatory framework p. 249
➔ Capital requirements p. 250
➔ Swiss SRB Basel III available capital versus
capital requirements (phase-in) p. 251
➔ Swiss SRB Basel III capital information
p. 251
➔ FINMA increment to our AMA based
operational risk-related RWA p. 230–231
➔ Eligible capital p. 252
➔ Reconciliation IFRS equity to Swiss SRB
Basel III capital p. 254
➔ Additional tier 1 and tier 2 capital
instruments p. 255
11. Flow statement of capital
Tabular information in prescribed format
➔ Swiss SRB Basel III capital movement
p. 253
12. Strategic and capital planning
Management’s view on the required or targeted level
of capital and how this will be established
➔ Our strategy p. 39
➔ Capital management p. 245 / 248
13. Risk-weighted assets and related
business activities
Information on our RWA, and related capital
requirements together with underlying exposures
14. Capital requirements for each risk type
Quantitative information accompanied by reference
to significant models used
➔ Information on Corporate Center RWA
in tables Composition of Non-core and
Composition of Legacy Portfolio
p. 233 / 234
➔ Risk-weighted assets (UBS Group) p. 261
➔ Basel III RWA by risk type, exposure
and reporting segment p. 262 – 264
Overview:
➔ Risk-weighted assets (UBS Group) p. 261
Market risks:
➔ Derivation of regulatory VaR-based RWA
and related calculations p. 213
➔ Derivation of SVaR-based RWA and
related calculations p. 214
➔ Derivation of RWA add-on for risks-not-
in-VaR and related calculations p. 216
➔ Derivation of IRC-based RWA and related
calculations p. 217
➔ Derivation of CRM-based RWA and
related calculations p. 218
–
–
–
–
–
–
UBS Group AG
consolidated
supplemental
disclosures required
under Basel III Pillar 3
regulations
–
➔ Table 31:
Composition of
capital
–
–
➔ Table 2: Detailed
segmentation of
Basel III exposures
and risk-weighted
assets
➔ Table 3: Regulatory
gross credit risk by
exposure segment
and RWA
➔ Table 2: Detailed
segmentation of
Basel III exposures
and risk-weighted
assets
➔ Table 3: Regulatory
gross credit risk by
exposure segment
and RWA
161
Risk, treasury and capital management Risk, treasury and capital management
Implementation of the recommendations of the Enhanced Disclosure Task Force (EDTF)
EDTF recommendations and our disclosures
Location of the disclosures
Operating environment and
strategy / risk, treasury and capital
management / corporate governance,
responsibility and compensation
Financial information
15. Credit risk analysis
Break-down of the credit risk exposures by regulatory
parameters and based on a 14-point UBS internal
scale
➔ Internal UBS rating scale and mapping of
–
external ratings p. 200
UBS Group AG
consolidated
supplemental
disclosures required
under Basel III Pillar 3
regulations
Regulatory net credit
exposure, weighted
average PD, LGD and
RWA by internal UBS
ratings:
➔ Table 9a: Sovereigns –
Advanced IRB
approach
➔ Table 9b: Banks –
Advanced IRB
approach
➔ Table 9c: Corporates –
Advanced IRB
approach
➔ Table 9d: Residential
mortgages – Advanced
IRB approach
➔ Table 9e: Lombard
lending – Advanced
IRB approach
➔ Table 9f: Qualifying
revolving retail
exposures – Advanced
IRB approach
➔ Table 9g: Other
retail – Advanced IRB
approach
➔ Standardized approach
Regulatory gross and net
credit exposure:
➔ Table 10a: by risk
weight under the
standardized approach
➔ Table 10b: under the
standardized approach
risk-weighted using
external ratings
–
–
16. Flow statement of risk-weighted assets
Tabular information in prescribed format
17. Credit risk model performance
Information on credit risk models including back
testing of probability of default, loss given default
and credit conversion factors as well as expected loss
analysis
➔ Basel III RWA movement by key driver
– phase-in p. 265
➔ RWA movement by risk type, exposure
and reporting segment p. 262 – 264
➔ Basel III RWA movement by key driver,
risk type and reporting segment p. 265
➔ Key drivers of RWA movement by risk type
p. 266 / 267
➔ Credit risk model confirmation p. 202
➔ Backtesting, Main credit models
backtesting by regulatory exposure
segment p. 202 / 203
➔ Changes to models and model parameters
during the period, Comparison of actual
versus expected loss, Total expected loss
and actual credit loss p. 203
–
–
162
EDTF recommendations and our disclosures
Location of the disclosures
Operating environment and
strategy / risk, treasury and capital
management / corporate governance,
responsibility and compensation
Financial information
UBS Group AG
consolidated
supplemental
disclosures required
under Basel III Pillar 3
regulations
Liquidity
18. Liquidity needs and reserves
Description of our approach to
liquidity management during the
normal course of business and
during crisis events
Liquidity risk
management
framework and
components
of liquidity
Limitations on
the use
of liquidity
reserves
➔ Strategy and objectives p. 235
➔ Liquidity management p. 236
➔ Contingency funding p. 236 / 237
➔ Stress testing p. 239
➔ Pro-forma liquidity asset buffer p. 237
➔ Governance p. 236
➔ Internal funding and funds transfer pricing
p. 240 / 241
➔ Asset encumbrance p. 237 / 238
–
–
19. Encumbered and unencumbered assets
Available and unrestricted assets to support potential
funding and collateral needs
➔ Asset encumbrance p. 237 / 238
➔ Credit ratings p. 242
➔ Note 25 Restricted
and transferred
financial assets
p. 492 – 495
20. Contractual maturity analysis
Analysis of assets, liabilities and off-balance sheet
commitments based on the earliest date on which
we could be required to pay / latest maturity date of
assets, indicating behavioral characteristics as
presumed by UBS in order to adjust contractual
maturities for risk management purposes
➔ Maturity analysis of assets and liabilities
p. 242 / 243
➔ Long-term debt – contractual maturities
p. 240
➔ Stress testing p. 239
21. Funding strategy
Description of our approach to funding, available
funding sources, dependencies and concentrations
➔ Funding management p. 239 / 240
➔ Funding by product and currency p. 239
➔ Internal funding and funds transfer pricing
Market risk
22. Market risk linkage to the balance sheet
Presentation of trading and non-trading market risk
factors relevant to the UBS business, including
quantitative and qualitative information on the
risk factors
23. Market risk analysis
Qualitative and quantitative breakdowns of significant
trading and non-trading market risk factors
p. 240
➔ Changes in sources of funding during
the reporting period p. 241
➔ Funding by currency p. 240
➔ Asset funding p. 241
➔ Market risk exposures arising from our
business activities p. 207 / 208
➔ Effect of interest rate changes on
shareholders’ equity and Basel III CET1
capital p. 219 – 221
➔ Refer also to EDTF 7 Business model and
EDTF 13 Risk-weighted assets and related
business activities above for further cross-
references
➔ Trading market risk disclosures for VaR,
SVaR, IRC, CRM and securitization
positions p. 209 – 219
➔ Interest rate risk in the banking book
p. 219 – 221
➔ Other market risk exposures p. 221 / 222
–
–
–
–
–
–
–
–
–
–
–
163
Risk, treasury and capital management Risk, treasury and capital management
Implementation of the recommendations of the Enhanced Disclosure Task Force (EDTF)
EDTF recommendations and our disclosures
Location of the disclosures
Operating environment and
strategy / risk, treasury and capital
management / corporate governance,
responsibility and compensation
Financial information
UBS Group AG
consolidated
supplemental
disclosures required
under Basel III Pillar 3
regulations
–
–
–
–
–
24. Market risk measurement model performance
Qualitative and quantitative information on our
primary market risk measurement models VaR and
market risk stress loss, their methodology,
assumptions, model limitations and back testing
➔ Value-at-Risk p. 209 – 213
➔ VaR limitations, Backtesting of VaR p. 212
➔ Development of backtesting revenues
against backtesting VaR, VaR model
confirmation p. 213
25. Other market risk management techniques
Qualitative and quantitative information on each of
our complementary market risk measurement models,
methodology, assumptions, model limitations and
back testing
➔ Market risk stress loss p. 209
➔ Stressed VaR p. 214 / 215
➔ Risks-not-in-VaR p. 216
➔ Incremental risk charge p. 217
➔ Comprehensive risk measure p. 218
–
–
Credit risk
26. Analysis of credit risk exposures
Presentation of the credit risk profile and of significant
credit risk components in each business division by
relevant parameters such as region, industry sector or
banking products
➔ Credit risk profile of the Group – IFRS view
p. 182 – 189
➔ Credit risk profile of the Group – Internal
risk view p. 191 – 197
➔ Exposures to selected eurozone countries
➔ Due from banks and
loans p. 779 – 780
p. 224 / 225
➔ Exposures from single-name credit default
swaps referencing to Greece, Italy, Ireland,
Portugal or Spain p. 226
➔ Emerging markets net exposure by internal
27. Policies for impaired and non-performing loans
Treatment of claims where payments are past due or
other criteria indicating non-performance are met, or
where there is objective evidence that amounts due
cannot be fully collected
UBS country rating category p. 226
➔ Emerging market exposures by major
geographical region p. 227
➔ Policies for past due, non-performing and
➔ Allowances and
impaired claims p. 204 / 205
provisions for credit
losses in Note 1
Summary of
significant accounting
policies p. 410 – 411
➔ Note 12 Allowances
and provisions for
credit losses
p. 441
➔ Impaired and non-
performing loans
p. 781
➔ Summary of
movements in
allowances and
provisions for credit
losses p. 783
➔ Allocation of the
allowances and
provisions for credit
losses p. 784
28. Analysis of impaired and non-performing loans
Overview of balances and development of claims
which meet the criteria in our policies for non-
performing or impaired loans
➔ Impaired assets p. 185 – 189
➔ Past due but not impaired loans p. 190
164
EDTF recommendations and our disclosures
Location of the disclosures
29. Counterparty credit risk from
derivative transactions
Quantitative and qualitative analysis
of the counterparty credit risk that
arises from our derivatives
transactions
30. Credit risk mitigation
Information on our use of collateral and credit hedging
Operating environment and
strategy / risk, treasury and capital
management / corporate governance,
responsibility and compensation
Financial information
➔ Traded products p. 196 – 197
➔ Note 14 Derivative
instruments and
hedge accounting
p. 443 – 450
➔ Note 26 Offsetting
financial assets and
financial liabilities
p. 495 – 497
➔ Maximum exposure to credit risk
➔ Note 11 Cash
p. 182 / 183
➔ Credit risk mitigation p. 198 / 199
collateral on securities
borrowed and lent,
reverse repurchase
and repurchase
agreements, and
derivative instruments
p. 440
➔ Note 26 Offsetting
financial assets and
financial liabilities
p. 495 – 497
Other risks
31. Other risks
Description of how we identify, measure and manage
risks consequential to our business activities other
than credit, market, liquidity, funding, operational and
foreign exchange risks
32. Publicly known risk events
Information on matters that management considers
to be material or otherwise significant due to potential
financial, reputation or other effects, together with
disclosures on the effect on our business, the lessons
learned and the resulting changes to risk processes
already implemented or in progress
➔ Risk factors p. 63 – 77
➔ Corporate responsibility p. 318 – 322
➔ Risk categories p. 170
–
➔ Impact of Swiss National Bank actions p. 29
➔ Operational risk – Key developments during
the period p. 228 / 229
➔ Note 22 Provisions
and contingent
liabilities p. 459 – 468
➔ Note 37 Events after
the reporting period
p. 545
UBS Group AG
consolidated
supplemental
disclosures required
under Basel III Pillar 3
regulations
➔ Table 12 Credit
exposure of derivative
instruments
–
–
–
165
Risk, treasury and capital management Risk, treasury and capital management
Key developments
Key developments
In line with our strategy, we continued to actively manage down risks in the Non-core and Legacy Portfolio while
increasing lending in our wealth management business. Our Investment Bank continued to operate within strict risk
limits and we continued to manage market risks at low levels. Overall net credit loss expenses for the year remained low.
We remained focused on further improving our Compliance & Operational Risk Control framework capabilities while
noting the elevated level of potential litigation and regulatory risks that UBS and the industry is facing. We maintained a
sound liquidity position throughout the year and we further strengthened our funding profile through the issuance of
low-trigger loss-absorbing Basel III-compliant subordinated notes, several senior unsecured bonds and a covered bond
issuance. At the end of 2014, our Basel III common equity tier 1 (CET1) capital ratio was 13.4% on a fully applied basis,
above our target of at least 13%, and 19.4% on a phase-in basis. Our Basel III fully applied CET1 capital ratio is the
highest in our peer group of large global banks and our strong capital position is the foundation of our success.
Key developments in 2014 included the following:
Credit risks
characterized by concentrated exposure to lower-rated credits,
albeit of a temporary nature. ▲
➔ Refer to “Credit risk” in the “Risk management and control”
section of this report for more information
EDTF | Credit risk continues to account for a significant portion of
Basel III RWA. The size of our impaired loan portfolio remained
unchanged at CHF 1.2 billion and our net credit loss expenses
remained relatively low, totalling CHF 78 million for the year.
A substantial portion of our lending exposure arises from our
Swiss domestic business, which offers corporate loans and mort-
gage loans secured against residential properties and income-
producing real estate and is therefore tied to the health of the
Swiss economy. Although these domestic lending portfolios con-
tinued to perform well and net credit loss expenses and delin-
quency levels remained low, we are closely monitoring macro-
economic developments in our home market. During 2014, key
areas of focus included the Swiss real estate and mortgages mar-
kets, conditions in the eurozone, which remain fragile, and the
potential implications of the decision to reinstate immigration
quotas for European Union / European Economic Area countries.
The potential implications of the decision in January 2015 by the
Swiss National Bank (SNB) to discontinue the minimum targeted
exchange rate for the Swiss franc versus the euro, which had
been in place since September 2011, allowing the Swiss franc to
strengthen, is also of concern. Given the reliance of the Swiss
economy on exports, the stronger Swiss franc may have a nega-
tive impact on the Swiss economy, which could impact some of
the counterparties within our domestic lending portfolio and
lead to an increase in the level of credit loss expenses in future
periods.
In our wealth management businesses outside Switzerland, we
experienced increases in credit exposures in line with our strategy
to grow our lending businesses. Increases in reported credit expo-
sure also reflect the strengthening of the US dollar against the
Swiss franc. Within the Investment Bank, our credit exposure is
predominantly investment grade, but includes loan underwriting
166
Market risks
EDTF | We maintained a low level of market risk in our trading busi-
nesses. Average management VaR has remained relatively stable
compared with 2013. With management VaR at such low levels,
we continue to see some volatility in the measure resulting from
sizable client trades such as equity block transactions. ▲
➔ Refer to “Market risk” in the “Risk management and control”
section of this report for more information
Non-core and Legacy Portfolio
EDTF | We made substantial progress in further reducing risks in our
Non-core and Legacy Portfolio, achieving a reduction in RWA
from CHF 64 billion to CHF 36 billion and the Swiss SRB leverage
ratio denominator from CHF 160 billion to CHF 93 billion, as of
31 December 2014.
We exited the Non-core correlation trading portfolio market risk
through the execution of a series of back-to-back trades, and sub-
sequently completed all targeted novations to substantially elimi-
nate the counterparty risk. We further reduced counterparty risk
across Non-core through bilateral settlements, portfolio compres-
sions and negotiated assignments and novations.
In the Legacy Portfolio, we obtained full repayment on the loan
to the BlackRock fund, exited a significant portion of our remain-
ing credit risk to monoline insurers, and disposed of all remaining
student loan auction rate securities positions. ▲
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
the “Risk management and control” section of this report for
more information
Consequential risks
EDTF | Operational risk is an inevitable consequence of being in
business and managing it is a core element of our business activi-
ties, implemented through our operational risk framework and an
effective front-to-back control environment. The impact of opera-
tional risk remains at elevated levels, including that arising from
pending or potential litigation and regulatory risks as discussed in
“Top and emerging risks” in the “Risk management and control”
section of this report. The significance of these risks is reflected in
the level of our operational risk RWA disclosed in the “Capital
management” section of this report, for which the calculation
takes into consideration UBS and industry experience, including
historical losses arising from litigation, regulatory and similar mat-
ters. The various disputes and legal proceedings, including litiga-
tion, arbitration and regulatory and criminal investigations in
which UBS is involved, are discussed in “Note 22 Provisions and
contingent liabilities” in the “Financial information” section of
this report and, within the “Capital management” section, we
provide the estimated loss in capital that we could incur as a result
of these matters.
As of 1 January 2014, our Operational Risk Control unit
merged with our compliance function to manage the Group’s
compliance, conduct and operational risks in a more integrated
and effective way, and strengthening our capabilities across the
combined function has been a major focus for the year.
We have taken a major step forward in improving the effec-
tiveness of consequential risk management through clear delinea-
tion between the risk management responsibilities of business
management and those of the control functions, our first and
second lines of defense, in order to strengthen the overall control
environment and uphold the UBS behaviors.
We have commenced a significant program of work to en-
hance our surveillance and monitoring capabilities and are ex-
tending the use of analytical techniques to allow us to proactively
detect relevant policy breaches and suspicious patterns to identify
emerging risks and behavior that may unfairly impact the financial
markets or clients, or contravene laws or regulations. The en-
hanced surveillance and monitoring will further help to enhance
our cross border framework. The importance of behavioral as-
pects for protecting the reputation of our firm was further em-
phasized through various initiatives and policies discussed in “Risk
principles and risk culture” in the “Risk management and con-
trol” section of this report. Further, we have defined a compre-
hensive conduct risk framework and initiated its implementation
through a pilot project in the UK which will now be expanded
globally. The conduct risk framework will help us to manage the
increasingly important suitability risk, which is an area of signifi-
cant regulatory focus.
Other key areas of focus include maintaining the operational
resilience of the firm through a continued period of significant
restructuring and ensuring that the financial crime risk control
environment remains effective and consistently updated to reflect
new threats given both geopolitical changes and cyber-crime.
Cyber-attacks against the financial industry are becoming
increasingly sophisticated and we continue to make significant
investments in dedicated security programs to continually
strengthen our cyber defense. ▲
Liquidity management
EDTF | We continued to maintain a sound liquidity position through-
out the year. As of 31 December 2014, our pro-forma regulatory
liquidity coverage ratio (LCR) was 123%, and we maintained a
strong liquid asset buffer of CHF 188 billion. ▲
➔ Refer to the “Treasury management” section of this report for
more information
Funding management
EDTF | During 2014 we further strengthened our funding profile
through the issuance of low-trigger loss-absorbing Basel III-com-
pliant subordinated notes, as well as several senior unsecured
bonds and a covered bond. ▲
➔ Refer to the “Treasury management” section of this report for
more information
Capital management
EDTF | Our strong capital position provides us with a solid founda-
tion for growing our business and enhancing our competitive po-
sitioning. At the end of 2014, our common equity tier 1 (CET1)
capital ratio was 13.4% on a fully applied basis and 19.4% on a
phase-in basis, a further increase compared with year-end 2013
ratios, and the highest Basel III fully applied CET1 capital ratio in
our peer group of large global banks. Our Swiss SRB leverage ratio
increased 0.7 percentage points to 4.1% on a fully applied basis
and 0.7 percentage points to 5.4% on a phase-in basis, and we
are well on track to achieve our expected 2019 fully applied re-
quirement. ▲
➔ Refer to the “Capital management” section of this report for
more information
167
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Risk management and control
Overview of risks arising from our business activities
EDTF | Our business is constrained by the capital we have available
to cover risk-weighted assets (RWA) resulting from the risks in our
business, by the size of our on and off-balance sheet assets
through their contribution to our leverage ratio and regulatory
liquidity ratios, and by our risk appetite. Together, these con-
straints create a close link among our strategy, the risks that our
businesses take and the balance sheet and capital resources that
we have available.
As described in the “Capital management” section of this re-
port, our equity attribution framework reflects our objectives of
maintaining a strong capital base and managing our businesses
in a way that they appropriately balance profit potential, risk, bal-
ance sheet and capital usage. The framework establishes this link
through the inclusion of RWA, Swiss SRB leverage ratio denomi-
nator (LRD) and risk-based capital (RBC), an internal measure of
risk similar to economic capital, as three key drivers for the alloca-
tion of tangible equity to our business divisions and Corporate
Center. In addition to tangible equity, we allocate equity to sup-
port goodwill and intangible assets as well as certain capital
deduction items to arrive at equity attributed to the business divi-
sions and Corporate Center.
The table on the next page presents for each of our business
divisions and Corporate Center the correlation between their risk
exposures, the constraints described above and their perfor-
mance. In addition to the key risks inherent in each business divi-
sion and Corporate Center, the table presents together the key
drivers of tangible attributed equity, being RWA, LRD and RBC, as
well as tangible attributed equity, total assets and adjusted oper-
ating profit before tax. We present tangible attributed equity, be-
cause we consider it to be more closely correlated with the risk
measures applied. This helps explain how the activities in our busi-
ness divisions and Corporate Center are reflected in our risk mea-
sures, and the performance of the business divisions and Corpo-
rate Center in the context of these requirements. ▲
➔ Refer to the “Capital management” section of this report for
more information on RWA, LRD and our equity attribution
framework
➔ Refer to “Statistical measures” in this section for more informa-
tion on RBC
➔ Refer to the table “Adjusted results” in the “Group performance”
section of this report for more information
168
EDTF | Key risks, risk measures and performance by business division and Corporate Center
Business divisions
and Corporate
Center
Key risks arising
from business
activities
Wealth
Management
Credit risk from
lending against
securities collateral
and mortgages,
and a small
amount of
derivatives trading
activity. Minimal
contribution
to market risk
Wealth
Management
Americas
Credit risk from
lending against
securities collateral
and mortgages
Market risk
from municipal
securities and
closed-end fund
secondary trading
Retail &
Corporate
Global Asset
Management
Investment Bank
CC – Core
Functions
Small amounts
of credit and
market risk
Credit risk from
retail, mortgage,
secured and
unsecured
corporate lending,
and a small
amount of
derivatives trading
activity. Minimal
contribution to
market risk
Credit risk from
lending, derivatives
trading
and securities
financing
Market risk
from trading in
equities, fixed
income, foreign
exchange (FX)
and commodities
Credit and
market risks from
Group Treasury’s
balance sheet,
capital, and
profit and loss
management
responsibilities
Liquidity, funding
and structural
FX risk are
managed centrally
within Group
Treasury
CC – Non-core
and Legacy
Portfolio
Credit risk from
remaining lending
and derivatives
exposures
Market risk,
mainly from
Non-core
exposures, is
materially hedged
and primarily
relates to liquid
market factors
Operational risk is an inevitable consequence of being in business, as losses can result from inadequate or failed internal processes, people and systems, or from external events.
It can arise as a result of our past and current business activities across all business divisions and Corporate Center.
▲
EDTF | Risk measures and performance
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
CC – Core
Functions
CC – Non-core
and Legacy
Portfolio
31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13
CHF billion, as of or for
the year ended
Pillar 3 | Risk-weighted
assets (phase-in) 1
of which: credit risk
of which: market risk
of which:
operational risk
Leverage ratio
denominator (phase-in) 3
Risk-based capital 4
Average tangible
attributed equity
25.8
12.3
0.0
21.4
11.9
0.0
21.9
8.7
1.0
24.5
8.1
1.6
34.4
31.4
0.0
31.4
29.9
0.0
12.9
9.2
11.9
14.8
1.6
1.4
138.3
122.1
1.3
2.7
1.7
2.7
63.3
1.1
2.1
56.0
57.2
1.2
2.2
45.5
165.9
164.7
3.0
4.1
3.7
4.1
143.7
141.4
3.9
3.0
0.0
0.8
14.9
0.3
0.5
15.2
3.8
2.7
0.0
1.1
14.0
0.6
0.5
14.2
67.0
35.0
13.6
62.6
35.5
7.6
32.2
21.3
5.3
(1.8) 2
4.8
(4.9) 2
35.7
12.8
3.6
63.5
31.3
9.4
18.1
19.4
12.2
9.2
19.3
22.8 ▲
288.3
270.3
6.8
7.4
6.5
7.9
292.3
240.0
240.8
13.4
12.0
257.8
234.5
13.6
93.4
3.6
8.7
4.9
247.4
169.8
160.0
4.6
10.8
215.1
Total assets
127.6
109.8
Operating profit / (loss)
before tax (adjusted) 5
2.5
2.4
0.9
0.9
1.6
1.5
0.5
0.6
0.2
2.5
(1.0)
(1.6)
(1.9)
(2.1)
1 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Refer to the “Capital management” section of this report for more information. 2 Negative market risk numbers are due
to the diversification effect allocated to CC – Core Functions. 3 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio
requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Refer to the “Capital management” section of this report for more
information. 4 Refer to “Statistical measures” in the “Risk management and control” section of this report for more information on risk-based capital. 5 Adjusted results are non-GAAP financial measures as defined
by SEC Regulations. Refer to the table “Adjusted results” in the “Group performance” section of this report for more information. ▲
169
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Risk categories
We categorize the risks faced by our business divisions and Corporate Center as outlined in the table below.
EDTF | Pillar 3 | Risk definitions
Primary risks: the risks that our businesses may take in pursuit of their business objectives
Audited | Credit risk: the risk of loss resulting from the failure of a client or counterparty to meet its
contractual obligations. This includes settlement risk and loan underwriting risk:
Settlement risk: the risk of loss resulting from transactions involving exchange of value where we
must fulfill our obligation to deliver without first being able to determine with certainty that we will
receive the counter value
Loan underwriting risk: the risk of loss arising during the holding period of financing transactions
which are intended for further distribution ▲
Audited | Market risk (traded and non-traded): the risk of loss resulting from changes in general
market risk factors (e.g., interest rates, equity index levels, exchange rates, commodity prices and general
credit spreads) and changes in prices of debt and equity instruments which result from factors and events
specific to individual companies or entities. Market risk includes issuer risk and investment risk:
Issuer risk: the risk of loss from changes in fair value resulting from credit-related events affecting an
issuer or group of related issuers, including sovereigns, to which we are exposed through tradable
securities or derivatives referencing the issuer
Investment risk: issuer risk associated with positions held as financial investments ▲
Risk managed by
Independent
oversight by
Captured in our risk
appetite framework
Business management
Risk Control
Business management
Risk Control
Country risk: the risk of losses resulting from country-specific events. It includes transfer risk, whereby
a country’s authorities prevent or restrict the payment of an obligation, as well as systemic risk events
arising from country-specific political or macroeconomic developments
Business management
Risk Control
Consequential risks: the risks to which our businesses are exposed as a consequence of being in business
Audited | Liquidity risk: the risk of being unable to generate sufficient funds from assets to meet pay-
ment obligations when they fall due, including in times of stress ▲
Group Treasury
Risk Control
Audited | Funding risk: the risk of higher than expected funding costs due to higher than expected UBS
credit spreads when existing funding positions mature and need to be rolled over, or replaced by other
more expensive funding sources. If a shortage of available funding sources is expected in a stress event,
funding risk also covers potential additional losses from forced asset sales ▲
Structural foreign exchange risk: the risk of decreases in our capital, due to changes in foreign
exchange rates with an adverse translation effect on capital held in currencies other than Swiss francs
Group Treasury
Risk Control
Operational risk: the risk of loss resulting from inadequate or failed internal processes, people and
systems, or from external events. Operational risk includes legal risk and compliance risk, including
employee conduct:
Legal risk: the risk of (i) financial loss resulting from the non-enforceability of a contract, or (ii) loss
due to UBS being held responsible for a contractual or legal claim, debt or legal action based on the
breach or default of a contract, commitment of a tort, violation of law, infringement of trademarks or
antitrust action
Compliance risk: the financial or reputational risk incurred by UBS by not adhering to the applicable
laws, rules and regulations, local and international best practice (including ethical standards) and
UBS’s own internal standards
Pension risk: the risk of a negative impact on other comprehensive income as a result of deteriorating
funded status from decreases in the fair value of assets held in the defined benefit pension funds and / or
changes in the value of defined benefit pension obligations, due to changes in actuarial assumptions
(e.g., discount rate, life expectancy, rate of pension increase) and / or changes to plan designs
Environmental and social risk: the possibility of UBS suffering reputational or financial harm from
transactions, products, services or activities that involve a party associated with environmentally or
socially sensitive activities
➔ Refer to the “Corporate responsibility” section of this report for more information
Business management
Risk Control
Legal
Risk Control
Human Resources
Risk Control and
Finance
Business management
Risk Control
Business risks: the risks arising from the commercial, strategic and economic environment in which our businesses operate
Business risks: the potential negative impact on earnings from lower than expected business volumes
and / or margins, to the extent not offset by a decrease in expenses
Business management
Finance
Reputation risks
Reputational risk: the risk of a decline in the reputation of UBS from the point of view of its
stakeholders – customers, shareholders, staff and the general public
All businesses and
functions
All control functions
170
▲▲
Top and emerging risks
EDTF | Our approach to identifying and monitoring top and emerg-
ing risks is an ongoing part of our risk management framework.
The top and emerging risks disclosed below reflect those risks that
we currently consider to have the potential for high impact on the
Group and which could materialize within one year. Investors
should also carefully consider all information set out in the “Risk
factors” section of this report, where we discuss the top and
emerging risks in more detail and where we also discuss other
risks we currently consider material, which we are presently aware
of and which may impact our ability to execute our strategy and
which may affect our business activities, financial condition, re-
sults of operations and prospects.
Regulatory and legislative changes: We continue to be exposed
to a number of regulatory and legislative changes, some of which
have already been adopted and implemented, but some of which
are subject to legislative action or to further rulemaking by regula-
tory authorities before final implementation. This results in uncer-
tainty as to whether and in which form these regulatory and leg-
islative changes will be adopted, the timing and content of
implementing regulations and interpretations and / or the dates of
their effectiveness. In addition, both adopted and proposed
changes differ significantly across the major jurisdictions, making
it increasingly difficult to manage a global institution and poten-
tially putting us at a disadvantage to those peers operating in ju-
risdictions considered to be less stringent.
We have programs in place to address the risks arising from
regulatory and legislative changes, including ongoing monitoring
of proposals, providing guidance and feedback to the relevant au-
thorities and developing internal assessment and implementation
plans. During 2014, our more active programs included those re-
lating to resolution planning and resolvability and changes to our
legal entity structure and operating model, and new and revised
capital, liquidity and funding-related regulations. We have made
good progress across all of these programs in preparing for their
implementation, including the establishment of UBS Group AG as
the holding company of the UBS Group. Our phase-in leverage
ratio and pro-forma LCR and net stable funding ratio (NSFR) as of
31 December 2014 were 5.4%, 123%, and 106%, respectively
and, based on our current understanding of the potential require-
ments, we expect to be in full compliance with all of these require-
ments when they become effective or fully applicable. ▲
➔ Refer to “Regulatory and legislative changes may adversely
affect our business and ability to execute our strategic plans” in
the “Risk factors” section of this report for more information
➔ Refer to the “Treasury management” section of this report for
more information on the LCR and the NSFR
➔ Refer to the “Capital management” section of this report for
more information on the leverage ratio
Legal and regulatory risks: EDTF | We are subject to a large num-
ber of claims, disputes, legal proceedings and government inves-
tigations and we anticipate that our ongoing business activities
will continue to give rise to such matters in the future. We con-
tinue to work on enhancing our operational risk framework and
our relationships with regulatory authorities and on resolving
open matters in a manner most beneficial to our stakeholders.
Information on those litigation, regulatory and similar matters
currently considered by management as significant is disclosed in
Note 22 of the “Financial information” section of this report. The
extent of our financial exposure to these and other matters could
be material and could substantially exceed the level of provisions
that we have established, which was CHF 3.1 billion as of 31 De-
cember 2014. At this point in time, we believe that the industry
continues to operate in an environment where charges 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. ▲
➔ Refer to “Material legal and regulatory risks arise in the conduct
of our business” in the “Risk factors” section of this report for
more information
Market conditions and the macroeconomic climate: EDTF | We
are exposed to a number of macroeconomic issues as well as
general market conditions. These external pressures may have
a significant adverse effect on our business activities and re-
lated financial results, primarily through reduced margins, asset
impairments and other valuation adjustments. Accordingly,
these macroeconomic factors are considered in our develop-
ment of stress testing scenarios for our ongoing risk manage-
ment activities.
Management continues to consider developments in the eu-
rozone to be of greatest significance to us, including their effect
on our domestic economy, and for which reason our Eurozone
Crisis scenario is used as the binding scenario in our risk appe-
tite framework. Economic growth in the region has remained
weak and, despite the launch of quantitative easing by the Eu-
ropean Central Bank, the prospect of a prolonged period of
stagnation remains. The economic effect of further sanctions
against Russia could also hamper any recovery. These ongoing
weaknesses, along with the resulting strength of the Swiss
franc against the euro, present challenges for the Swiss econ-
omy, as does the uncertainty surrounding the direction of the
Swiss National Bank’s monetary policy following the removal of
the targeted minimum exchange rate of the Swiss franc versus
the euro.
In addition, as our strategic plans depend more heavily upon
our ability to generate growth and revenue in emerging markets,
particularly in Asia, management is monitoring developments in
these regions very closely. ▲
➔ Refer to the “Regulatory and legal developments” section of this
➔ Refer to “Performance in the financial services industry is
report for more information on the Minder Initiative
affected by market conditions and the macroeconomic climate”
➔ Refer to “Operational risk” in this section for more information
in the “Risk factors” section of this report for more information
on the incremental operational risk capital requirement
171
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
➔ Refer to “Risk measurement” in this section for more informa-
tion on macroeconomic considerations, including stress testing
➔ Refer to “Country risk” in this section for more information on
our exposures to selected eurozone countries
Execution of our strategy: EDTF | In October 2012, we an-
nounced a significant acceleration in the implementation of our
strategy to focus our activities on a set of highly synergistic, less
capital and balance sheet-intensive businesses dedicated to serv-
ing clients and well-positioned to maximize value for sharehold-
ers. We have now substantially completed the transformation of
our business, but there remain elements of the implementation
that are not complete, including the achievement of greater ef-
fectiveness and efficiency, which is imperative for the successful
execution of our strategy. During 2014, we completed our Clean
Slate Budgeting and Planning process, which gave us clearer in-
sight into the major cost drivers in the business and allowed us to
plan in a more granular way how to deliver our cost reduction
targets. There continues to be a risk that we will not be successful
in completing the execution of our plans, or that our plans may be
delayed, that market events may adversely affect the implementa-
tion of our plan or that the effects of our plans may differ from
those intended. This could lead to a reduction in the confidence
of our stakeholders and challenges in meeting regulatory require-
ments in the future. ▲
➔ Refer to “We may not be successful in completing our an-
nounced strategic plans or in implementing changes in our
businesses to meet changing market, regulatory and other
conditions” in the “Risk factors” section of this report for more
information
➔ Refer to “Regulatory and legislative changes may adversely
affect our business and ability to execute our strategic plans” in
the “Risk factors” section of this report for more information
➔ Refer to “We hold legacy and other risk positions that may be
adversely affected by conditions in the financial markets; legacy
risk positions may be difficult to liquidate” in the “Risk factors”
section of this report for more information
Reputational risk: EDTF | Our reputation is critical to achieving our
strategic goals and financial targets and damage to our reputation
can have fundamental negative effects on our business and pros-
pects. This has been emphasized for us recently following events
such as the matters related to LIBOR and investigations of our for-
eign exchange business. This has triggered an enhanced focus on
improving and sustaining a strong risk culture and UBS behaviors
across the Group, the definition of a coherent and holistic conduct
risk framework, and the development of our surveillance and moni-
toring capabilities. ▲
➔ Refer to “Our reputation is critical to the success of our business”
in the “Risk factors” section of this report for more information
➔ Refer to “Risk culture” in this section for more information
➔ Refer to “Operational risk” in this section for more information
Other operational risks: EDTF | Due to the operational complexity
of all our businesses, we are continually exposed to operational
risks such as process error, failed execution and fraud. We believe
we have a strong operational risk management framework in
place to help ensure that these risks are appropriately controlled.
This framework has been significantly enhanced following the un-
authorized trading incident in 2011. In view of the changing na-
ture of operational risks and the environment within which we
operate, we continuously review our associated control frame-
works to allow us to make enhancements where necessary. In this
regard, key compliance risk focus areas for 2015 include the con-
tinued development of our surveillance and monitoring capabili-
ties and the global roll out of our conduct risk framework. We
also continue to focus on other areas in which we see developing
inherent risk including anti-money laundering, suitability, sanc-
tions and operational resilience issues related to the transforma-
tion of our business. Additionally, the increasingly complex threat
of cyber-attacks and cyber-criminal activity facing the financial
services industry is evolving and we continue to make significant
investments in dedicated security programs to continually en-
hance our cyber defense. ▲
➔ Refer to “Operational risks may affect our business” in the “Risk
➔ Refer to “We might be unable to identify or capture revenue or
factors” section of this report for more information
competitive opportunities, or retain and attract qualified
➔ Refer to “Operational risk” in this section for more information
employees” in the “Risk factors” section of this report for more
on our management of operational risk
information
➔ Refer to the “Our strategy” section of this report for more
information on our strategy
172
Risk governance
EDTF | Pillar 3 | Our risk governance framework operates along three
lines of defense. Business management, as the first line of de-
fense, own their respective risk exposures and are required to
maintain effective processes and systems to manage their risks,
including robust and comprehensive internal controls and docu-
mented procedures. Business management must also have ap-
propriate supervisory controls and review processes in place to
identify control weaknesses, inadequate processes and unex-
pected events. Control functions act as the second line of de-
fense, providing independent oversight of primary and conse-
quential risks. This includes setting risk limits and protecting
against non-compliance with applicable laws and regulations.
Group Internal Audit (GIA) forms the third line of defense, evalu-
ating the overall effectiveness of governance, risk management
and the control environment, including the assessment of how
the first and second lines of defense meet their objectives. ▲▲
These key roles and responsibilities for risk management and
control are illustrated in the following chart and described below.
(cid:35)(cid:87)(cid:70)(cid:75)(cid:86)(cid:71)(cid:70)(cid:2)(cid:94)(cid:2)(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:2)(cid:21)(cid:2)(cid:94)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:73)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:19)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:35)(cid:87)(cid:70)(cid:75)(cid:86)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:52)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)
(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:41)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:48)(cid:81)(cid:79)(cid:75)(cid:80)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:42)(cid:87)(cid:79)(cid:67)(cid:80)(cid:2)(cid:52)(cid:71)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:37)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:36)(cid:81)(cid:67)(cid:84)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:38)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:70)(cid:71)(cid:82)(cid:71)(cid:80)(cid:70)(cid:71)(cid:80)(cid:86)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:35)(cid:87)(cid:70)(cid:75)(cid:86)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:39)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:36)(cid:81)(cid:67)(cid:84)(cid:70)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:74)(cid:75)(cid:71)(cid:72)(cid:2)(cid:39)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:49)(cid:72)(cid:386)(cid:69)(cid:71)(cid:84)
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:37)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:46)(cid:71)(cid:73)(cid:67)(cid:78)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:74)(cid:75)(cid:71)(cid:72)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:49)(cid:72)(cid:386)(cid:69)(cid:71)(cid:84)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:74)(cid:75)(cid:71)(cid:72)(cid:2)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:49)(cid:72)(cid:386)(cid:69)(cid:71)(cid:84)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:41)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:37)(cid:81)(cid:87)(cid:80)(cid:85)(cid:71)(cid:78)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:46)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:42)(cid:71)(cid:67)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:46)(cid:47)
(cid:54)(cid:84)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:91)(cid:2)(cid:37)(cid:52)(cid:49)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:54)(cid:84)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:84)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:52)(cid:49)(cid:85)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:40)(cid:49)(cid:85)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:41)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:37)(cid:81)(cid:87)(cid:80)(cid:85)(cid:71)(cid:78)(cid:85)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:50)(cid:84)(cid:71)(cid:85)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:50)(cid:84)(cid:71)(cid:85)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:37)(cid:81)(cid:79)(cid:82)(cid:78)(cid:75)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:8)(cid:2)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:37)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:52)(cid:49)(cid:85)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:40)(cid:49)(cid:85)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:41)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:37)(cid:81)(cid:87)(cid:80)(cid:85)(cid:71)(cid:78)(cid:85)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)
(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)(cid:85)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)
(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)
(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)(cid:85)
(cid:50)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:49)(cid:88)(cid:71)(cid:84)(cid:85)(cid:75)(cid:73)(cid:74)(cid:86)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:47)(cid:71)(cid:86)(cid:74)(cid:81)(cid:70)(cid:81)(cid:78)(cid:81)(cid:73)(cid:91)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:41)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:37)(cid:49)(cid:49)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:73)(cid:84)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)
(cid:19)(cid:2)(cid:54)(cid:74)(cid:75)(cid:85)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:86)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:19)(cid:2)(cid:44)(cid:67)(cid:80)(cid:87)(cid:67)(cid:84)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:16)(cid:2)(cid:52)(cid:71)(cid:72)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:112)(cid:53)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:85)(cid:113)(cid:2)(cid:85)(cid:71)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:16)(cid:2)(cid:86)(cid:86)(cid:86)
173
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Audited | EDTF | Pillar 3 | The Board of Directors (BoD) is responsible
for determining the risk principles, risk appetite and major portfo-
lio limits of the Group, including their allocation to the business
divisions and Corporate Center. The risk assessment and manage-
ment oversight performed by the BoD considers evolving best
practices and is intended to conform to statutory requirements.
The BoD is supported by the BoD Risk Committee, which moni-
tors and oversees the risk profile of the Group and the implemen-
tation of the risk framework as approved by the BoD, as well as
assessing the Group’s key risk measurement methodologies. The
Corporate Responsibility Committee supports the BoD in fulfilling
its duty to safeguard and advance the Group’s reputation for re-
sponsible corporate conduct. It reviews and assesses stakeholder
concerns and expectations for responsible corporate conduct and
their possible consequences for UBS, and recommends appropri-
ate actions to the BoD. The Chairman of the BoD and the Audit
Committee oversee the performance of Group Internal Audit.
The Group Executive Board (GEB) implements the risk frame-
work, controls the Group’s risk profile and approves key risk poli-
cies.
The Group Chief Executive Officer (Group CEO) is responsible
for the results of the Group, has risk authority over transactions,
positions and exposures, and also allocates portfolio limits ap-
proved by the BoD within the business divisions and Corporate
Center.
Business management comprises divisional and regional Presi-
dents. The divisional Presidents are accountable for the results of
their business divisions. This includes actively managing their risk
exposures, and ensuring profit potential, risk, balance sheet and
capital usage are balanced. The regional Presidents coordinate
and implement UBS’s strategy in their region, jointly with the divi-
sional Presidents and heads of the control and support functions.
They have a veto power over decisions with respect to all business
activities that may have a negative regulatory or reputational im-
pact in their respective regions.
The Group Chief Risk Officer (Group CRO) reports directly to
the Group CEO and has functional and management authority
over Risk Control (including Compliance & Operational Risk Con-
trol) throughout the Group. Risk Control provides independent
oversight of all primary and most consequential risks as outlined
in “Risk categories.” This includes establishing methodologies to
measure and assess risk, setting risk limits, and developing and
operating an appropriate risk control infrastructure. The risk con-
trol process is supported by a framework of policies and authori-
ties. Divisional and regional Chief Risk Officers have delegated
authority for their respective divisions and regions. Further, au-
thorities are delegated to risk officers according to their expertise,
experience and responsibilities.
latory capital ratios. The Group CFO is also responsible for imple-
mentation of the associated control frameworks, with the
exception of the control framework for treasury activities, for
which responsibility is with Risk Control.
The Group General Counsel (Group GC) is responsible for im-
plementing the Group’s risk management and control principles
for legal matters, and for managing the legal function for the UBS
Group. The Group GC is responsible for reporting legal risks and
material litigation, and for managing legal, internal, special and
regulatory investigations.
Group Internal Audit (GIA) independently, objectively and sys-
tematically assesses the adherence to our strategy, the effective-
ness of governance, risk management and control processes at
Group, divisional and regional levels, including compliance with
legal, regulatory and statutory requirements, as well as with inter-
nal policies and contracts. GIA has a functional reporting line to
the Audit Committee. ▲▲▲
Risk appetite framework
EDTF | Pillar 3 | Our risk appetite is defined as the aggregate level and
types of risk that we are willing to accept or intend to avoid. It is
established via a complementary set of qualitative and quantita-
tive objectives defined on a Group-wide level and embedded
throughout our business divisions and legal entities through
Group, divisional and legal entity policies, limits and authorities.
These objectives are a critical foundation to maintaining a robust
risk culture throughout our organization and are aimed at ensur-
ing that our reputation is protected at all times. The chart “Risk
appetite framework” depicts the key elements of this framework,
which are described further below.
Qualitative statements, reflected in the Group’s Risk Manage-
ment and Control Principles, and various policies and initiatives,
ensure we maintain the desired risk culture.
Quantitative risk appetite objectives relate Group-wide risk ex-
posure to our risk capacity and are designed to ensure the Group’s
resilience against the impact of potential severe adverse economic
or geopolitical events. They cover areas such as the Group’s capi-
tal buffer, solvency, earnings, leverage and liquidity, and are sub-
ject to periodic review, including as part of the annual business
planning process.
These objectives are complemented by operational risk appe-
tite objectives, which are established for each of our operational
risk categories, for example market conduct, theft, fraud, data
confidentiality, and technology risks. Operational risk events
which exceed risk tolerances set according to predetermined per-
centages of the firm’s operating income must be escalated to the
divisional President or higher, as appropriate.
The Group Chief Financial Officer (Group CFO) is responsible
for ensuring that disclosure of our financial performance meets
regulatory requirements and corporate governance standards
with clarity and transparency. The Group CFO is also responsible
for the management of UBS’s tax affairs, treasury and capital, in-
cluding management of funding and liquidity risk and UBS’s regu-
The status of risk appetite objectives is evaluated each month,
and reported to the BoD and the GEB. Our risk appetite may
change over time and, as a consequence, portfolio limits and risk
authorities will be subject to periodic reviews and changes, in par-
ticular in the context of the annual business planning process. In
addition, the escalation triggers embedded in the firm’s Recovery
174
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:2)(cid:21)(cid:2)(cid:94)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:35)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:40)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:35)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:53)(cid:86)(cid:67)(cid:86)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:50)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)(cid:14)(cid:2)(cid:41)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:52)(cid:81)(cid:78)(cid:71)(cid:85)(cid:17)(cid:52)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:49)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:14)(cid:2)(cid:47)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:37)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:85)
(cid:115)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:37)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:2)(cid:50)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)
(cid:115)(cid:2)(cid:37)(cid:81)(cid:70)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:37)(cid:81)(cid:80)(cid:70)(cid:87)(cid:69)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:39)(cid:86)(cid:74)(cid:75)(cid:69)(cid:85)
(cid:115)(cid:2)(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:52)(cid:71)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:50)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)
(cid:115)(cid:2)(cid:49)(cid:84)(cid:73)(cid:67)(cid:80)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:52)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:17)(cid:50)(cid:81)(cid:78)(cid:75)(cid:69)(cid:75)(cid:71)(cid:85)
(cid:115)(cid:2)(cid:52)(cid:81)(cid:78)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:52)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:115)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:35)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:49)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:115)(cid:2)(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:35)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:49)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:115)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:47)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:40)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:85)
(cid:115)(cid:2)(cid:35)(cid:87)(cid:86)(cid:74)(cid:81)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:46)(cid:75)(cid:79)(cid:75)(cid:86)(cid:85)(cid:2)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:52)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:38)(cid:75)(cid:85)(cid:69)(cid:78)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)
(cid:10)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:14)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:11)
(cid:86)(cid:86)
Plan are drawn from the set of risk limits that management mon-
itors on a routine basis.
Our risk appetite framework, which includes a formal risk appe-
tite statement and is encompassed in a single, formal policy, con-
forms to the Financial Stability Board’s “Principles for An Effective
Risk Appetite Framework” published on 18 November 2013. ▲▲
Together, these aim to align the decisions we make with the firm’s
strategy, principles and risk appetite. They help define who we are
and the way we operate each day, providing a solid foundation for
promoting risk awareness, ensuring appropriate risk taking and
establishing robust risk management and control processes. ▲
Risk principles and risk culture
EDTF | A strong and dynamic risk culture is a prerequisite for success
in today’s highly complex operating environment. We are focused
on fostering and further strengthening our culture as a source of
sustainable competitive advantage both from a risk and a perfor-
mance point of view. By placing prudent and disciplined risk-tak-
ing at the center of every decision, we want to achieve our goal
of delivering unrivaled client satisfaction, creating long-term value
for stakeholders, and making UBS one of the most attractive com-
panies to work for in the world.
Pillars, Principles and Behaviors
EDTF | Our risk culture is based on our three keys to success – Pillars
(capital strength, efficiency and effectiveness, and risk manage-
ment), Principles (client focus, excellence and sustainable perfor-
mance), and Behaviors (integrity, collaboration and challenge). A
strong emphasis is placed on every individual’s accountability for
adhering to our principles and behaviors at all times, with an un-
remitting focus on the long-term objectives and success of UBS,
thereby safeguarding the firm’s reputation, our most valuable
asset. ▲
Our risk appetite framework combines all the important ele-
ments of our risk culture, expressed in our Pillars, Principles and
Behaviors, our Risk Management and Control Principles, our Code
of Business Conduct and Ethics, and our Total Reward Principles.
Risk Management and Control Principles
EDTF | These principles highlight the key aspects of our risk man-
agement and control philosophy, and are consistent with the
three-lines-of-defense model. ▲
EDTF | Risk management and control principles
Protection of
financial strength
Protection of reputation
Business management
accountability
Independent controls
Risk disclosure
Protecting the financial strength
of UBS by controlling our risk
exposures and avoiding potential
risk concentrations at individual
exposure levels, at specific
portfolio levels and at an aggre-
gate firm-wide level across all
risk types
Protecting our reputation
through a sound risk culture
characterized by a holistic
and integrated view of risk, per-
formance and reward, and
through full compliance with our
standards and principles,
particularly our Code of Business
Conduct and Ethics
Ensuring management account-
ability, whereby business
management, as opposed to Risk
Control, owns all risks assumed
throughout the firm and is
responsible for the continuous
and active management of all
risk exposures to ensure that risk
and return are balanced
Independent control functions
which monitor the effectiveness of
the business’s risk management
and oversee risk-taking activities
Disclosure of risks to senior
management, the Board of
Directors, investors, regulators,
credit rating agencies and other
stakeholders with an appropriate
level of comprehensiveness and
transparency
▲
175
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Code of Business Conduct and Ethics
EDTF | The Code of Business Conduct and Ethics (the “Code”) en-
shrines the principles and practices that all our employees and
BoD members are required to follow unreservedly, both in letter
and in spirit, supported by an annual adherence certification pro-
cess. Included in the Code are requirements covering laws, rules
and regulations, ethical and responsible behavior, information
management, the work environment, social responsibility and dis-
ciplinary measures. ▲
Total Reward Principles
EDTF | Our performance measurement and management process
requires that all employees have risk objectives aligned to their
roles and responsibilities. This helps reinforce their understanding
that rigorous risk management plays an essential role in our ef-
forts to deliver the best possible client experience and achieve our
business objectives. In short, everyone at UBS is responsible for
anticipating, addressing and managing risks. The performance
measurement and management process links into the Group’s
compensation framework.
Our compensation philosophy is to provide our employees
with compensation that recognizes their individual contributions
and clearly links their pay to performance – not simply the delivery
of business targets, but also how those results were achieved. As
explained in more detail in the “Compensation” section of this
report, the performance of GEB members includes both quantita-
tive and qualitative factors. Qualitative factors include reinforcing
a culture of accountability and responsibility, demonstrating com-
mitment to being a responsible corporate citizen and acting with
integrity in all interactions with our stakeholders.
The “Compensation” section of this report explains how the
compensation of each employee is based on the individual’s con-
tribution (absolute and relative) and shows how the individual’s
contribution to promoting our principles and standards of behav-
iors is factored into the compensation process. The process in-
cludes an examination of the individual’s efforts to actively man-
age risk, striking an appropriate balance between risk and reward,
and to what extent the individual exhibited professional and ethi-
cal behavior. Forfeiture provisions enable the firm to forfeit some,
or all, of any unvested deferred portion of compensation should
an employee commit certain harmful acts. ▲
➔ Refer to the “Our employees” and “Compensation” sections of
this report for more information
EDTF | In embedding the desired risk culture within the Group,
these principles are supported by a range of initiatives covering em-
ployees at all levels, which include the elements described below. ▲
House View on Leadership
EDTF | Leadership is a critical component in developing a culture that
is a source of pride and competitive advantage. Formally intro-
duced in September 2014, the UBS House View on Leadership is a
set of explicit expectations for staff in leadership positions across
the firm. It was developed by a cross-business group of employees
and external experts and chaired by the Group Executive Board,
with the aim to improve hiring decisions as well as to support the
development and promotion of present and future UBS leaders,
setting consistent standards across UBS. It was embedded into the
2014/2015 Managing Director promotion process, and in 2015 it
will be embedded into all promotion, hiring and development
decisions for positions at Director level and higher. ▲
Principles of good supervision
EDTF | The Group has defined principles of good supervision, which
establish clear expectations of managers and employees with re-
spect to supervisory responsibilities, specifically: to take responsibil-
ity, to organize their business, to know their employees and what
they do, to know their business, to create a good compliance cul-
ture and to respond to and resolve issues. Supervisors are expected
to understand and set a good example of professional behavior
and to act as role models, to be open about issues, to be alert to
unusual behavior and to act on any red flags, ensuring that issues
are resolved. To ensure adherence, frameworks have been estab-
lished which are subject to periodic review and assessment. ▲
Whistleblowing
EDTF | We continue to promote a culture of constructive challenge,
encouraging employees to speak up. Our whistleblowing policy
provides a formal framework and multiple channels for all em-
ployees to raise concerns, either openly or anonymously, about
suspected breaches of laws, regulations, rules and other legal re-
quirements to which the Group is subject, or our Code of Business
Conduct and Ethics, policies, or any relevant professional stan-
dards. Strengthened procedures and governance introduced in
2014 provide improved consistency in capturing, assessing,
invest igating and reporting of issues. ▲
Compliance and risk training
EDTF | We have a mandatory training program in place for all employ-
ees covering a range of compliance and risk-related topics, including
anti-money laundering and operational risk. In addition, more spe-
cialized training is provided for employees depending on their spe-
cific roles and responsibilities, such as training on credit risk and
market risk for those working in trading areas. During 2014, em-
ployees were required to complete in aggregate over 700,000 man-
datory training sessions, an increase of approximately 40% from
2013 as we continue to focus on strengthening our risk culture. As
a rule, the training sessions need to be completed, usually together
with an assessment, within a specified deadline. Failure to complete
mandatory training sessions satisfactorily within 30 days of the
deadline results in disciplinary action, usually in the form of a written
warning, with employees still required to complete the training. In
2014, our ultimate completion rate for these mandatory training
sessions was 100%. Failure to complete two or more training ses-
sions within 20 days of the deadline, results in a referral into the
Non-Disciplinary Control Issue (NDCI) process, which is factored into
the performance measurement and management process, as well
as the related promotion and compensation processes. ▲
176
Quantitative risk appetite objectives
EDTF | Pillar 3 | Through a set of quantitative risk appetite objectives,
we aim to ensure that our aggregate risk exposure remains within
our desired risk capacity, based on our capital and business plans.
The specific definition of risk capacity for each objective seeks to
ensure that we have sufficient capital, earnings and funding li-
quidity to protect our business franchises and exceed minimum
regulatory requirements under a severe stress event. The risk ap-
petite objectives are evaluated as part of the annual business
planning process, and approved by the BoD. The comparison of
risk exposure with risk capacity is a key consideration in manage-
ment decisions on potential adjustments to the business strategy
and the risk profile of the Group.
We make use of both scenario-based stress tests and statistical
risk measurement techniques to assess the impact of a severe
stress event at a Group-wide level. These complementary frame-
works capture exposures to all material primary and consequential
risks across our business divisions and the Corporate Center. ▲▲
➔ Refer to “Risk measurement” in this section for more informa-
tion on our stress test and statistical frameworks
EDTF | Pillar 3 | Risk appetite objectives at the divisional level are
logically derived from and must conform to the Group-wide ob-
jectives. They may also comprise objectives specific to the division,
related to the specific activities and risks in that division. Risk ap-
petite objectives are also set for certain legal entities. These must
be consistent with the Group-wide Risk Appetite Framework and
approved in accordance with the regulations of the legal entity
and the firm’s regulations. Differences may exist that reflect the
specific nature, size and complexity of, as well as the regulations
applicable to, the relevant legal entity.
In determining our risk capacity, we adjust projected earnings
from the strategic plan for business risk to reflect lower expected
earnings and lower expenses, for example due to the reversal of
variable compensation accruals in a severe stress event. We also
adjust our capital to take into account the impact of stress on
deferred tax assets, pension assets and liabilities, and accruals for
capital returns to shareholders.
The chart below provides an overview of our quantitative risk
appetite objectives. ▲▲
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:2)(cid:21)(cid:2)(cid:94)(cid:2)(cid:51)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:47)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)
(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:53)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)
(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:39)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)
(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:47)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)
(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)
(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:75)(cid:80)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)
(cid:67)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:81)(cid:72)(cid:2)(cid:67)(cid:86)(cid:2)
(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)(cid:19)(cid:18)(cid:7)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:67)(cid:86)(cid:2)(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)(cid:19)(cid:21)(cid:7)(cid:2)(cid:82)(cid:81)(cid:85)(cid:86)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)
(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:71)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)
(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:68)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2)(cid:78)(cid:81)(cid:85)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:68)(cid:67)(cid:80)(cid:77)(cid:111)(cid:85)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(cid:85)(cid:2)(cid:75)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:111)(cid:85)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)
(cid:39)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)
(cid:85)(cid:74)(cid:81)(cid:87)(cid:78)(cid:70)(cid:2)(cid:68)(cid:71)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:79)(cid:81)(cid:85)(cid:86)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:85)(cid:16)(cid:2)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:89)(cid:71)(cid:2)(cid:67)(cid:75)(cid:79)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:88)(cid:81)(cid:75)(cid:70)(cid:2)
(cid:69)(cid:81)(cid:80)(cid:85)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:84)(cid:86)(cid:71)(cid:84)(cid:78)(cid:91)(cid:2)(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)
(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)
(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:75)(cid:80)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)(cid:67)(cid:2)
(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:81)(cid:72)(cid:2)(cid:67)(cid:86)(cid:2)(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)(cid:20)(cid:16)(cid:22)(cid:18)(cid:7)(cid:2)
(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)
(cid:21)(cid:16)(cid:19)(cid:20)(cid:7)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:14)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:2)
(cid:75)(cid:72)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)
(cid:81)(cid:69)(cid:69)(cid:87)(cid:84)
(cid:39)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:85)(cid:87)(cid:84)(cid:88)(cid:75)(cid:88)(cid:71)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)
(cid:19)(cid:20)(cid:15)(cid:79)(cid:81)(cid:80)(cid:86)(cid:74)(cid:2)(cid:75)(cid:70)(cid:75)(cid:81)(cid:85)(cid:91)(cid:80)(cid:69)(cid:84)(cid:67)(cid:86)(cid:75)(cid:69)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:89)(cid:75)(cid:86)(cid:74)(cid:81)(cid:87)(cid:86)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:78)(cid:91)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:69)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)
(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:72)(cid:84)(cid:67)(cid:80)(cid:69)(cid:74)(cid:75)(cid:85)(cid:71)(cid:85)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:69)(cid:67)(cid:82)(cid:67)(cid:69)(cid:75)(cid:86)(cid:91)
(cid:50)(cid:84)(cid:81)(cid:76)(cid:71)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)
(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:72)(cid:71)(cid:84)(cid:84)(cid:71)(cid:70)(cid:2)(cid:86)(cid:67)(cid:90)(cid:2)
(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:71)(cid:80)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)
(cid:53)(cid:86)(cid:67)(cid:86)(cid:75)(cid:85)(cid:86)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:28)(cid:2)(cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:14)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:14)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:53)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:28)(cid:2)(cid:69)(cid:81)(cid:79)(cid:68)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:71)(cid:85)(cid:86)
(cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:10)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:53)(cid:71)(cid:86)(cid:86)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:46)(cid:81)(cid:67)(cid:80)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:89)(cid:84)(cid:75)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:11)(cid:124)
(cid:47)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:10)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:43)(cid:85)(cid:85)(cid:87)(cid:71)(cid:84)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:11)
(cid:37)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:67)(cid:78)(cid:2)(cid:40)(cid:58)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:40)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:50)(cid:71)(cid:80)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:37)(cid:81)(cid:80)(cid:85)(cid:71)(cid:83)(cid:87)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:85)
(cid:50)(cid:84)(cid:75)(cid:79)(cid:67)(cid:84)(cid:91)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:85)
(cid:41)(cid:84)(cid:67)(cid:80)(cid:87)(cid:78)(cid:67)(cid:84)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:85)(cid:86)(cid:67)(cid:86)(cid:75)(cid:85)(cid:86)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:71)(cid:86)(cid:84)(cid:75)(cid:69)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:67)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:87)(cid:78)(cid:67)(cid:84)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:68)(cid:78)(cid:75)(cid:85)(cid:74)(cid:71)(cid:85)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:85)(cid:74)(cid:81)(cid:78)(cid:70)(cid:85)(cid:2)(cid:67)(cid:86)(cid:2)(cid:67)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:78)
(cid:86)(cid:86)
177
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Risk measurement
Audited | EDTF | Pillar 3 | A variety of methodologies and measurements
are applied to quantify the risks of our portfolios and potential risk
concentrations. Risks that are not fully reflected within standard
measures are subject to additional controls, which may include
pre-approval of specific transactions and the application of spe-
cific restrictions. Models to quantify risk are generally developed
by dedicated units within control functions and are subject to in-
dependent verification. ▲▲▲
EDTF | Pillar 3 | Applied models and methodologies must be approved
and regularly reviewed in accordance with regulatory require-
ments as well as internal policies to ensure that models perform
as expected, produce results consistent with real events and val-
ues, and reflect best-in-practice approaches as well as recent aca-
demic developments. Accordingly, we assess whether the model
is performing satisfactorily, whether additional analysis is required,
and whether recalibration or redevelopment needs to be per-
formed. Results and conclusions are presented to the relevant
governance body and, as required, to regulators.
The ongoing process of assessing model quality and perfor-
mance in the production environment comprises two compo-
nents: model verification, being the initial and regular assessment
of the model’s conceptual soundness, performed by Quantitative
Risk Control (QRC), and model confirmation, representing the
regular process of checking the accuracy and appropriateness of
the model output and its application, carried out by the model
developers and reviewed by QRC. ▲▲
➔ Refer to “Credit risk,” “Market risk” and “Operational risk” in
this section for more information on model confirmation
procedures
Stress testing
EDTF | We perform stress testing to quantify the loss that could re-
sult from extreme, yet plausible macroeconomic and geopolitical
stress events. This enables us to identify, better understand and
manage our potential vulnerabilities and risk concentrations.
Stress testing plays a key role in our limits framework at Group-
wide, divisional and portfolio levels. Stress test results are regularly
reported to the BoD, the Risk Committee and the GEB. We also
provide detailed stress loss analyses to the Swiss Financial Market
Supervisory Authority (FINMA) in accordance with its require-
ments. As described in the “Risk appetite” section above, stress
testing, along with statistical loss measures, plays a central role in
our risk appetite and business planning processes.
Our stress testing framework incorporates three pillars: (i) com-
bined stress tests, (ii) a comprehensive range of portfolio and risk-
type-specific stress tests and (iii) reverse stress testing.
Our combined stress test (CST) framework is scenario-based
and aims to quantify overall Group-wide losses which could result
from a number of potential global systemic events. The frame-
work captures all material primary and consequential risks, as well
as business risks, as indicated in the “Risk categories” section
above. Scenarios are forward-looking and encompass macroeco-
nomic and geopolitical stress events calibrated to different levels
of potential severity. Each scenario is implemented through the
expected evolution of market indicators and economic variables
under that scenario. The resulting effect on our primary, conse-
quential and business risks is then assessed to estimate the overall
loss and capital implications were the scenario to occur. At least
once a year, the Risk Committee approves the most relevant sce-
nario, known as the binding scenario, to be used as the main
scenario for regular CST reporting and for monitoring risk expo-
sure against our minimum capital, earnings and leverage ratio
objectives in our risk appetite framework. Results are reported to,
and discussed with, the Risk Committee and the GEB on a monthly
basis and reported to the BoD and FINMA monthly. The results of
other CST scenarios are monitored and reported quarterly to the
BoD, the Risk Committee, the GEB and FINMA.
Within the overall model governance framework overseen by
the Group CRO and Group CFO, the Enterprise-wide Stress Com-
mittee (ESC) is responsible for ensuring the consistency and ade-
quacy of the assumptions and scenarios used for our Group-wide
stress measures. As part of these responsibilities, the ESC is
charged with ensuring that the suite of stress scenarios adequately
reflects current and potential developments in the macroeconomic
and geopolitical environment, our current and planned business
activities, and actual or potential risk concentrations and vulnera-
bilities in our portfolios. The ESC meets at least quarterly and is
comprised of Group and divisional representatives of Risk Control.
In executing its responsibilities, the ESC considers input from the
Risk “Think Tank,” a panel of senior representatives from the busi-
ness divisions, Risk Control and economic research, which meets
quarterly to review the current and possible future market environ-
ment, with the aim of identifying potential stress scenarios which
could materially impact the Group’s profitability. This results in a
range of internal stress scenarios that are developed and evolve
over time, separate from the scenarios mandated by FINMA.
Each scenario captures a wide range of macroeconomic vari-
ables that are considered relevant to assessing the impact of the
stress scenario on our portfolios. These include gross domestic
product (GDP), equity indices, interest rates, foreign exchange
rates, property prices and unemployment. Assumed changes in
these macroeconomic variables in each scenario are used to stress
the key risk drivers of our portfolios. For example, lower GDP
growth and rising interest rates may reduce the income of clients
to whom we have lent money, leading to changes in the credit risk
parameters for probability of default, loss given default and expo-
sure at default, and resulting in higher predicted credit losses in
the stress scenario. We also capture the business risk resulting
from lower fee income, interest income and trading income, and
lower expenses. These effects are measured across all material risk
types and all businesses to calculate the aggregate estimated ef-
fect of the scenario on profit and loss, other comprehensive in-
come, RWA, Swiss SRB leverage ratio denominator (LRD) and, ulti-
mately, our capital and leverage ratios. The assumed changes in
macroeconomic variables are updated periodically to take account
of changes in the current and possible future market environment.
178
Through 2014, the binding scenario for CST was the internal
Euro Crisis scenario, which assumed a sharp deterioration in the
eurozone economy triggering sovereign and bank defaults in cer-
tain peripheral countries, a downturn in financial markets and
contagion to the global economy. CST risk exposure was broadly
stable over the year with most of the month-to-month variability
in this measure coming from temporary loan underwriting expo-
sure in the Investment Bank.
As part of the CST framework, five additional stress scenarios
are routinely monitored.
– Recession scenario represents renewed financial market tur-
moil due to the failure of a major global financial institution,
leading to prolonged financial deleveraging and dramatically
plunging activity around the globe.
– US Crisis scenario represents a loss of confidence in the US,
leading to international portfolio repositioning out of US dol-
lar-denominated assets, sparking an abrupt and substantial US
dollar sell-off. The US is pushed back into recession, other in-
dustrialized countries replicate this pattern and inflationary
concerns lead to an overall higher interest rate level.
– China Hard Landing scenario represents an economic correc-
tion in China with resulting impact on the global economy,
particularly emerging markets.
– Middle East / North Africa scenario represents a spill-over of po-
litical upheaval leading to a spike in oil prices and a recession
in developed countries.
– Depression scenario represents a more pronounced and pro-
longed version of the Euro Crisis scenario. Additional periph-
eral countries default and exit the eurozone, and advanced
economies are pulled into a prolonged period of economic
stagnation.
In the fourth quarter, as part of the annual business planning
process, the decision was taken to change the binding scenario to
the Eurozone Crisis scenario, which is an evolved version of the
Euro Crisis scenario taking into account developments in the po-
litical, economic and market environment in the eurozone since
2012, when the Euro Crisis scenario was developed. The impact
of switching the scenario was a slight increase in forecast stress
losses under the business plan. Concurrent with the adoption of
the Eurozone Crisis scenario on 31 December 2014, we imple-
mented a number of enhancements to our risk exposure mea-
surement methodologies. The combined effect of the scenario
and methodology changes, calculated on the portfolios at the
time of implementation, was an overall net reduction in our fore-
cast stress losses.
Portfolio-specific stress tests are measures that are tailored to
the risks of specific portfolios. Our portfolio stress loss measures
are informed by past events, but also include forward-looking ele-
ments. For example, the stress scenarios for trading risks capture
the liquidity characteristics of different markets and positions. Re-
sults of portfolio-specific stress tests may be subject to limits to
explicitly control risk-taking, or may be monitored without limits
to identify vulnerabilities.
Reverse stress testing starts from a defined stress outcome (for
example, a specified loss amount, reputational damage, a liquidity
shortfall, or a breach of regulatory capital ratios) and works back-
wards to identify the economic or financial scenarios that could
result in such an outcome. As such, reverse stress testing is in-
tended to complement forward stress tests by assuming “what if”
outcomes that could extend beyond the range normally consid-
ered, and thereby potentially challenge assumptions regarding
severity and plausibility. The results of reverse stress testing are
reported to relevant governance bodies according to the material-
ity and scope of the exercise.
Additionally, we routinely analyze the impact of increases or
decreases in interest rates and changes in the structure of yield
curves.
Most major financial firms employ stress tests, but their ap-
proaches vary significantly, having been tailored to their individual
business models and portfolios. Moreover, there is a lack of indus-
try standards defining stress scenarios or the way they should be
applied to a firm’s risk exposures. Consequently, comparisons of
stress test results between firms can be misleading and, therefore,
like many of our peers, we do not publish quantitative stress test
results of our internal stress tests. ▲
➔ Refer to “Credit risk” and “Market risk” in this section for more
information on stress loss measures
➔ Refer to “Our stated capital returns objective is based, in part,
on capital ratios that are subject to regulatory change and may
fluctuate significantly” in the “Risk factors” section of this report
for more information
Statistical measures
EDTF | In addition to our scenario-based CST measure, we employ a
statistical stress framework that allows us to calculate and aggre-
gate risks using statistical techniques, enabling us to derive stress
events at chosen confidence levels.
This framework is used to derive a distribution of potential
earnings based on historically observed market changes, the level
of risk exposures, and business plan forecasts, considering effects
on both income and expenses. From this we determine earnings-
at-risk (EaR), which measures the potential shortfall in earnings
(the deviation from forecasted earnings) at a 95% confidence level
and evaluated over a one-year horizon. EaR is used for the assess-
ment of the earnings objectives in our risk appetite framework.
We extend the EaR measure by incorporating the effects of
gains and losses recognized through other comprehensive income,
to derive a distribution of potential effects of stress events on
Basel III common equity tier 1 (CET1) capital. From this distribution,
we derive our capital-at-risk (CaR) Buffer measure at a 95% confi-
dence level for the assessment of our capital and leverage ratio
objectives, and we derive our CaR Solvency measure at a 99.90%
confidence level for the assessment of our solvency objective.
The CaR Solvency measure is also used to derive the contribu-
tions of business divisions and Corporate Center to risk-based
capital (RBC) which, as discussed above, is a core component of
our equity attribution framework. Under the Basel III phase-in ap-
179
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
proach to the calculation of total capital, which allowed addi-
tional capital instruments to be included in the bank’s available
capital, we increased the confidence level for RBC purposes from
99.90% to 99.97%. Taking the potential capital impairment from
a more extreme stress event to estimate the capital required to
absorb unexpected loss while fully paying back all creditors en-
sured that we maintained an appropriate mix of high quality cap-
ital and additional capital instruments. As of 31 December 2014,
we have migrated to a Basel III fully-applied view for our risk met-
rics, for which the additional capital instruments no longer qualify,
and have therefore reverted to using the 99.90% confidence level
for RBC to be consistent with this more restrictive view of capital.
In addition, we revised several elements of the RBC model during
the year. The net effect of these model changes and the change
in the confidence interval was negligible on the overall level of
RBC. ▲
➔ Refer to “Credit risk,” “Market risk” and “Operational risk” in
this section for more information on our portfolio-level
statistical loss measures
Portfolio and position limits
EDTF | The Group-wide stress and statistical metrics are comple-
mented by lower-level portfolio and position limits. The combina-
tion of these measures provides for a comprehensive, granular
limit framework which is applied to our business divisions and
Corporate Center as relevant to the key risks arising from their
business models.
We apply limits to a variety of exposures at the portfolio level,
using statistical and stress-based measures, such as value-at-risk,
liquidity adjusted stress, notional loan underwriting limits, eco-
nomic value sensitivity and portfolio default simulations for our
loan books. These are complemented with a set of thresholds for
net interest income sensitivity, mark-to-market losses on available-
for-sale portfolios, and the impact of foreign exchange move-
ments on capital and capital ratios.
Portfolio measures are supplemented with position-level limits.
Risk measures for position limits are based on market risk sensi-
tivities and counterparty-level credit risk exposures. Market risk
sensitivities include sensitivities to changes in general market risk
factors such as equity indices, foreign exchange rates and interest
rates, and sensitivities to issuer-specific factors such as changes in
an issuer’s credit spread or default risk. We monitor a significant
number of market risk limits for the Investment Bank and Corpo-
rate Center – Non-core and Legacy Portfolio on a daily basis.
Counterparty measures capture the current and potential future
exposure to an individual counterparty taking into account col-
lateral and legally enforceable netting agreements. ▲
Risk concentrations
Audited | EDTF | Pillar 3 | A risk concentration exists where (i) a position
is affected by changes in a group of correlated factors, or a group
of positions are affected by changes in the same risk factor or a
group of correlated factors, and (ii) the exposure could, in the
event of large but plausible adverse developments, result in sig-
nificant losses. The categories in which risk concentrations may
occur include counterparties, industries, legal entities, countries
or geographical regions, products and businesses. ▲▲
The identification of risk concentrations requires judgment, as
potential future developments cannot be accurately predicted
and may vary from period to period. In determining whether we
have a risk concentration, we consider a number of elements,
both individually and collectively. These elements include the
shared characteristics of the positions and our counterparties, the
size of the position or group of positions, the sensitivity of the
position or group of positions to changes in risk factors and the
volatility and correlations of those factors. Also important in our
assessment is the liquidity of the markets where the positions are
traded, and the availability and effectiveness of hedges or other
potential risk-mitigating factors. The value of a hedge instrument
may not always move in line with the position being hedged, and
this mismatch is referred to as basis risk.
Risk concentrations are subject to increased oversight by Risk
Control and are assessed to determine whether they should be
reduced or mitigated depending on the available means to do so.
It is possible that material losses could occur on asset classes, posi-
tions and hedges, particularly if the correlations that emerge in a
stressed environment differ markedly from those envisaged by our
risk models. ▲
➔ Refer to “Credit risk” and “Market risk” in this section for more
information on the compositions of our portfolios
➔ Refer to the “Risk factors” section of this report for more
information
180
Credit risk
Key developments during the period
EDTF | During 2014, we continued to grow the lending portfolios in
our wealth management businesses in line with our strategy. Our
Retail & Corporate loan exposure remained stable with low levels
of delinquency and credit exposures in the Investment Bank re-
mained predominantly investment grade. We made further sub-
stantial progress in reducing credit exposures in the Non-core and
Legacy Portfolio, obtaining full repayment on the loan to the
BlackRock fund, continuing novations of over-the-counter (OTC)
derivatives, and exiting a substantial portion of our remaining
credit risk to monoline insurers. Net credit loss expenses totaled
CHF 78 million, taking into account net releases of collective loan
loss allowances of CHF 12 million. The amount of impaired loans
remained unchanged at CHF 1.2 billion.
In response to the steep decline in the oil price at the end of
the year, which has continued into the beginning of 2015, we
have reduced the collateral lending values of energy-related secu-
rities in our Lombard business and are closely monitoring our ex-
posures that could be adversely impacted by movements in the
price of oil. ▲
Audited | EDTF | Pillar 3 | Main sources of credit risk
– A substantial portion of our lending exposure arises from our
Swiss domestic business, which offers corporate loans and
mortgage loans secured against residential properties and in-
come-producing real estate, and is therefore tied to the health
of the Swiss economy.
– Within the Investment Bank, our credit exposure is predomi-
nantly investment grade, but includes loan underwriting char-
acterized by concentrated exposure to lower-rated credits, al-
beit of a temporary nature.
– Our wealth management businesses conduct securities-based
lending and mortgage lending.
– Credit risk within the Legacy Portfolio has been significantly
reduced and the balance largely relates to securitized posi-
tions.
– A significant portion of our derivatives activities determined to
be non-core has been run down or reduced through unwinds,
novations and trade compressions. The remainder is predomi-
nantly transacted on a cash collateralized basis. ▲▲▲
Audited | EDTF | Pillar 3 | Overview of measurement, monitoring
and management techniques
– Credit risk arising from transactions with individual counter-
parties is measured according to our estimates of probability of
default, exposure at default and loss given default. Limits are
established for individual counterparties and groups of coun-
terparties covering banking and traded products as well as
settlement amounts. Risk control authorities are approved by
the Board of Directors and are delegated to the Group CEO,
Group CRO and divisional Chief Risk Officers based on risk ex-
posure amounts and internal credit rating.
– Limits apply not only to the current outstanding amount, but
also to contingent commitments and the potential future ex-
posure of traded products.
– For the Investment Bank, our monitoring, measurement and
limit framework distinguishes between exposures intended to
be held to maturity (take-and-hold exposures) and those which
are intended to be held for a short term, pending distribution
or risk transfer (temporary exposures).
– We also use models to derive portfolio credit risk measures of
expected loss, statistical loss and stress loss at the Group-wide
and business division levels and establish portfolio level limits
at these levels.
– Credit risk concentrations can arise if clients are engaged in
similar activities, are located in the same geographical region
or have comparable economic characteristics, for example if
their ability to meet contractual obligations would be similarly
affected by changes in economic, political or other conditions.
To avoid credit risk concentrations, we establish limits and / or
operational controls that constrain risk concentrations at port-
folio and sub-portfolio levels with regard to sector exposure,
country risk and specific product exposures. ▲▲▲
181
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Credit risk profile of the Group – IFRS view
Maximum exposure to credit risk
Audited | EDTF | The table below represents the IFRS view of the
Group’s maximum exposure to credit risk by class of financial in-
strument and the respective collateral and other credit enhance-
ments mitigating credit risk for these classes of financial instru-
ments. The maximum exposure to credit risk includes the carrying
amounts of financial instruments recognized on the balance sheet
subject to credit risk and the notional amounts for off-balance
sheet arrangements.
Where information is available, collateral is presented at fair
value. For other collateral such as real estate, a reasonable alter-
native value is used. Credit enhancements, such as credit deriva-
tive contracts and guarantees, are included at their notional
amounts. Both are capped at the maximum exposure to credit risk
for which they serve as security.
Further on in this section, we provide complementary views of
credit risk based on our internal management view, which can
differ in certain respects from the requirements of IFRS. ▲▲
➔ Refer to the “UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3 regulations” section
of this report for more information on the credit exposures
used in the determination of our required regulatory capital and
additional information on credit derivatives
31.12.14
Collateral
Credit enhancements
Maximum
exposure to
credit risk
Cash
collateral
received
Collater-
alized by
securities
Secured
by real
estate
Other
collateral 1
Netting
Credit
derivative
contracts
Guaran-
tees
Audited | EDTF | Maximum exposure to credit risk
CHF billion
Financial assets measured at amortized cost on the balance sheet
Balances with central banks
Due from banks 2
Loans
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments 3
Other assets
14.3
102.3
13.3
315.8
24.1
68.4
31.0
21.2
Total financial assets measured at amortized cost
576.1
14.4
Financial assets measured at fair value on the balance sheet
Positive replacement values 4
Trading portfolio assets – debt instruments 5, 6
Financial assets designated at fair value – debt instruments 7
Financial investments available-for-sale – debt instruments 7
Total financial assets measured at fair value
Total maximum exposure to credit risk
reflected on the balance sheet
Guarantees8
Loan commitments8
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total maximum exposure to credit risk
not reflected on the balance sheet
Total9
257.0
31.8
4.3
56.2
349.4
925.4
17.7
50.7
10.4
78.8
1,004.2
0.0
14.4
1.4
0.1
1.4
15.8
166.1
21.2
0.7
0.2
2.6
4.7
20.4
166.1
25.9
20.4
0.7
2.8
223.9
0.1
0.0
0.1
223.9
203.6
166.1
244.2
26.0
1.9
9.2
0.2
1.9
0.7
0.7
1.4
0.8
8.5
2.1
168.2
11.1
37.1
0.0
244.2
9.3
10.7
0.0
2.8
3.1
1.6
4.7
7.5
0.2
94.8
23.8
63.2
12.7
194.7
5.7
3.3
9.0
1.7
3.8
10.4
16.0
219.6
1 Includes but not limited to life insurance contracts, inventory, accounts receivable, mortgage loans, patents, and copyrights. 2 Due from banks includes amounts held with third-party banks on behalf of clients. The
credit risk associated to these balances may be borne by those clients. 3 Included within cash collateral receivables on derivative instruments are margin balances due from exchanges or clearing houses. Some of these
margin balances reflect amounts transferred on behalf of clients who retain the associated credit risk. The amount shown in the netting column represents the netting potential not recognized in the balance sheet. Refer
to “Note 26 Offsetting financial assets and financial liabilities” in the “Financial information” section for more information. 4 The amount shown in the netting column represents the netting potential not recognized
in the balance sheet. Refer to “Note 26 Offsetting financial assets and financial liabilities” in the “Financial information” section of this report for more information. 5 These positions are generally managed under the
market risk framework and are included in VaR. For the purpose of this disclosure, collateral and credit enhancements were not considered. 6 Does not include debt instruments held for unit-linked investment contracts
and investment fund units. 7 Does not include investment fund units. 8 The amount shown in the column “guarantees” largely relates to sub-participations. Refer to the “Off-balance sheet” section in this report for
more information. 9 As of 31 December 2014, total maximum exposure to credit risk for UBS AG (consolidated) was CHF 0.3 billion higher than for UBS Group, of which CHF 0.2 billion related to unsecured “Loans”
and CHF 0.1 billion related to unsecured “Other assets.”
182
31.12.13
Collateral
Credit enhancements
Maximum
exposure to
credit risk
Cash
collateral
received
Collate-
ralized by
securities
Secured by
real estate
Other
collateral 1
Netting
Credit
derivative
contracts
Guaran-
tees
Maximum exposure to credit risk (continued)
CHF billion
Financial assets measured at amortized cost on the balance sheet
Balances with central banks
Due from banks 2
Loans 3
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments 4
Other assets
13.3
78.9
13.9
287.0
27.5
91.6
26.5
17.6
0.5
73.7
27.3
88.4
11.2
201.1
5.2
5.4
161.5
18.3
0.1
0.3
2.7
2.6
15.5
161.5
20.8
15.5
0.1
3.0
Total financial assets measured at amortized cost
542.9
13.3
Financial assets measured at fair value on the balance sheet
Positive replacement values 5
Trading portfolio assets – debt instruments 6, 7
Financial assets designated at fair value – debt instruments 8
Financial investments available-for-sale – debt instruments 8
Total financial assets measured at fair value
Total maximum exposure to credit risk
reflected on the balance sheet
Guarantees 9
Loan commitments 9
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total maximum exposure to credit risk
not reflected on the balance sheet
Total
254.1
35.4
6.8
58.6
354.8
897.8
18.7
54.9
9.4
83.1
980.9
0.0
13.3
1.4
0.2
10.6
0.0
211.7
161.5
0.3
1.3
1.7
1.6
9.3
223.2
223.2
238.6
0.2
0.2
21.0
1.9
8.5
0.8
0.8
1.0
1.1
11.0
12.2
13.1
0.0
3.0
3.3
1.9
5.2
8.2
1.6
14.9
12.6
224.3
1.6
163.1
10.4
31.4
0.0
238.6
1 Includes but not limited to life insurance contracts, inventory, accounts receivable, mortgage loans, patents, and copyrights. 2 Due from banks includes amounts held with third-party banks on behalf of clients. The
credit risk associated to these balances may be borne by those clients. 3 Loans include a balance outstanding of USD 2.7 billion to the BlackRock fund. This loan was collateralized by a portfolio of US residential mort-
gage-backed securities included within “Other collateral.” 4 Included within cash collateral receivables on derivative instruments are margin balances due from exchanges or clearing houses. Some of these margin bal-
ances reflect amounts transferred on behalf of clients who retain the associated credit risk. The amount shown in the netting column represents the netting potential not recognized in the balance sheet. Refer to “Note 26
Offsetting financial assets and financial liabilities” in the “Financial information” section for more information. 5 The amount shown in the netting column represents the netting potential not recognized in the balance
sheet. Refer to “Note 26 Offsetting financial assets and financial liabilities” in the “Financial information” section of this report for more information. 6 These positions are generally managed under the market risk
framework and are included in VaR. For the purpose of this disclosure, collateral and credit enhancements were not considered. 7 Does not include debt instruments held for unit-linked investment contracts and invest-
ment fund units. 8 Does not include investment fund units. 9 The amount shown in the column “guarantees” largely relates to sub-participations. Refer to the “Off-balance sheet” section in this report for more in-
formation. ▲▲
183
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Audited | EDTF | Financial assets subject to credit risk by rating category
CHF billion
Rating category 1
Balances with central banks
Due from banks
Loans
Cash collateral on securities borrowed and reverse repurchase agreements
Positive replacement values
Cash collateral receivables on derivative instruments
Trading portfolio assets – debt instruments 2
Financial investments available-for-sale – debt instruments 3
Other financial instruments 4
Guarantees, commitments and forward starting transactions
Guarantees
Loan commitments
Forward starting reverse repurchase agreements
Forward starting securities borrowing agreements
Total 5
CHF billion
Rating category 1
Balances with central banks
Due from banks
Loans
Cash collateral on securities borrowed and reverse repurchase agreements
Positive replacement values
Cash collateral receivables on derivative instruments
Trading portfolio assets – debt instruments 2
Financial investments available-for-sale – debt instruments 3
Other financial instruments 4
Guarantees, commitments and forward starting transactions
Guarantees
Loan commitments
Forward starting reverse repurchase agreements
Forward starting securities borrowing agreements
Total
0–1
102.0
1.5
29.1
1.9
18.7
4.8
12.2
46.5
0.1
2.8
1.3
2–3
0.3
8.3
140.0
66.2
203.1
20.5
10.9
9.6
3.8
7.5
28.7
9.8
0.1
31.12.14
6–8
9–13
defaulted
0.5
66.6
11.4
7.8
0.7
2.6
13.0
3.1
6.4
0.1
17.8
1.2
0.8
2.6
0.1
0.7
6.4
1.2
0.3
0.1
0.2
4–5
2.9
61.2
11.7
26.3
5.0
3.5
0.1
8.5
3.3
8.1
0.5
Total
102.3
13.3
315.8
92.5
257.0
31.0
31.8
56.2
25.6
17.7
50.7
10.3
0.1
220.9
508.6
131.1
112.0
29.6
2.0
1,004.2
0–1
41.9
3.1
25.3
1.8
13.8
3.1
11.0
43.9
0.1
2.5
0.8
2–3
37.0
8.5
112.6
86.8
206.3
18.6
11.8
14.6
3.0
8.5
30.2
8.7
31.12.13
6–8
0.7
72.4
10.3
6.9
1.5
3.3
14.4
3.2
8.5
0.1
4–5
1.4
57.1
19.6
25.9
3.3
7.0
0.1
6.5
3.7
9.4
0.6
9–13
defaulted
0.2
18.5
0.5
0.9
0.1
2.2
0.1
0.9
5.9
1.1
0.2
0.1
0.2
0.1
Total
78.9
13.9
287.0
119.1
254.1
26.5
35.4
58.6
24.4
18.7
54.9
9.4
0.0
147.3
546.9
134.5
121.2
29.2
1.7
980.9
1 Refer to the “UBS internal rating scale and mapping of external ratings” table in this section for more information on rating categories. 2 Does not include debt instruments held for unit-linked investment contracts
and investment fund units. 3 Does not include investment fund units. 4 Comprised of financial assets designated at fair value – debt instruments (excluding investment fund units) and other assets. 5 As of 31 De-
cember 2014, total financial assets subject to credit risk for UBS AG (consolidated) was CHF 0.3 billion higher than for UBS Group, of which CHF 0.2 billion related to “Loans” and CHF 0.1 billion related to “Other assets,”
all in rating category 6 – 8. ▲▲
184
Impaired assets
Audited | EDTF | Pillar 3 | The following tables show impaired assets,
comprising loans, guarantees, loan commitments and securities
financing transactions. Gross impaired assets increased slightly by
CHF 0.1 billion to CHF 1.4 billion as of 31 December 2014, mainly
due to a new gross impairment for a guarantee, a substantial por-
tion of which is covered by a sub-participation agreement with
third parties. After deducting the estimated liquidation proceeds
of collateral and specific allowances and provisions, but excluding
the effect of the abovementioned sub-participation arrangement,
net impaired assets amounted to CHF 0.5 billion as of 31 De-
cember 2014 compared with CHF 0.3 billion at the end of the
prior year.
The table on the next page provides a breakdown of movements
in the specific and collective allowances and provisions for im-
paired assets. ▲▲▲
➔ Refer to the table “Investment Bank and CC – Non-core and
Legacy Portfolio: distribution of net OTC derivatives exposure,
across internal UBS ratings and loss given default (LGD) buckets”
in this section for OTC derivative exposures in the Investment
Bank and CC – Non-core and Legacy Portfolio which are rated at
level 13 or in default according to our internal rating scale
Audited | EDTF | Pillar 3 | Impaired assets by type of financial instrument
CHF million
Impaired loans (including due from banks)
Impaired guarantees and loan commitments
Defaulted securities financing transactions
Total
Impaired assets
31.12.14
1,204
187
5
1,396
31.12.13
1,241 2
101
2
1,345
Allowances and provisions 1
31.12.13
31.12.14
Estimated liquidation
proceeds of collateral
Net impaired assets
31.12.14
31.12.13
31.12.14
31.12.13
(708)
(23)
(4)
(735)
(686)
(61)
(2)
(750)
(180)
(1)
(1)
(318) 2
(2)
(182)
(321)
316
162
0
479
237
38
0
275
1 Includes CHF 8 million collective loan loss allowances (31 December 2013: CHF 20 million). 2 In 2014, we restated the impaired exposure and the estimated liquidation proceeds of collateral for loans in Wealth
Management Americas for 31 December 2013. As a result, the impaired loan exposure in Wealth Management Americas was increased by CHF 42 million with a corresponding increase in the estimated liquidation
proceeds of collateral. ▲▲▲
EDTF | Pillar 3 | Impaired assets by geographical region
CHF million
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Total 31.12.14
Impaired
assets
Specific
allowances and
provisions
Impaired assets
net of specific
allowances and
provisions
Collective
allowances and
provisions
Total allowances
and provisions
31.12.14
Total allowances
and provisions
31.12.13
51
21
28
57
929
309
1,396
1,345 1
(38)
(19)
(22)
(48)
(405)
(194)
(727)
13
1
7
9
524
115
668
615 1
0
0
0
(2)
(5)
0
(8)
(38)
(19)
(22)
(50)
(411)
(194)
(735)
(38)
(34)
(19)
(65)
(405)
(188)
(750)
Total 31.12.13
1 In 2014, we restated the impaired exposure for loans in Wealth Management Americas for 31 December 2013. As a result, the impaired loan exposure in Wealth Management Americas was increased by CHF 42 million. ▲▲
(730)
(20)
185
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Pillar 3 | Impaired assets by exposure segment
CHF million
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving other retail exposures
Other retail
Not allocated segment 1
Total 31.12.14
Total 31.12.13
Specific
allowances and
provisions
Collective
allowances and
provisions
Total
allowances and
provisions
31.12.14
Write-offs for the
year ended
31.12.14
Total allowances
and provisions
31.12.13
Impaired assets
13
17
1,092
0
120
59
23
71
0
1,396
1,345 2
(11)
(15)
(560)
0
(38)
(54)
(16)
(33)
0
(727)
(730)
0
0
0
0
0
0
0
(2)
(5)
(8)
(20)
(11)
(15)
(560)
0
(38)
(54)
(16)
(36)
(5)
(735)
0
(12)
(113)
0
0
(1)
(25)
(2)
0
(154)
(93)
(10)
(19)
(546)
(46)
(68)
(17)
(24)
(18)
(750)
1 With the exception of Wealth Management Americas lombard lending, collective loan loss allowances are not allocated to individual counterparties. 2 In 2014, we restated the impaired exposure for loans in Wealth
Management Americas for 31 December 2013. As a result, the impaired loan exposure in Wealth Management Americas was increased by CHF 42 million. ▲▲
EDTF | Pillar 3 | Changes in allowances and provisions
CHF million
Balance at the beginning of the year
Write-offs / usage of provisions
Recoveries
Increase / (decrease) 1
Foreign currency translations
Other
Balance at the end of the year
Specific allowances
and provisions for
banking products and
securities financing
730
(153)
29
89
21
11
727 2
Collective
allowances
For the year ended
31.12.14
For the year ended
31.12.13
20
(1)
(11)
0
8
750
(154)
29
78
21
11
735
794
(128)
45
50
(9)
(3)
750
1 Excludes an impairment charge of CHF 166 million related to certain disputed receivables. Including this, total impairment charges related to financial instruments were CHF 244 million in 2014. 2 Includes CHF 4
million allowances for securities financing (31 December 2013: CHF 2 million). ▲▲
186
Impaired loans
EDTF | Pillar 3 | The majority of our gross impaired exposure relates to
loans, primarily in our Swiss domestic business. Gross impaired
loans (including due from banks) decreased slightly to CHF 1,204
million as of 31 December 2014 from CHF 1,241 million at the end
of the prior year, as new impairments and increases were offset by
repayments, sales, rating upgrades and write-offs, mainly related
to the run-down of the Legacy Portfolio. The ratio of impaired
loans to total loans remained unchanged at 0.4%. ▲▲
Audited | EDTF | Pillar 3 | As of 31 December 2014, collateral held
against our impaired loan exposure mainly consisted of real estate
and securities. It is our policy to dispose of foreclosed real estate
as soon as practicable. The carrying amount of foreclosed prop-
erty recorded in our balance sheet under Other assets at the end
of 2014 and 2013 amounted to CHF 43 million and CHF 40 mil-
lion, respectively. We seek to liquidate collateral held in the form
of financial assets expeditiously and at prices considered fair. This
may require us to purchase assets for our own account, where
permitted by law, pending orderly liquidation. ▲▲▲
EDTF | Pillar 3 | Specific and collective allowances and provisions for
credit losses decreased slightly by CHF 14 million to CHF 735 mil-
lion as of 31 December 2014. This includes collective loan loss
allowances of CHF 8 million, a reduction of CHF 12 million from
the end of the prior year.
The table “Loss history statistics” below provides a five-year
history of our credit loss experience for loans (including due from
banks) relative to our impaired and non-performing loans. ▲▲
➔ Refer to “Policies for past due, non-performing and impaired
claims” in this section and “Note 10 Due from banks and loans
(held at amortized cost)” and “Note 12 Allowances and
provisions for credit losses” in the “Financial information”
section of this report for more information
EDTF | Loss history statistics
CHF million, except where indicated
Due from banks and loans (gross)
Impaired loans (including due from banks)
Non-performing loans (including due from banks)
Allowances and provisions for credit losses 2, 3
of which: allowances for due from banks and loans 2
Net write-offs 4
of which: net write-offs for due from banks and loans
Credit loss (expense) / recovery 5
of which: credit loss (expense) / recovery for due from banks and loans
Ratios
Impaired loans as a percentage of due from banks and loans (gross)
Non-performing loans as a percentage of due from banks and loans (gross)
Allowances as a percentage of due from banks and loans (gross)
Net write-offs as a percentage of average due from banks and loans (gross)
outstanding during the period
31.12.14
329,800
1,204
1,602
31.12.13
301,601
1,241 1
1,582
31.12.12
301,849
1,606
1,516
31.12.11
290,664
2,155
1,529
735
708
124
124
(78)
(78)
0.4
0.5
0.2
0.0
750
686
83
83
(50)
(50)
0.4
0.5
0.2
0.0
794
728
250
250
(118)
(134)
0.5
0.5
0.2
0.1
938
842
450
413
(84)
(126)
0.7
0.5
0.3
0.1
31.12.10
281,121
4,193
1,727
1,287
1,111
1,427
1,428
(66)
(24)
1.5
0.6
0.4
0.5
1 In 2014, we restated the impaired exposure for loans in Wealth Management Americas for 31 December 2013. As a result, the impaired loan exposure in Wealth Management Americas was increased by CHF 42 mil-
lion. 2 Includes collective loan loss allowances. 3 Includes provisions for loan commitments and allowances for securities financing transactions. 4 Includes net write-offs for loan commitments and securities financ-
ing transactions. 5 Includes credit loss (expense) / recovery for loan commitments and securities financing transactions. ▲
187
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Pillar 3 | Allowances and provisions for credit losses 1
CHF million, except where indicated
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
IFRS exposure,
gross 2
Impaired exposure,
gross
Estimated liquidation
proceeds of collateral
Allowances and provisions
for credit losses 3
Impairment ratio (%) 4
31.12.13
31.12.14
Group
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Wealth Management
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Wealth Management Americas
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Retail & Corporate
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Global Asset Management
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Investment Bank
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
102,303
13,347
78,912
13,936
316,452
287,665
17,694
50,688
18,798
54,913
11
1,192
180
7
500,483
454,224
1,391
320
1,326
356
1,243
112,701
96,813
2,021
1,960
2,277
1,646
118,328
102,335
0
2,074
44,356
756
293
0
1,706
34,846
416
601
47,480
37,569
81
81
26
26
49
1,192 4
77
24
1,342
76
76
180
1
181
3
3
318 4
2
0
321
5
5
82 4
42 4
82
0
42
0
0
1,773
2,756
137,417
136,499
8,670
8,352
9,741
7,045
11
1,035
180
5
41
932
31
18
156,211
156,042
1,231
1,022
176
1
178
227
2
0
230
13
695
23
731
70
1
70
27
27
13
568
23
603
15
671
61
747
71
71
41
41
14
528
16
558
0.1
0.4
1.0
0.0
0.3
0.4
0.4
0.4
0.0
0.3
0.1
0.1
0.1
0.1
0.1
0.2
0.1
0.2
0.6
0.8
2.1
0.1
0.8
1.5
0.7
0.3
0.3
0.7
0
566
364
0
0
930
76
4,505
12,033
5,902
36,333
58,848
0
586
152
1
49
787
145
4,255
10,589
5,884
35,353
56,226
0
0
0
0
0
0
0.0
0.0
38
2
41
19
45
4
69
24
24
11
45
56
0.3
0.0
0.1
0.2
0.8
0.0
0.1
0
0
1 Excludes CHF 4 million allowances for securities financing transactions (31 December 2013: CHF 2 million). 2 Represents the IFRS measurement basis, which can differ in certain respects from our internal manage-
ment view of credit risk. 3 Includes CHF 8 million (31 December 2013: CHF 20 million) in collective loan loss allowances for credit losses. 4 In 2014, we restated the impaired exposure and the estimated liquidation
proceeds of collateral for loans in Wealth Management Americas for 31 December 2013. As a result, the impaired loan exposure in Wealth Management Americas was increased by CHF 42 million with a corresponding
increase in the estimated liquidation proceeds of collateral and a 0.1 percentage point increase in the impairment ratio.
188
Allowances and provisions for credit losses 1 (continued)
CHF million, except where indicated
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
IFRS exposure,
gross 2
Impaired exposure,
gross
Estimated liquidation
proceeds of collateral
Allowances and provisions
for credit losses 3
Impairment ratio (%) 4
31.12.13
31.12.14
Corporate Center – Core Functions
Balances with central banks
101,907
78,403
Due from banks
Loans
Guarantees
Loan commitments
Total
2,976
5,322
11
0
2,912
394
12
22
110,215
81,743
0
0
0
0
Group, excluding CC – Non-core and Legacy Portfolio
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
CC – Non-core
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
CC – Legacy Portfolio
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total 4
102,303
13,220
78,905
13,458
312,192
279,292
17,359
46,938
18,330
44,716
11
1,180
180
7
41
1,109
76
23
492,012
434,701
1,379
1,248
180
1
181
274
2
0
277
0
1
761
233
3,689
4,685
7
116
1,001
468
10,143
11,735
0
125
0
362
3,500
7,372
101
60
0
54
3,786
7,788
8
23
2
1
35
60
60
0
12
12
0
0
44
44
0
0
0
13
689
23
725
0
0
6
6
0
0
14
651
61
727
1
9
0.0
0.0
0.1
0.4
1.0
0.0
0.3
0.3
0.4
0.4
0.1
0.3
7.3
2.3
0.3
0.0
0.3
10
0.0
11
11
0.3
0.8
0.3
0.8
1 Excludes CHF 4 million allowances for securities financing transactions (31 December 2013: CHF 2 million). 2 Represents the IFRS measurement basis, which can differ in certain respects from our internal manage-
ment view of credit risk. 3 Includes CHF 8 million (31 December 2013: CHF 20 million) in collective loan loss allowances for credit losses. 4 In 2014, we restated the impaired exposure and the estimated liquidation
proceeds of collateral for loans in Wealth Management Americas for 31 December 2013. As a result, the impaired loan exposure in Wealth Management Americas was increased by CHF 42 million with a corresponding
increase in the estimated liquidation proceeds of collateral and a 0.1 percentage point increase in the impairment ratio. ▲▲
EDTF | Development of individually impaired loans (including due from banks)
CHF million
Balance at the beginning of the year
New impaired loans
Increase in existing impaired loans
Repayments / sales / upgrades
Write-offs
For the year ended
31.12.14
1,241 1
388
124
(403)
(154)
31.12.13
1,606
436
199
(909)
(93)
Foreign currency translations and other adjustments
2
1,241 1
Balance at the end of the year
1 In 2014, we restated the impaired exposure in Wealth Management Americas for 31 December 2013. As a result, the impaired loan exposure in Wealth Management Americas was increased by CHF 42 million. ▲
1,204
6
189
Risk, treasury and capital management The amount of past due but not impaired mortgage loans was
not significant compared with the overall size of the mortgage
portfolio. ▲▲
➔ Refer to “Policies for past due, non-performing and impaired
claims” in this section and “Note 1 Summary of significant
accounting policies” in the “Financial information” section of
this report for more information on our impairment policies
31.12.14
31.12.13
92
74
18
9
769
646
961
119
146
28
8
712
617
1,013
▲▲▲
31.12.14
31.12.13
Total
mortgage loans
of which:
past due > 90 days
but not impaired
Total
mortgage loans
of which:
past due > 90 days
but not impaired
154,689
646
149,661
617
▲▲
Risk, treasury and capital management
Risk management and control
Past due but not impaired loans
EDTF | Pillar 3 | The table below shows a breakdown of total loan bal-
ances where payments have been missed, but which we do not
consider impaired because we expect to collect all amounts due
under the contractual terms of the loans or the equivalent value
from liquidation of collateral. The loan balances in the table arise
predominantly within Retail & Corporate, where delayed pay-
ments are routinely observed and, to a lesser extent, Wealth Man-
agement.
Audited | EDTF | Pillar 3 | Past due but not impaired loans
CHF million
1–10 days
11–30 days
31–60 days
61–90 days
> 90 days
of which: mortgage loans
Total
EDTF | Pillar 3 | Past due but not impaired mortgage loans
CHF million
Total
190
Credit risk profile of the Group – Internal risk view
Banking products
EDTF | The exposures detailed in this section are based on our inter-
nal management view of credit risk which differs in certain re-
spects from the measurement requirements of IFRS.
Internally, we categorize credit risk exposures into two broad
categories: banking products and traded products. Banking prod-
ucts comprise drawn loans, undrawn guarantees and loan com-
mitments, due from banks and balances with central banks.
Traded products comprise over-the-counter (OTC) derivatives, ex-
change-traded derivatives (ETD) and securities financing transac-
tions (SFT), comprised of securities borrowing and lending and
repurchase and reverse repurchase agreements. ▲
EDTF | The breakdowns of our banking product exposures are
shown before and after allowances and provisions for credit losses
and related single-name credit hedges. The effect of portfolio
hedges, such as index CDS, is not reflected. Guarantees and loan
commitments are shown on a notional basis, without applying
credit conversion factors.
Total gross banking products exposure increased to CHF 497
billion as of 31 December 2014, compared with CHF 453 billion
at the end of 2013, mainly due to increases in balances with cen-
tral banks and in the loan books of Wealth Management and
Wealth Management Americas. ▲
EDTF | Banking products exposure by business division
CC –
Non-core
CC –
Legacy
Portfolio
CHF million
Balances with central banks
Due from banks
Loans 1
Guarantees
Loan commitments
Banking products 2
Banking products, net 3
CHF million
Balances with central banks
Due from banks
Loans 1
Guarantees
Wealth
Manage-
ment
Americas
Global
Asset
Retail &
Corporate
Manage-
ment
Wealth
Manage-
ment
320
1,326
0
0
2,074
1,773
112,701
44,356
137,417
2,021
1,960
118,328
118,257
756
293
8,670
8,352
47,480
47,453
156,211
155,608
0
566
364
0
0
930
930
Wealth
Manage-
ment
356
1,243
96,813
2,277
Wealth
Manage-
ment
Americas
Retail &
Corporate
Global
Asset
Manage-
ment
0
0
1,706
2,756
34,846
136,499
416
9,741
0
586
152
1
31.12.14
Invest-
ment
Bank
Corporate
Center –
Core
Functions
76
101,907
9,272
15,688
6,501
28,308
59,845
50,986
2,976
5,322
11
0
110,215
110,215
31.12.13
Investment
Bank
145
9,518
13,290
5,757
Corporate
Center –
Core
Functions
78,403
2,912
394
12
0
137
142
234
3,445
3,958
2,562
CC –
Non-core
7
91
548
459
Loan commitments
Banking products 2
Banking products, net 3
1 Does not include reclassified securities and similar acquired securities in our Legacy Portfolio. 2 Excludes loans designated at fair value. 3 Net of allowances, provisions, and hedges. ▲
155,484
156,042
102,264
102,335
10,674
60,921
37,569
51,022
81,743
81,743
32,211
37,527
6,998
7,045
9,569
1,646
787
601
787
22
49
Group
102,303
18,123
0
0
57
316,046
0
9
66
60
18,193
42,367
497,033
486,071
CC –
Legacy
Portfolio
0
140
Group
78,912
18,953
2,562
285,102
0
74
2,776
2,771
18,661
51,217
452,846
438,595
191
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Wealth Management
EDTF | Gross banking products exposure within Wealth Management
increased to CHF 118 billion as of 31 December 2014, compared
with CHF 102 billion as of 31 December 2013, mainly driven by in-
creases in loans in Asia Pacific and in line with our strategy to grow
this business. Net credit loss expenses were CHF 1 million in 2014,
compared with CHF 10 million in 2013.
Our Wealth Management loan portfolio is mainly secured by
securities, residential property and cash as outlined in the “Wealth
Management: loan portfolio, gross” table below. Most of the
loans secured by securities were of high quality, with 95% rated
investment grade as of 31 December 2014, based on our internal
ratings, unchanged from 31 December 2013.
The portfolio of mortgage loans secured by properties outside
Switzerland grew to CHF 5.8 billion as of 31 December 2014 from
CHF 4.5 billion at the end of the prior year. The overall quality of this
portfolio remains high, with an average loan-to-value (LTV) ratio of
55% in Europe and 42% in Asia Pacific. ▲
Wealth Management Americas
EDTF | Gross banking products exposure within Wealth Management
Americas increased to CHF 47 billion as of 31 December 2014 from
CHF 38 billion as of 31 December 2013, with approximately one
third of this increase due to the strengthening of the US dollar ver-
sus the Swiss franc. This exposure largely relates to loans secured by
securities and residential mortgage loans.
Most of the loans secured by securities were of high quality,
with 81% as of 31 December 2014 rated investment grade,
based on our internal ratings, unchanged compared with 31 De-
cember 2013.
The mortgage loan portfolio consists primarily of residential
mortgages offered in all US states. Gross exposure grew to CHF
7.6 billion as of 31 December 2014 from CHF 5.6 billion at the
end of the prior year. The overall quality of this portfolio remains
high with an average LTV of 58%, and we have experienced no
credit losses since the inception of the mortgage program. The
five largest geographic concentrations in the portfolio are in
California (30%), New York (16%), Florida (9%), Texas (4%) and
New Jersey (4%).
There is a small amount of unsecured credit risk to Wealth
Management Americas clients, consisting of CHF 192 million
from the credit card business and CHF 56 million from the unse-
cured lending portfolio.
There was a decrease in the amount of impaired loans to CHF
26 million as of 31 December 2014 from CHF 82 million at the
end of the prior year, with most of the remaining impairment re-
lating to securities-backed loan facilities collateralized by Puerto
Rico municipal securities and related funds.
Securities-backed lending facilities provided by Wealth Man-
agement Americas to its customers and repurchase agreements
with institutional clients are, in part, collateralized by Puerto Rico
municipal securities and closed-end funds primarily invested in
EDTF | Wealth Management: loan portfolio, gross
Secured by residential property
Secured by commercial / industrial property
Secured by cash
Secured by securities
Secured by guarantees and other collateral
Unsecured loans
Total loans, gross
Total loans, net of allowances
EDTF | Wealth Management Americas: loan portfolio, gross
Secured by residential property
Secured by commercial / industrial property
Secured by cash
Secured by securities
Secured by guarantees and other collateral
Unsecured loans 1
Total loans, gross
Total loans, net of allowances
1 Includes credit card exposures. ▲
192
31.12.14
CHF million
36,018
2,205
13,354
49,464
11,147
514
112,701
112,631
%
32.0
2.0
11.8
43.9
9.9
0.5
100.0
31.12.13
CHF million
33,425
2,204
12,139
40,054
8,519
472
96,813
96,741
31.12.14
31.12.13
CHF million
7,558
796
33,983
1,746
274
44,356
44,329
%
17.0
1.8
76.6
3.9
0.6
100.0
CHF million
5,635
820
26,740
1,410
241
34,846
34,805
%
34.5
2.3
12.5
41.4
8.8
0.5
100.0
▲
%
16.2
2.4
76.7
4.0
0.7
100.0
Puerto Rico municipal securities. This collateral is subject to lend-
ing value haircuts and daily margining. Our total lending exposure
against Puerto Rico municipal securities and closed-end fund col-
lateral as of 31 December 2014 was approximately USD 0.4 billion
(down from USD 1.0 billion as of the end of last year). The col-
lateral had a market value of approximately USD 1.5 billion as of
31 December 2014. ▲
lending portfolio and lead to an increase in the level of credit loss
expenses in future periods.
The delinquency ratio, being the ratio of past due but not im-
paired loans to total loans, was 0.6% for the corporate loan port-
folio as of 31 December 2014 compared with 0.9% as of 31 De-
cember 2013. ▲
➔ Refer to “Credit risk models” in this section for more information
Retail & Corporate
EDTF | As of 31 December 2014, gross banking products exposure
within Retail & Corporate was CHF 156 billion, unchanged com-
pared with 31 December 2013. Net banking products exposure
was also largely unchanged at CHF 156 billion, approximately
63% of which was classified as investment grade compared with
64% in the prior year. Over 80% of the exposure is categorized
in the lowest loss given default (LGD) bucket of 0% to 25%.
The size and composition of Retail & Corporate’s gross loan
portfolio remained broadly unchanged over the year at CHF 137
billion. At year-end 2014, 93% of this portfolio was secured by
collateral, mainly residential and commercial property. Of the total
unsecured amount, 66% related to cash flow-based lending to
corporate counterparties and 20% related to lending to public
authorities. Based on our internal ratings, 53% of the unsecured
loan portfolio was rated investment grade.
Our Swiss mortgage portfolio, including Swiss mortgage loans
originating from our Wealth Management business, is discussed
further below.
Our Swiss corporate lending portfolio consists of loans to mul-
tinational and domestic counterparties. Although this portfolio is
well diversified across industries, these Swiss counterparties are,
in general, highly reliant on the domestic economy and the econ-
omies to which they export, in particular the EU and the US. In
addition, the EUR / CHF exchange rate is an important risk factor
for Swiss corporates. On 15 January 2015, the Swiss National
Bank (SNB) discontinued the minimum targeted exchange rate for
the Swiss franc versus the euro, which had been in place since
September 2011, allowing the Swiss franc to strengthen. Given
the reliance of the Swiss economy on exports, the stronger Swiss
franc may have a negative impact on the Swiss economy, which
could impact some of the counterparties within our domestic
on LGD, rating grades and rating agency mappings
EDTF | Our largest loan portfolio continues to be our mortgage
loan portfolio secured by residential and commercial real estate in
Switzerland. These mortgage loans mainly originate from Retail &
Corporate but also include mortgage loans originating from
Wealth Management. The majority of these mortgage loans, CHF
126 billion or 89%, relate to residential properties that the bor-
rower either occupies or rents out and are full recourse to the
borrower. Approximately 70% of the Swiss residential mortgage
loan portfolio relates to properties occupied by the borrower. The
average loan-to-value (LTV) ratio of this portfolio was 52% as of
31 December 2014, compared with 53% as of 31 December
2013. The average LTV for newly originated loans in 2014 was
62%, unchanged compared with 2013. The remaining 30% of
the Swiss residential mortgage loan portfolio relates to properties
rented out by the borrower. The average LTV of this portfolio was
56% as of 31 December 2014 compared with 57% as of 31 De-
cember 2013. The average LTV for newly originated loans in 2014
was 55% compared with 59% in 2013.
As illustrated by the table “Swiss mortgages: distribution of
net exposure at default (EAD) across exposure segments and
loan-to-value (LTV) buckets,” over 99% of the aggregate amount
of Swiss residential mortgage loans would continue to be cov-
ered by the real estate collateral even if the value assigned to that
collateral were to decrease by 20%, and 98.7% would remain
covered by the real estate collateral even if the value assigned to
that collateral were to decrease by 30%. In this table, the amount
of each mortgage loan is allocated across the LTV buckets to in-
dicate the portion at risk at the various value levels shown. For
example, a loan of 75 with an LTV ratio of 75% (collateral value
of 100) would result in allocations of 30 in the less than 30%
bucket, 20 in the 31%–50% bucket, 10 in the 51%–60%
EDTF | Retail & Corporate: loan portfolio, gross
Secured by residential property
Secured by commercial / industrial property
Secured by cash
Secured by securities
Secured by guarantees and other collateral
Unsecured loans
Total loans, gross
Total loans, net of allowances
31.12.14
CHF million
99,839
20,202
163
794
6,884
9,536
137,417
136,848
%
72.7
14.7
0.1
0.6
5.0
6.9
100.0
31.12.13
CHF million
99,155
20,377
247
1,219
6,029
9,471
136,499
135,971
%
72.6
14.9
0.2
0.9
4.4
6.9
100.0
▲
193
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Retail & Corporate: distribution of net banking products exposure across internal UBS ratings and loss given
default (LGD) buckets
CHF million, except where indicated
Internal UBS rating 1
Investment grade
Sub-investment grade
of which: 6−9
of which: 10−12
of which:13 and defaulted
Exposure
98,494
57,717
51,597
4,167
1,954
0–25%
81,446
47,254
43,194
3,780
280
Total exposure before deduction of allowances and provisions
156,211
128,700
23,846
Less: allowances and provisions
Net banking products exposure
(603)
155,608
31.12.14
LGD buckets
26–50%
51–75%
76–100%
15,063
8,783
7,023
328
1,432
1,977
1,647
1,347
59
241
3,624
8
33
33
1
0
42
Weighted
average
LGD (%)
14
16
15
12
36
15
31.12.13
Weighted
average
LGD (%)
14
17
17
12
37
15
Exposure
98,752
57,290
51,556
4,235
1,499
156,042
(558)
155,484
1 The ratings of the major credit rating agencies, and their mapping to our internal rating masterscale, are shown in the table “Internal UBS rating scale and mapping of external ratings” in the “Credit risk models” section
of this report. ▲
EDTF | Retail & Corporate: unsecured loans by industry sector
CHF million
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other
Net exposure
31.12.14
CHF million
113
916
54
1,627
1,306
1,906
572
1,732
1,184
125
9,536
%
1.2
9.6
0.6
17.1
13.7
20.0
6.0
18.2
12.4
1.3
100.0
31.12.13
CHF million
101
696
69
1,563
1,358
2,286
531
1,519
1,213
135
9,471
%
1.1
7.3
0.7
16.5
14.3
24.1
5.6
16.0
12.8
1.4
100.0
▲
EDTF | Swiss mortgages: distribution of net exposure at default (EAD) across exposure segments
and loan-to-value (LTV) buckets
CHF billion, except where indicated
Exposure segment
Residential mortgages
Net EAD
as a % of row total
Income-producing real estate (IPRE)
Net EAD
Corporates
Other segments
as a % of row total
Net EAD
as a % of row total
Net EAD
as a % of row total
Mortgage-covered exposure
Net EAD
Mortgage-covered exposure 31.12.13
Net EAD
as a % of total
as a % of total
31.12.14
LTV buckets
≤30% 31–50% 51–60% 61–70% 71–80% 81–100%
>100%
69.3
60
11.9
60
4.8
58
0.7
66
86.7
60
85.4
60
31.6
27
5.3
27
2.1
26
0.2
22
39.3
27
39.0
27
8.7
8
1.5
8
0.6
8
0.0
5
10.9
8
10.9
8
4.1
4
0.8
4
0.3
4
0.0
3
5.3
4
5.3
4
1.3
1
0.3
1
0.1
2
0.0
2
1.7
1
1.7
1
0.2
0
0.1
0
0.1
1
0.0
1
0.4
0
0.4
0
0.0
0
0.0
0
0.1
1
0.0
0
0.1
0
0.1
0
31.12.13
Total
114.4
18.6
8.8
1.1
142.9
▲
Total
115.2
100
19.9
100
8.2
100
1.1
100
144.4
100
142.9
100
194
bucket, 10 in the 61%–70% bucket and five in the 71%–80%
bucket. ▲
Global Asset Management
Gross banking products exposure within Global Asset Manage-
ment was less than CHF 1 billion as of 31 December 2014.
Investment Bank
EDTF | The Investment Bank’s lending activities are largely associated
with corporates and non-bank financial institutions. The business
is broadly diversified across industry sectors, but concentrated in
North America.
The gross banking products exposure of the Investment Bank
decreased slightly to CHF 60 billion as of 31 December 2014,
compared with CHF 61 billion as of 31 December 2013.
The Investment Bank actively manages the credit risk of this
portfolio and, as of 31 December 2014, held CHF 8.8 billion of
single-name CDS hedges against its exposures to corporates and
other non-banks, a reduction of CHF 1.0 billion compared with
the end of 2013. In addition, the Investment Bank held CHF 365
million of loss protection from the subordinated tranches of struc-
tured credit protection which is not reflected in the “Investment
Bank: banking products” table.
Net banking products exposure, excluding balances with cen-
tral banks and the vast majority of due from banks, and after al-
lowances, provisions and hedges, increased to CHF 42.9 billion as
of 31 December 2014 from CHF 42.3 billion at the end of 2013.
At the end of the year and based on our internal ratings, 59% of
the Investment Bank’s net banking products exposure was classi-
fied as investment grade compared with 57% at the end of the
prior year. The majority of the Investment Bank’s net banking
products exposure had estimated LGD of between 0% and 50%.
Some of the temporary lending exposure in the Investment Bank
is energy-related and thus exposed to the decline in oil prices. This
exposure is intended for syndication and classified as held for
trading. ▲
➔ Refer to “Credit risk models” in this section for more information
on LGD, rating grades and rating agency mappings
EDTF | Investment Bank: banking products 1
CHF million
Total exposure, before deduction of allowances, provisions and hedges
Less: allowances, provisions
Less: credit protection bought (credit default swaps, notional) 2
Net exposure after allowances, provisions and hedges
31.12.14
51,744
(19)
(8,835)
42,890
31.12.13
52,186
(36)
(9,843)
42,308
1 Internal risk view, excludes balances with central banks, internal risk adjustments and the vast majority of due from banks exposures. 2 The effect of portfolio hedges, such as index credit default swaps (CDS), and of
loss protection from the subordinated tranches of structured credit protection are not reflected in this table. ▲
EDTF | Investment Bank: distribution of net banking products exposure, across internal UBS ratings and loss given default
(LGD) buckets
CHF million, except where indicated
Internal UBS rating 1
Investment grade
Sub-investment grade
of which: 6−9
of which: 10−12
of which:13 and defaulted
Net banking products exposure,
after application of credit hedges
31.12.14
LGD buckets
Exposure
25,177
17,713
11,951
5,647
115
0–25%
8,617
12,555
8,772
3,711
72
26–50%
51–75%
76–100%
10,299
2,414
3,846
4,637
2,814
1,784
38
226
212
14
296
153
138
5
42,890
21,172
14,936
2,640
4,142
31.12.13
Weighted
average
LGD (%)
44
19
19
21
23
34
Exposure
24,017
18,290
10,541
7,625
124
42,308
Weighted
average
LGD (%)
47
26
25
29
17
38
1 The ratings of the major credit rating agencies, and their mapping to our internal rating masterscale, are shown in the table “Internal UBS rating scale and mapping of external ratings” in the “Credit risk models” section
of this report. ▲
195
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Investment Bank: net banking products exposure by geographical region
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Total
31.12.14
CHF million
1,864
210
84
34,495
214
6,024
42,890
EDTF | Investment Bank: net banking products exposure by industry sector
Banks
Chemicals
Electricity, gas, water supply
Financial institutions, excluding banks
Manufacturing
Mining
Public authorities
Retail and wholesale
Transport, storage and communication
Other
Net exposure
31.12.14
CHF million
2,272
1,295
2,465
14,482
5,456
6,160
1,457
855
2,841
5,608
42,890
%
4.3
0.5
0.2
80.4
0.5
14.0
100.0
%
5.3
3.0
5.7
33.8
12.7
14.4
3.4
2.0
6.6
13.1
100.0
31.12.13
CHF million
2,808
277
80
31,069
852
7,222
42,308
31.12.13
CHF million
3,133
1,532
2,142
12,303
5,080
6,158
3,122
1,534
3,149
4,154
42,308
%
6.6
0.7
0.2
73.4
2.0
17.1
100.0
▲
%
7.4
3.6
5.1
29.1
12.0
14.6
7.4
3.6
7.4
9.8
100.0
▲
Corporate Center – Core Functions
EDTF | Gross banking products exposure within Corporate Center
– Core Functions, which arises primarily in connection with trea-
sury activities, increased by CHF 28 billion to CHF 110 billion. This
was driven by an increase in balances with central banks of CHF
24 billion, largely due the rebalancing of our multi-currency port-
folio of unencumbered, high-quality, liquid assets managed cen-
trally by Group Treasury through the end of 2014 and effective
1 January 2015 by Group ALM. ▲
➔ Refer to the “Balance Sheet” section of this report for more
information on the development of balances with central banks
Corporate Center – Non-core and Legacy Portfolio
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
this section for more information
Traded products
EDTF | Exposures to OTC derivatives are generally measured as net
positive replacement values after the application of legally en-
forceable netting agreements and the deduction of cash and mar-
ketable securities held as collateral. Exchange-traded derivatives
(ETD) exposures take into account initial and daily variation mar-
gins. Securities financing exposures are reported taking into ac-
count collateral received.
Credit risk arising from traded products, after the effects of
master netting agreements but excluding credit valuation adjust-
ments and hedges, decreased by CHF 1 billion to CHF 49 billion.
OTC derivatives accounted for CHF 28 billion of the traded prod-
ucts exposure, the majority of which were in the Investment Bank
and in Corporate Center – Non-core and Legacy Portfolio and
were predominantly with investment grade counterparties. As
counterparty risk for traded products exposure is managed at a
counterparty level, no split between exposures in the Investment
Bank and those in Corporate Center – Non-core and Legacy Port-
folio is provided. The tables on the next page provide information
on our OTC derivative exposures across the Investment Bank and
Corporate Center – Non-core and Legacy Portfolio. A further CHF
12 billion of traded products exposure relates to securities financ-
ing transactions, primarily within the Investment Bank and Corpo-
rate Center – Core Functions, a decline of CHF 3 billion compared
with 31 December 2013. The remaining CHF 9 billion of exposure
relates to ETD, which increased by CHF 2 billion from 31 Decem-
ber 2013, largely within the Investment Bank. ▲
196
EDTF | Investment Bank and CC – Non-core and Legacy Portfolio: OTC derivatives exposure 1
CHF million
Total exposure, before deduction of credit valuation adjustments, provisions and hedges
Less: credit valuation adjustments and provisions
Less: credit protection bought (credit default swaps, notional)
Net exposure after credit valuation adjustments, provisions and hedges
1 Net replacement value includes the impact of netting agreements (including cash collateral) in accordance with Swiss federal banking law. ▲
31.12.14
20,612
(664)
(994)
18,953
31.12.13
23,466
(687)
(965)
21,814
EDTF | Investment Bank and CC – Non-core and Legacy Portfolio: distribution of net OTC derivatives exposure,
across internal UBS ratings and loss given default (LGD) buckets
CHF million, except where indicated
Internal UBS rating 1
Investment grade
Sub-investment grade
of which: 6−9
of which: 10−12
of which:13 and defaulted
Net exposure, after credit valuation adjustments,
provisions and hedges
31.12.14
LGD buckets
Exposure
0–25% 26–50% 51–75% 76–100%
18,040
6,291
10,682
728
913
445
114
355
209
171
38
589
180
69
339
14
13
0
1
18,953
6,500
11,270
743
340
101
81
6
14
441
31.12.13
Weighted
average
LGD (%)
36
44
42
32
61
37
Exposure
20,319
1,494
950
263
281
21,814
Weighted
average
LGD (%)
29
38
39
31
39
30
1 The ratings of the major credit rating agencies, and their mapping to our internal rating masterscale, are shown in the table “Internal UBS rating scale and mapping of external ratings” in the “Credit risk models” section
of this report. ▲
EDTF | Investment Bank and CC – Non-core and Legacy Portfolio: Net OTC derivatives exposure by geographical region
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Total
31.12.14
CHF million
2,956
171
157
6,704
811
8,153
%
15.6
0.9
0.8
35.4
4.3
43.0
31.12.13
CHF million
4,023
126
112
7,350
1,004
9,198
18,953
100.0
21,814
EDTF | Investment Bank and CC – Non-core and Legacy Portfolio: Net OTC derivatives exposure by industry sector
Banks
Chemicals
Electricity, gas, water supply
Financial institutions, excluding banks
Manufacturing
Mining
Public authorities
Retail and wholesale
Transport, storage and communication
Other
Net exposure
31.12.14
CHF million
6,152
29
276
7,687
740
128
2,775
72
437
657
%
32.5
0.2
1.5
40.6
3.9
0.7
14.6
0.4
2.3
3.5
31.12.13
CHF million
7,351
98
239
9,511
371
125
3,155
130
463
372
18,953
100.0
21,814
%
18.4
0.6
0.5
33.7
4.6
42.2
100.0
▲
%
33.7
0.4
1.1
43.6
1.7
0.6
14.5
0.6
2.1
1.7
100.0
▲
197
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Credit risk mitigation
Audited | EDTF | Pillar 3 | We actively manage the credit risk in our port-
folios by taking collateral against exposures and by utilizing credit
hedging. ▲▲▲
Lending secured by real estate
Audited | EDTF | Pillar 3 | We use a scoring model as part of a standard-
ized front-to-back process to support credit decisions for the orig-
ination or modification of Swiss mortgage loans. The two key fac-
tors within this model are an affordability calculation relative to
gross income and the loan-to-value (LTV) ratio. ▲
The calculation of affordability takes into account interest pay-
ments, minimum amortization requirements, potential property
maintenance costs and, in the case of properties expected to be
rented out, the level of rental income. Interest payments are esti-
mated using a predefined framework, which takes into account
the potential for significant increases in interest rates during the
lifetime of the loan.
For properties occupied by the borrower, the maximum LTV
allowed within the standard approval process is 80%. This is re-
duced to 60% in the case of vacation properties and luxury real
estate. For properties rented out by the borrower, the maximum
LTV allowed within the standard approval process ranges from
60% to 80%, depending on the type of property, the age of the
property and the amount of any renovation work required. ▲▲
Audited | EDTF | Pillar 3 | The value assigned by UBS to each property
is based on the lowest value determined from internally calcu-
lated valuations, the purchase price and, in some cases, an addi-
tional external valuation. ▲
We use two separate models provided by a market-leading ex-
ternal vendor to derive property valuations for owner-occupied
residential properties (ORP) and income-producing real estate. For
ORP, we estimate the current value of properties by using a regres-
sion model (hedonic model) to compare detailed characteristics for
each property against a database of property transactions. In addi-
tion to the model-derived values, valuations for ORP are updated
annually throughout the lifetime of the loan by using region-spe-
cific real estate price indices. The price indices are sourced from an
external vendor and are subject to internal validation and bench-
marking against two other external vendors. On an annual basis,
we use these valuations to compute indexed LTV for all ORP and
consider these together with other risk measures (e.g., rating mi-
gration and behavioral information) to identify higher-risk loans,
which are then reviewed individually by client advisors and credit
officers and actions are taken where considered necessary.
For income-producing real estate, a capitalization model is
used to determine the property valuation by discounting esti-
mated sustainable future income using a capitalization rate based
on various attributes. These attributes consider regional as well as
specific property characteristics such as market and location data
(e.g., vacancy rates), benchmarks (e.g., for running costs) and cer-
tain other standardized input parameters (e.g., property condi-
tion). Rental income from properties is reviewed, at a minimum,
once every three years but indications of significant changes in
the amount of rental income or the level of vacancy rate can trig-
ger an interim reappraisal.
To take market developments into account for these models,
the external vendor regularly updates the parameters and / or re-
fines the architecture for each model. Model changes and param-
eter updates are subject to the same validation procedures as for
our internally developed models. ▲▲
Audited | EDTF | Pillar 3 | We similarly apply underwriting guidelines
for our Wealth Management Americas mortgage loan portfolio to
ensure affordability of the loans and sufficiency of collateral. ▲
These include the following: maximum loan amounts, maturi-
ties and LTV limits by type of property, debt-to-income limits, re-
quired reserves as a percentage of proposed loan amounts and
appropriate credit score guidelines. The maximum LTV allowed
within the standard approval process ranges from 45% to 80%
depending on property type and overall loan size. ▲▲
➔ Refer to “Retail & Corporate” in “Credit risk profile of the Group
– Internal risk view” in this section for more information on LTV
in our Swiss mortgage portfolio
➔ Refer to “Wealth Management Americas” in “Credit risk profile
of the Group – Internal risk view” in this section for more
information on LTV in our Wealth Management Americas
mortgage portfolio
Exposures secured by other forms of collateral
Audited | EDTF | Pillar 3 | Lombard loans and other lending such as secu-
rities financing transactions are secured against the pledge of eli-
gible marketable securities, guarantees and other forms of col-
lateral. Eligible financial securities primarily include transferable
securities (such as bonds and equities), which are liquid and ac-
tively traded, and other transferable securities such as approved
structured products for which regular prices are available and for
which the issuer of the security provides a market.
We apply discounts (haircuts) to reflect the collateral’s risk and
to derive the lending value. ▲
Haircuts for eligible marketable securities are calculated to cover
the possible change in the market value over a given close-out pe-
riod and confidence level. For less liquid instruments such as struc-
tured products and certain bonds, and for products with long re-
demption periods, the close-out period might be much longer than
that for highly liquid instruments, resulting in a higher haircut. For
cash, life insurance policies and guarantees / letters of credit, haircuts
are determined on a product / client-specific basis. ▲▲
Audited | EDTF | Pillar 3 | We also consider concentration risks across
collateral posted on a divisional level, and additionally perform tar-
geted Group-wide reviews of concentrations. A concentration of
collateral in single securities, issuers or issuer groups, industry sec-
tors, countries, regions or currencies may result in higher risk and
reduced liquidity. In such cases, transactions are subject to a higher
level of credit approval and the lending value of the collateral,
margin call and close-out levels are adjusted accordingly. ▲
Exposures and collateral values are monitored on a daily basis
to ensure that the credit exposure continues to be covered by suf-
198
ficient collateral. A shortfall occurs when the lending value drops
below the exposure. If a shortfall exceeds a defined trigger level,
a margin call is initiated, requiring the client to provide additional
collateral, reduce the exposure or take other action to bring the
exposure in line with the lending value of the collateral. If the
shortfall widens, or is not corrected within the required period, a
close-out is initiated, through which collateral is liquidated, open
derivative positions are closed and guarantees or letters of credit
are called.
We also conduct stress testing of collateralized exposures to
simulate market events which increase the risk of collateral short-
falls and unsecured exposures by significantly reducing the value
of the collateral, increasing the exposure of traded products, or
both. The results are monitored against thresholds at a portfolio
level and, in some cases, at an individual client level. ▲▲
➔ Refer to “Stress loss” in “Credit risk models” in this section for
more information on our stress testing
Audited | EDTF | Pillar 3 | Trading in OTC derivatives is conducted
through central counterparties (CCP) where practicable. Where
CCP are not used, we have clearly defined processes for entering
into netting and collateral arrangements, including the require-
ment to have a legal opinion on the enforceability of contracts in
relevant jurisdictions in the case of insolvency. Trading is generally
conducted under bilateral International Swaps and Derivatives As-
sociation (ISDA) or ISDA-equivalent master netting agreements,
which allow for the close-out and netting of all transactions in the
event of default. For certain major market participant counterpar-
ties, we may in addition use two-way collateral agreements under
which either party can be required to provide collateral in the
form of cash or marketable securities, typically limited to well-
rated government debt, when the exposure exceeds specified lev-
els. ▲▲▲
➔ Refer to “Note 14 Derivative instruments and hedge accounting”
in the “Financial information” section of this report for more
information on our OTC derivatives settled through CCP
➔ Refer to “Note 26 Offsetting financial assets and financial
liabilities” in the “Financial information” section of this report
for more information on the effect of netting and collateral
arrangements on our derivative exposures
Credit hedging
Audited | EDTF | Pillar 3 | We utilize single-name credit default swaps
(CDS), credit index CDS, bespoke protection, and other instru-
ments to actively manage credit risk in the Investment Bank and
Corporate Center – Non-core and Legacy Portfolio. This is aimed
at reducing concentrations of risk from specific counterparties,
sectors or portfolios.
We maintain strict guidelines for taking credit hedges into ac-
count for credit risk mitigation purposes. For example, when
monitoring exposures against counterparty limits, we do not usu-
ally recognize credit risk mitigants such as proxy hedges (credit
protection on a correlated but different name) or credit index
CDS. Buying credit protection also creates credit exposure against
the protection provider. We monitor our exposures to credit pro-
tection providers and the effectiveness of credit hedges as part of
our overall credit exposures to the relevant counterparties. For
credit protection purchased to hedge the lending portfolio, this
includes monitoring mismatches between the maturity of the
credit protection purchased and the maturity of the associated
loan. Such mismatches result in basis risk and may reduce the ef-
fectiveness of the credit protection. Mismatches are routinely re-
ported to credit officers and mitigating actions are taken when
considered necessary. In addition, we identify and monitor posi-
tions where we believe there is significant exposure and correla-
tion between the counterparty and the hedge provider (so-called
wrong-way risk). Our policy is to discourage such activity, and in
any event or as market correlations may change, not to recognize
hedge benefits subject to wrong-way risk within counterparty lim-
its and credit exposure-related capital calculations. ▲▲▲
➔ Refer to “Note 14 Derivative instruments and hedge accounting”
in the “Financial information” section of this report for more
information
Mitigation of settlement risk
EDTF | Pillar 3 | To mitigate settlement risk, we reduce our actual set-
tlement volumes through the use of multilateral and bilateral
agreements with counterparties, including payment netting.
Our most significant source of settlement risk is foreign ex-
change transactions. We are a member of Continuous Linked
Settlement, a foreign exchange clearing house which allows
transactions to be settled on a delivery versus payment basis,
thereby significantly reducing foreign exchange-related settle-
ment risk relative to the volume of business. The mitigation of
settlement risk through Continuous Linked Settlement member-
ship and other means does not eliminate our credit risk in foreign
exchange transactions (resulting from changes in exchange rates
prior to settlement), which is managed as part of our overall credit
risk management of OTC derivatives. ▲▲
Credit risk models
Audited | EDTF | Pillar 3 | We have developed tools and models in order
to estimate future credit losses that may be implicit in our current
portfolio.
Exposures to individual counterparties are measured based on
three generally accepted parameters: probability of default (PD),
loss given default (LGD) and exposure at default (EAD). For a given
credit facility, the product of these three parameters results in the
12 months’ expected loss. These parameters are the basis for the
majority of our internal measures of credit risk, and are key inputs
for the regulatory capital calculation under the advanced internal
ratings-based approach of the Basel III framework governing in-
ternational convergence of capital. We also use models to derive
the portfolio credit risk measures of expected loss, statistical loss
and stress loss. ▲
The table on the next page summarizes the key features of the
models that we use to derive PD, LGD and EAD for our main port-
199
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
folios and is followed by more detailed explanations of these pa-
rameters. ▲▲
as an important input for determining credit risk approval
authorities.
➔ Refer to the “UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3 regulations” section
of this report for more information on the regulatory capital
calculation under the advanced internal ratings-based approach
Probability of default
EDTF | Pillar 3 | The PD is an estimate of the likelihood of a counter-
party defaulting on its contractual obligations over the next 12
months. PD ratings are used for credit risk measurement and
EDTF | Pillar 3 | Key features of our main credit risk models
PD is assessed using rating tools tailored to the various catego-
ries of counterparties. Statistically developed score cards, based
on key attributes of the obligor and any associated collateral, are
used to determine PD for many of our corporate clients and for
loans secured by real estate. Where available, market data may
also be used to derive the PD for large corporate counterparties.
For Lombard loans, Merton-type model simulations taking into
account potential changes in the value of securities collateral are
used in our rating approach. These categories are also calibrated
Probability of default
Swiss owner-occupied mortgages
Score card
Behavioral data, affordability relative to income,
property type, loan-to-value
Portfolio in scope
Model approach Main drivers
Income Producing Real Estate mortgages
Transaction rating
Loan-to-value, debt-service-coverage
Lombard lending
Merton type
Loan-to-value, portfolio volatility
Retail & Corporate – Corporates
Investment Bank – Banks
Investment Bank – Corporates
Score card
Score card
Financial data including balance sheet ratios and
profit and loss, and qualitative risk factors
Financial data including balance sheet ratios and
profit and loss
Score card / market
data
Financial data including balance sheet ratios and
profit and loss, and market data
Loss given default
Swiss owner-occupied mortgages
Actuarial model
Historical observed loss rates, loan-to-value,
property type
Income Producing Real Estate mortgages
Actuarial model
Historical observed loss rates
Lombard lending
Actuarial model
Historical observed loss rates
Retail & Corporate – Corporates
Actuarial model
Historical observed loss rates
Investment Bank – all counterparties
Actuarial model
Counterparty and facility specific, including
industry segment, collateral, seniority, legal
environment and bankruptcy procedures
Exposure type (committed credit lines,
revocable credit lines, contingent products)
Exposure at default
Banking products
Traded products
Statistical model
Statistical model
Product specific market drivers, e.g., interest rates
Audited | EDTF | Pillar 3 | Internal UBS rating scale and mapping of external ratings
Internal UBS Rating
0 and 1
2
3
4
5
6
7
8
9
10
11
12
13
Counterparty is in default (CDF)
200
1 year PD range in %
0.00–0.02
0.02–0.05
0.05–0.12
0.12–0.25
0.25–0.50
Description
Investment grade
Moody’s Investors
Service mapping
Standard & Poor’s
mapping
Aaa
Aa1 to Aa3
A1 to A3
Baa1 to Baa2
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
0.50–0.80
Sub-investment grade
0.80–1.30
1.30–2.10
2.10–3.50
3.50–6.00
6.00–10.00
10.00–17.00
> 17
Default
Defaulted
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa
Ca to C
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
Number of
years loss data
20
20
10–15
16
5–10
5–10
20
20
10–15
16
5–10
> 10
n / a
▲▲
Fitch
mapping
AAA
AA+ to AA–
A+ to AA–
BBB+ to BBB
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
▲▲▲
to our internal credit rating scale (masterscale), which is designed
to ensure a consistent assessment of default probabilities across
counterparties. Our masterscale expresses one-year default prob-
abilities that we determine through our various rating tools by
means of distinct classes, whereby each class incorporates a range
of default probabilities. Counterparties migrate between rating
classes as our assessment of their PD changes.
The ratings of the major credit rating agencies, and their map-
ping to our internal rating masterscale and internal PD bands, are
shown in the “Internal UBS rating scale and mapping of external
ratings” table on the previous page. The mapping is based on the
long-term average of one-year default rates available from the
rating agencies. For each external rating category, the average
default rate is compared with our internal PD bands to derive a
mapping to our internal rating scale. Our internal rating of a
counterparty may, therefore, diverge from one or more of the cor-
related external ratings shown in the table. Observed defaults by
rating agencies may vary through economic cycles, and we do not
necessarily expect the actual number of defaults in our equivalent
rating band to equal the rating agencies’ average in any given
period. We periodically assess the long-term average default rates
of credit rating agencies’ grades, and we adjust their mapping to
our masterscale as necessary to reflect any material changes. ▲▲
Loss given default
EDTF | Pillar 3 | Loss given default (LGD) is the magnitude of the likely
loss if there is a default. LGD estimates include loss of principal,
interest and other amounts (such as workout costs, including the
cost of carrying an impaired position during the workout process)
less recovered amounts. We determine LGD based on the likely
recovery rate of claims against defaulted counterparties, which
depends on the type of counterparty and any credit mitigation by
way of collateral or guarantees. Our estimates are supported by
our internal loss data and external information where available.
Where we hold collateral, such as marketable securities or a mort-
gage on a property, loan-to-value ratios are a key parameter in
determining LGD. ▲▲
Exposure at default
EDTF | Pillar 3 | Exposure at default (EAD) represents the amount we
expect to be owed by a counterparty at the time of a possible
default. We derive EAD from our current exposure to the counter-
party and the possible future development of that exposure.
The EAD of a loan is the drawn or face value of the loan. For
loan commitments and guarantees, the EAD includes the amount
drawn as well as potential future amounts that may be drawn,
which are estimated based on historical observations.
For traded products, we derive the EAD by modeling the range
of possible exposure outcomes at various points in time using sce-
nario and statistical techniques. We assess the net amount that
may be owed to us or that we may owe to others, taking into
account the impact of market moves over the potential time it
would take to close-out our positions. For exchange-traded de-
rivatives, our calculation of EAD takes into account initial and
daily variation margins. When measuring individual counterparty
exposure against credit limits, we consider the maximum likely
exposure measured to a high level of confidence. However, when
aggregating exposures to different counterparties for portfolio
risk measurement purposes, we use the expected exposure to
each counterparty at a given time period (usually one year) gener-
ated by the same model.
We assess our exposures where there is a material correlation
between the factors driving the credit quality of the counterparty
and those driving the potential future value of our traded product
exposure (wrong-way risk), and we have established specific con-
trols to mitigate these risks. ▲▲
Expected loss
EDTF | Pillar 3 | Credit losses are an inherent cost of doing business,
but the occurrence and amount of credit losses can be erratic. In
order to quantify future credit losses that may be implicit in our
current portfolio, we use the concept of expected loss.
Expected loss is a statistical measure used to estimate the aver-
age annual costs we expect to experience from positions that be-
come impaired. The expected loss for a given credit facility is a
function of the three components described above: PD, EAD and
LGD. We aggregate the expected loss for individual counterpar-
ties to derive our expected portfolio credit losses.
Expected loss is the basis for quantifying credit risk in all our
portfolios. It is also the starting point for the measurement of our
portfolio statistical loss and stress loss.
We use a statistical modeling approach to estimate the loss
profile of each of our credit portfolios over a one-year period to a
specified level of confidence. The mean value of this loss distribu-
tion is the expected loss. The loss estimates deviate from the
mean value due to statistical uncertainty on the defaulting coun-
terparties and to systematic default relationships among counter-
parties within and between segments. The statistical measure is
sensitive to concentration risks on individual counterparties and
groups of counterparties. The outcome provides an indication of
the level of risk in our portfolio and the way it may develop over
time. ▲▲
Stress loss
EDTF | Pillar 3 | We complement our statistical modeling approach
with scenario-based stress loss measures. Stress tests are run on a
regular basis to monitor the potential impact of extreme, but nev-
ertheless plausible events on our portfolios, under which key
credit risk parameters are assumed to deteriorate substantially.
Where we consider it appropriate, we apply limits on this basis.
Stress scenarios and methodologies are tailored to the nature of
the portfolios, ranging from regionally focused to global systemic
events, and varying in time horizon. For example, for our loan un-
derwriting portfolio, we apply a global market event under which,
simultaneously, the market for loan syndication freezes, market
conditions significantly worsen, and credit quality deteriorates.
Similarly, for Lombard lending, we apply a range of scenarios rep-
resenting instantaneous market shocks to all collateral positions,
201
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
taking into consideration their liquidity and potential concentra-
tions. The portfolio-specific stress test for our mortgage lending in
Switzerland reflects a multi-year event and the overarching stress
test for global wholesale and counterparty credit risk to corporates
uses a one-year global stress event and takes into account expo-
sure concentrations to single counterparties. ▲▲
➔ Refer to “Stress testing” in this section for more information on
our stress testing framework
Credit risk model confirmation
EDTF | Pillar 3 | Our approach to model confirmation involves both quan-
titative methods, including monitoring compositional changes in
the portfolios and the results of backtesting, and qualitative assess-
ments, including feedback from users on the model output as a
practical indicator of the performance and reliability of the model.
Material changes in a portfolio composition may invalidate the
conceptual soundness of the model. We therefore perform regu-
lar analysis of the evolution of portfolios to identify such changes
in the structure and credit quality of portfolios. This includes anal-
ysis of changes in key attributes, changes in portfolio concentra-
tion measures, as well as changes in RWA. ▲▲
➔ Refer to “Risk measurement” in this section for more informa-
tion on our approach to model confirmation procedures
Backtesting
EDTF | Pillar 3 | We monitor the performance of our models by back-
testing and benchmarking them, whereby model outcomes are
compared with actual results, based on our internal experience as
well as externally observed results. We take a portfolio (or sub-
portfolio or rating bucket) approach to determine whether behav-
ior observed is in line with that predicted by our models.
For PD, we use statistical modeling to derive a distribution of
expected number of defaults. The observed number of defaults is
then compared with this distribution, allowing us to derive a sta-
tistical level of confidence in the model accuracy. In addition, we
derive a lower and upper bound for the average default rate. If
the portfolio average PD lies outside the derived interval, the rat-
ing tool is, as a general rule, recalibrated.
We apply a similar approach to assess the predictive power of
our simulations of potential future exposures for traded products
such as OTC derivatives.
For LGD, we compute the difference between observed and
estimated LGD for defaulted counterparties with the expecta-
tion that, for each specific LGD model, the distribution of those
differences is symmetric around zero with a small dispersion.
Models are recalibrated where these differences are outside ex-
pectations.
EDTF | Pillar 3 | Main credit models backtesting by regulatory exposure segment
PD
Sovereigns
Banks 3
Corporates 4
Retail
Residential mortgages
Lombard lending
Other retail
LGD
Sovereigns
Banks 3
Corporates
Retail
Residential mortgages
Lombard lending 5
Other retail
CCF
Corporates
Length of time
series used for
the calibration
(in years)
Actual rates in %
Average of last
5 years 1
Min. of last
5 years 2
Max. of last
5 years 2
Estimated average
rates at the start
of the period in %
> 10
> 10
> 10
> 15
> 10
> 10
> 10
> 10
> 10
> 10
> 10
> 10
> 10
0.00
0.08
0.26
0.15
0.01
0.30
11.89
25.49
2.03
44.03
21.25
16.33
0.00
0.05
0.21
0.13
0.00
0.24
18.80
3.76
0.00
0.00
9.75
0.00
0.13
0.35
0.16
0.02
0.45
18.80
30.52
3.12
41.32
0.23
0.64
0.57
0.55
0.20
2.08
40.48
38.02
20.73
7.00
20.00
47.78
30.65
34.92
1 Average of all observations over the last five years. 2 Minimum / maximum annual average of observations in any single year from the last five years. Yearly averages are only calculated where five or more observations
occured during that year. 3 Includes central counterparties. 4 Reported averages are low due to the impact of managed funds, which have relatively low default rates. 5 For Lombard lending, no min/max LGDs are
reported since there were less than 5 observations in each year between 2010 to 2014. Due to the low number of defaults over the five year period, the observed average is not a meaningful comparator to the equivalent
estimated average, which is calibrated using a larger data set spanning a longer historical period. ▲▲
202
Credit conversion factors (CCF), used for the calculation of
EAD for undrawn facilities with corporate counterparties, are de-
pendent on several contractual dimensions of the credit facility.
Similar to our approach for PD, we compare the predicted amount
drawn with observed historical utilization of such facilities for de-
faulted counterparties. If any statistically significant deviation is
observed, the relevant CCF are redefined.
The table on the previous page compares the current model
calibration for PD, LGD and CCF with historical observed values
over the last five years. ▲▲
Changes to models and model parameters during the period
EDTF | Pillar 3 | As part of our continuous efforts to enhance models
to reflect market developments and new available data, certain
models have been modified in the course of 2014. Further to
the enhancement in 2013 to increase the extent to which our
rating model for residential mortgages takes into account be-
havioral data, in 2014 we have expanded the range of behav-
ioral data available to include Wealth Management clients, re-
sulting in a recalibration of the PDs. Developments have been
made to the future exposure calculations for derivatives (in-
cluding exchange traded derivatives), with new models for the
calculation of the future close-out risk and credit valuation ad-
justment (CVA) in accordance with Basel III requirements. A
revised rating methodology for managed funds has been intro-
duced, using the fund’s leverage and strategy complexity as
key drivers of the rating. Where required, changes to models
and model parameters are approved by FINMA prior to imple-
mentation. ▲▲
Comparison of actual versus expected loss
EDTF | Pillar 3 | In addition to the above comparison of estimated with
observed parameter values, the table below provides a break-
down over the last five years of the one-year expected loss esti-
mate on our credit portfolios (covering banking and traded prod-
ucts) and the net actual IFRS credit loss amount (including CVA on
derivatives) recognized in our income statement, according to
BIS-defined exposure segments of the advanced internal ratings-
based approach.
Although such a comparison may provide some insight, com-
parison between expected and actual losses has certain limitations
and the two measures may not be directly comparable. For example,
our estimates of expected loss are calibrated on a “through the
cycle” basis, taking into account observed losses over a prolonged
historical period. In contrast, the actual loss figures presented are a
“point in time” view of our net credit loss expenses, equal to the
amount recognized in the income statement in a specific financial
year. Furthermore, the estimated expected loss at the start of the
period assumes that the portfolio will be unchanged throughout the
coming year. In reality, the portfolio composition changes on an on-
going basis, affecting the actual loss experience. In addition, the net
actual losses include increases and releases positions already im-
paired in a prior period, while the expected loss calculation excludes
the already impaired exposures. ▲▲
EDTF | Pillar 3 | Total expected loss and actual credit loss
CHF million
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving other retail exposures
Other retail
Not allocated segment 1
Total gain / (loss)
1 Includes changes in collective loan loss allowances. ▲▲
Expected
loss
As of
31.12.13
for the
year ended
31.12.14
Actual
loss
Expected
loss
Actual
loss
Expected
loss
Actual
loss
Expected
loss
Actual
loss
Expected
loss
Actual
loss
As of
31.12.12
for the
year ended
31.12.13
For the
year ended
31.12.13
As of
31.12.11
for the
year ended
31.12.12
For the
year ended
31.12.12
As of
31.12.10
for the
year ended
31.12.11
For the
year ended
31.12.11
As of
31.12.09
for the
year ended
31.12.10
For the
year ended
31.12.10
For the
year ended
31.12.14
(2)
(39)
(189)
0
(111)
(30)
(16)
(5)
(1)
(18)
(226)
0
1
12
(5)
(2)
15
(4)
(36)
(199)
0
(96)
(32)
(18)
(392)
(224)
(386)
0
3
31
(2)
(36)
(8)
99
88
(19)
(35)
(322)
(59)
(24)
(5)
(463)
0
(1)
884
15
(12)
(11)
24
899
(27)
(40)
(336)
(62)
(30)
(494)
(1)
(321)
3
12
(5)
(75)
(387)
(8)
(37)
(359)
(84)
(19)
(5)
26
1,577
1
5
(2)
7
(512)
1,615
203
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Policies for past due, non-performing and impaired claims
Audited | EDTF | Pillar 3 | The diagram below illustrates how we catego-
rize banking products and securities financing transactions as per-
forming, non-performing or impaired. For products accounted for
on a fair value basis, such as OTC derivatives, credit deterioration
is recognized through a CVA, and these products are therefore
not subject to the below impairment framework.
We consider a claim (loan, guarantee, loan commitment or se-
curities financing transaction) to be past due when a contractual
payment has not been received by its contractual due date. This
includes account overdrafts where the credit limit is exceeded.
Past due claims are not considered impaired where we expect to
collect all amounts due under the contractual terms of the claims.
A past due claim is considered non-performing when the pay-
ment of interest, principal or fees is overdue by more than 90
days. Claims are also classified as non-performing when insol-
vency proceedings / enforced liquidation have commenced or ob-
ligations have been restructured on preferential terms, such as
preferential interest rates, extension of maturity or subordination.
Non-performing claims are rated as being in counterparty default
on our internal rating scale.
Individual claims are classified as impaired if following an indi-
vidual impairment assessment, an allowance or provision for
credit losses is established. Accordingly, both performing and
non-performing loans may be classified as impaired. ▲▲▲
Restructured claims
Audited | EDTF | We do not operate a general policy for restructuring
claims in order to avoid counterparty default. Where restructur-
ing does take place, we assess each case individually. Typical
features of terms and conditions granted through restructuring
to avoid default may include the provision of special interest
rates, postponement of interest or principal payments, modifi-
cation of the schedule of repayments or amendment of loan
maturity.
If a loan is restructured with preferential conditions (i.e., new
terms and conditions are agreed which do not meet the normal
current market criteria for the quality of the obligor and the type
of loan), the claim is still classified as non-performing and is rated
as being in counterparty default. It will remain so until the loan is
collected, written off or non-preferential conditions are granted
that supersede the preferential conditions, and will be assessed
for impairment on an individual basis.
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:2)(cid:21)(cid:2)(cid:94)(cid:2)(cid:39)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:69)(cid:67)(cid:86)(cid:71)(cid:73)(cid:81)(cid:84)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)
(cid:48)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73) (cid:19)
(cid:40)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:16)(cid:2)(cid:54)(cid:74)(cid:75)(cid:85)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:28)
(cid:115)(cid:2) (cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:82)(cid:84)(cid:71)(cid:88)(cid:75)(cid:81)(cid:87)(cid:85)(cid:78)(cid:91)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)(cid:75)(cid:386)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:84)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:14)(cid:2)(cid:68)(cid:87)(cid:86)
(cid:2) (cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:124)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:84)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:90)(cid:75)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)
(cid:2)
(cid:115)(cid:2) (cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:82)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:14)
(cid:2) (cid:71)(cid:16)(cid:73)(cid:16)(cid:14)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:124)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:82)(cid:84)(cid:81)(cid:88)(cid:75)(cid:70)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:71)(cid:84)
(cid:86)(cid:71)(cid:84)(cid:79)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:67)(cid:84)(cid:84)(cid:67)(cid:80)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)
(cid:50)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)
(cid:115)(cid:2) (cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:85)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:79)(cid:75)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:82)(cid:67)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:70)(cid:84)(cid:67)(cid:72)(cid:86)(cid:85)(cid:2)(cid:75)(cid:80)
(cid:2) (cid:71)(cid:90)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:2)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:85)(cid:75)(cid:80)(cid:69)(cid:71)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:67)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:2) (cid:70)(cid:67)(cid:86)(cid:71)(cid:2)(cid:81)(cid:84)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:68)(cid:84)(cid:71)(cid:67)(cid:69)(cid:74)
(cid:50)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:85)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:79)(cid:75)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:82)(cid:67)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:70)(cid:84)(cid:67)(cid:72)(cid:86)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)
(cid:52)(cid:71)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:10)(cid:82)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:86)(cid:71)(cid:84)(cid:79)(cid:85)(cid:11)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:86)(cid:71)(cid:84)(cid:79)(cid:85)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:2)(cid:82)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)
(cid:75)(cid:80)(cid:2)(cid:81)(cid:84)(cid:70)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:88)(cid:81)(cid:75)(cid:70)(cid:124)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:82)(cid:67)(cid:84)(cid:86)(cid:91)(cid:14)(cid:2)(cid:71)(cid:16)(cid:73)(cid:16)(cid:14)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:2)(cid:69)(cid:81)(cid:80)(cid:69)(cid:71)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)
(cid:71)(cid:90)(cid:86)(cid:71)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2)(cid:85)(cid:87)(cid:68)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:43)(cid:80)(cid:85)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:85)
(cid:43)(cid:80)(cid:85)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:17)(cid:2)(cid:71)(cid:80)(cid:72)(cid:81)(cid:84)(cid:69)(cid:71)(cid:70)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:80)(cid:69)(cid:71)(cid:70)(cid:2)(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:81)(cid:68)(cid:78)(cid:75)(cid:73)(cid:81)(cid:84)
(cid:48)(cid:81)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:71)(cid:90)(cid:75)(cid:85)(cid:86)(cid:85)
(cid:43)(cid:72)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:71)(cid:90)(cid:75)(cid:85)(cid:86)(cid:85)
(cid:43)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:78)(cid:91)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70) (cid:19)
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:71)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:71)(cid:90)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:67)(cid:84)(cid:84)(cid:91)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:79)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:71)(cid:70)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:67)(cid:79)(cid:81)(cid:87)(cid:80)(cid:86)
(cid:19)(cid:2)(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:16)(cid:2)(cid:35)(cid:78)(cid:78)(cid:2)(cid:85)(cid:87)(cid:69)(cid:74)(cid:2)(cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:70)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:79)(cid:71)(cid:80)(cid:86)(cid:16)
(cid:86)(cid:86)
204
If a loan is restructured with non-preferential conditions (e.g.,
additional collateral is provided by the client, or new terms and
conditions meet the normal market criteria for the quality of the
obligor and the type of loan), the loan is classified as performing,
and therefore included in our collective assessment of loan loss
allowance, unless an indication of impairment exists, in which
case the loan is assessed for impairment on an individual basis.
Management regularly reviews all loans to ensure that all criteria
according to the loan agreement continue to be met and that
future payments are likely to occur. ▲▲
Individual and collective impairment assessments
Audited | EDTF | Pillar 3 | Claims are assessed individually for impairment
where there are indicators that an impairment may exist. Other-
wise claims are included in a collective impairment assessment.
▲▲▲
Individual impairment assessment
Audited | EDTF | Pillar 3 | Non-performing status is considered an indica-
tor that a loan may be impaired and therefore all non-performing
claims are assessed individually for impairment. However, an im-
pairment analysis would be carried out irrespective of non-per-
forming status if other objective evidence indicates that a loan
may be impaired. Any event that impacts current and future cash
flows may be an indication of impairment and trigger an assess-
ment by the risk officer. Such events may be (i) significant collat-
eral shortfalls due to a fall in lending values (securities and real
estate), (ii) increase in loan or derivative exposures, (iii) significant
financial difficulties of a client and (iv) high probability of bank-
ruptcy, debt moratorium or financial reorganization of the client.
Individual claims are assessed for impairment based on the
borrower’s character, overall financial condition, resources and
payment record, the prospects for support from any financially
responsible guarantors, and where applicable, the realizable value
of any collateral. The recoverable amount is determined from all
relevant cash flows and, where this is lower than the carrying
amount of the claim, the claim is considered impaired. We con-
sider a reclassified security an impaired loan if the carrying value
at the balance sheet date is, on a cumulative basis, 5% or more
below the carrying value at the reclassification date adjusted for
redemptions.
We have established processes to ensure that the carrying val-
ues of impaired claims are determined in compliance with IFRS
requirements. Our credit controls applied to valuation and work-
out are the same for both amortized cost and fair-valued credit
products. Our workout strategy and estimation of recoverable
amounts are independently approved in accordance with our
credit authorities. ▲▲▲
Collective impairment assessment
Audited | EDTF | Pillar 3 | We assess our portfolios of claims carried at
amortized cost with similar credit risk characteristics for collective
impairment in order to consider if these portfolios contain im-
paired claims that cannot yet be individually identified. To cover
the time lag between the occurrence of an impairment event and
its identification based on the policies above, we establish collec-
tive loan loss allowances based on the estimated loss for the port-
folio over the average period between trigger events and the
identification of any individual impairment. These portfolios are
not considered impaired loans in the tables shown in this section.
Additionally, for all of our portfolios we assess whether there
have been any developments which might result in event-driven
impairments that are not immediately observable. These events
could be stress situations, such as a natural disaster or a country
crisis, or they could result from significant changes in the legal or
regulatory environment. To determine whether a collective im-
pairment exists, we regularly use a set of global economic drivers
to assess the most vulnerable countries and review the impact of
any potential impairment event. ▲▲▲
Recognition of impairment
Audited | EDTF | Pillar 3 | The recognition of impairment in our financial
statements depends on the accounting treatment of the claim.
For claims carried at amortized cost, impairment is recognized
through the creation of an allowance, or in the case of off-bal-
ance sheet items such as guarantees and loan commitments
through a provision, both charged to the income statement as a
credit loss expense. For derivatives, which are carried at fair value,
a deterioration of the credit quality is recognized through a CVA
recognized in the income statement in Net trading income. ▲▲▲
➔ Refer to “Note 1 Significant accounting policies” and “Note 24a
Valuation principles” in the “Financial information” section of
this report for more information on allowances and provisions
for credit losses and credit valuation adjustments
➔ Refer to “Note 27c Reclassification of financial assets” section of
this report for more information on reclassified securities
205
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Market risk
Key developments during the period
We maintained a low level of market risk in our trading busi-
nesses. Average management VaR has remained relatively stable
compared with 2013. With management VaR at the low levels
observed in 2014, the effect of individual sizable client trades,
such as equity block transactions, resulted in some volatility in the
measure.
Audited | EDTF | Pillar 3 | Main sources of market risk
– Market risks arise from both our trading and non-trading busi-
ness activities.
– Trading market risks arise mainly in connection with securities
and derivatives trading for market-making and client facilita-
tion purposes within our Investment Bank, and from remaining
positions within Non-core and Legacy Portfolio.
– Trading market risk also arises from our municipal securities
trading business within Wealth Management Americas.
– Non-trading market risk arises predominantly in the form of
interest rate and foreign exchange risks in connection with our
retail banking and lending in our wealth management busi-
nesses, our retail and corporate banking businesses in Switzer-
land and the Investment Bank’s lending business, in addition to
treasury activities.
– Group ALM (prior to 1 January 2015, Group ALM was part of
Group Treasury) assumes market risks in the process of manag-
ing interest rate and structural foreign exchange risks and the
funding and liquidity profile of the Group.
– Equity and debt investments can also give rise to market risks,
as can some aspects of our employee benefits such as defined
benefit pension schemes. ▲▲▲
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on the
new structure of Corporate Center
Audited | EDTF | Pillar 3 | Overview of measurement, monitoring
and management techniques
– Market risk limits are set for the Group, the business divisions
and Corporate Center and at granular levels within the various
business lines, reflecting the nature and magnitude of the mar-
ket risks.
– Our primary portfolio measures of market risk are liquidity ad-
justed stress (LAS) loss and value-at-risk (VaR). Both are com-
mon to all our business divisions and subject to limits that are
approved by the Board of Directors (BoD).
– These measures are complemented by concentration and
granular limits for general and specific market risk factors. Our
trading businesses are subject to multiple market risk limits.
These limits take into account the extent of market liquidity
and volatility, available operational capacity, valuation uncer-
tainty, and, for our single-name exposures, the credit quality of
issuers.
– Issuer risk is controlled by limits applied at business division
level based on jump-to-zero measures, which estimate our
maximum default exposure (the loss in the case of a default
event assuming zero recovery).
– Non-trading foreign exchange risks are managed under mar-
ket risk limits, with the exception of Group ALM’s manage-
ment of consolidated capital activity discussed in the “Treasury
management” section of this report. All foreign exchange risks
are included in our Group-wide statistical and stress testing
metrics which flow into our risk appetite framework.
– Our Treasury Risk Control function applies a holistic risk frame-
work which sets the appetite for treasury-related risk-taking
activities across the Group. A key element of the framework is
206
an overarching economic value sensitivity limit, set by the BoD.
This limit is linked to the level of Basel III common equity tier 1
(CET1) capital and takes into account risks arising from interest
rates, foreign exchange and credit spreads. In addition, the
sensitivity of net interest income to changes in interest rates is
monitored against targets set by the Group Chief Executive
Officer in order to analyze the outlook and volatility of net in-
terest income based on market expected interest rates. Limits
are also set by the BoD to balance the impact of foreign ex-
change movements on our CET1 capital and CET1 capital ratio.
Non-trading interest rate and foreign exchange risks are in-
cluded in our Group-wide statistical and stress testing metrics
which flow into our risk appetite framework. Further informa-
tion on interest rate risk in the banking book can be found later
in this section, and details on Group ALM’s management of
foreign exchange risks can be found in the “Treasury manage-
ment” section of this report.
– Equity and debt investments are subject to a range of risk con-
trols including pre-approval of new investments by business
management and Risk Control and regular monitoring and re-
porting. They are also included in our Group-wide statistical
and stress testing metrics which flow into our risk appetite
framework. ▲▲▲
➔ Refer to the “Capital management” section of this report for
more information on the sensitivity of our CET1 capital and CET1
capital ratio to currency movements
Market risk exposures arising from our business activities
EDTF | The table on the next page highlights the most significant
sources of our trading market risk exposures and the interest rate
risk on our banking book exposures, categorized according to the
business activities that primarily generate the risks and the classi-
fication of positions on the balance sheet. In practice, and particu-
larly for positions classified in the banking book, we take account
of natural risk offsets that occur between balance sheet line items,
for example loans and deposits, and manage the residual expo-
sures. The table does not show the foreign exchange risks arising
from Group ALM’s management of consolidated capital activity
discussed in the “Treasury management” section of this report.
Also shown in the table is the specific capital treatment for posi-
tions classified within the regulatory trading book. The amount of
capital required to underpin market risk in the regulatory trading
book is calculated using a variety of methods approved by FINMA.
The components of market risk RWA are value-at-risk (VaR),
stressed VaR (SVaR), an add-on for risks which are potentially not
fully modeled in VaR, the incremental risk charge, the comprehen-
sive risk charge for the correlation portfolio and the securitization
framework for securitization positions in the trading book. Fur-
ther information on each of these components follows the table.
▲
207
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Market risk exposures arising from our primary business activities
CHF billion
Market risk type
Trading book market risk
RWA category
e
r
u
s
a
e
m
k
s
i
r
e
v
i
s
n
e
h
e
r
p
m
o
C
n
o
i
t
a
z
i
t
i
r
u
c
e
s
k
o
o
b
g
n
i
d
a
r
T
e
g
r
a
h
c
k
s
i
r
l
a
t
n
e
m
e
r
c
n
I
R
a
V
-
n
i
-
t
o
n
-
s
k
s
i
R
s
e
t
a
r
t
s
e
r
e
t
n
I
s
d
a
e
r
p
s
t
i
d
e
r
C
s
e
i
t
i
u
q
E
e
g
n
a
h
c
x
e
n
g
i
e
r
o
F
R
a
V
y
r
o
t
a
l
u
g
e
R
s
e
i
t
i
d
o
m
m
o
C
R
a
V
d
e
s
s
e
r
t
S
0.0 0.0
0.2 0.5
0.0
0.3
0.0 0.0
0.0 0.0
A
W
R
k
s
i
r
t
e
k
r
a
m
l
a
t
o
T
0.0
1.0
0.0
0.0
1.8 4.0
5.0
2.5
0.0
0.3 13.6
Trading
book /
Banking
book
Banking book
Banking book
Trading book 2
Business activity
Balance sheet line item
Wealth Management 1
Wealth Management Americas
Client deposits
Due to customers
Securities backed lending and mortgages
Loans
Municipal securities and closed-end
funds trading
Trading portfolio assets and liabilities
Retail & Corporate 1
Global Asset Management
Investment Bank
Investor Client Services
Fixed income, equities, foreign exchange and
commodities, securities and derivatives
Structured notes
Trading portfolio assets and liabilities and
positive and negative replacement values
Financial liabilities designated at fair value
Trading book
Corporate Client Solutions
Originate to distribute loans and
CMBS origination 3
Take and hold loans
Loans, structured loans, reverse repurchase
agreements and securities borrowing
Corporate Center – Core Functions 1, 4
Trading portfolio assets
Loans
Trading book
Banking book
Financial assets designated at fair value
Banking book
Centralized liquidity and funding
Debt issued and due to banks
Banking book
Repurchase and reverse repurchase agreements
Trading book
Global and local liquidity reserves
Balances with central banks and
Due from banks
Financial investments available-for-sale
Trading portfolio assets
Mortgage and other loans
Loans
Client deposits
Due to customers
Banking book
Banking book
Trading book
Banking book
Banking book
Hedging instruments and other derivatives
Positive and negative replacement values
Banking book
Corporate Center – Non-core and
Legacy Portfolio
Assets and derivatives considered to be
non-core
Structured notes
Trading portfolio assets and liabilities and
positive and negative replacement values
Financial liabilities designated at fair value
Trading book
Counterparty CVA management 5
Positive and negative replacement values
Trading book
(0.5) (1.1) 0.1 (0.2)
(1.8)
0.5 0.8
0.9
0.4
0.1
1.0 3.6
Reclassified held for trading assets, and
corporate and asset-based lending
Loans
Total
Key contributor
Less significant contributor
Banking book
2.0 4.1 5.9 3.0 0.1 1.3 16.5
1 Interest rate risk from Wealth Management and Retail & Corporate loans and deposits is transferred to Group ALM and reported under Corporate Center – Core Functions in this analysis. 2 Although risk is controlled
under the market risk framework, Puerto Rico closed-end fund positions are treated as banking book for capital underpinning purposes due to market illiquidity. 3 Credit spread risk arising from loan underwriting is
captured through, and reported as part of, credit risk RWA. 4 Negative market risk RWA are due to diversification effects allocated to Corporate Center – Core Functions. 5 Counterparty credit risk in the valuation of
OTC derivative instruments, derivatives embedded in funded assets designated at fair value and derivatives embedded in traded debt instruments is captured through credit valuation adjustment RWA calculated under the
advanced IRB or standardized approach and reported as part of credit risk RWA. ▲
208
Market risk stress loss
EDTF | Pillar 3 | Value-at-risk
EDTF | Pillar 3 | We measure and manage our market risks primarily
through a comprehensive framework of non-statistical measures
and related limits. This includes an extensive series of stress tests
and scenario analyses that undergo continuous evaluation to en-
sure that, if an extreme but nevertheless plausible event were to
occur, the resulting losses would not exceed our risk appetite. ▲▲
Liquidity adjusted stress (LAS)
EDTF | Pillar 3 | Our primary measure of stress loss for Group-wide
market risk is liquidity adjusted stress (LAS). The LAS framework is
designed to capture the economic losses that could arise under
specified stress scenarios. This is in part achieved by replacing the
standard one-day and 10-day holding period assumptions used
for management and regulatory VaR with liquidity adjusted hold-
ing periods, as explained below. Shocks are then applied to posi-
tions based on the expected market movements over the liquidity
adjusted holding periods resulting from the specified scenario.
The holding periods used in LAS are calibrated to reflect the
amount of time it would take to flatten the risk of positions in
each major risk factor in a stressed environment, assuming maxi-
mum utilization of the relevant position limits. Holding periods are
also subject to minimum periods, regardless of observed liquidity
levels, reflecting the fact that identification of, and reaction to, a
crisis may not always be immediate.
The expected market movements are derived using a combina-
tion of historical market behavior, based on an analysis of histori-
cal events, and forward-looking analysis including consideration
of defined scenarios that have not occurred historically.
LAS-based limits are applied at a number of levels: Group-
wide, business divisions and Corporate Center, business areas and
sub-portfolios. In addition, LAS forms the core market risk compo-
nent of our combined stress test framework and is therefore inte-
gral to our overall risk appetite framework. ▲▲
➔ Refer to “Risk appetite” in this section for more information on
our risk appetite framework
➔ Refer to “Stress testing” in this section for more information on
our stress testing framework
Method applied
Historical simulation
Data set
Five years
Holding period
1 day for internal limits, 10 days for regulatory VaR
Confidence level
Population
95% for internal limits, 99% for regulatory VaR –
both based on expected tail loss
Regulatory trading book for regulatory VaR, a broader
population for internal limits
▲▲
VaR definition
Audited | EDTF | Pillar 3 | Value-at-risk (VaR) is a statistical measure of
market risk, representing the market risk losses that could poten-
tially be realized over a set time horizon (holding period) at an
established level of confidence. The measure assumes no change
in the Group’s trading positions over the set time horizon.
We calculate VaR on a daily basis, based on the direct applica-
tion of historical changes in market risk factors to our current
positions – a method known as historical simulation. We use a
single VaR model for both internal management purposes and for
determining market risk regulatory capital requirements, although
we consider different confidence levels and time horizons. For in-
ternal management purposes, we establish risk limits and mea-
sure exposures using VaR at the 95% confidence level with a one-
day holding period, aligned to the way we consider the risks
associated with our trading activities. The regulatory measure of
market risk used to underpin the market risk capital requirement
under Basel III requires a measure equivalent to a 99% confidence
level using a 10-day holding period. ▲
The population of the portfolio within management and regu-
latory VaR is slightly different. The population within regulatory
VaR meets minimum regulatory requirements for inclusion in reg-
ulatory VaR. Management VaR includes a broader population of
positions. For example, regulatory VaR excludes the credit spread
risks from the securitization portfolio, which are treated instead
under the securitization approach for regulatory purposes. ▲▲
209
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Management VaR for the period
EDTF | The tables below show minimum, maximum, average and
period-end management VaR by business division and Corporate
Center and general market risk type. Average management VaR
has remained relatively stable compared with 2013. With manage-
ment VaR at such low levels, combined with a reduced long
gamma position held by the Investment Bank relative to prior
years, we continue to see some volatility in the measure resulting
from sizable client trades such as equity block transactions, which
is reflected in the maximum VaR for the period. ▲
Audited | EDTF | Management value-at-risk (1-day, 95% confidence, 5 years of historical data) by business division and
Corporate Center and general market risk type1
CHF million
Min.
Total management VaR, Group
10
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and
Legacy Portfolio
CC – Non-core and Legacy Portfolio
CHF million
0
0
0
0
7
3
8
6
Min.
Total management VaR, Group
10
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and
Legacy Portfolio
CC – Non-core and Legacy Portfolio
0
1
0
0
7
3
8
6
For the year ended 31.12.14
Equity
Interest
rates
Credit
spreads
Foreign
exchange Commodities
Max.
Average
31.12.14
23
0
2
0
0
24
7
23
11
14
0
1
0
0
12
4
(4)
13
8
17
0
1
0
0
17
5
(5)
17
6
5
24
9
14
0
0
0
0
9
0
0
9
2
7
11
9
8
6
12
9
7
2
8
4
4
Average (per business division and risk type)
0
1
0
0
7
4
(4)
8
5
0
2
0
0
5
0
(1)
6
7
0
0
0
0
3
1
0
4
1
1
3
2
1
0
0
0
0
2
0
0
2
0
For the year ended 31.12.13
Max.
Average
31.12.13
33
0
2
0
0
28
11
33
14
16
0
1
0
0
13
5
(5)
13
11
11
0
2
0
0
10
4
(5)
10
11
Equity
6
18
9
7
0
0
0
0
8
0
0
8
4
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
7
16
10
8
10
31
18
10
2
9
5
3
Average (per business division and risk type)
0
2
0
0
9
4
(5)
10
5
0
3
0
0
11
1
(2)
13
10
0
0
0
0
4
1
(1)
4
2
1
5
2
2
0
0
0
0
2
0
0
2
0
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the 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, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and
the VaR for the “Group, excluding CC – Non-core and Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio
diversification effect. ▲▲
210
Regulatory VaR for the period
EDTF | Pillar 3 | The tables below show minimum, maximum, aver-
age and period-end regulatory VaR by business division and
Corporate Center and general market risk type. While VaR as of
31 December 2014 has increased compared with the prior year
end, average VaR has remained broadly comparable and, as
noted for management VaR above, volatility in the measure is
expected at such low levels, with volatility in management VaR
magnified due to the assumed 10-day holding period. ▲▲
EDTF | Pillar 3 | Regulatory value-at-risk (10-day, 99% confidence, 5 years of historical data) by business division and
Corporate Center and general market risk type1
CHF million
Total regulatory VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and
Legacy Portfolio
CC – Non-core and Legacy Portfolio
CHF million
Total regulatory VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and
Legacy Portfolio
CC – Non-core and Legacy Portfolio
Min.
31
0
3
0
0
29
6
29
15
Min.
37
0
9
0
0
32
8
32
8
For the year ended 31.12.14
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Average
31.12.14
50
0
5
0
0
45
15
(18)
47
28
60
0
6
0
0
57
19
(24)
58
16
23
60
33
46
0
0
0
0
33
0
0
33
2
18
48
27
22
32
69
45
34
4
59
24
24
Average (per business division and risk type)
0
5
0
0
26
15
(18)
28
15
0
7
0
0
31
2
(6)
34
28
0
0
0
0
21
4
(3)
22
9
5
32
12
7
0
0
0
0
11
0
0
11
2
For the year ended 31.12.134
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Average
31.12.13
54
0
13
0
0
52
17
38
0
10
0
0
35
20
(30)
(31)
52
41
35
42
21
78
33
27
0
0
0
0
31
0
(1)
31
11
22
71
35
31
46
131
87
47
3
110
35
10
Average (per business division and risk type)
0
7
0
0
37
12
(20)
36
19
0
20
0
0
80
8
(11)
97
47
0
0
0
0
28
10
(10)
28
20
6
38
15
11
0
0
0
0
15
0
0
15
1
Max.
104
0
11
0
0
87
35
91
48
Max.
99
1
18
0
1
117
33
114
80
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the 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, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and
the VaR for the “Group, excluding CC – Non-core and Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio
diversification effect. 4 In 2014, regulatory VaR related to credit spreads as of 31 December 2013 for the comparative period was restated. As a result, average VaR related to credit spreads for the year ended 31 De-
cember 2013 decreased by CHF 1 million and VaR related to credit spreads as of 31 December 2013 decreased by CHF 15 million. These restatements did not impact total regulatory VaR for UBS Group. ▲▲
211
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
VaR limitations
Audited | EDTF | Pillar 3 | Actual realized market risk losses may differ
from those implied by our VaR for a variety of reasons.
– The VaR measure is calibrated to a specified level of confidence
and may not indicate potential losses beyond this confidence
level.
– The one-day time horizon used for VaR for internal manage-
ment purposes, or 10-day in the case of the regulatory VaR
measure, may not fully capture the market risk of positions
that cannot be closed out or hedged within the specified pe-
riod.
– In certain cases, VaR calculations approximate the impact of
changes in risk factors on the values of positions and portfo-
lios. This may happen because the number of risk factors in-
cluded in the VaR model is necessarily limited. For example,
yield curve risk factors do not exist for all future dates.
– The effect of extreme market movements is subject to estima-
tion errors, which may result from non-linear risk sensitivities,
as well as the potential for actual volatility and correlation lev-
els to differ from assumptions implicit in the VaR calculations.
– The use of a five-year window means that sudden increases in
market volatility will tend not to increase VaR as quickly as the
use of shorter historical observation periods, but the increase
will impact our VaR for a longer period of time. Similarly, fol-
lowing a period of increased volatility, as markets stabilize, VaR
predictions will remain more conservative for a period of time
influenced by the length of the historical observation period.
We recognize that no single measure may encompass the en-
tirety of risks associated with a position or portfolio. Consequently,
we employ a suite of various metrics with both overlapping and
complementary characteristics in order to create a holistic frame-
work which ensures material completeness of risk identification
and measurement. As a statistical aggregate risk measure, VaR
supplements our comprehensive stress testing framework.
Furthermore, we have an established framework to identify
and quantify potential risks that are not fully captured by our VaR
model. This framework is explained later in this section. ▲▲▲
Backtesting of VaR
EDTF | Pillar 3 | For backtesting purposes, we compute backtesting
VaR using a 99% confidence level and one-day holding period for
the population included within regulatory VaR. The backtesting
process compares backtesting VaR calculated on positions at the
close of each business day with the revenues generated by those
positions on the following business day. Backtesting revenues ex-
clude non-trading revenues, such as fees and commissions and
revenues from intraday trading, to ensure a like-for-like compari-
son. A backtesting exception occurs when backtesting revenues
are negative and the absolute value of those revenues is greater
than the previous day’s backtesting VaR.
Statistically, given the confidence level of 99%, two to three
backtesting exceptions per year can be expected. More excep-
tions than this could indicate that the VaR model is not perform-
ing appropriately, as could too few exceptions over a prolonged
period of time. However, as noted in the VaR limitations above, a
sudden increase or decrease in market volatility relative to the
five-year window could lead to a higher or lower number of ex-
ceptions respectively. Accordingly, Group-level backtesting excep-
tions are investigated, as are exceptional positive backtesting rev-
enues, with results being reported to senior business management,
the Group Chief Risk Officer and the divisional Chief Risk Officers.
Backtesting exceptions are also reported to internal and external
auditors and to the relevant regulators.
There were two Group VaR backtesting exceptions during
2014, both of which occurred in early December. The trading
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:2)(cid:21)(cid:2)(cid:94)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:28)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:19)(cid:2)
(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:20)(cid:2)(cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:11)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:2)(cid:21)(cid:2)(cid:94)(cid:2)(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:2)(cid:115)(cid:2)(cid:48)(cid:81)(cid:80)(cid:15)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:46)(cid:71)(cid:73)(cid:67)(cid:69)(cid:91)(cid:2)(cid:50)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:70)(cid:67)(cid:75)(cid:78)(cid:91)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:19)
(cid:40)(cid:84)(cid:71)(cid:83)(cid:87)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:75)(cid:80)(cid:2)(cid:80)(cid:87)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)
(cid:19)(cid:2)(cid:44)(cid:67)(cid:80)(cid:87)(cid:67)(cid:84)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:2)(cid:115)(cid:2)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:44)
(cid:40)
(cid:47)
(cid:35)(cid:47)
(cid:44)
(cid:44)
(cid:35)
(cid:53)
(cid:49)
(cid:48)
(cid:38)
(cid:19)(cid:23)(cid:18)
(cid:19)(cid:18)(cid:18)
(cid:23)(cid:18)
(cid:18)
(cid:10)(cid:23)(cid:18)(cid:11)
(cid:10)(cid:19)(cid:18)(cid:18)(cid:11)
(cid:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)
(cid:27)(cid:27)(cid:7)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:2)(cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:2)(cid:31)(cid:2)(cid:19)(cid:7)(cid:2)(cid:80)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:67)(cid:75)(cid:78)(cid:11)
(cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:14)(cid:2)(cid:85)(cid:87)(cid:69)(cid:74)(cid:2)(cid:67)(cid:85)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:71)(cid:71)(cid:85)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:75)(cid:80)(cid:86)(cid:84)(cid:67)(cid:70)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:20)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:56)(cid:67)(cid:52)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:37)(cid:56)(cid:35)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:75)(cid:84)(cid:2)(cid:71)(cid:78)(cid:75)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:85)(cid:87)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:78)(cid:81)(cid:80)(cid:71)(cid:2)(cid:37)(cid:56)(cid:35)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)(cid:16)(cid:2)(cid:86)(cid:86)
212
(cid:19)(cid:20)(cid:18)
(cid:19)(cid:18)(cid:18)
(cid:26)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:18)
(cid:18)
(cid:21)(cid:22)(cid:26)(cid:15)(cid:21)(cid:18)(cid:19)(cid:65)(cid:24)(cid:22)(cid:18)
(cid:11)
(cid:18)
(cid:18)
(cid:19)
(cid:10)
(cid:30)
(cid:11)
(cid:23)
(cid:25)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:18)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:23)
(cid:10)
(cid:115)
(cid:11)
(cid:23)
(cid:25)
(cid:10)
(cid:11)
(cid:23)
(cid:20)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:23)
(cid:10)
(cid:18)
(cid:115)
(cid:11)
(cid:23)
(cid:20)
(cid:10)
(cid:23)
(cid:20)
(cid:115)
(cid:18)
(cid:18)
(cid:23)
(cid:115)
(cid:23)
(cid:20)
(cid:23)
(cid:25)
(cid:115)
(cid:18)
(cid:23)
(cid:18)
(cid:18)
(cid:19)
(cid:115)
(cid:23)
(cid:25)
(cid:18)
(cid:18)
(cid:19)
(cid:32)
(cid:52)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:14)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:85)(cid:87)(cid:69)(cid:74)(cid:2)(cid:67)(cid:85)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:71)(cid:71)(cid:85)(cid:14)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)
(cid:75)(cid:80)(cid:86)(cid:84)(cid:67)(cid:70)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:89)(cid:80)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:16)(cid:2)(cid:86)(cid:86)
(cid:19)(cid:20)(cid:18)
(cid:19)(cid:18)(cid:18)
150
100
50
0
-50
-100
(cid:26)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:18)
(cid:18)
losses causing the exceptions were primarily driven by dislocation
in the Chinese equity markets due to the launch of the mutual
market access scheme, as a result of which China exchange-
traded funds (ETF) began trading at a discount to their net asset
value (NAV), a situation which was exacerbated by the one-hour
time difference between the market close in Hong Kong, where
the ETF are valued, and in China, where the NAV are valued. The
ETF-NAV basis will be incorporated within our risks-not-in-VaR
(RniV) framework in 2015. One of the exceptions was also driven
by other market moves outside of the 1-day 99% confidence in-
terval, which, statistically, can be expected to occur two to three
times per year.
The chart “Group: development of backtesting revenues against
backtesting VaR” on the previous page shows the 12-month de-
velopment of backtest VaR against backtesting revenues of the
Group for 2014. The chart shows both the negative and positive
tails of the backtest VaR distribution at 99% confidence intervals
representing, respectively, the losses and gains that could poten-
tially be realized over a one-day period at that level of confidence.
In addition to the aforementioned backtesting exceptions, the
chart shows an additional day for which backtesting revenues ex-
ceeded backtesting VaR. This occurrence was driven by adjust-
ments to trading revenues resulting from month-end valuation
controls and accordingly, as agreed with FINMA, does not repre-
sent a backtesting exception.
Although less pronounced than in previous years, the asym-
metry between the negative and positive tails is due to the long
gamma risk profile that has historically been run in the Investment
Bank. This long gamma position profits from increases in volatility
which therefore benefits the positive tail of the VaR simulated
profit and loss distribution.
The histogram “Investment Bank and Corporate Center – Non-
core and Legacy Portfolio daily revenue distribution” shows the
daily revenue distribution for the Investment Bank and Corporate
Center – Non-core and Legacy Portfolio for 2014. This includes, in
addition to backtesting revenues, revenues such as commissions
and fees, revenues for intraday trading and own credit. ▲▲
VaR model confirmation
EDTF | In addition to model backtesting performed for regulatory
purposes, described above, we also conduct extended backtest-
ing for our internal model confirmation purposes. This includes
observing model performance across the entire profit and loss dis-
tribution, not just the tails, and at multiple levels within the busi-
ness division and Corporate Center hierarchies. ▲
➔ Refer to “Risk measurement” in this section for more informa-
tion on our approach to model confirmation procedures
VaR model developments in 2014
Audited | EDTF | Pillar 3 | We made no significant changes to the VaR
model during 2014, although we improved the VaR model by in-
tegrating selected risk-not-in-VaR items, the impact of which was
negligible. ▲▲▲
Derivation of regulatory VaR-based RWA
EDTF | Pillar 3 | Regulatory VaR is used to derive the regulatory VaR
component of the market risk Basel III RWA, shown in “Table 2:
Detailed segmentation of Basel III exposures and risk-weighted
assets” in the “UBS Group AG consolidated supplemental disclo-
sures required under Basel III Pillar 3 regulations” section of this
report. This calculation takes the maximum of the period-end
regulatory VaR and the average regulatory VaR for the 60 trading
days immediately preceding the period end multiplied by a scaling
factor set by FINMA, currently three. This is then multiplied by a
factor of 12.5 to determine the RWA. This calculation is set out in
the table below. ▲▲
EDTF | Pillar 3 | Backtesting regulatory value-at-risk (1-day, 99% confidence, 5 years of historical data)
For the year ended 31.12.14
For the year ended 31.12.13
CHF million
Group
Min.
15
Max.
38
Average
31.12.14
22
20
Min.
15
Max.
42
Average
31.12.13
23
17
▲▲
EDTF | Pillar 3 | Calculation of regulatory VaR-based RWA as of 31 December 2014
CHF million
Period end
regulatory VaR
(A)
60
60-day average
regulatory VaR
(B)
54
Scaling factor
(C)
3
Max (A, B x C)
(D)
162
Multiplier
(E)
12.5
Basel III
RWA (D x E)
2,024
▲▲
213
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Pillar 3 | Stressed VaR
Method applied
Data set
Holding period
Confidence level
Population
Historical simulation
From 1 January 2007 to present
10 days
Therefore, although the significant period of stress during the fi-
nancial crisis has dropped out of the historical period used for
regulatory VaR, SVaR will continue to use this data. This approach
is intended to reduce the procyclicality of the regulatory capital
requirements for market risks.
We made no significant changes to the SVaR model during
99% based on expected tail loss
2014. ▲▲
Regulatory trading book
▲▲
EDTF | Pillar 3 | Stressed VaR (SVaR) adopts broadly the same method-
ology as regulatory VaR and is calculated using the same popula-
tion, holding period (10-day) and confidence level (99%). How-
ever, unlike regulatory VaR, the historical data set for SVaR is not
limited to five years. SVaR uses continuous one-year data sets to
derive the largest potential loss arising from a one-year period of
significant financial stress relevant to the current portfolio of the
Group.
SVaR is subject to the same limitations as noted for VaR above,
but the use of one-year data sets avoids the smoothing effect of
the five-year data set used for VaR, and the removal of the five-
year window provides for a longer history of potential loss events.
SVaR for the period
EDTF | Pillar 3 | Over the year, SVaR has exhibited a similar pattern to
that noted for management and regulatory VaR above. Further
volatility is seen in the SVaR charge due to the retention of the
significant period of stress during the financial crisis in the histori-
cal data set. ▲▲
Derivation of SVaR-based RWA
EDTF | Pillar 3 | SVaR is used to derive the SVaR component of the mar-
ket risk Basel III RWA shown in “Table 2: Detailed segmentation of
Basel III exposures and risk-weighted assets” in the “UBS Group
AG consolidated supplemental disclosures required under Basel III
Pillar 3 regulations” section of this report. The derivation of this
component is similar to that explained above for regulatory VaR,
and is shown below. ▲▲
EDTF | Pillar 3 | Calculation of SVaR-based RWA as of 31 December 2014
CHF million
Period end SVaR
(A)
60-day average
SVaR
(B)
Scaling factor
(C)
105
110
3
Max (A, B x C)
(D)
329
Multiplier
(E)
Basel III RWA
(D x E)
12.5
4,115
▲▲
214
EDTF | Pillar 3 | Stressed value-at-risk (10-day, 99% confidence, historical data from 1 January 2007 to present) by business
division and Corporate Center and general market risk type 1
CHF million
Total stressed VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and
Legacy Portfolio
CC – Non-core and Legacy Portfolio
For the year ended 31.12.14
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
63
0
9
0
0
50
29
51
23
Max.
Average
31.12.14
373
0
22
0
0
381
66
390
115
94
0
14
0
0
86
44
(56)
88
54
105
0
15
0
0
101
44
(58)
102
30
46
348
71
103
0
0
0
0
70
0
0
70
9
18
156
67
32
74
233
121
98
9
281
56
45
9
84
29
16
Average (per business division and risk type)
0
8
0
0
50
41
(46)
54
46
0
22
0
0
89
6
(11)
106
56
0
0
0
0
51
6
(5)
53
17
0
0
0
0
28
0
0
28
3
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the 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 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and the
VaR for the “Group, excluding CC – Non-core and Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio
diversification effect.
CHF million
Total stressed VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and
Legacy Portfolio
CC – Non-core and Legacy Portfolio
For the year ended 31.12.13
Min.
59
0
13
0
0
45
12
44
14
Max.
178
2
35
0
2
231
53
241
121
Average
31.12.13
82
0
20
0
1
83
26
63
0
21
0
0
53
44
(48)
(65)
82
66
53
64
Equity
35
155
58
49
0
1
0
1
54
0
(1)
54
19
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
21
104
53
66
1
9
0
0
55
26
(42)
49
30
91
235
148
92
6
210
56
23
10
81
24
21
Average (per business division and risk type)
0
30
0
0
131
13
(16)
158
71
0
0
0
0
48
15
(16)
47
30
0
0
0
0
24
0
0
24
2
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the 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 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and the
VaR for the “Group, excluding CC – Non-core and Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio
diversification effect. ▲▲
215
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Risks-not-in-VaR
Risks-not-in-VaR definition
EDTF | Pillar 3 | We have an established framework to identify and
quantify potential risk factors that are not fully captured by our
VaR model. We refer to these risk factors as risks-not-in-VaR
(RniV). This framework is used to underpin these potential risk
factors with regulatory capital, calculated as a multiple of regula-
tory VaR and SVaR.
These RniV arise from approximations made by the VaR model
to quantify the impact of risk factor changes on the profit and loss
of positions and portfolios, as well as the use of proxies for certain
market risk factors. We categorize RniV by means of items and
keep track of which instrument classes are affected by each item.
When new types of instruments are included in the VaR popu-
lation, we assess whether new items must be added to the inven-
tory of RniV items. ▲▲
Risks-not-in-VaR quantification
EDTF | Pillar 3 | Risk officers perform a quantitative assessment for
each position in the inventory of RniV items annually, as of a spe-
cific date. The assessment is made in terms of a 10-day 99%-VaR
measure applied to the difference between the profit and loss
scenarios which would have been produced based on our best
estimate given available data, and the profit and loss scenarios
generated by the current model used for the regulatory VaR cal-
culation. Whenever the available market data allows, a historical
simulation approach with five years of historical data is used to
estimate the 10-day 99%-VaR for an item. Other eligible methods
are based on analytical considerations or stress test and worst-
case assessments. Statistical methods are used to aggregate the
standalone risks, yielding a Group-level 10-day 99%-VaR estimate
of the entire inventory of RniV items at the specific date. The ratio
of this amount to regulatory VaR is used to produce estimates for
arbitrary points in time by scaling the corresponding regulatory
VaR figures with that fixed ratio. An analogous approach is ap-
plied for SVaR. ▲▲
Risks-not-in-VaR mitigation
EDTF | Pillar 3 | Material RniV items are monitored and controlled by
means and measures other than VaR, such as position limits and
stress limits. Additionally, there are ongoing initiatives to extend
the VaR model to better capture these risks. ▲▲
Derivation of RWA add-on for risks-not-in-VaR
EDTF | Pillar 3 | The RniV framework is used to derive the RniV-based
component of the market risk Basel III RWA, using the aforemen-
tioned approach, which is approved by FINMA and subject to an
annual recalibration. As the RWA from RniV are add-ons, they do
not reflect any diversification benefits across risks capitalized
through VaR and SVaR.
In the third quarter of 2014, following a new calibration ap-
proved by FINMA, RniV VaR capital was set at 117% of VaR, and
RniV SVaR capital was set at 97% of SVaR capital, compared with
prior ratios of 58% and 32%, respectively. The increase in the
ratios was primarily due to the reduction in our overall levels of
VaR and SVaR in 2013, which formed the basis of the most recent
annual recalibration.
In the fourth quarter of 2014, we integrated certain additional
risks into the VaR model. As a result of this integration, and with
FINMA’s approval, the RniV VaR capital ratio was reduced from
117% to 105% and the RniV SVaR capital ratio was reduced from
97% to 92%.
FINMA continues to require that RniV stressed VaR capital is
floored at RniV VaR capital.
Based on the regulatory VaR and stressed VaR RWA noted
above, the RniV RWA add-ons as of 31 December 2014 were CHF
2.1 billion and CHF 3.8 billion, respectively, compared with CHF
1.0 billion and CHF 1.0 billion as of 31 December 2013. ▲▲
216
EDTF | Pillar 3 | Incremental risk charge
Method applied
Holding period
Confidence level
Population
Expected portfolio loss simulation
One-year liquidity horizon
99.9%
Regulatory trading book positions subject
to issuer risk, excluding equity and securi-
tization exposures
▲▲
EDTF | Pillar 3 | The incremental risk charge (IRC) represents an esti-
mate of the default and rating migration risk of all trading book
positions with issuer risk, except for equity products and securiti-
zation exposures, measured over a one-year time horizon at a
99.9% confidence level. The calculation of the measure assumes
all positions in the IRC portfolio have a one-year liquidity horizon
and are kept unchanged over this period.
The portfolio default and rating migration loss distribution is
estimated using a Monte Carlo simulation of correlated rating mi-
gration events (defaults and rating changes) for all issuers in the
IRC portfolio, based on a Merton-type model. For each position,
default losses are calculated based on the maximum default expo-
sure measure (the loss in the case of a default event assuming
zero recovery) and a random recovery concept. To account for
potential basis risks between instruments, different recovery val-
ues may be generated for different instruments even if they be-
long to the same issuer. To calculate rating migration losses, a
linear (delta) approximation is used: a loss due to a rating migra-
tion event is calculated as the estimated change in credit spread
due to the change in rating migration multiplied by the corre-
sponding sensitivity of a position to changes in credit spreads.
The table below provides a breakdown of the Group’s period-
end incremental risk charge by business division and Corporate
Center. The increase in the Group’s period-end IRC, was mainly
attributable to the de-risking of Non-core positions, reducing di-
versification benefits in the calculation. ▲▲
Derivation of IRC-based RWA
EDTF | Pillar 3 | IRC is calculated weekly, the results of which are used
to derive the IRC-based component of the market risk Basel III
RWA, shown in “Table 2: Detailed segmentation of Basel III expo-
sures and risk-weighted assets” in the “UBS Group AG consoli-
dated supplemental disclosures required under Basel III Pillar 3
regulations” section of this report. The derivation is similar to that
for VaR and SVaR-based RWA but without a scaling factor, and is
shown below. ▲▲
EDTF | Pillar 3 | Incremental risk charge by business division and Corporate Center
CHF million
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 1, 2
Group, excluding CC – Non-core and Legacy Portfolio
CC – Non-core and Legacy Portfolio
Diversification effect 2, 3
Total incremental risk Charge, Group
For the year ended 31.12.14
For the year ended 31.12.13
Min.
Max.
Average
31.12.14
Min.
Max.
Average
31.12.13
11
28
19
27
8
130
102
192
31
93
300
165
345
92
264
182
131
(93)
239
57
(120)
175
197
108
(83)
249
46
(52)
243
128
108
50
60
2
27
314
190
207
356
0
14
208
153
118
183
22
172
113
(88)
219
65
(174)
110
1 Difference between the sum of the standalone IRC for the business divisions and the “Corporate Center – Core Functions” shown and the IRC for the “Group, excluding CC – Non-core and Legacy Portfolio” as a
whole. 2 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio diversification effect. 3 Difference between the sum of the two standalone
IRC for “Group, excluding CC – Non-core and Legacy Portfolio” and the “CC – Non-core and Legacy Portfolio” and the IRC for the Group as a whole. ▲▲
EDTF | Pillar 3 | Calculation of IRC-based RWA as of 31 December 2014
CHF million
Period end IRC
(A)
243
Average of last
12 weeks IRC
(B)
188
Max (A, B)
(C)
243
Multiplier
(D)
12.5
Basel III RWA
(C x D)
3,039
▲▲
217
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Pillar 3 | Comprehensive risk measure
Method applied
Holding period
Confidence level
Population
Expected portfolio loss simulation
One-year liquidity horizon
99.9%
Positions in the correlation trading
portfolio
▲▲
EDTF | Pillar 3 | The comprehensive risk measure (CRM) is an estimate
of the default and complex price risk, including the convexity and
cross-convexity of the correlation trading portfolio across credit
spread, correlation and recovery, measured over a one-year time
horizon at a 99.9% confidence level. The calculation of the mea-
sure assumes that all positions in the CRM portfolio have a one-
year liquidity horizon and are kept unchanged over this time pe-
riod. The model scope covers collateralized debt obligation (CDO)
swaps and credit-linked notes (CLN), 1st and nth to default swaps
and CLN and hedges for these positions, including credit default
swaps (CDS), CLN and index CDS.
The CRM profit and loss distribution is estimated using a
Monte Carlo simulation of defaults over the next 12 months, and
calculates resulting cash flows in the CRM portfolio. The portfolio
is then revalued on the one-year horizon date, with inputs such as
credit spreads and index basis being migrated from spot to hori-
zon date. The 99.9% negative quantile of the resulting profit and
loss distribution is then taken to be the CRM result. Our CRM
methodology is subject to minimum qualitative standards as well
as stress testing.
The table below shows the period-end comprehensive risk
charge for the Group. The significant reduction in CRM for the
year was due to the exit of the Non-core correlation trading port-
folio market risk. ▲▲
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
the “Risk management and control” section of this report for
more information on the Non-core correlation trading portfolio
Derivation of CRM-based RWA
EDTF | Pillar 3 | CRM is calculated weekly, the results of which are used
to derive the CRM-based component of the market risk Basel III
RWA, shown in “Table 2: Detailed segmentation of Basel III expo-
sures and risk-weighted assets” in the “UBS Group AG consoli-
dated supplemental disclosures required under Basel III Pillar 3
regulations” section of this report. The calculation is subject to a
floor calculation equal to 8% of the equivalent capital charge un-
der the specific risk measure (SRM) for the correlation trading
portfolio. The calculation is shown below. ▲▲
EDTF | Pillar 3 | Comprehensive risk measure
CHF million
Total comprehensive risk measure, Group
Min.
5
Max.
335
Average
31.12.14
120
6
Min.
308
Max.
618
Average
31.12.13
457
308
▲▲
For the year ended 31.12.14
For the year ended 31.12.13
EDTF | Pillar 3 | Calculation of CRM-based RWA as of 31 December 2014
CHF million
Period end CRM
(A)
6
Average of last
12 weeks CRM
(B) 1
10
Max (A, B)
(C)
10
Multiplier
(D)
12.5
Basel III RWA
(C x D)
131
1 CRM = Max (CRM model result, 8% of equivalent charge under the SRM). ▲▲
218
Securitization positions in the trading book
EDTF | Pillar 3 | Our exposure to securitization positions in the trading
book is limited and relates primarily to positions in the Legacy
Portfolio which we will continue to wind down. A small amount
of exposure also arises from secondary trading in commercial
mortgage-backed securities (CMBS) in the Investment Bank. Refer
to “Table 2: Detailed segmentation of Basel III exposures and risk-
weighted assets” in the “UBS Group AG consolidated supple-
mental disclosures required under Basel III Pillar 3 regulations”
section of this report for more information. ▲▲
Interest rate risk in the banking book
Sources of interest rate risk in the banking book
Audited | EDTF | Pillar 3 | Interest rate risk in the banking book arises from
balance sheet positions such as Loans and receivables, client depos-
its and Debt issued, Available-for-sale instruments, certain Instru-
ments designated at fair value through profit or loss, derivatives
measured at fair value through profit or loss and derivatives utilized
for cash flow hedge accounting purposes, as well as related funding
transactions. These positions may impact Other comprehensive in-
come or profit or loss, depending on accounting treatment.
Our largest banking book interest rate exposures arise from cli-
ent deposits and lending products in both our wealth manage-
ment businesses and Retail & Corporate. For Wealth Management
and Retail & Corporate, the inherent interest rate risks are trans-
ferred either by means of back-to-back transactions or, in the case
of products with no contractual maturity date or direct market-
linked rate, by replicating portfolios from the originating business
into Group ALM (prior to 1 January 2015, Group ALM was part of
Group Treasury), which manages the risks on an integrated basis
allowing for netting interest rate risks across different sources. Any
residual interest rate risks in Wealth Management and Retail &
Corporate locations that are not transferred to Group ALM are
managed locally and are subject to independent monitoring and
control both in the locations by local risk control units as well as
centrally by Market Risk Control. To manage the interest rate risk
centrally, Group ALM utilizes derivative instruments, some of
which are in designated hedge accounting relationships.
A significant amount of interest rate risk also arises from Group
ALM financing and investing activities, for example the invest-
ment and refinancing of non-monetary corporate balance sheet
items that have indefinite maturities, such as equity and goodwill.
For these items, senior management has defined specific target
durations based on which we fund and invest as applicable. These
targets are defined by replication portfolios, which establish roll-
ing benchmarks to execute against. Group ALM also maintains a
portfolio of available-for-sale debt investments to meet the
Group’s liquidity needs.
Interest rate risk within Wealth Management Americas arises
from the business division’s portfolio of available-for-sale invest-
ments in addition to its lending and deposit products offered to
clients. This interest rate risk is closely measured, monitored and
managed within approved risk limits and controls, taking into ac-
count Wealth Management Americas’ balance sheet items that
mutually offset interest rate risk.
Banking book interest rate exposure in the Investment Bank
arises predominantly from the business of Corporate Client Solu-
tions, where transactions are subject to approval on a case-by-
case basis.
The Corporate Center – Legacy Portfolio assets that were re-
classified to Loans and receivables from Held for trading in the
fourth quarter of 2008 and the first quarter of 2009, and certain
other debt securities held as Loans and receivables, also give rise
to non-trading interest rate risk. ▲▲▲
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on the
new structure of Corporate Center
Effect of interest rate changes on shareholders’ equity and
Basel III CET1 capital
EDTF | The table “Accounting and capital effect of changes in inter-
est rates” below illustrates the accounting and Basel III CET1 capi-
tal treatment of gains and losses resulting from changes in interest
rates. For instruments held at fair value, a change in interest rates
results in an immediate fair value gain or loss recognized either in
the income statement or through other comprehensive income
(OCI), whereas changes in interest income and expense on inter-
est-bearing assets and liabilities held at amortized cost will be real-
ized over time. Typically, increases in interest rates would lead to an
immediate reduction in the value of our longer-term assets held at
fair value, but we would expect this to be offset over time through
higher net interest income (NII) on our core banking products. ▲
➔ Refer to “Differences between Swiss SRB and BIS Basel III
capital” in the “Capital management” section of this report for
more information
EDTF | Pillar 3 | Accounting and capital effect of changes in interest rates 1
Recognition
Shareholders’ equity
Basel III CET1 capital
Available-for-sale debt portfolios
Economic hedges classified as held for trading
Designated cash flow hedges
Loans and deposits at amortized costs
Timing
Immediate
Immediate
Immediate
Gradual
Location
OCI
Income statement
OCI 2
Income statement
Gains
Losses
Gains
Losses
1 Refer to the table “Differences between Swiss SRB and BIS Basel III capital information” in the “Capital management” section of this report for more information on the differences between shareholders’ equity and
Basel III CET1 capital. 2 Excluding hedge ineffectiveness which is recognized in the income statement in accordance with IFRS. ▲▲
219
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | In addition to the differing accounting treatments, our
banking book positions have different sensitivities to different
points on the yield curves. For example, our portfolios of avail-
able-for-sale debt securities and interest rate swaps designated as
cash flow hedges, on the whole, are more sensitive to changes in
longer-duration interest rates, whereas our deposits and a signifi-
cant portion of our loans contributing to net interest income are
more sensitive to short-term rates. These factors are important as
yield curves may not shift on a parallel basis and could, for ex-
ample, exhibit an initial steepening, followed by a subsequent
flattening over time.
By virtue of the accounting treatment and yield curve sensitivi-
ties outlined above, in a steepening yield curve scenario we would
expect to recognize an initial reduction in shareholders’ equity as a
result of fair value losses through OCI. This would be compensated
over time by increased NII once increases in interest rates affect in
particular the shorter end of the yield curve. The effect would be
similar on Basel III CET1 capital, albeit less pronounced as gains
and losses on interest rate swaps designated as cash flow hedges
are not recognized or reversed for regulatory capital purposes.
We subject the interest rate sensitive banking book exposures
to a suite of interest rate scenarios in order to assess the impact
on expected NII over both a 1-year and a 3-year time-horizon
under the assumption of constant business volumes. We also con-
sider the impact of the interest rate movements in each scenario
on the fair value of the available-for-sale debt portfolios and cash
flow hedges managed by Group ALM (prior to 1 January 2015,
Group ALM was part of Group Treasury) that are recognized
through OCI. While some standard scenarios tend to remain the
same over time, such as a parallel rise in all yield curves by 100
basis points, the definitions of other scenarios are adapted based
on prevailing market conditions. At the end of 2014 the following
scenarios were analyzed in detail.
– Negative IR (NIR) then Recovery: euro and Swiss franc yield
curves drop in parallel by 50 basis points during the first three
months, with no zero-floor applied, and therefore become
negative, or more negative, whereas yield curves in US dollar
and other currencies drop in parallel by 25 basis points, but
remain floored at zero. Thereafter all rates recover according to
market-implied forward rates.
– NIR then Constant: same assumptions as the NIR then Recov-
ery scenario, but after the first three months rates do not re-
cover but remain at the then-prevailing levels until the end of
the simulated time horizon.
– Eurozone Deflation and Fed Tapering: US dollar yield curve
rises and steepens; euro and Swiss franc yield curves develop
as in the NIR then Recovery scenario.
– Parallel +100 basis points: All yield curves rise in parallel by 100
basis points.
Audited | EDTF | Pillar 3 | Interest rate sensitivity – banking book 1
CHF million
CHF
EUR
GBP
USD
Other
Total impact on interest rate-sensitive banking book positions
of which: Wealth Management Americas
of which: Investment Bank
of which: Corporate Center – Core Functions
of which: CC – Non-core and Legacy Portfolio
CHF million
CHF
EUR
GBP
USD
Other
Total impact on interest rate-sensitive banking book positions
of which: Wealth Management Americas
of which: Investment Bank
of which: Corporate Center – Core Functions
of which: CC – Non-core and Legacy Portfolio
–200 bps
–100 bps
+1 bp
+100 bps
+200 bps
31.12.14
(16.2)
72.1
(5.6)
130.7
1.8
182.7
181.7
53.8
(37.3)
(11.0)
(15.8)
66.0
(8.1)
76.5
(5.1)
113.5
129.9
34.2
(44.3)
(3.5)
(0.3)
(0.6)
0.2
(0.2)
0.2
(0.7)
(0.5)
(0.5)
0.3
(0.1)
(27.3)
(57.0)
23.0
(21.0)
17.7
(64.5)
(48.5)
(52.2)
42.8
(6.2)
(51.0)
(106.9)
46.3
(52.8)
36.0
(128.5)
(110.6)
(111.4)
106.8
(12.6)
–200 bps
–100 bps
+1 bp
+100 bps
+200 bps
31.12.13
(9.6)
73.9
21.5
100.1
(6.2)
179.7
172.4
29.1
(27.0)
4.3
13.7
47.3
14.2
(40.6)
(5.6)
29.0
18.3
16.8
(11.7)
5.1
0.1
(0.6)
(0.3)
3.0
0.1
2.4
3.0
(0.2)
(0.3)
(0.1)
14.5
(55.4)
(25.8)
301.0
5.6
239.8
297.7
(20.4)
(23.1)
(11.6)
32.0
(105.9)
(51.0)
610.0
11.6
496.7
597.0
(40.3)
(30.8)
(23.5)
1 Does not include interest rate sensitivities for credit valuation adjustments on monoline credit protection, US and non-US reference-linked notes. Also not included in the sensitivities as of 31 December 2013 are the
interest rate sensitivities of our inventory of student loan auction rate securities, as from an economic perspective these exposures were not materially affected by parallel shifts in US dollar interest rates, holding other
factors constant. ▲▲▲
220
– 2015 CCAR Adverse: Federal Reserve Comprehensive Capital
Analysis and Review (CCAR) – Adverse Scenario.
– 2015 CCAR Severely Adverse: Federal Reserve CCAR – Severely
Adverse Scenario.
– Constant Rates: All rates stay at current levels.
The results are compared to a baseline NII, which is calculated
assuming interest rates in all currencies develop according to their
market-implied forward rates and under the assumption of con-
stant business volumes. The calculated impacts on baseline NII
range between a deterioration of 8% and 15% and an improve-
ment of 18% and 24% over a 1-year and 3-year horizon, respec-
tively. The most adverse scenario is the NIR then Constant sce-
nario, whereas the Parallel +100 basis points scenario is the most
beneficial. ▲
Interest rate risk sensitivity to parallel shifts in yield curves
Audited | EDTF | Pillar 3 | Interest rate risk in the banking book is not
underpinned for capital purposes, but is subject to a regulatory
threshold. As of 31 December 2014 the economic-value impact
of an adverse parallel shift in interest rates of 200 basis points on
our banking book interest rate risk exposures is significantly be-
low the threshold of 20% of eligible capital recommended by
regulators.
The interest rate risk sensitivity figures presented in the table
“Interest rate sensitivity – banking book” on the previous page
represent the impacts of +1, ±100 and ±200-basis-point parallel
moves in yield curves on present values of future cash flows, irre-
spective of accounting treatment. For some portfolios, the +1-ba-
sis-point sensitivity has been estimated by dividing the +100-ba-
sis-point sensitivity by 100. Due to the low level of interest rates,
downward moves by 100 / 200 basis points are floored to ensure
that the resulting interest rates are not negative. Despite the cur-
rent negative interest rate environment for the Swiss franc in par-
ticular, and also to a certain extent for the euro, this flooring of
interest rates is appropriate since it is being applied for Wealth
Management and Retail & Corporate client transactions, as well
as for the interest rates that are used for the transactions within
the banking book process between the aforementioned busi-
nesses and Group ALM (prior to 1 January 2015, Group ALM was
part of Group Treasury), for which actual interest rates are subject
to floors. The flooring results in nonlinear behavior of the sensitiv-
ity, in particular in US dollar when combined with prepayment risk
on US mortgages and related products.
The sensitivity of the banking book to rising rates decreased
year on year by CHF 3.1 million per basis point mainly due to re-
ductions in Wealth Management Americas and the Investment
Bank, partly offset by a slight increase in Corporate Center – Core
Functions banking book sensitivity. Wealth Management Ameri-
cas’ sensitivity declined by CHF 3.5 million due to the recalibration
of the prepayment model, which resulted in the lengthening of
the asset duration, and the adoption of a more reactive client-rate
model which reduced the deposit duration. The sensitivity of the
banking book to rising rates includes the interest rate sensitivities
arising from debt investments classified as Financial investments
available-for-sale and their associated hedges. The sen sitivity of
these positions (excluding hedges and excluding investments in
funds accounted for as available-for-sale) to a 1-basis-point paral-
lel increase in the yields of the respective instruments is approxi-
mately negative CHF 10 million, which would be recorded in
Other comprehensive income if such change occurred.
The sensitivity of the banking book to rising rates also includes
interest rate sensitivities arising from interest rate swaps desig-
nated in cash flow hedges. Fair value gains or losses associated
with the effective portion of these swaps are recognized initially in
Equity. When the hedged forecast cash flows affect profit or loss,
the associated gains or losses on the hedging derivatives are re-
classified from Equity to profit or loss. These swaps are denomi-
nated in US dollar, euro, British pound and Swiss franc. As of
31 December 2014, the fair value of these interest rate swaps
amounted to CHF 4.5 billion (positive replacement values) and
CHF 1.4 billion (negative replacement values). The impact of a
1-basis-point increase of underlying LIBOR curves would have de-
creased equity by approximately CHF 22.1 million, excluding ad-
justments for tax. ▲▲▲
➔ Refer to “Note 15 Financial investments available-for-sale”
in the “Financial information” section of this report for more
information
Other market risk exposures
Own credit
EDTF | We are exposed to changes in UBS’s own credit which are
reflected in the valuation of those financial liabilities designated at
fair value, for which UBS’s own credit risk would be considered by
market participants. We also estimate debit valuation adjustments
(DVA) to incorporate own credit in the valuation of derivatives.
Changes in fair value due to changes in own credit are recognized
in the income statement and therefore affect shareholders’ equity
and CET1 capital. ▲
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information on own
credit
Structural foreign exchange risk
EDTF | On consolidation, assets and liabilities held in foreign opera-
tions are translated into Swiss francs at the closing foreign ex-
change rate on the balance sheet date, and items of income and
expense are translated into Swiss francs at the average rate for
the period. The resulting foreign exchange differences are recog-
nized in Other comprehensive income and therefore affect share-
holders’ equity and Basel III CET1 capital.
Group Treasury employs strategies to manage this foreign cur-
rency exposure, including matched funding of assets and liabilities
and net investment hedging. ▲
➔ Refer to the “Treasury management” section of this report for
more information on our exposure to and management of
structural foreign exchange risk
221
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Equity investments
Audited | EDTF | Under IFRS, equity investments not in the trading
book may be classified as Financial investments available-for-sale,
Financial assets designated at fair value or Investments in associ-
ates.
We make direct investments in a variety of entities and buy
equity holdings in both listed and unlisted companies for a variety
of purposes. This includes investments such as exchange and
clearing house memberships that are held to support our business
activities. We may also make investments in funds that we man-
age, in order to fund or “seed” them at inception, or to demon-
strate that our interests concur with those of investors. We also
buy, and are sometimes required by agreement to buy, securities
and units from funds that we have sold to clients.
The fair value of equity investments tends to be dominated by
factors specific to the individual investments. Equity investments
are generally intended to be held for the medium or long term
and may be subject to lockup agreements. For these reasons, we
generally do not control these exposures using the market risk
measures applied to trading activities. Such equity investments
are, however, subject to a different range of controls, including
pre-approval of new investments by business management and
Risk Control, portfolio and concentration limits, and regular mon-
itoring and reporting to senior management. They are also in-
cluded in our Group-wide statistical and stress testing metrics
which flow into our risk appetite framework.
As of 31 December 2014, we held equity investments totaling
CHF 1.6 billion, of which CHF 0.7 billion were classified as Finan-
cial investments available-for-sale, and CHF 0.9 billion as Invest-
ments in associates. This was broadly unchanged from the prior
year. ▲▲
➔ Refer to “Note 15 Financial investments available-for-sale” and
“Note 30 Interests in other entities” in the “Financial informa-
tion” section of this report for more information
Debt investments
Audited | EDTF | Debt investments classified as Financial investments
available-for-sale are measured at fair value with changes in fair
value recorded through Equity, and can broadly be categorized as
money market instruments and debt securities primarily held for
statutory, regulatory or liquidity reasons.
The risk control framework applied to debt instruments classi-
fied as Financial investments available-for-sale depends on the
nature of the instruments and the purpose for which we hold
them. Our exposures may be included in market risk limits or be
subject to specific monitoring such as interest rate sensitivity anal-
ysis. They are also included in our Group-wide statistical and stress
testing metrics which flow into our risk appetite framework.
Debt instruments classified as Financial investments available-for-
sale had a fair value of CHF 56.5 billion as of 31 December 2014
compared with CHF 58.9 billion as of 31 December 2013. ▲▲
➔ Refer to “Note 15 Financial investments available-for-sale” in the
“Financial information” section of this report for more informa-
tion
222
➔ Refer to “Interest rate risk sensitivity to parallel shifts in yield
curves” in this section for more information
➔ Refer to the “Treasury management” section of this report for
more information
Pension risk
EDTF | We maintain a number of defined benefit pension plans for
past and current employees. The ability of each plan to meet the
projected pension payments is maintained principally through in-
vestments. Pension risk arises because the fair value of these plan
assets might decline, their investment returns might decrease or
the estimated value of the defined benefit obligation might in-
crease. If plan assets are insufficient to meet the projected pen-
sion payments, UBS may be required, or might choose, to make
extra contributions to the pension plans.
Under IFRS, remeasurements of the defined benefit obligation
and the fair values of the plan assets are recognized through
Other comprehensive income and therefore affect shareholders’
equity. An increase in the overall net defined benefit liability of a
pension plan (where the defined benefit obligation exceeds the
fair value of plan assets) will reduce our equity. Where the defined
benefit obligation is less than the fair value of the plan assets, the
pension plan is in a surplus position. Such surplus can only be
recognized on the balance sheet to the extent that it does not
exceed the estimated future economic benefit. Where the amount
of surplus recognized has been capped, any reduction in the esti-
mated future economic benefit will reduce equity. Changes in the
surplus, due to changes in the defined benefit obligation or fair
value of plan assets, will not affect equity until the surplus falls
below any cap.
Remeasurements of the defined benefit obligations and plan
assets similarly affect our Basel III CET1 capital on a fully applied
basis, albeit pension surpluses are not recognized.
Investment policies and strategies are in place for our defined
benefit pension plans which take account of the maturity profile
of plan liabilities and ensure diversified portfolios of assets are
maintained. These strategies are managed by responsible gover-
nance bodies in each jurisdiction according to local laws and regu-
lations.
Pension risk is included in our Group-wide statistical and stress
testing metrics which flow into our risk appetite framework. ▲
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Financial information” section of this report for
more information
UBS own share exposure
EDTF | We hold our own shares primarily to hedge employee share
and option participation plans. A smaller number are held by the
Investment Bank in connection with market-making and hedging
activities. ▲
➔ Refer to “Holding of UBS Group AG shares” in the “Capital
management” section of this report for more information
Country risk
Key developments during the period
The situation in Ukraine has been at the forefront of the geopo-
litical arena throughout 2014. Although our direct exposure to
Ukraine is minimal, the possibilities for broader economic conta-
gion remain a concern, in particular a potential weakening of the
eurozone recovery from sanctions against Russia. The mix of
Western sanctions, combined with the decline in oil prices at the
end of the year, placed increasing pressure on Russia’s credit pro-
file, in response to which we took various risk limiting and miti-
gating actions, including reducing our country exposure limit, ex-
panding requirements for credit officer approval, and reducing
the lending values of Russian securities.
Country risk framework
Country risk includes all country-specific events that occur within
a sovereign’s jurisdiction and may lead to an impairment of UBS’s
exposures. Country risk can take the form of sovereign risk, which
refers to the ability and willingness of a government to honor its
financial commitments; transfer risk, which would arise if an is-
suer or counterparty could not acquire foreign currencies follow-
ing a moratorium of a central bank on foreign exchange transfers;
or “other” country risk. “Other” country risk may manifest itself
through increased and multiple counterparty and issuer default
risk (systemic risk) on the one hand, and by events that may affect
the standing of a country (e.g., political stability, institutional and
legal framework) on the other hand. We have a well-established
risk control framework through which we assess the risk profile of
all countries where we have exposure.
EDTF | We attribute to each foreign country a sovereign rating,
which expresses the probability of the sovereign defaulting on its
own financial obligations in foreign currency. Our ratings are ex-
pressed by statistically derived default probabilities as described in
the “Probability of default” section above. Based on this internal
analysis we also define the probability of a transfer event occur-
ring and establish rules as to how the aspects of “other” country
risk should be incorporated into the analysis of the counterparty
rating of incorporated entities that are domiciled in the respective
country.
We ensure that our exposure to all foreign countries is com-
mensurate with the credit ratings we assign to them, and that it is
not disproportionate to the respective country risk profile. A
country risk ceiling (i.e., maximum aggregate exposure) applies to
all our exposures to counterparties or issuers of securities and fi-
nancial investments in the respective foreign country. We may
limit the extension of credit, transactions in traded products or
positions in securities based on a country ceiling, even if our expo-
sure to a counterparty is otherwise acceptable.
For internal measurement and control of country risk, we also
consider the financial impact of market disruptions arising prior
to, during and following a country crisis. These may take the form
of a severe deterioration in a country’s debt, equity or other asset
markets or of a sharp depreciation of the currency. We use stress
testing to assess the potential financial impact of a severe country
and / or sovereign crisis. This involves the development of plausible
stress scenarios for combined stress testing and the identification
of countries that may potentially be subject to a crisis event, de-
termining potential losses and making assumptions about recov-
ery rates depending on the types of credit transactions involved
and their economic importance to the affected countries.
Our exposures to market risks are also subject to regular
stress tests that cover major global scenarios, which are used for
combined stress testing as well, whereby we apply market shock
factors to equity indices, interest and currency rates in all rele-
vant countries and consider the potential liquidity of the instru-
ments. ▲
Country risk exposure
EDTF | Country risk exposure measure
The presentation of country risk follows our internal risk view,
whereby the basis for measurement of exposures depends on the
product category into which we have classified our exposures. In
addition to the classification of exposures into banking products
and traded products as defined in “Credit risk profile of the Group
– Internal risk view,” we classify within trading inventory issuer
risk on securities such as bonds and equities, as well as the risk
relating to the underlying reference assets for derivative positions,
including those linked to credit protection we buy or sell and loan
or security underwriting commitments pending distribution.
As we manage the trading inventory on a net basis, we net the
value of long positions against short positions with the same
underlying issuer. Net exposures are, however, floored at zero per
issuer in the figures presented. We therefore do not recognize the
potentially offsetting benefit of certain hedges and short positions
across issuers.
We do not recognize any expected recovery values when re-
porting country exposures as Exposure before hedges except for
the risk-reducing effects of master netting agreements and col-
lateral held in the form of either cash or portfolios of diversified
marketable securities, which we deduct from the basic positive
exposure values. Within banking products and traded products,
the risk-reducing effect of any credit protection is taken into ac-
count on a notional basis when determining the Net of hedges
exposures. ▲
223
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Country risk exposure allocation
EDTF | In general, exposures are shown against the country of domi-
cile of the contractual counterparty or the issuer of the security.
For some counterparties whose economic substance in terms of
assets or source of revenues is primarily located in a different
country, the exposure is allocated to the risk domicile of that dif-
ferent country. ▲
This is the case, for example, with legal entities incorporated in
financial offshore centers, which have their main assets and rev-
enue streams outside the country of domicile. The same principle
applies to exposures for which we hold third-party guarantees or
collateral, where we report the exposure against the country of
domicile of either the guarantor or the issuer of the underlying
security, or against the country where pledged physical assets are
located.
We apply a specific approach to banking products exposures to
branches of financial institutions which are located in a country
other than that of the domicile of the legal entity. In such cases,
exposures are recorded in full against the country of domicile of
the counterparty and additionally in full against the country in
which the branch is located.
In the case of derivatives, we show the counterparty risk asso-
ciated with the positive replacement value against the country of
domicile of the counterparty (presented within traded products).
In addition, the risk associated with the instantaneous fall in value
of the underlying reference asset to zero (assuming no recovery) is
shown against the country of domicile of the issuer of the refer-
ence asset (presented within trading inventory). This approach
ensures that we capture both the counterparty and, where appli-
cable, issuer elements of risk arising from derivatives and applies
comprehensively for all derivatives, including single-name CDS
and other credit derivatives.
As a basic example: if a CDS protection for a notional value of
100 bought from a counterparty domiciled in country X referenc-
ing debt of an issuer domiciled in country Y has a positive replace-
ment value of 20, we record (i) the fair value of the CDS (20)
against country X (within traded products) and (ii) the hedge ben-
efit (notional minus fair value) of the CDS (100 – 20 = 80) against
country Y (within trading inventory). In the example of protection
bought, the 80 hedge benefit would offset against any exposure
arising from securities held and issued by the same entity as the
reference asset, floored at zero per issuer. In the case of protection
sold, this would be reflected as a risk exposure of 80 in addition to
any exposure arising from securities held and issued by the same
entity as the reference asset. In the case of derivatives referencing
a basket of assets, the issuer risk against each reference entity is
calculated as the expected change in fair value of the derivative
given an instantaneous fall in value to zero of the corresponding
reference asset (or assets) issued by that entity. Exposures are then
aggregated by country across issuers, floored at zero per issuer.
Exposures to selected eurozone countries
EDTF | Our exposure to peripheral European countries remains lim-
ited, but we nevertheless remain watchful regarding the potential
broader implications of adverse developments in the eurozone. As
noted in the “Stress testing” section, the Euro Crisis scenario was
our binding scenario for Combined Stress Test purposes during
2014, and was evolved into the Eurozone Crisis scenario at the
end of 2014, making it central to the regular monitoring of risk
exposure against the minimum capital, earnings and leverage ra-
tio objectives in our risk appetite framework.
The table “Exposures to selected eurozone countries” on the
next page provides an overview of our exposures to eurozone
countries rated lower than AAA/Aaa by at least one of the major
rating agencies as of 31 December 2014. Finland has been added
to the table following the downgrade of its credit rating by Stan-
dard & Poor’s from AAA to AA+ in October 2014. The table
shows an internal risk view of gross and net exposures split by
sovereign, agencies and central banks, local governments, banks
and other counterparties (including corporates, insurance com-
panies and funds). Exposures to Andorra, Cyprus, Estonia, Latvia,
Malta, Monaco, Montenegro, San Marino, Slovakia and Slovenia
are grouped in Other. ▲
Pillar 3 | CDS are primarily bought and sold in relation to our trad-
ing businesses, but are also used to hedge parts of our risk expo-
sure, including that related to selected eurozone countries. As of
31 December 2014, and not taking into account the risk-reducing
effect of master netting agreements, we had purchased approxi-
mately CHF 29 billion gross notional of single name CDS protec-
tion on issuers domiciled in Greece, Italy, Ireland, Portugal or
Spain (GIIPS) and had sold CHF 26 billion gross notional of single-
name CDS protection. On a net basis, taking into account the risk
reducing effect of master netting agreements, this equates to ap-
proximately CHF 8 billion notional purchased and CHF 6 billion
notional sold. More than 99% of gross protection purchased was
from investment grade counterparties (based on our internal rat-
ings) and on a collateralized basis. The vast majority of this was
from financial institutions domiciled outside the eurozone. Ap-
proximately CHF 0.5 billion of the gross protection purchased was
from counterparties domiciled in a GIIPS country with just over
CHF 0.1 billion from counterparties domiciled in the same country
as the reference entity.
Holding CDS for credit default protection does not necessarily
protect the buyer of protection against losses, as the contracts
will only pay out under certain scenarios. The effectiveness of our
CDS protection as a hedge of default risk is influenced by a num-
ber of factors, including the contractual terms under which the
CDS was written. Generally, only the occurrence of a credit event
as defined by the CDS terms (which may include among other
events, failure to pay, restructuring or bankruptcy) results in a
payment under the purchased credit protection contracts. For
CDS contracts on sovereign obligations, repudiation can also be
deemed as a default event. The determination as to whether a
credit event has occurred is made by the relevant International
Swaps and Derivatives Association (ISDA) determination commit-
tees (comprised of various ISDA member firms) based on the
terms of the CDS and the facts and circumstances surrounding
the event. ▲
224
EDTF | Exposures to selected eurozone countries
CHF million
Total
Banking products
(loans, guarantees, loan commitments)
Traded products
(counterparty risk from deriva-
tives and securities financing)
after master netting agreements
and net of collateral
Trading inventory
(securities and potential
benefits / remaining
ex posure from derivatives)
Exposure
of which:
unfunded
486
Exposure
before hedges
1,470
218
25
210
1,017
576
10
5
104
460
569
259
407
43
259
932
101
203
144
458
91
870
708
42
5
38
159
20
5
96
441
20
1
52
11
211
1
52
11
211
91
1,548
1,232
42
299
267
510
73
102
58
277
63
299
263
428
1
93
58
277
63
1,294
70
6
183
1,034
1,640
0
7,842
5,174
34
448
2,186
5,768
3,216
Net of hedges
1,274
97
25
210
941
573
10
Net of hedges 1
7,227
5,053
34
448
1,692
5,086
3,216
Net long per issuer
5,078
4,886
2
55
135
3,552
3,206
593
1,277
1,594
43
93
694
764
1,904
1,561
3
281
59
1,305
21
1
288
995
690
430
3
230
28
923
0
593
1,959
2,200
115
102
694
1,289
1,961
1,561
3
281
116
1,587
21
1
288
1,277
859
598
3
230
28
923
0
before hedges Net of hedges 1
876
70
6
183
616
961
0
31.12.14
France
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Netherlands
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Italy
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Finland
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Spain
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Austria
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Ireland 3
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Belgium
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Portugal
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Greece
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Other 4
1 Not deducted from the “Net of hedges” exposures are total allowances and provisions for credit losses of CHF 51 million (of which: Malta CHF 37 million, Ireland CHF 6 million and France CHF 5 million). 2 Includes
corporates, insurance companies and funds. 3 The majority of the Ireland exposure relates to funds and foreign bank subsidiaries. 4 Represents aggregate exposures to Andorra, Cyprus, Estonia, Latvia, Malta, Monaco,
Montenegro, San Marino, Slovakia and Slovenia. ▲
378
80
1,797
1,561
1
225
10
935
1
0
87
847
592
429
3
154
6
214
1
177
33
233
170
1
177
33
65
1
31
183
272
252
58
6
638
0
58
6
638
0
75
848
531
297
75
848
531
297
22
616
64
45
22
616
64
45
4
103
7
0
6
219
13
0
6
231
13
0
12
7
107
22
49
196
22
49
196
163
33
123
163
33
111
180
54
237
180
54
225
6
7
168
6
7
168
6
1
128
6
1
128
24
115
34
24
397
34
2
120
6
2
108
6
0
6
32
18
16
71
18
16
71
5
14
8
5
14
8
0
7
0
0
7
0
110
0
8
0
8
22
18
2
5
7
225
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Exposure from single-name credit default swaps referencing Greece, Italy, Ireland, Portugal or Spain (GIIPS)
Protection bought
Protection sold
of which: counterparty
domiciled in GIIPS country
of which: counterparty
domicile is the same as the
reference entity domicile
Net position
(after application of counterparty master netting
agreements)
Notional
234
20,825
1,298
1,517
4,978
28,852
RV
0
219
(26)
(28)
(99)
65
Notional
6
297
12
25
135
475
RV
0
(1)
0
0
(1)
(2)
0
82
0
0
41
123
Notional
RV
Notional
(262)
Buy
notional
Sell
notional
52
(80)
RV
(7)
0
0
0
0
0
(18,820)
(415)
4,670
(2,665)
(1,029)
(1,537)
(4,356)
20
(3)
74
(1)
(26,004)
(332)
690
770
2,190
8,371
(421)
(790)
(1,568)
(5,523)
PRV
2
109
13
16
55
195
NRV
(8)
(305)
(20)
(47)
(81)
(461)
▲
CHF million
31.12.14
Greece
Italy
Ireland
Portugal
Spain
Total
Exposure to emerging market countries
The table “Emerging markets net exposure by major geographical
region” on the following page shows the five largest emerging
market country exposures in each major geographical area by
product type as of 31 December 2014 compared with 31 Decem-
ber 2013. Based on the main country rating categories, as of
31 December 2014, 94% of our emerging market country expo-
sure was rated investment grade compared with 93% as of
31 December 2013.
Our direct net exposure to Russia was CHF 0.9 billion as of
31 December 2014, approximately half of which related to mar-
gin loans to Russian borrowers which are secured by global de-
pository receipts issued by Russian companies.
EDTF | Emerging markets net exposure 1 by internal UBS country rating category
CHF million
Investment grade
Sub-investment grade
31.12.14
18,993
1,107
31.12.13
14,880
1,126
Total
1 Net of credit hedges (for banking products and for traded products); net long per issuer (for trading inventory). Total allowances and provisions of CHF 83 million are not deducted (31 December 2013: CHF 65 million). ▲
20,101
16,007
226
EDTF | Emerging market exposures by major geographical region and product type
Banking products
(loans, guarantees,
loan commitments)
Net of hedges 1
Traded products
(counterparty risk from deriva-
tives and securities financing)
after master netting agreements
and net of collateral
Trading inventory
(securities and potential
benefits / remaining exposure
from derivatives)
Net of hedges
Net long per issuer
Total
Net of hedges 1
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
CHF million
Emerging America
Brazil
Mexico
Colombia
Chile
Argentina
Other
Emerging Asia
China
Hong Kong
South Korea
India
Taiwan
Other
Emerging Europe
Russia
Turkey
Azerbaijan
Poland
Bulgaria
Other
Middle East and Africa
Saudi Arabia
South Africa
United Arab Emirates
Kuwait
Nigeria
Other
1,850
1,250
300
94
92
40
73
13,807
6,982
2,000
1,680
1,227
923
996
1,728
886
374
153
52
49
215
2,716
576
470
464
445
208
552
2,223
1,335
331
192
152
57
156
9,720
3,528
1,436
1,158
1,335
921
1,342
1,591
835
324
4
47
76
305
2,473
673
438
281
357
111
612
537
227
165
49
37
23
36
4,151
1,341
574
323
949
229
734
922
317
276
147
30
38
114
1,012
148
80
247
12
203
322
Total
1 Not deducted are total allowances and provisions for credit losses of CHF 83 million (31 December 2013: CHF 65 million). ▲
20,101
16,007
6,622
789
387
93
139
81
37
53
3,722
1,160
588
273
735
309
657
978
509
248
3
32
40
144
890
149
154
141
9
100
337
548
400
66
27
52
2
2,730
378
1,052
713
235
266
85
77
28
27
5
4
12
1,093
428
52
122
433
0
58
626
521
49
12
44
1
1,783
263
541
472
190
193
124
89
24
25
0
11
28
1,005
503
43
67
348
2
41
6,379
4,447
3,502
765
623
68
19
3
17
36
6,927
5,263
373
643
43
428
177
729
541
70
1
18
11
88
611
0
339
95
0
5
807
427
190
42
26
20
103
4,216
2,105
307
413
410
420
561
525
302
51
3
36
133
578
20
241
72
1
10
172
9,032
234
6,126
227
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Operational risk
Key developments during the period
EDTF | On 1 January 2014, the Operational Risk Control unit merged
with the Compliance function to manage the Group’s compli-
ance, conduct and operational risks in a fully integrated manner.
Combining the perspectives and specific skills of the two control
functions has already helped further strengthen the overall con-
trol environment and early benefits have included significant en-
hancement of specific capabilities such as monitoring and surveil-
lance, standardization of key processes, an improved alignment to
the business divisions and a clear focus on the control responsi-
bilities required from the second line of defense.
The effective prevention of misconduct or its detection at the
earliest opportunity is of critical importance to the firm, as evi-
denced by the material level of litigation risk to which the firm
remains exposed. The work to design and implement a global
conduct risk framework which is embedded in all aspects of the
firm’s activities is an important part of reinforcing a risk culture
that ensures client considerations and market integrity are at the
center of all decisions and activities. In 2014, we began imple-
menting the framework with a pilot project in the UK, maintain-
ing an open dialogue with our regulators through the design
phase. The elevated conduct standards are designed to leverage
the existing operational risk framework and to extend the focus
from how we control our business, to how we run our business
to achieve the fairest outcomes for our clients. Through 2015 we
will continue to roll out the conduct risk framework globally.
We have further emphasized the importance of the behavioral
aspects of risk management in protecting the reputation of our
firm by enhancing our whistleblowing processes. We have rein-
forced the Speak Up maxim endorsed by the Chairman and Group
CEO, strengthened supervision of the front office and enhanced
employee conduct standards, introducing globally standardized
policies governing areas such as personal account dealing.
To strengthen our ability to detect, deter and prevent unac-
ceptable behavior we have taken proactive identification of risk
another step forward through programs to enhance our monitor-
ing and surveillance capabilities. We have also extended our use
of analytical techniques. Together these programs will aid us in
proactively identifying relevant policy breaches and suspicious
patterns of activity within critical risk taxonomies. In the course of
2014 we have developed our automated monitoring capabilities
for electronic and audio communications and introduced sophis-
ticated trade and cross-border surveillance. We will continue this
work through 2015 to both broaden and deepen our coverage
across the firm.
Maintaining the operational resilience of the firm through a
continued period of significant restructuring will be a key focus
for 2015. Compliance and Operational Risk Control (C&ORC) will
engage directly in the related projects to provide support and
oversight and help identify risk concentrations. During 2015, we
will integrate the Group Technology Risk organization into C&ORC
to further enhance independent oversight of the technology
transformation program.
Cyber-attacks against the financial industry have become in-
creasingly sophisticated as criminal organizations deploy resources
and technical capabilities to target specific institutions. We there-
fore continue to invest significantly in dedicated security programs
to continually strengthen our cyber defense against increasing
threats.
Ensuring that the financial crime risk control environment re-
mains effective and consistently updated to reflect new threats is
critical to protecting client and firm assets. Threats in this area
have intensified due to a rapidly changing and developing geo-
political environment and the increasing sophistication of cyber-
crime noted above. These external developments are in addition
to continued regulatory change and the potential for further
sanctions. We will therefore continue to place significant focus on
our anti-fraud initiatives and on ensuring that the financial crime-
related frameworks remain effective and reflect developments
such as the Financial Action Task Force recommendations.
Suitability risk remains an area of heightened regulatory focus
for the financial industry, especially during this extended period of
low interest rates and search for yield by clients. In response, sev-
eral current or proposed major legislative change programs (such
as Dodd Frank in the US, the Markets in Financial Instruments
Directive II in the EU and the Finanzdienstleistungsgesetz in Swit-
zerland) include a strong focus on consumer protection, suitability
and product governance requirements. The strong emphasis on
customer protection and the direct linkage to conduct risk consid-
erations reinforces the need for robust and dynamic suitability
frameworks which are able to react to changing expectations. We
continue to enhance the governance around our suitability and
product risk taxonomies to align internal processes and controls
to new requirements.
In addition, we will focus on the continued enhancement of
our cross border framework so that it reflects developing business
and regulatory change, including the implementation of behav-
ioral based monitoring and surveillance.
As a result of the industry-wide investigations into irregularities
in foreign exchange (FX) markets we have significantly enhanced
our control framework within the FX business, including support
functions, and strengthened the surveillance of our FX desks.
Other developments in the Operational Risk framework include
the continued development of our Group-wide program for inde-
pendent management testing of key procedural controls. A dedi-
cated group of control testers provide independent assurance of
the effectiveness of our controls to address specific risks. This test-
228
ing addresses both design and operating effectiveness and, hav-
ing initially focused on controls relevant to our certifications under
sections 302 and 404 of the Sarbanes-Oxley Act of 2002, is being
extended to cover other critical risk themes.
In addition to the developments and areas of key focus noted
above, we have made substantial progress toward the implemen-
tation of a single consistent process for the assessment of compli-
ance and operational risk that is used throughout the firm by both
Risk Control and the business. We have further supplemented this
internal view of risk with a forward-looking strategic trend analy-
sis, which examines potential changes to the external environ-
ment across a number of dimensions (regulatory, macro-eco-
nomic, political, social and technological) and the implications for
the firm’s compliance and operational risk profile.
To complement the enhancements to our risk assessment pro-
cesses we have continued to improve the C&ORC’s alignment and
interaction with the business divisions. Underpinning these im-
provements is a clear distinction between the risk management
responsibilities of business management, the first line of defense,
and the risk control responsibility of relevant control functions,
the second line of defense. This clarification of mission and man-
date for C&ORC has been reinforced through the establishment
of a comprehensive service delivery and process model to ensure
clear accountability. Work to embed these changes will continue
throughout 2015. ▲
Operational risk framework
EDTF | Pillar 3 | Operational risk is an inherent part of our business, as
losses can result from inadequate or flawed internal processes,
decisions and systems, or from external events. The impact of op-
erational risk remains at elevated levels, and can arise from past
and current business activities across all business divisions and the
Corporate Center. We aim to provide a framework that supports
the identification and assessment of material operational risks
and their potential concentrations, in order to achieve an appro-
priate balance between risk and return.
The business division Presidents and the Corporate Center
function heads are ultimately accountable for the effectiveness of
operational risk management and for the implementation of our
operational risk framework. Management in all functions (busi-
ness, logistics and control functions) are responsible for ensuring
an appropriate operational risk management environment, in-
cluding the establishment and maintenance of robust internal
controls, effective supervision and a strong risk culture.
C&ORC provides an independent and objective view of the ad-
equacy of operational risk management across the Group. It is
governed by the C&ORC Management Committee, which is
chaired by the Global Head of Compliance & Operational Risk
Control, who reports to the Group Chief Risk Officer and is a
member of the Risk Executive Committee.
The operational risk framework describes general requirements
for managing and controlling operational risk at UBS. It is built on
four main pillars:
1. classification of inherent risks through the operational risk tax-
onomy;
2. assessment of the design and operating effectiveness of con-
trols through the internal control assessment process;
3. assessment of residual risk through the operational and busi-
ness risk assessment processes, and
4. remediation to address identified deficiencies which are out-
side accepted levels of residual risk.
The operational risk taxonomy provides a clear and logical clas-
sification of our inherent operational risks, across all business divi-
sions. Throughout the organizational hierarchy, a level of risk tol-
erance must be agreed for each of the taxonomy categories
together with a minimum set of internal controls and associated
performance thresholds considered necessary to keep risk expo-
sure within acceptable levels.
All functions within our firm are required to perform a semi-
annual internal control assessment process whereby they assess
and evidence the design and operating effectiveness of their key
controls. This also forms the basis for the assessment and testing
of the controls which oversee financial reporting as required by
the Sarbanes-Oxley Act, section 404 (SOX 404). The enhanced
framework facilitates the identification of SOX 404-relevant con-
trols for independent testing, functional assessments, gathering
of evidence, management affirmation and remediation tracking.
UBS employs a global harmonized framework to assess the ag-
gregated impact of control deficiencies and the adequacy of re-
mediation efforts. The integrated risk assessment approach covers
all business activities and internal as well as external factors pos-
ing a threat to UBS Group, and aggregates the impact of weak-
nesses in the control environment to provide a transparent assess-
ment of the current operational risk exposure against agreed risk
tolerance levels. Significant control deficiencies that surface dur-
ing the internal control and risk assessment processes must be
reported in the operational risk inventory, and sustainable reme-
diation must be defined and delivered. All significant issues are
assigned to owners at the senior management level and must be
reflected in the respective manager’s annual performance mea-
surement and management objectives. To assist with prioritization
of all known operational risk issues, irrespective of origin, a com-
mon rating methodology is adopted by all internal control func-
tions and both internal and external audit. Group Internal Audit
applies an enhanced assurance process to risk issue closure to
promote rigorous management discipline in identifying, mitigat-
ing and sustainably remediating operational risk issues. As a fur-
ther enabler of strong risk management, responsibility for the
management of the front-to-back control environment, assumed
by the Chief Operating Officers, has been re-emphasized and vis-
ibility of the front-to-back control environment further enhanced
by advancing our reporting processes.
Risk and behaviors remain embedded in our performance and
compensation considerations, and as a firm we continue to deliver
employee behavioral initiatives such as the “Principles of Good
Supervision,” and mandatory compliance and risk training. ▲▲
229
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Advanced measurement approach model
(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:2)(cid:21)(cid:2)(cid:94)(cid:2)(cid:35)(cid:47)(cid:35)(cid:2)(cid:79)(cid:81)(cid:70)(cid:71)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:80)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:82)(cid:87)(cid:86)(cid:85)
EDTF | Pillar 3 | The operational risk framework is aligned to and un-
derpins the calculation of regulatory capital, which in turn allows
us to quantify operational risk and set effective management in-
centives. The processes detailed above are integral to the quanti-
fication of operational risk, which reinforces integration and
alignment of the operational risk framework and the calculation
of capital.
We measure operational risk exposure and calculate opera-
tional risk regulatory capital by using the advanced measurement
approach (AMA) in accordance with FINMA requirements.
For regulated subsidiaries, the basic indicator or standardized
approaches are adopted as agreed with local regulators. Regula-
tory requirements are currently leading to the implementation of
AMA models for specific UBS entities. In particular, the operational
risk regulatory capital requirements for the new banking subsidiary
of UBS AG in Switzerland are currently being determined and will
be finalized in the first half of 2015. The design of the AMA model,
which has been tailored to meet the new subsidiary’s operational
risk exposure, has been aligned with the Group model, with adap-
tations where necessary. It will be presented to FINMA as part of
the banking license approval process for UBS Switzerland AG.
The AMA model consists of a backward-looking historical and
a forward-looking scenario component. The historical component
takes a retrospective view based on our history of operational risk
losses since January 2002, excluding extreme losses incurred by
UBS, which are captured within the scenario component. The key
assumption within the historical component is that past events
form a reasonable proxy for future events. A distribution of ag-
gregated losses over one year is derived by modeling severities
and frequencies separately and then combining them. This is re-
ferred to as a loss distribution approach and is used to project
future total losses based on historical experience and to deter-
mine the expected loss portion of our capital requirement.
The scenario component takes a forward-looking view of po-
tential operational losses that may occur, taking into account the
operational risk issues facing the Group. The aim is to arrive at a
reasonable estimate of unexpected or tail loss exposure (corre-
sponding to a low-frequency / high-severity event). We use 20
AMA taxonomy categories which are aligned to the operational
risk taxonomy.
For each of these categories three frequency / severity pairs are
defined, representing the base, stress and worst case. Calibration
and adjustments to the scenario component parameters are based
on internal extreme losses, loss data from peer banks, outputs of
the integrated risk assessments, including consideration of the
business and internal control environment, as well as extensive an-
nual verification by internal subject matter experts. The chart
above provides a high-level overview of the model components
and their respective inputs into the calculation.
230
(cid:42)(cid:75)(cid:85)(cid:86)(cid:81)(cid:84)(cid:75)(cid:69)(cid:67)(cid:78)
(cid:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:80)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)
(cid:52)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)
(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:53)(cid:69)(cid:71)(cid:80)(cid:67)(cid:84)(cid:75)(cid:81)
(cid:67)(cid:80)(cid:67)(cid:78)(cid:91)(cid:85)(cid:75)(cid:85)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:71)(cid:90)(cid:86)(cid:84)(cid:71)(cid:79)(cid:71)(cid:2)
(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)
(cid:36)(cid:39)(cid:43)(cid:37)(cid:40)(cid:19)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:75)(cid:80)(cid:70)(cid:87)(cid:85)(cid:86)(cid:84)(cid:91)(cid:2)
(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)
(cid:53)(cid:69)(cid:71)(cid:80)(cid:67)(cid:84)(cid:75)(cid:81)
(cid:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:80)(cid:71)(cid:80)(cid:86)
(cid:19)(cid:2)(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:80)(cid:88)(cid:75)(cid:84)(cid:81)(cid:80)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)(cid:16)(cid:2)(cid:86)
The AMA model adds the sampled losses from the historical
and the scenario component to derive the regulatory capital figure
which equals the 99.9% quantile of the overall loss distribution.
Currently, we do not reflect mitigation through insurance or
any other risk transfer mechanism in our AMA model.
In 2014, we made no material methodology changes to our
AMA model. Developments focused on enhancing the bench-
marking framework to support the plausibility of AMA model re-
sults and on establishing granular reporting of operational risk
exposure by event type (i.e., AMA taxonomy) and business lines.
We made further progress in the adaptation of the Group’s AMA
model to support local and regional entity-specific regulatory re-
quirements and to ensure a consistent approach for the measure-
ment of operational risk globally.
In 2015, we will review the Group AMA model design, meth-
odology and calibration in depth. Resulting model adaptions will
be presented to FINMA for approval prior to implementation.
A FINMA increment to our AMA-based operational risk-related
RWA (OR RWA) in relation to known or unknown litigation, com-
pliance and other operational risk matters took effect on 1 Octo-
ber 2013 and continued to be applied throughout 2014. As mu-
tually agreed between UBS and FINMA, the incremental OR RWA
was subject to recalculations based on supplemental analysis per-
formed each quarter. The incremental OR RWA calculated based
upon this supplemental analysis as of 31 December 2014 was
CHF 17.5 billion, a decrease of CHF 5.0 billion compared with
31 December 2013. In 2015, we will continue to hold incremental
RWA for litigation, regulatory and similar matters and other con-
tingent liabilities.
We continued to allocate operational risk regulatory capital to
the business divisions and Corporate Center based on historical
operational risk-related losses, and applied an improved method-
ology to the allocation of the FINMA operational risk capital incre-
ment. ▲▲
AMA model confirmation
EDTF | Pillar 3 | The Group AMA model is subject to an annual quantita-
tive and qualitative review to ensure that model parameters are
plausible and reflect the developing operational risk profile of the
firm. This review is independently verified by Quantitative Risk Con-
trol (QRC) and supplemented with additional sensitivity and bench-
marking analysis. ▲▲
➔ Refer to the “Capital management” section of this report for
more information on the development of risk-weighted assets
for operational risk
➔ Refer to “Risk measurement” in this section for more informa-
tion on our approach to model confirmation procedures
231
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Corporate Center – Non-core and Legacy Portfolio
During 2014, Non-core and Legacy Portfolio balance sheet assets
declined by CHF 45 billion to CHF 170 billion, a 21% reduction,
mainly due to a CHF 34 billion reduction in positive replacement
values (PRV) and, to a lesser extent, a CHF 11 billion reduction in
funded assets along with a CHF 1 billion reduction in collateral
delivered against over-the-counter (OTC) derivatives.
Risk-weighted assets (RWA) for Non-core and Legacy Portfolio
declined by CHF 28 billion to CHF 36 billion. This is below our
target of approximately CHF 40 billion for year-end 2015. The
Swiss systemically relevant banks (SRB) leverage ratio denomina-
tor decreased by CHF 67 billion to CHF 93 billion.
Non-core
In the first quarter of 2013, the non-core businesses were trans-
ferred from the Investment Bank to Corporate Center – Non-core,
where they have since been managed and reported. The Non-
core positions originated mainly within the Investment Bank’s
rates and credit businesses, are capital and balance sheet-inten-
sive or belonged to areas with high operational complexity and
long tail risks. The majority consist of over-the-counter (OTC) de-
rivatives reported as replacement values on our balance sheet. In
contrast to the Legacy Portfolio, credit risk from counterparty ex-
posures in Non-core is well diversified by both currency and geo-
graphical region, and single-name exposures are limited. Over
95% of gross PRV was collateralized as of 31 December 2014.
Overall market risk is hedged and primarily relates to liquid market
factors such as interest rates and foreign currencies.
Non-core balance sheet assets decreased by CHF 38 billion to
CHF 151 billion as of 31 December 2014, mainly due to CHF 33
billion lower PRV from our OTC rates and credit derivatives that
make up the majority of our remaining Non-core portfolios. Dur-
ing the year, we executed a series of risk transfers to exit the ma-
jority of the correlation trading portfolio, which involved entering
into a large number of back-to-back trades to transfer market
risk. We subsequently derecognized these trades from our bal-
ance sheet via novations to third parties, thereby transferring
credit risk, and reducing PRV by approximately CHF 11 billion. The
originally targeted novations are now complete.
Within our rates portfolio, PRV decreased due to negotiated bi-
lateral settlements with specific counterparties (unwinds), third-
party novations, including transfers to central clearing houses (trade
migrations), agreements to net down trades with other dealer coun-
terparties (trade compressions), partly offset by currency and inter-
est rate movements. Rates reduction activity continued to be priori-
tized by comparing exit costs to RWA and capital consumption
along with trade complexity in order to maximize shareholder value.
Funded assets decreased by CHF 5 billion, mainly from the exit of
precious metal holdings held on behalf of clients and from the last
remaining trade in the structured reverse repo portfolio maturing.
Remaining funded asset positions are largely corporate loans and
bonds held to hedge OTC positions and collateral held for struc-
tured note issuances. Funded assets and PRV classified as Level 3 in
the fair value hierarchy totaled CHF 2 billion, or 1%, of total Non-
core balance sheet assets as of 31 December 2014.
Non-core RWA totaled CHF 16 billion as of 31 December 2014,
a decrease of CHF 16 billion compared with 31 December 2013,
due to ongoing RWA reduction activity that resulted in a CHF 8
billion decrease in credit risk and a CHF 5 billion decrease in mar-
ket risk RWA. Operational risk RWA decreased by CHF 2 billion.
Legacy Portfolio
The Legacy Portfolio was created in the fourth quarter of 2011
and comprises positions originated in the Investment Bank. The
majority of Legacy Portfolio positions are relatively concentrated
and illiquid.
Legacy Portfolio balance sheet assets decreased by CHF 6 bil-
lion to CHF 19 billion during 2014. Funded assets decreased by
CHF 6 billion, which included the full repayment of the loan to the
BlackRock fund, the final exit from student loan auction rate secu-
rities, the sale of CMBS assets used to hedge certain CDS con-
tracts facing monolines that were terminated during the year and
a number of smaller position reductions. Funded assets and PRV
classified as Level 3 in the fair value hierarchy totaled CHF 3 bil-
lion, or 15%, of total Legacy Portfolio balance sheet assets as of
31 December 2014.
Legacy Portfolio RWA totaled CHF 19 billion as of 31 Decem-
ber 2014, a decrease of CHF 11 billion compared with 31 Decem-
ber 2013 due to a CHF 10 billion combined reduction in credit risk
and market risk RWA and a CHF 1 billion decrease in operational
risk RWA.
232
An overview of the composition of Non-core and Legacy Port-
folio is presented below and on the following page, including po-
sition and RWA information for 2014 and 2013. The grouping of
positions by exposure category and the order in which these are
listed are not necessarily representative of the magnitude of the
risks associated with them, nor do the metrics shown in the tables
necessarily represent the risk measures used to manage and con-
trol these positions. For example, OTC derivatives trading is largely
conducted on a collateralized basis and under bilateral Interna-
tional Swaps and Derivatives Association (ISDA) or ISDA-equiva-
lent master netting agreements, which allow for the close-out
and netting of PRV with negative replacement values in the event
EDTF | Composition of Non-core
CHF billion
Exposure category
Description
Changes in 2014
RWA 1
Funded assets 2
PRV 3
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
Linear OTC
Primarily vanilla interest rate,
inflation, basis and cross-currency
swaps for all major currencies and
some emerging markets. 95% of
gross PRV is collateralized.
Rates
Non-linear
OTC
Vanilla and structured options.
Over 95% of gross PRV
is collateralized.
Structured
credit
Tranches of structured credit
products, liquid index tranches,
credit-linked notes, index and
single-name credit default swaps,
structured entities and bond-
repackaged notes with granular
risk characteristics.
Credit
Loans
Corporate lending and syndicated
loans.
Other
Primarily corporate bonds used for
hedging OTC derivatives, residual
distressed and equity positions.
Other
Exposures to CVA and related
hedging activity.
Operational risk
Operational risk RWA allocated to
Non-core.
Reduction in RWA due to decrease
in PRV, mainly as a result of trade
unwinds, trade compressions and
transfers to central clearing houses,
partly offset by currency and
interest rate movements. Reduction
in funded assets due to ongoing
reduction of cash positions.
Increase in PRV mainly from cur-
rency and interest rate movements,
partly offset by trade unwinds and
transfers to central clearing houses.
Reduction in funded assets due to
ongoing reduction of cash posi-
tions. Reduction in RWA from trade
unwinds and transfers to central
clearing houses.
Decrease in RWA resulting from risk
transfers to exit the majority of the
correlation trading portfolio. Market
risk was transferred through back-
to-back trades and was followed by
novations to de-recognize the
trades and transfer the credit risk.
The originally targeted novations
are now complete. Reduction in
PRV due to novations and, to a
lesser extent, to market movements.
Decrease in RWA mainly driven
by a reduction in undrawn loan
commitments. Decrease in funded
assets reflecting the maturing of
the last remaining trade in the
structured reverse repo portfolio.
Decrease in RWA and funded
assets due to the transfer of
positions from Non-core to Legacy
Portfolio for risk management
purposes following the sale of
a distressed debt portfolio.
Decrease in funded assets due to
full exit of precious metal holdings
held on behalf of clients. Decrease
in RWA and PRV due to ongoing
CVA hedging activity.
Decrease in RWA due to a reduc-
tion in incremental RWA resulting
from the supplemental operational
risk capital analysis mutually agreed
to by UBS and FINMA. 4
6.0
11.8
0.4
1.1
88.3
110.1
1.2
2.0
0.7
1.0
38.3
36.9
0.6
6.0
0.2
0.4
3.7
14.6
0.4
1.4
0.9
2.1
0.0
0.0
0.0
0.7
0.0
0.6
0.0
0.1
0.6
1.2
0.4
2.1
1.2
3.1
7.5
9.5
–
–
–
–
Total
16.4
32.6
2.7
7.3
131.6
164.9
1 Fully applied and phase-in Basel III RWA. 2 Funded assets are defined as total balance sheet assets less positive replacement values (PRV) and collateral delivered against over-the-counter (OTC) derivatives
(CHF 17.1 billion as of 31.12.14 and CHF 17.4 billion as of 31.12.13). 3 Positive replacement values (gross exposure excluding the impact of any counterparty netting). 4 Refer to the “Capital management”
section of this report for more information. ▲
233
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
of default. The funded assets and PRV measures presented are
intended to provide additional transparency regarding progress in
the execution of our strategy to exit these positions. All positions,
primarily PRV, are affected by market factors outside the control
of UBS, such as interest rate movements.
EDTF | Composition of Legacy Portfolio
CHF billion
Exposure category
Description
Changes in 2014
RWA 1
Funded assets 2
PRV 3
Includes ABS, RMBS, CDO, CMBS
and CLO bonds as well as single-
name credit default swap (CDS)
trades referencing these asset
classes.
Reduction in funded assets and
RWA due to the sale of certain
CDO and CLO bond positions and
positions that are subject to high
credit rating-related risk weights.
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
1.3
5.1
1.1
2.5
0.2
0.5
Collateralized debt
obligations (CDO)
Reference-linked notes
(RLN)
Monolines
Real estate assets
RLN consist of a series of transac-
tions, mainly issued in note form,
whereby UBS purchased credit
protection on a reference portfolio
of fixed income assets, along with
related cash bonds held for
hedging purposes.
Primarily CDS protection purchased
from monoline insurers to hedge
specific positions. The majority
of this exposure is hedged via
single-name CDS.
Primarily CDS on ABS, ABX
and CMBX 4 derivatives positions
and CMBS cash bonds.
Reduction in RWA due to the sale
of cash bonds used as hedges
following the redemption of
certain RLNs and rebalancing and
optimization of asset hedges.
Total fair value of CDS protection
reduced following termination of
certain CDS contracts, which also
reduced RWA.
Decrease in RWA due to decrease
in PRV driven by unwinding of
derivative positions which are
subject to high credit rating-related
risk weights. Reduction in funded
assets from the sale of certain
CMBS bonds.
Reduction in RWA and funded
assets due to sale of remaining
student loan ARS positions.
Auction rate securities
(ARS) and auction
preferred stock (APS)
Portfolio of student loan and
municipal ARS as well as APS.
All APS were rated A and higher
as of 31 December 2014.
Muni swaps and options
Swaps and options with US state
and local governments.
Increase in PRV due to interest rate
movements.
Loan to BlackRock fund
Other
Loan to structured entity
managed by BlackRock
Financial Management Inc.
Includes a number of smaller
positions.
Operational risk
Operational risk RWA allocated to
Legacy Portfolio.
The loan to the BlackRock fund
was fully repaid during the year.
Decrease in funded assets due to
sale of bonds held as hedges fol-
lowing unwind of inflation-linked
credit derivative positions and the
maturity of an emerging markets
asset swap.
Decrease in RWA due to a reduc-
tion in incremental RWA resulting
from the supplemental operational
risk capital analysis mutually agreed
to by UBS and FINMA.5
0.9
3.1
1.3
1.7
0.4
0.6
0.9
2.2
–
–
0.2
0.4
0.7
2.0
0.1
0.5
0.3
0.9
0.9
1.6
3.0
3.8
–
–
0.6
–
1.0
0.3
–
–
–
4.2
3.1
2.4
–
–
2.3
2.3
3.0
3.5
3.9
4.1
11.8
13.3
–
–
–
–
Total
19.4
30.9
8.6
14.4
9.1
9.6
1 Fully applied and phase-in Basel III RWA. 2 Funded assets are defined as total balance sheet assets less positive replacement values (PRV) and collateral delivered against over-the-counter (OTC) derivatives (CHF 0.8
billion as of 31.12.14 and CHF 1.5 billion as of 31.12.13). 3 Positive replacement values (gross exposure excluding the impact of any counterparty netting). 4 Index of CMBS. 5 Refer to the “Capital management”
section of this report for more information. ▲
234
Treasury management
Liquidity and funding management
Strategy and objectives
Audited | EDTF | We manage our liquidity and funding risk with the
overall objective of optimizing the value of our business franchise
across a broad range of market conditions and in consideration of
current and future regulatory constraints as described below. In
line with our strategy to reduce our balance sheet assets, we in-
tend to generate capacity within our liquidity and funding posi-
tions. We are continuing to focus our activities on a set of highly
synergistic, less capital and balance sheet-intensive businesses
dedicated to serving clients and well-positioned to maximize value
for shareholders. ▲▲
This section provides more detailed information on current and
potential future regulatory requirements, our governance struc-
ture, our liquidity and funding management including our sources
of funding and liquidity, and our contingency planning and stress
testing.
➔ Refer to the “Our strategy” section of this report for more
information
Liquidity and funding regulatory requirements
Audited | EDTF | We employ a number of measures to monitor our li-
quidity and funding positions under normal and stressed condi-
tions. In particular, we use stress scenarios to apply behavioral
adjustments to our balance sheet and calibrate the results from
the internal stress models with external measures, primarily the
evolving regulatory requirements for the liquidity coverage ratio
(LCR) and the net stable funding ratio (NSFR). ▲
The LCR provides banks with a measurement intended to en-
sure that they hold enough highly liquid assets to survive short-
term (30-day) severe general market and firm-specific stress. The
Bank for International Settlements (BIS) future minimum regula-
tory requirement is an LCR of at least 100% as of 2019. However,
based on the Swiss Liquidity Ordinance and FINMA’s circular “Li-
quidity risks – banks,” as revised in June and July 2014 respec-
tively, as a Swiss systemically relevant bank, we will have to main-
tain an LCR of at least 100% from 1 January 2015 and to disclose
actual LCR ratios on a quarterly basis from the first quarter of
2015 onwards. As of 31 December 2014, UBS was compliant
with the existing FINMA liquidity requirements.
The NSFR assigns a required stable funding factor to assets,
representing the illiquid part of the assets, and assigns all liabilities
an available stable funding factor, representing the stability of a
liability, intended to ensure that banks are not overly reliant on
short-term funding and have sufficient long-term funding for il-
liquid assets. The BIS future minimum regulatory requirement is
an NSFR of at least 100% as of 2018. In the interim, our NSFR
ratio is calculated on a pro-forma basis, using current supervisory
guidance from FINMA. ▲
➔ Refer to the “Regulatory and legal developments” section of this
report for more information
EDTF | The tables below and on the next page show our pro-
forma Basel III liquidity ratios based on the supervisory guidance
from FINMA at the reference dates, with the calculation for
31 December 2014 reflecting the revisions to the Swiss Liquidity
Ordinance and the FINMA circular “Liquidity risks – banks.” These
EDTF | Pro-forma liquidity coverage ratio (LCR)
CHF billion, except where indicated
Cash outflows
Cash inflows
Net cash outflows
Liquidity asset buffer
Regulatory LCR (%)
Additional contingent funding sources 1
Management LCR (%)
1 Additional contingent funding sources including dedicated local liquidity reserves and additional unutilized borrowing capacity. ▲
31.12.14
31.12.13
240
88
152
188
123
56
160
236
97
139
153
110
54
148
235
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
EDTF | Pro-forma net stable funding ratio (NSFR)
CHF billion, except where indicated
Available stable funding
Required stable funding
NSFR (%)
31.12.14
31.12.13
372
352
106
346
318
109
▲
calculations include estimates of the impact of the rules and their
interpretation, and will be refined as regulatory interpretations
evolve and as new models and the associated systems are
enhanced. For the LCR, cash out and inflows are estimated for up
to a 30-day period under severe general market and firm-specific
stress scenarios. The liquidity asset buffer includes our dedicated
Group liquidity reserve, excess cash at major central banks and
unencumbered collateral pledged to central banks. A more de-
tailed breakdown of the liquidity asset buffer is shown in the
“Pro-forma liquidity asset buffer” table on the next page. Avail-
able stable funding for our NSFR consists mainly of client deposits
from our wealth management businesses, long-term debt issued
and capital. This source of stable funding is used primarily to
support residential mortgages as well as other loans.
We also calculate a management LCR, for which we consider,
in addition to the liquidity asset buffer, further high quality and
unencumbered contingent funding sources, which primarily con-
sisted of local liquidity reserves and unutilized funding capacity. ▲
Governance
Audited | EDTF | Our liquidity and funding strategy is proposed by
Group Treasury, approved by the Group Asset and Liability Man-
agement Committee (Group ALCO) and overseen by the Risk
Committee of the Board of Directors. ▲▲
EDTF | Group Treasury monitors and oversees the implementation
and execution of our liquidity and funding strategy, and ensures
adherence to our liquidity and funding policies including limits and
targets, reporting the Group’s overall liquidity and funding posi-
tion, including funding status and concentration risks, at least
monthly to the Group ALCO and the Risk Committee. This enables
close control of both our cash and collateral, including our stock of
high-quality liquid securities, and ensures that the Group’s general
access to wholesale cash markets is centralized in Group ALM (prior
to 1 January 2015, Group ALM was part of Group Treasury). In
addition, should a crisis require contingency funding measures to
be invoked, Group Treasury is responsible for coordinating liquidity
generation with representatives of the relevant business areas. ▲
Audited | EDTF | Liquidity and funding limits and targets are set at a
Group and business division level, and are reviewed and recon-
firmed at least once a year by the Board of Directors, the Group
ALCO, the Group CFO, the Group Treasurer and the business divi-
sions taking into consideration current and projected business
strategy and risk tolerance. The principles underlying our limit and
236
target framework aim to maximize and sustain the value of our
business franchise and maintain an appropriate balance in the
asset and liability structure. Structural limits and targets focus on
the structure and composition of the balance sheet, while supple-
mentary limits and targets are designed to drive the utilization,
diversification and allocation of funding resources. Together the
limits and targets focus on liquidity and funding risk for periods
out to one year, including stress testing. To complement and sup-
port this framework, Group Treasury monitors the markets with a
dashboard of early warning indicators reflecting the current
liquidity situation. The liquidity status indicators are used at a
Group level to assess both the overall global and regional situa-
tions for potential threats. Treasury Risk Control provides indepen-
dent oversight over liquidity and funding risks. ▲▲
➔ Refer to the “Corporate governance” section of this report for
more information
Liquidity management
Audited | EDTF | Our liquidity risk management aims to maintain a
sound liquidity position to meet all our liabilities when due and to
provide adequate time and financial flexibility to respond to a firm-
specific liquidity crisis in a generally stressed market environment,
without incurring unacceptable losses or risking sustained damage
to our various businesses. Complementing this, our funding risk
management aims for the optimal asset and liability structure to
finance our businesses reliably and cost-efficiently. ▲▲
Contingency funding
Audited | EDTF | Our Group contingency funding plan is an integral
part of our global crisis management concept, which covers vari-
ous types of crisis events. This contingency funding plan contains
an assessment of contingent funding sources in a stressed envi-
ronment, liquidity status indicators and metrics, and contingency
procedures. Our funding diversification and global scope help
protect our liquidity position in the event of a crisis. We regularly
assess and test all material, known and expected cash flows, as
well as the level and availability of high-grade collateral that could
be used to raise additional funding if required. Our contingent
funding sources include a large, multi-currency portfolio of unen-
cumbered, high-quality, assets, a majority of which is short-term,
managed centrally by Group ALM, available and unutilized liquid-
ity facilities at several major central banks, and contingent reduc-
tions of liquid trading portfolio assets. ▲
EDTF | Pro-forma liquidity asset buffer
CHF billion
Cash and balances with central banks
Due from banks 1
Financial investments available-for-sale
of which: government bills / bonds
of which: corporate bonds and municipal bonds, including bonds issued
by financial institutions
Reverse repurchase agreements
Central bank pledges 2
Total
31.12.14
Level 1
Level 2
102
0
34
22
12
6
33
0
0
6
0
6
0
8
Total
102
0
39
22
17
6
40
Average
2014
31.12.13
Total
Level 1
Level 2
Total
93
4
38
23
15
2
27
80
0
33
32
1
0
16
129
0
0
12
0
12
2
10
24
80
0
45
32
13
2
26
153
175
13
188
164
1 Term receivable from central bank. 2 Mainly reflects assets received as collateral under reverse repurchase and securities borrowing arrangements, which are not recognized on the balance sheet, and which have
subsequently been pledged to central banks. ▲
We continued to maintain a sound liquidity position through-
out the year. As of 31 December 2014, our liquidity asset buffer,
which is derived from high-quality liquid assets (HQLA) and sup-
ports our estimated pro-forma regulatory LCR, was CHF 188 bil-
lion, with additional available funding of CHF 56 billion. In aggre-
gate, these sources of available liquidity represented 31% of our
funded balance sheet assets. The table above shows a breakdown
of our liquidity asset buffer, analyzed by asset type, and LCR eli-
gible amount. In accordance with the BCBS’s guidance issued in
January 2013, HQLA are comprised of unencumbered cash or as-
sets that can be converted into cash at little or no loss of value in
private markets to meet liquidity needs for a 30-calendar-day li-
quidity stress scenario. HQLA are eligible for inclusion as our li-
quidity asset buffer component of the LCR after applying certain
haircuts and caps, dependent on whether the assets are catego-
rized as Level 1 (primarily central bank reserves and Government
bonds) or Level 2 (primarily US and European agency, non-finan-
cial corporate and covered bonds) in accordance with the afore-
mentioned Basel guidance. The average for month-end in 2014
(based on twelve months) was CHF 164 billion.
In addition to the liquidity asset buffer component of the regu-
latory LCR, for our management LCR we include additional high-
quality and unencumbered contingent funding sources not eligi-
ble under the regulatory Basel III liquidity framework, primarily
local funding reserves and unutilized funding capacity. ▲
Asset encumbrance
EDTF | Part of our future funding and collateral needs are supported
by assets currently available and unrestricted. The table on the
next page presents both total IFRS on-balance sheet assets and
off-balance sheet assets received as collateral, allocating these
amounts between those assets that are available and those assets
that are encumbered or otherwise not available to support future
funding and collateral needs.
Assets are presented as Encumbered if they have been pledged
as collateral against an existing liability or if they are otherwise
restricted in their use to secure funding. Included within the latter
category are assets protected under client asset segregation rules,
assets held by the Group’s insurance entities to back related liabil-
ities to the policy holders, assets held in certain jurisdictions to
comply with explicit minimum local asset maintenance require-
ments and assets held in consolidated bankruptcy remote entities,
such as certain investment funds and other structured entities. ▲
➔ Refer to “Note 25 Restricted and transferred financial assets” in
the “Financial information” section of this report for more
information
EDTF | Assets which cannot be pledged as collateral represents
those assets which are not encumbered but which, by their na-
ture, are not considered available to secure funding or to meet
collateral needs. These mainly include secured financing receiv-
ables, positive replacement values for derivatives, goodwill and
intangible assets.
All other assets are presented as Unencumbered. Shown sepa-
rately are those assets that are considered to be readily available
to secure funding or to meet collateral needs, consisting of cash
and securities readily realizable in the normal course of business.
These include cash and deposits with central banks, our multi-
currency portfolio of unencumbered, high-quality assets man-
aged centrally by Group Treasury through the end of 2014 and
effective 1 January 2015 by Group ALM (prior to 1 January 2015,
Group ALM was part of Group Treasury), a majority of which are
short-term, and unencumbered positions in our trading portfolio.
The majority of unencumbered assets not considered readily avail-
able are loans. This category also includes assets held by certain
subsidiaries that are available to meet funding and collateral
needs in certain jurisdictions, which are not readily available for
use by the Group as a whole. ▲
237
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
EDTF | Asset encumbrance
CHF million
Balance sheet as of 31 December 2014
Cash and balances with central banks
Due from banks
Financial assets designated at fair value
Loans
of which: mortgage loans
Lending
Cash collateral on securities borrowed
Reverse repurchase agreements
Collateral trading
Trading portfolio assets excluding financial assets for
unit-linked investment contracts
of which: government bills / bonds
of which: corporate bonds, municipal bonds, including
bonds issued by financial institutions
of which: loans
of which: investment fund units
of which: asset-backed securities
of which: mortgage-backed securities
of which: equity instruments
of which: precious metals and other physical commodities
Financial assets for unit-linked investment contracts
Positive replacement values
Financial investments available-for-sale
Cash collateral receivables on derivative instruments
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Other
Total assets 31.12.14
Total assets 31.12.13
CHF million
Off-balance sheet as of 31 December 2014
Fair value of assets received as collateral which can be sold
or repledged
Total off-balance sheet 31.12.14
Total off-balance sheet 31.12.13
Total balance sheet and off-balance sheet 31.12.14
Total balance sheet and off-balance sheet 31.12.13
Encumbered
Unencumbered
Total Group
assets (IFRS)
Assets pledged
as collateral
Assets other-
wise restricted
to use to
secure funding
Cash and
securities
available to
secure funding
Other
realizable
assets
Assets which
cannot be
pledged as
collateral
Percentage
of cash and
securities
available to
secure funding
104,073
13,334
4,951
315,757
164,722
334,042
24,063
68,414
92,477
120,746
13,587
12,904
3,244
13,393
2,091
1,133
69,763
5,764
17,410
256,978
57,159
30,979
927
6,854
6,785
11,060
22,988
79,593
0
0
0
27,973
27,973
27,973
0
0
0
61,304 1
6,096
3,656
0
3,865
200
116
47,487
0
0
0
2,8682
0
0
0
0
0
0
0
1,062,478
1,013,355
92,144
82,000
0
3,511
458
0
0
3,969
0
1,896
1,896
8,158
2,628
3,441
0
1,990
0
0
98
0
17,410
0
1,209
6,135
0
0
0
0
221
6,356
38,997
36,525
97,617
476
6,453
9,816
1,693
281,077
136,750
476
292,586
41,737
4,160
3,399
7,230
1,499
721
19,685
5,764
0
9,566
702
2,408
3,244
308
393
295
2,511
0
0
39,244
13,838
927
6,854
179,074
166,895
7,781
330,224
298,348
4
7
2,800
6,231
0
9,038
24,063
66,518
90,582
0
0
0
0
0
0
0
0
0
0
256,978
0
24,843
0
0
6,785
11,060
22,767
65,457
422,058
429,587
Encumbered
Unencumbered
Fair value
of assets
received which
can be sold or
repledged
Fair value
of assets
received that
have been sold
or repledged
as collateral
Fair value
of assets
received other-
wise restricted
to use to
secure funding
Fair value of
assets avail-
able to secure
funding
Fair value
of other
realizable
assets
36%
0%
0%
16%
2%
1%
3%
1%
0%
7%
2%
0%
15%
67%
75%
388,855
388,855
351,712
271,963
271,963
240,176
364,108
322,176
9,681
9,681
28,074
48,678
69,618
89,371
89,371
54,990
17,841
17,841
28,471
268,444
221,885
348,064
323,523
422,058
424,370
33%
33%
25%
100%
100%
1 Includes CHF 56,018 million assets pledged as collateral which may be sold or repledged by counterparties. 2 Includes CHF 2,662 million assets pledged as collateral which may be sold or repledged by counter-
parties. ▲
238
Stress testing
Audited | EDTF | We perform stress testing to determine the optimum
asset and liability structure that allows us to maintain an appropri-
ately balanced liquidity and funding position under various sce-
narios. Liquidity crisis scenario analysis and contingency funding
planning support the liquidity management process. This ensures
that immediate corrective measures to absorb potential sudden
liquidity shortfalls can be put into effect. ▲
We model our liquidity exposures under two main potential
scenarios that encompass stressed and acute market conditions,
including considering the possible impact on our access to mar-
kets from stress events affecting all parts of our business.
The acute scenario represents an extreme stress event that
combines a firm-specific crisis with market disruption. This sce-
nario assumes substantial outflows on otherwise stable client de-
posits, mainly due on demand, inability to renew or replace matur-
ing unsecured wholesale funding, unusually large drawdowns on
loan commitments, reduced capacity to generate liquidity from
trading assets, liquidity outflows corresponding to a three-notch
downgrade triggering contractual obligations to unwind deriva-
tive positions or to deliver additional collateral and additional col-
lateral needs due to adverse movements in the market values of
derivatives. It is run both daily and monthly, with the former used
to project potential cash outflows over a one-month time horizon
for day-to-day risk management, while the latter involves a more
detailed assessment of asset and liability cash flows.
Since a liquidity crisis could have a myriad of causes, the
stressed scenario encompasses potential stress effects across all
markets, currencies and products but it is not typically firm-spe-
cific and focuses on a time horizon of up to one year. As well as
the loss of ability to replace maturing wholesale funding, it as-
sumes a gradual decline of otherwise stable client deposits and
liquidity outflows corresponding to a two-notch downgrade.
We also use a cash capital model scenario, which measures the
amount of long-term funding available to fund illiquid assets. The
illiquid portion of assets is the difference (the haircut) between
the carrying value of an asset on the balance sheet and its effec-
tive cash value when used as collateral in a secured funding trans-
action. Long-term funding used as cash capital to support illiquid
assets is comprised of unsecured funding with a remaining time
to maturity of at least one year, shareholders’ equity and core
deposits, which are the portion of our customer deposits that are
deemed to have a behavioral maturity of at least one year. All
these models and their assumptions are reviewed regularly to
incorporate the latest business and market developments. We
continuously refine the assumptions used in our crisis scenario
and maintain a robust, actionable and tested contingency plan. ▲
Funding management
Audited | EDTF | Group Treasury regularly monitors our funding status,
including concentration risks, to ensure we maintain a well-bal-
anced and diversified liability structure. Our funding activities are
planned by analyzing the overall liquidity and funding profile of
our balance sheet, taking into account the amount of stable fund-
ing that would be needed to support ongoing business activities
through periods of difficult market conditions. ▲
Our business activities generate asset and liability portfolios
that are highly diversified with respect to market, product, tenor
and currency. This reduces our exposure to individual funding
sources and provides a broad range of investment opportunities,
reducing liquidity risk.
Our wealth management businesses and Retail & Corporate
provide significant, cost-efficient and reliable sources of funding.
These include core deposits and pledging a portion of our portfo-
lio of Swiss residential mortgages as collateral to generate long-
EDTF | Funding by product and currency
In CHF billion
Securities lending
Repurchase agreements
Due to banks
Short-term debt issued 2
Retail savings / deposits
Demand deposits
Fiduciary deposits
Time deposits
Long-term debt issued 3
Cash collateral payables on
derivative instruments
Prime brokerage payables
Total
All currencies
All currencies 1
CHF 1
EUR 1
USD 1
Others 1
31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13 31.12.14 31.12.13
9.2
11.8
10.5
27.4
156.4
186.7
14.8
52.3
9.5
13.8
12.9
27.6
143.1
179.0
21.5
47.3
139.1
123.9
42.4
38.6
44.5
32.5
1.3
1.7
1.5
4.0
22.7
27.1
2.1
7.6
20.2
6.1
5.6
1.4
2.1
2.0
4.2
21.8
27.3
3.3
7.2
18.9
6.8
5.0
0.1
0.0
0.4
0.2
0.3
0.0
0.5
0.3
13.4
13.7
7.9
0.1
1.3
2.6
0.3
0.0
9.0
0.1
0.4
3.0
0.3
0.0
0.2
0.4
0.1
0.3
0.8
5.3
0.5
0.2
5.5
2.6
0.7
0.3
0.5
0.2
0.2
1.0
5.5
0.6
0.3
5.7
3.3
0.7
689.2
655.5
100.0
100.0
26.2
27.4
16.7
18.2
0.9
0.5
0.5
3.1
8.5
10.0
1.2
3.8
10.2
2.4
4.0
45.1
0.6
1.3
0.7
3.2
7.2
9.0
2.2
4.0
8.0
2.5
3.3
0.2
0.8
0.5
0.4
0.0
3.9
0.4
2.3
1.9
0.8
0.9
0.2
0.3
0.6
0.5
0.0
3.9
0.4
2.5
2.2
0.8
0.8
42.0
12.0
12.3
1 As a percent of total funding sources. 2 Short-term debt issued is comprised of certificates of deposit, commercial paper, acceptances and promissory notes, and other money market paper. 3 Long-term debt issued
also includes debt with a remaining time to maturity of less than one year. ▲
239
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
term funding through Swiss Pfandbriefe and our own covered
bond program. In addition, we have a number of short, medium
and long-term funding programs under which we issue senior
unsecured and structured notes, as well as short-term secured
debt, generally for the highest-quality assets. These programs al-
low institutional and private investors in Europe, the US and Asia
Pacific to customize their investments in UBS’s debt. Collectively,
these broad product offerings and funding sources, together with
the global scope of our business activities, support our funding
stability.
During 2014, the Group incorporated funding valuation ad-
justments (FVA) into its fair value measurements to reflect the
costs and benefits of funding associated with uncollateralized and
partially collateralized derivative receivables and payables. FVA are
risk-managed centrally within risk limits and under the standard
control framework of the bank, with all unsecured funding risks
transferred to Group ALM (prior to 1 January 2015, Group ALM
was part of Group Treasury) where they form part of the firm’s
overall asset and liability management. ▲
Internal funding and funds transfer pricing
EDTF | We employ an integrated liquidity and funding framework to
govern the liquidity management of all our branches and subsid-
iaries and our major sources of liquidity are channeled through
entities that are fully consolidated. Group ALM meets internal de-
mands for funding by channeling funds from units generating
surplus cash to those in need of financing.
Funding costs and benefits are allocated to our business divi-
sions and Non-core and Legacy Portfolio according to our liquidity
and funding risk management framework. Our internal funds
transfer pricing system is designed to provide the proper liability
structure to support the assets and planned activities of each busi-
ness division while minimizing cross-divisional subsidies. The
funds transfer pricing mechanism aims to allocate funding and
liquidity costs to the activities generating the liquidity and funding
risks and deals with the movement of funds from those busi-
nesses in surplus to those that have a shortfall. Funding is inter-
nally transferred or allocated among businesses at rates and ten-
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:40)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:124)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:22)(cid:23)(cid:7)(cid:2)(cid:55)(cid:53)(cid:38)(cid:149)(cid:2)(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:19)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:25)(cid:7)(cid:2)(cid:39)(cid:55)(cid:52)(cid:149)(cid:2)(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:19)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:18)
(cid:20)(cid:20)
(cid:21)
(cid:22)(cid:22)
(cid:25)(cid:18)
(cid:20)(cid:21)
(cid:19)(cid:24)(cid:19)
(cid:22)(cid:20)(cid:19)
(cid:21)(cid:26)
(cid:20)(cid:24)(cid:7)(cid:2)(cid:37)(cid:42)(cid:40)(cid:149)(cid:2)(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:26)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:20)(cid:7)(cid:2)(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:149)(cid:2)(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:21)
(cid:19)
(cid:20)
(cid:19)(cid:26)
(cid:19)(cid:23)(cid:24)
(cid:25)
(cid:21)
(cid:22)
(cid:19)(cid:19)
(cid:19)(cid:21)
(cid:22)(cid:26)
(cid:22)(cid:23)
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:46)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:19)(cid:2)(cid:115)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:19)(cid:24)
(cid:19)(cid:20)
(cid:2)(cid:26)
(cid:2)(cid:22)
(cid:2)(cid:2)(cid:2)
(cid:2)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:23)
(cid:20)(cid:18)(cid:19)(cid:24)
(cid:20)(cid:18)(cid:19)(cid:25)
(cid:20)(cid:18)(cid:19)(cid:26)(cid:115)(cid:20)(cid:18)(cid:19)(cid:27) (cid:20)(cid:18)(cid:20)(cid:18)(cid:115)(cid:20)(cid:18)(cid:20)(cid:22) (cid:20)(cid:18)(cid:20)(cid:23)(cid:115)(cid:20)(cid:18)(cid:21)(cid:22)
(cid:67)(cid:72)(cid:86)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:21)(cid:22)
(cid:53)(cid:71)(cid:80)(cid:75)(cid:81)(cid:84)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)
(cid:53)(cid:87)(cid:68)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)
(cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:16)(cid:2)(cid:86)
(cid:59)(cid:71)(cid:67)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:91)
(cid:22)(cid:18)(cid:23)(cid:15)(cid:21)(cid:20)(cid:18)(cid:18)(cid:65)(cid:22)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)(cid:142)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:47)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)(cid:142)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:47)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:19)(cid:2)(cid:35)(cid:85)(cid:2)(cid:67)(cid:2)(cid:82)(cid:71)(cid:84)(cid:69)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:26)(cid:27)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:23)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)(cid:67)(cid:85)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:21)(cid:14)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:78)(cid:91)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:82)(cid:67)(cid:91)(cid:67)(cid:68)(cid:78)(cid:71)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)
(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:84)(cid:75)(cid:79)(cid:71)(cid:2)(cid:68)(cid:84)(cid:81)(cid:77)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:82)(cid:67)(cid:91)(cid:67)(cid:68)(cid:78)(cid:71)(cid:85)(cid:16)(cid:2)(cid:86)
(cid:21)(cid:41)(cid:54)(cid:18)(cid:20)(cid:20)(cid:65)(cid:71)
240
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)(cid:142)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:47)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)(cid:142)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:47)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:19)(cid:24)
(cid:19)(cid:20)
(cid:26)
(cid:22)
(cid:18)
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:19)(cid:19)(cid:25)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:14)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:69)(cid:71)(cid:80)(cid:86)(cid:84)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:23)(cid:25)
(cid:27)(cid:20)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:88)(cid:67)(cid:75)(cid:78)(cid:67)(cid:68)(cid:78)(cid:71)(cid:15)(cid:72)(cid:81)(cid:84)(cid:15)(cid:85)(cid:67)(cid:78)(cid:71)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:84)(cid:71)(cid:88)(cid:71)(cid:84)(cid:85)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:19)(cid:21)(cid:26)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:21)(cid:19)(cid:24)
(cid:46)(cid:81)(cid:67)(cid:80)(cid:85)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)
(cid:85)(cid:87)(cid:84)(cid:82)(cid:78)(cid:87)(cid:85)(cid:2)
(cid:19)(cid:21)(cid:18)(cid:7)(cid:2)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:27)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:85)(cid:87)(cid:84)(cid:82)(cid:78)(cid:87)(cid:85)
(cid:26)(cid:25)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:10)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:80)(cid:71)(cid:86)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)(cid:11)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:38)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:149)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:38)(cid:71)(cid:79)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:38)(cid:71)(cid:79)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:54)(cid:75)(cid:79)(cid:71)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:40)(cid:75)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:52)(cid:71)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:85)(cid:67)(cid:88)(cid:75)(cid:80)(cid:73)(cid:85)(cid:17)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:70)(cid:71)(cid:85)(cid:75)(cid:73)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:72)(cid:67)(cid:75)(cid:84)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:143)
(cid:42)(cid:71)(cid:78)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:67)(cid:79)(cid:81)(cid:84)(cid:86)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:69)(cid:81)(cid:85)(cid:86)
(cid:85)
(cid:84)
(cid:71)
(cid:79)
(cid:81)
(cid:86)
(cid:85)
(cid:87)
(cid:69)
(cid:2)
(cid:81)
(cid:86)
(cid:2)
(cid:71)
(cid:87)
(cid:38)
(cid:142)
(cid:70)
(cid:71)
(cid:87)
(cid:85)
(cid:85)
(cid:75)
(cid:2)
(cid:86)
(cid:68)
(cid:71)
(cid:70)
(cid:2)
(cid:79)
(cid:84)
(cid:71)
(cid:86)
(cid:15)
(cid:73)
(cid:80)
(cid:81)
(cid:46)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:46)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:22)(cid:19)(cid:18)
(cid:19)(cid:21)(cid:27)
(cid:19)(cid:18)
(cid:20)(cid:25)
(cid:20)(cid:26)
(cid:20)(cid:19)
(cid:19)(cid:26)(cid:25)
(cid:23)(cid:20)
(cid:19)(cid:23)
(cid:19)(cid:23)(cid:24)
(cid:25)(cid:23)
(cid:24)(cid:22)
(cid:19)(cid:19)(cid:26)
(cid:23)(cid:22)
(cid:19)(cid:2)(cid:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:2)(cid:75)(cid:85)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:84)(cid:75)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:69)(cid:71)(cid:84)(cid:86)(cid:75)(cid:386)(cid:69)(cid:67)(cid:86)(cid:71)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:14)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:84)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:14)(cid:2)(cid:67)(cid:69)(cid:69)(cid:71)(cid:82)(cid:86)(cid:67)(cid:80)(cid:69)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:79)(cid:75)(cid:85)(cid:85)(cid:81)(cid:84)(cid:91)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:124)(cid:20)(cid:2)(cid:46)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:2)(cid:67)(cid:78)(cid:85)(cid:81)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:67)(cid:2)(cid:84)(cid:71)(cid:79)(cid:67)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)
(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2)(cid:78)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:15)(cid:86)(cid:74)(cid:71)(cid:15)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)(cid:2)(cid:86)
(cid:124)(cid:124)
ors that reflect each business’s asset composition, liquidity and
reliable external funding. We continue to review and enhance our
internal funds transfer pricing system.
During 2014, we changed our fund transfer pricing methodol-
ogy for the Wealth Management and Retail & Corporate business
divisions. Under the revised methodology, the divisions share in
the benefits of raising liabilities and originating assets, with the
pricing curve incentivizing a balanced funding position from a cur-
rency and tenor perspective. The methodology better aligns the
economics of flows originated in Wealth Management and Retail
& Corporate with UBS’s liquidity and funding appetite and sup-
ports initiatives aimed at achieving the right mix of assets and li-
abilities across the two business divisions in response to the evolv-
ing
landscape. Wealth
Management and Retail & Corporate funds transfer pricing falls
under the governance of Group Treasury. ▲
liquidity and
regulatory
funding
Changes in sources of funding during the reporting period
EDTF | During 2014, the composition of our funding sources moved
toward less reliance on wholesale funding. At the same time, our
Retail & Corporate and wealth management businesses contin-
ued to attract new customer deposits. In 2014, total customer
deposits increased to CHF 410 billion from CHF 391 billion, or
59.5% of our total funding sources. Our ratio of customer depos-
its to outstanding loan balances was 130%, compared with
136% as of 31 December 2013.
Similarly, our outstanding long-term debt, including structured
debt reported as financial liabilities at fair value, increased by CHF
15 billion to CHF 139 billion as of 31 December 2014, represent-
ing 20.2% of our funding sources, compared with 18.9% as of
(cid:19)(cid:18)(cid:18)(cid:18)
(cid:25)(cid:23)(cid:18)
(cid:23)(cid:18)(cid:18)
(cid:20)(cid:23)(cid:18)
31 December 2013. Excluding structured debt, long-term debt,
which is comprised of senior debt and subordinated debt and is
presented within Debt issued on the balance sheet, increased to
CHF 63.8 billion as of 31 December 2014 from CHF 54.0 billion as
of 31 December 2013, primarily due to increases in senior debt to
CHF 47.7 billion from CHF 43.0 billion. Senior debt comprises
both publicly and privately placed notes and bonds, as well as
covered bonds. As shown on the long-term debt contractual ma-
turity chart on the previous page, CHF 8.4 billion will mature
within one year, representing 13% of outstanding long-term debt
excluding structured debt, compared with CHF 8.0 billion, or
15%, in the prior year. In addition, CHF 1.2 billion of subordi-
nated debt has an early call date in 2015.
During the year, we continued to raise medium and long-term
funds through medium-term notes and private placements and
through Swiss Pfandbriefe issuances with a principal amount of
CHF 0.9 billion, as well as a EUR 1.0 billion seven-year covered
bond. We also contributed to our targeted loss-absorbing capital
by issuing loss-absorbing Basel III-compliant tier 2 subordinated
notes in an amount equivalent to CHF 4.9 billion: in February
2014, a EUR 2.0 billion notional with 12-year duration and an
optional call in year seven, which will pay a non-deferrable cou-
pon at an initial rate of 4.75%; in May 2014, a USD 2.5 billion
notional with 10-year duration without any optional calls, which
will pay a non-deferrable coupon rate of 5.125%. Furthermore,
we accessed the senior unsecured market issuing the equivalent
of CHF 9.0 billion, consisting of USD 4.5 billion, EUR 3.0 billion
and AUD 1.1 billion, with tenors between three and seven years
without any optional calls, bearing both floating rate and fixed
rate coupons.
241
(cid:19)(cid:18)(cid:18)(cid:18)
(cid:25)(cid:23)(cid:18)
(cid:23)(cid:18)(cid:18)
(cid:20)(cid:23)(cid:18)
(cid:18)
(cid:18)
Risk, treasury and capital management Maturity analysis of assets and liabilities
EDTF | The table on the next page provides an analysis of consoli-
dated total assets, liabilities and off-balance sheet commitments
by residual contractual maturity at the balance sheet date. The
contractual maturity of liabilities is based on carrying amounts
and the earliest date on which we could be required to pay. The
contractual maturity of assets is based on carrying amounts and
the latest date the asset will mature. This basis of presentation is
in accordance with the respective recommendations of the En-
hanced Disclosure Task Force (EDTF) and differs from “Note 27b
Maturity analysis of financial liabilities” in the “Financial informa-
tion” section of this report, which is presented on an undis-
counted basis, as required by IFRS.
Derivative replacement values and trading portfolio assets and
liabilities are assigned to the column Due less than 1 month, al-
though the respective contractual maturities may extend over sig-
nificantly longer periods.
Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the Perpetual / Not ap-
plicable time bucket. Undated or perpetual instruments are classi-
fied based on the contractual notice period which the counter-
party of the instrument is entitled to give. Where there is no
contractual notice period, undated or perpetual contracts are in-
cluded in the Perpetual / Not applicable time bucket.
Non-financial assets and liabilities with no contractual maturity
(such as property, plant and equipment, goodwill and intangible
assets and current and deferred tax assets and liabilities) are
generally included in the Perpetual / Not applicable time bucket.
Loan commitments are classified on the basis of the earliest
date they can be drawn down. ▲
Risk, treasury and capital management
Treasury management
Our short-term interbank deposits (presented as Due to banks
on the balance sheet), together with our outstanding short-term
debt, represented 5.5% of total funding sources, compared with
6.2% as of 31 December 2013.
Secured financing, in the form of repurchase agreements and
securities lent against cash collateral received, represented 3.0%
of our funding sources as of 31 December 2014, compared with
3.5% as of 31 December 2013. As of 31 December 2014, we
were borrowing CHF 71 billion less cash on a collateralized basis
than we were lending, significantly lower than the difference of
CHF 96 billion as of 31 December 2013. ▲
Credit ratings
EDTF | Credit ratings can affect the cost and availability of funding,
especially funding from wholesale unsecured sources. Our credit
ratings can also influence the performance of some of our busi-
nesses and levels of client and counterparty confidence. Rating
agencies take into account a range of factors when assessing cred-
itworthiness and setting credit ratings. These include the compa-
ny’s strategy, its business position and franchise value, stability and
quality of earnings, capital adequacy, risk profile and manage-
ment, liquidity management, diversification of funding sources,
asset quality and corporate governance. Credit ratings reflect the
opinions of the rating agencies and can change at any time. ▲
EDTF | Pillar 3 | In evaluating our liquidity requirements, we con-
sider the potential impact of a reduction in UBS Group AG long-
term credit ratings and a corresponding reduction in short-term
ratings. If our credit ratings were to be downgraded, “rating trig-
ger” clauses, especially in derivative transactions, could result in
an immediate cash outflow due to the unwinding of derivative
positions, the need to deliver additional collateral or other ratings-
based requirements. Based on UBS AG credit ratings as of 31 De-
cember 2014, contractual liquidity outflows of approximately CHF
2.1 billion, CHF 4.1 billion and CHF 4.2 billion would have been
required in the event of a one-notch, two-notch and three-notch
reduction, respectively. Of these outflows, the portion related to
derivative transactions is approximately CHF 1.0 billion, CHF 2.8
billion and CHF 2.9 billion, respectively. ▲▲
➔ Refer to “Liquidity and funding management are critical to our
ongoing performance” in the “Risk factors” section of this report
for more information
242
Due less
than
1 month
Due
between
1 and 3
months
Due
between
3 and 6
months
Due
between
6 and 9
months
Due
between
9 and 12
months
Due
between
1 and 2
years
Due
between
2 and 5
years
Due over
5 years
Perpetual /
Not
applicable
EDTF | Maturity analysis of assets and liabilities
CHF billion
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: assets pledged as collateral which may be sold or
repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Financial assets designated at fair value
Loans
of which: residential mortgages
of which: commercial mortgages
of which: Lombard loans
of which: other loans
of which: securities
104.1
11.5
24.0
43.7
138.2
56.0
257.0
31.0
0.1
118.0
17.4
4.5
82.5
13.6
1.1
0.0
16.8
0.3
0.0
4.7
0.0
48.1
27.7
6.4
11.2
2.7
0.2
14.5
7.0
1.5
4.6
1.4
5.4
0.2
0.0
1.4
0.3
8.6
3.6
0.6
2.7
1.7
6.2
0.1
0.0
0.7
0.0
8.0
3.6
0.6
3.0
0.8
8.2
Financial investments available-for-sale
0.2
1.0
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets 31.12.14
Total assets 31.12.13
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Provisions
Other liabilities
Total liabilities 31.12.14
Total liabilities 31.12.13
Guarantees, commitments and forward starting transactions
Loan commitments
Underwriting commitments
Total commitments
Guarantees
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.14
Total 31.12.13
18.4
746.1
702.6
7.5
5.2
9.1
28.0
254.1
42.4
3.5
392.6
8.7
4.4
68.2
823.5
799.2
50.4
0.7
51.1
17.4
10.3
0.1
79.0
83.0
0.0
67.0
76.2
2.1
2.8
1.5
13.4
13.1
14.9
2.2
50.0
25.4
0.1
0.1
0.0
0.1
0.3
0.0
25.1
27.6
0.0
16.7
13.8
1.3
18.3
12.9
0.2
1.2
0.8
6.6
2.9
8.1
19.8
23.6
0.1
0.1
0.0
0.1
0.1
0.3
0.0
5.1
0.7
3.6
9.6
9.2
0.0
0.0
0.0
0.0
0.1
0.0
0.2
6.3
0.5
0.9
0.0
8.0
8.3
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.7
0.0
0.4
1.4
19.9
10.9
1.8
2.1
5.1
11.6
0.9
34.6
40.0
0.1
7.6
0.0
9.3
16.9
18.9
0.0
0.0
0.1
0.1
0.1
1.9
50.5
32.8
3.8
1.8
12.1
0.1
18.9
1.5
73.2
63.0
0.3
0.3
15.9
0.2
21.5
0.6
38.8
41.5
0.0
0.0
0.1
0.1
0.1
0.5
48.2
39.5
3.2
0.2
2.0
3.3
4.6
0.9
54.2
53.9
0.0
16.2
0.1
23.1
0.2
39.7
34.7
0.0
0.0
0.0
0.0
Total
104.1
13.3
24.1
68.4
138.2
56.0
257.0
31.0
5.0
315.8
142.4
22.4
108.2
39.4
3.4
57.2
0.9
6.9
6.8
11.1
23.0
0.6
0.0
1.0
0.9
6.9
6.8
11.1
27.2
23.5
1,062.5
1,013.4
10.5
9.2
11.8
28.0
254.1
42.4
75.3
410.2
91.2
4.4
71.1
0.7
1.2
1.9
2.4
1,008.1
963.4
50.7
0.7
51.4
17.7
10.3
0.1
79.5
83.9
▲
243
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
Currency management
EDTF | Pillar 3 | Our Group currency management activities are de-
signed to reduce adverse currency effects on our reported finan-
cial results in Swiss francs, within limits set by the Board of Direc-
tors. From 1 January 2015 onwards, Group ALM focuses on three
principal areas of currency risk management: (i) currency-matched
funding of investments in non-Swiss franc assets and liabilities, (ii)
sell-down of non-Swiss franc profits and losses and (iii) selective
hedging of anticipated non-Swiss franc profits and losses. Non-
trading foreign exchange risks are managed under market risk
limits, with the exception of consolidated capital activity managed
by Group ALM. Prior to 1 January 2015, Group ALM was part of
Group Treasury. ▲▲
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on the new
structure of the Corporate Center from 2015 onwards
➔ Refer to the “Market climate and industry drivers” section of this
report for more information on the impact of Swiss National
Bank actions
Sell-down of non-Swiss franc reported profits and losses
Pillar 3 | Reported profit and losses are translated each month from
their original transaction currencies into Swiss francs using the
relevant month-end rate. Monthly income statement items of for-
eign subsidiaries and branches with a functional currency other
than the Swiss franc are translated into Swiss francs using the
relevant month-end rate. Weighted average rates for a year rep-
resent an average of 12 month-end rates, weighted according to
the income and expense volumes of all foreign subsidiaries and
branches with the same functional currency for each month. To
reduce earnings volatility on the retranslation of previously recog-
nized earnings in foreign currencies, Group ALM centralizes the
profits and losses arising in UBS AG and its branches and sells or
buys the profit or loss for Swiss francs. Our operating entities fol-
low a similar monthly sell-down process into their own reporting
currencies. Retained earnings in operating entities with a report-
ing currency other than the Swiss franc are integrated and man-
aged as part of net investment hedge accounting. ▲
Currency-matched funding and investment of non-Swiss franc
assets and liabilities
EDTF | Pillar 3 | For monetary balance sheet items and non-core invest-
ments, as far as it is practical and efficient, we follow the principle
of matching the currencies of our assets and liabilities for funding
purposes. This avoids profits and losses arising from the retransla-
tion of non-Swiss franc assets and liabilities.
Net investment hedge accounting is applied to non-Swiss franc
core investments to balance the effect of foreign exchange move-
ments on both the common equity tier 1 (CET1) capital and CET1
capital ratio on a fully applied basis. ▲▲
Hedging of anticipated future reported non-Swiss franc profits
and losses
EDTF | Pillar 3 | At any time, the Group ALCO may instruct Group ALM
to execute hedges to protect anticipated future profit and losses
in foreign currencies against possible adverse trends of foreign
exchange rates. Although intended to hedge future earnings,
these transactions are accounted for as open currency positions
and are subject to internal market risk limits for value at risk and
stress loss limits. ▲▲
➔ Refer to the “Capital management” section of this report for
more information on our active management of sensitivity to
➔ Refer to “Note 1a Significant accounting policies” and “Note 14
Derivative instruments and hedge accounting” in the “Financial
information” section of this report for more information
currency movements and its effect on our key ratios
244
Capital management
Our strong capital position provides us with a solid foundation for growing our business and enhancing our competitive
positioning. At the end of 2014, our common equity tier 1 (CET1) capital ratio 1 was 13.4% on a fully applied basis and
19.4% on a phase-in basis, a further increase compared with year-end 2013 ratios, and the highest Basel III fully applied
capital ratio in our peer group of large global banks. Our Swiss SRB leverage ratio increased 0.7 percentage points to
4.1% on a fully applied basis and 0.7 percentage points to 5.4% on a phase-in basis, and we are well on track to achieve
our expected 2019 fully applied requirement.
Capital management objectives
Annual strategic and ongoing capital planning process
Audited | EDTF | Adequate capital is a prerequisite to support our busi-
ness activities, in accordance with both our own internal assess-
ment and regulatory requirements. ▲ We aim to maintain a
strong capital position and sound capital ratios at all times.
Therefore, we not only consider the current situation, but also
strive to anticipate future business and regulatory developments.
We are committed to continuing to improve these ratios, mainly
through a combination of retained earnings, the issuance of ad-
ditional tier 1 (AT1) and loss-absorbing capital (LAC), and efforts
to reduce risk-weighted assets (RWA).
Ongoing compliance with regulatory capital requirements and
target capital ratios is central to our capital adequacy manage-
ment. In 2014 we achieved our fully applied CET1 capital ratio
target of at least 13%, thereby exceeding the Swiss Financial Mar-
ket Supervisory Authority’s (FINMA) requirements for Swiss sys-
temically relevant banks (SRB), which are stricter than the Basel
Committee on Banking Supervision (BCBS) requirements. We are
committed to further strengthening our capital position to sup-
port the growth of our businesses as well as to meet potential
changes in future capital requirements. We have adapted certain
features of our Deferred Contingent Capital Plan (DCCP) awards
so that 2014 DCCP awards qualify as AT1 capital under Basel III
regulations. We intend to build approximately CHF 2.5 billion in
AT1 DCCP over the next five years.
We believe our capital strength provides great comfort to our
stakeholders, contributes to strong external credit ratings and is
the foundation of our success. We have also announced and
have started to implement a series of measures intended to im-
prove our resolvability. We anticipate that these measures will
allow UBS to qualify for a reduction in the progressive buffer
capital requirement. ▲
➔ Refer to “Future structural changes” in the “UBS Group –
Changes to our legal structure” section of this report for more
information on resolvability measures
➔ Refer to the “Our strategy” section of this report for more
information on our targets
Audited | EDTF | The annual strategic planning process incorporates a
capital planning component and is key in defining mid and lon-
ger-term capital targets. It is based on an attribution of Group
RWA and leverage ratio denominator (LRD) limits to the business
divisions. These resource allocations in turn impact business plans
and earnings projections, which are then reflected in our capital
plans. ▲
Capital limits and targets are established at both Group and
business division levels, and submitted to the Board of Directors
for approval or for information at least annually. Group Treasury
monitors and plans for consolidated RWA, LRD and capital devel-
opments. Our monitoring may form the basis of adjustments to
RWA and/or LRD limits, to actions related to the issuance or re-
demption of capital instruments, and to other business-related
decisions. Any breach of the limits in place triggers an action plan,
which defines remediating actions required to return the expo-
sures to a limit-compliant level. Monitoring activities also consider
developments in capital regulations. ▲
➔ Refer to the “Our strategy” section of this report for more
information on our RWA and LRD limits
Consideration of stress scenarios
EDTF | Through a set of quantitative risk appetite objectives, we
aim to ensure that aggregate risk exposure is within our desired
risk capacity, based on our capital and business plans. We use
both scenario-based stress tests and statistical frameworks to as-
sess the impact of a severe stress event at an aggregate, Group-
wide level. We have committed to return at least 50% of our net
profit to shareholders as capital returns, provided our fully ap-
plied CET1 capital ratio is at least 13% and our post-stress fully
applied CET1 capital ratio is at least 10%. As of 31 December
2014, our post-stress CET1 capital ratio exceeded this 10% ob-
jective, and the actions of the Swiss National Bank in January
2015 did not cause a breach of this objective in either January or
February 2015.
1 Unless otherwise indicated, all information in this section is based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB).
245
Risk, treasury and capital management Risk, treasury and capital management
Capital management
To calculate our post-stress CET1 capital ratio, we forecast capital
one year ahead based on internal projections of earnings, expenses,
distributions to shareholders and other factors affecting CET1 capi-
tal, including our net defined benefit assets and liabilities. We also
forecast one-year developments in RWA. We adjust these forecasts
based on assumptions as to how they may change as a result of a
severe stress event. We then further deduct from capital the stress
loss estimated using our combined stress test (CST) framework to
arrive at the post-stress CET1 capital ratio. Changes to our results,
business plans and forecasts, in the assumptions used to reflect the
effect of a stress event on our business forecasts or in the results of
our CST, could have a material effect on our stress scenario results
and on our calculated fully applied post-stress CET1 capital ratio.
Our CST framework relies on various risk exposure measure-
ment methodologies which are predominantly proprietary, on our
selection and definition of potential stress scenarios and on our
assumptions regarding estimates of changes in a wide range of
macroeconomic variables and certain idiosyncratic events for each
of those scenarios. We periodically review these methodologies,
and assumptions are subject to periodic review and change on a
regular basis. Our risk exposure measurement methodologies may
change in response to developing market practice and enhance-
ments to our own risk control environment, and input parameters
for models may change due to changes in positions, market param-
eters and other factors. Our stress scenarios, the events comprising
a scenario and the assumed shocks and market and economic con-
sequences applied in each scenario are subject to periodic review
and change. A change in the CST scenario used to calculate the
fully applied post-stress CET1 capital ratio, or in the assumptions
used in a particular scenario, may cause the post-stress CET1 capi-
tal ratio to fluctuate materially from period to period.
Our business plans and forecasts are subject to inherent uncer-
tainty and our choice of stress test scenarios and the market and
macroeconomic assumptions used in each scenario are based on
judgment and assumptions about possible future events. Our risk
exposure methodologies are subject to inherent limitations and
rely on numerous assumptions as well as on data which may have
inherent limitations. In particular, certain data is not available on a
monthly basis and we may therefore rely on prior month / quarter
data as an estimate. All of these factors may result in our post-
stress CET1 capital ratio, as calculated using our methodology for
any period, being materially higher or lower than the actual effect
of a stress scenario. ▲
➔ Refer to the Note 37 “Events after the reporting period” in the
“Financial information” section of this report for more information
➔ Refer to the “Risk management and control” section of this
report for more information on our risk appetite and combined
stress test framework
Capital management activities
Audited | EDTF | Pillar 3 | During 2014, we managed our capital according
to our capital ratio targets. In the target-setting process, we take
into account the current and potential future capital requirements,
including capital buffer requirements. We also consider our aggre-
gate risk exposure in terms of capital-at-risk, the views of rating
EDTF | Pillar 3 | Our capital ratios and targets
Targeting at least a 13% fully applied common equity tier 1 capital ratio
in %
Phase-in
Fully applied
22.2
18.5
22.7
23.9
24.9
25.5
17.9
18.2
19.1
19.4
25
20
15
10
5
0
15.4
12.8
16.8
13.2
18.1
18.7
18.9
13.5
13.7
13.4
13.0
17.52
10.0
31.12.13
31.3.14
30.6.14
30.9.14
31.12.14
31.12.13
31.3.14
30.6.14
30.9.14
31.12.14
UBS estimate of 2019 requirement
Common equity tier 1 (CET1) capital
Non-Basel III-compliant tier 2 capital
Additional tier 1 (AT1) capital1
High-trigger loss-absorbing tier 2 capital (LAC)1
Low-trigger loss-absorbing tier 2 capital (LAC)
1 Consists of our Deferred Contingent Capital Plan. 2 The total capital ratio requirement for 2019 would be reduced to 17.5% from 18.4% if the progressive buffer capital requirement is reduced as expected. ▲▲
246
20
15
10
5
0
20
15
10
5
0
25
20
15
10
5
0
agencies, comparisons with peer institutions and the effect of ex-
pected accounting policy changes. ▲ Our progress in 2014 towards
meeting the Swiss SRB Basel III fully applied capital requirements
was supported by a series of capital transactions, including:
– our issuances of Basel III-compliant tier 2 loss-absorbing notes
with a nominal amount of EUR 2.0 billion and USD 2.5 billion
in February and May 2014, respectively, both of which qualify
as tier 2 capital and progressive buffer capital in compliance
with Swiss SRB Basel III rules;
– an increase of CHF 0.5 billion in high-trigger loss-absorbing
DCCP awards granted to eligible employees for the performance
year 2014, qualifying as Basel III-compliant AT1 capital, with
write-down triggered by the breach of a 7% phase-in Basel III
CET1 capital ratio threshold (or 10% with respect to awards
granted to Group Executive Board members) or by a viability
event; and
– the redemption of one tier 2 capital instrument of CHF 0.5 bil-
lion, as this capital instrument was not eligible for full recogni-
tion under Basel III.
In February 2015, UBS Group AG issued AT1 capital notes con-
sisting of USD 1.25 billion high-trigger loss-absorbing notes with
a coupon of 7.125%; USD 1.25 billion low-trigger loss-absorbing
notes with a coupon of 7%; and EUR 1.0 billion low-trigger loss-
absorbing notes with a coupon of 5.75%. All tranches include a
contingent permanent write-down triggered at 5.125% (low-
trigger loss-absorbing capital notes) or at 7% (high-trigger loss-
absorbing capital notes) phase-in CET1 capital ratio and at the
point of non-viability as determined by FINMA. In accordance with
Basel III regulations, all AT1 transactions have fully discretionary
and non-cumulative coupons and a perpetual maturity with em-
bedded call features. We expect to continue to issue capital in-
struments from UBS Group AG going forward. ▲▲
Active management of RWA
EDTF | Pillar 3 | We have demonstrated positive progress in RWA re-
duction, having surpassed our 2014 Basel III RWA targets well
ahead of schedule and progressed towards achieving our RWA
target of less than CHF 200 billion by 2017 on a fully applied ba-
sis, despite the addition of incremental operational risk RWA
based on the supplemental operational risk capital analysis mutu-
ally agreed to by UBS and FINMA.
RWA are expected to further increase in our wealth manage-
ment businesses and in Retail & Corporate, as we deliver attrac-
tive lending and mortgage opportunities to our clients, in line
with our strategy to deploy capital efficiently.
EDTF | Risk-weighted assets development and targets
fully applied, in CHF billion
300
240
180
120
60
0
225
64
62
99
216
36
67
113
<215
~40
<200
~25
70
70
~95
~105
~105
31.12.13
31.12.14
31.12.15
target
31.12.17
target
WM / WMA / R&C / Global AM / Corporate Center – Core Functions
Investment Bank
Corporate Center – Non-core and Legacy Portfolio
▲
In 2014, our Investment Bank has operated within its fully ap-
plied RWA limit of CHF 70 billion. As of 31 December 2014, we
managed approximately CHF 35.7 billion of RWA in our Non-core
and Legacy Portfolio unit, down from CHF 63.5 billion at the begin-
ning of the year. This means we have already outperformed the
year-end 2015 target for our Non-core and Legacy Portfolio of
approximately CHF 40 billion. We aim to further reduce RWA in our
Non-core and Legacy Portfolio to approximately CHF 25 billion by
the end of 2017. ▲▲
Active management of sensitivity to currency movements
EDTF | Pillar 3 | Group Asset and Liability Management (Group ALM) is
mandated with the task of minimizing adverse effects from
changes in currency rates on our fully applied CET1 capital and
capital ratios. A significant portion of our Basel III capital and RWA
is denominated in US dollars, euros, British pounds and other for-
eign currencies. In order to hedge the CET1 capital ratio, CET1
capital needs to have foreign currency exposure, leading to cur-
rency sensitivity of CET1 capital. As a consequence, it is not pos-
sible to simultaneously fully hedge the capital and the capital
ratio. As the proportion of RWA denominated in foreign curren-
cies outweighs the capital in these currencies, a significant appre-
ciation of the Swiss franc against these currencies could benefit
our Basel III capital ratios, while a significant depreciation of the
Swiss franc against these currencies could adversely affect our
247
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Basel III capital ratios. The Group Asset and Liability Management
Committee (Group ALCO), a committee of the UBS Group Execu-
tive Board, can adjust the currency mix in capital, within limits set
by the Board of Directors, to balance the effect of foreign ex-
change movements on the fully applied CET1 capital and capital
ratio. Limits are in place for the sensitivity of both CET1 capital
and capital ratio to a ±10% change in the value of the Swiss franc
against other currencies.
The currency mix of our capital also affects the sensitivity of
our leverage ratios to foreign exchange movements. When ad-
justing the currency mix in capital, potential effects on the lever-
age ratios are taken into account.
We estimate that a 10% depreciation of the Swiss franc
against other currencies would have increased fully applied CET1
capital by CHF 1,007 million as of 31 December 2014 (31 Decem-
ber 2013: CHF 1,075 million) and would have reduced the fully
applied CET1 capital ratio by 17 basis points (31 December 2013:
15 basis points). Conversely, we estimate that a 10% appreciation
of the Swiss franc against other currencies would have reduced
fully applied CET1 capital by CHF 911 million (31 December 2013:
CHF 973 million) and increased the fully applied CET1 capital ratio
by 17 basis points (31 December 2013: 15 basis points). The
above-mentioned estimated effects do not consider foreign cur-
rency translation effects related to defined benefit plans other
than those related to the currency translation of the net equity of
foreign operations. ▲▲
➔ Refer to the “Impact of Swiss National Bank actions” sidebar in
the “Current market climate and industry drivers” section of this
report for more information on the effect of Swiss National Bank
actions effective January 2015
248
Swiss SRB Basel III capital framework
EDTF | UBS is considered a systemically relevant bank (SRB) under
Swiss banking law and both UBS Group and UBS AG on a consoli-
dated basis as well as UBS AG on a standalone basis are required to
comply with regulations based on the Basel III framework as appli-
cable for Swiss SRB. All our capital disclosures therefore focus on
Swiss SRB Basel III capital information. Differences between Swiss
SRB and BIS Basel III capital regulations are outlined in the subsec-
tion “Differences between Swiss SRB and BIS Basel III capital.” ▲
Regulatory framework
EDTF | The Basel III framework came into effect in Switzerland on
1 January 2013 and includes prudential filters for the calculation of
capital. These prudential filters consist mainly of capital deductions
for deferred tax assets (DTA) recognized for tax loss carry-forwards
and effects related to defined benefit plans. As these filters are be-
ing phased in between 2014 and 2018, their effects are gradually
factored into our calculations of capital, risk-weighted assets (RWA)
and capital ratios on a phase-in basis and are entirely reflected in
our capital, RWA and capital ratios on a fully applied basis.
In 2014, we deducted from our phase-in CET1 capital 20% of
DTA recognized for tax loss carry-forwards and 20% of the effects
related to defined benefit plans. These effects consist of: (i) the cu-
mulative difference between IAS 19 (revised) accounting applied un-
der IFRS and fully applied Basel III CET1 calculations versus a pro-
forma IAS 19 treatment applied for Basel III CET1 phase-in calculations
and (ii) the Swiss defined benefit plan under IAS 19 (revised). In ad-
dition, the difference between fully applied and phase-in RWA re-
lated to the adoption of IAS 19 (revised) has been reduced by 20%.
From January 2015 onwards, the abovementioned deductions
increase to 40%, i.e., we will deduct 40% of DTA recognized for
tax loss carry-forwards and 40% of the effects related to defined
benefit plans from our phase-in CET1 capital.
Based on current FINMA regulation, capital instruments that
were treated as hybrid tier 1 capital and as tier 2 capital under the
Basel 2.5 framework are being phased out under Basel III between
2013 and 2019. On a phase-in basis, our capital and capital ratios
include the applicable portion of these capital instruments not yet
phased out. Our capital and capital ratios on a fully applied basis
do not include these capital instruments. ▲
EDTF | Our capital requirements
Phase-in
Fully applied
13.0%
3.4%
2.3%
2.9%
14.8%
4.1%
2.6%
3.6%
16.2%
4.6%
2.9%
4.3%
17.4%
5.1%
3.0%
4.9%
18.4%1
5.4%
3.0%
5.5%
Systemic
surcharge1
Buffer
4.5%
4.5%
4.5%
4.5%
4.5%
Base
11.1%
2.5%
1.8%
2.9%
4.0%
8.6%
1.5%
1.0%
2.6%
3.5%
31.12.13
31.12.14
31.12.15
31.12.16
31.12.17
31.12.18
31.12.19
Base: CET1 capital
Buffer: CET1 capital2
Buffer: high-trigger loss-absorbing capital3
Progressive buffer: low-trigger loss-absorbing capital4
1 The total capital ratio requirement for 2019 would be reduced to 17.5% if the progressive buffer capital requirement is reduced as expected, which would result in a proportional reduction of both requirements during the phase-in
period. 2 Includes the effect of the countercyclical buffer requirement for 31 December 2013 and 2014. Capital requirements for 31 December 2015 to 2019 do not include a countercyclical buffer requirement, as potential future
developments cannot be accurately predicted and may vary from period to period. 3 CET1 capital can be substituted by high-trigger loss-absorbing capital up to the stated percentage. 4 Numbers for 31 December 2015 to 2019
are based on latest information available and current supervisory guidance from FINMA. High-trigger loss-absorbing capital qualifies as progressive buffer capital until the end of 2017. ▲
249
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Capital requirements
EDTF | In Switzerland, all banks and banking groups must comply
with the Basel III capital framework, as required by the Swiss Cap-
ital Adequacy Ordinance and regulations issued by FINMA. UBS is
required to comply with specific Swiss SRB rules.
As of 31 December 2014, our total capital requirement was
11.1% of our RWA, compared with 8.6% as of 31 December
2013. The requirement as of 31 December 2014 consisted of: (i)
base capital of 4.0% of RWA, (ii) buffer capital of 4.6% of RWA,
of which 0.1% was attributable to the countercyclical buffer cap-
ital requirement and (iii) progressive buffer capital of 2.5% of
RWA. Audited | We satisfied the base and buffer capital require-
ments, including the countercyclical buffer, through our CET1
capital. Our high and low-trigger loss-absorbing capital exceeded
the progressive buffer capital requirement. ▲
National regulators can put in place a countercyclical buffer
requirement of up to 2.5% of RWA for credit exposures in their
jurisdiction. The Swiss Federal Council activated a countercyclical
buffer requirement of 1% of RWA for mortgage loans on residen-
tial property in Switzerland, effective 30 September 2013. In Jan-
uary 2014, this requirement was increased to 2%, effective
30 June 2014.
Our requirement for the progressive buffer is dynamic and de-
pends on our leverage ratio denominator (LRD) and our market
share in the loans and deposits business in Switzerland. The pro-
gressive buffer requirement for 2019 currently stands at 5.4%,
reflecting our LRD as of 31 December 2013 and market share in-
formation for 2013 provided by FINMA in July 2014. We expect
our 2019 requirement to be reduced to 4.5%, due to our planned
further reduction of the LRD related to the implementation of our
strategy and future expected changes in the market share calcula-
tion. This would result in a total capital ratio requirement of
17.5% in 2019. Furthermore, banks governed under the Swiss
SRB framework are eligible for an additional capital rebate on the
progressive buffer if they take actions that facilitate recovery and
resolvability beyond the minimum requirements to ensure the in-
tegrity of systemically important functions in the case of an im-
pending insolvency. We have announced and started implement-
ing a series of measures intended to improve our resolvability.
These measures include the establishment of UBS Group AG as
the holding company of UBS Group in 2014, setting up a new
banking subsidiary in Switzerland, introducing a revised business
and operating model for UBS Limited and implementing an inter-
mediate holding company in the US. We anticipate these mea-
sures will allow UBS to qualify for a further reduction in the pro-
gressive buffer capital requirement.
Audited | Similar to the other capital component requirements, the
progressive buffer requirement is phased in gradually until 2019.
The progressive buffer requirement was 2.5% as of 31 December
2014, compared with 1.5% as of 31 December 2013. ▲▲
➔ Refer to the “UBS Group – Changes to our legal structure”
section of this report for more information on the establishment
of UBS Group AG and further structural changes
250
EDTF | Pillar 3 | Swiss SRB Basel III available capital versus capital requirements (phase-in)
CHF million, except where indicated
Phase-in
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital)
of which: effect of countercyclical buffer
Progressive buffer capital (loss-absorbing capital)
Phase-out capital (tier 2 capital)
Total
Capital ratio (%)
Capital
Requirement 1
31.12.14
Actual 2, 3
Requirement
Actual 2, 3
31.12.14
31.12.13
31.12.14
31.12.14
31.12.13
4.0
4.6 4
0.1
2.5
11.1
4.0
15.4
0.1
5.2
0.9
25.5
3.5
15.0
0.1
2.5
1.3
22.2
8,835
10,261
322
5,463
24,559
8,835
34,027
322
11,398
2,050
56,310
8,000
34,180
149
5,665
2,971
50,815
1 Prior to the implementation of the Basel III framework, FINMA also defined a total capital ratio target for UBS Group of 14.4% which is effective until the Swiss SRB Basel III transitional capital requirement exceeds a
total capital ratio of 14.4%. 2 Swiss SRB Basel III CET1 capital exceeding the base capital requirement is allocated to the buffer capital. 3 During the transition period until end of 2017, high-trigger loss-absorbing
capital (LAC) can be included in the progressive buffer. 4 CET1 capital can be substituted by high-trigger loss-absorbing capital up to 1.8% in 2014.
Swiss SRB Basel III capital information
CHF million, except where indicated
Tier 1 capital
of which: common equity tier 1 capital
of which: additional tier 1 capital (high-trigger loss-absorbing capital)
Tier 2 capital
of which: high-trigger loss-absorbing capital
of which: low-trigger loss-absorbing capital
of which: phase-out capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
Phase-in
Fully applied
31.12.14
42,863 1
42,863
0
13,448
946
10,451
2,050
56,310
19.4
19.4
25.5
31.12.13
42,179 2
42,179
0
8,636
955
4,710
2,971
31.12.14
29,408
28,941
467
11,398
946
10,451
31.12.13
28,908
28,908
0
5,665
955
4,710
50,815
40,806
34,573
18.5
18.5
22.2
13.4
13.6
18.9
12.8
12.8
15.4
220,877
228,557
216,462
225,153
1 Includes additional tier 1 capital in the form of hybrid instruments and high-trigger loss-absorbing capital, which were entirely offset by the required deductions for goodwill. 2 Includes additional tier 1 capital in the
form of hybrid instruments, which was entirely offset by the required deductions for goodwill. ▲▲
251
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Swiss SRB Basel III capital information (UBS Group)
Capital information disclosures in this section focus on UBS
Group. Relevant information for UBS AG (consolidated) is provided
in the section “Swiss SRB Basel III capital information (UBS AG
consolidated).”
Capital ratios
EDTF | As of 31 December 2014, our fully applied CET1 capital ratio
increased 0.6 percentage points to 13.4%, exceeding our target
ratio of 13.0%. This increase was mainly due to a CHF 8.7 billion
decrease in fully applied RWA. On a phase-in basis, our CET1 cap-
ital ratio increased 0.9 percentage points to 19.4%, mainly due to
an increase of CHF 0.7 billion in phase-in CET1 capital and a CHF
7.7 billion decrease in phase-in RWA. As of 31 December 2014,
our post-stress CET1 capital ratio exceeded our 10% objective.
We have adapted certain features of our 2014 DCCP awards
compared with awards for 2012 and 2013. 2014 DCCP awards
qualify as AT1 capital. Our fully applied tier 1 capital ratio in-
creased 0.8 percentage points to 13.6%, mainly due to the in-
crease in AT1 capital of CHF 0.5 billion in the form of high-trigger
loss-absorbing DCCP awards granted to eligible employees for
the performance year 2014.
On a phase-in basis, our tier 1 capital ratio is equal to our CET1
capital ratio, as AT1 capital in the form of hybrid capital instru-
ments and aforementioned DCCP awards were entirely offset by
required deductions for goodwill.
During 2014, our fully applied and phase-in total capital ratios
increased 3.5 percentage points to 18.9% and 3.3 percentage
points to 25.5%, respectively. This improvement was primarily
due to the aforementioned issuances of Basel III-compliant tier 2
loss-absorbing notes. ▲
Eligible capital
Tier 1 capital
Audited | EDTF | Pillar 3 | Our tier 1 capital consists of CET1 capital and
AT1 capital. The analysis of our 2014 tier 1 capital movement is
shown in the table “Swiss SRB Basel III capital movement.”
Our CET1 capital mainly comprises share capital, share pre-
mium (which consists primarily of additional paid-in capital re-
lated to shares issued) and retained earnings. A detailed reconcili-
ation of IFRS equity to CET1 capital is provided in the table
“Reconciliation IFRS equity to Swiss SRB Basel III capital.” ▲▲
Our fully applied CET1 capital was stable at CHF 28.9 billion, as
the operating profit before tax for 2014 and foreign currency
translation effects were largely offset by accruals for capital re-
turns to shareholders. Our phase-in CET1 capital increased by CHF
0.7 billion to CHF 42.9 billion, mainly reflecting the operating
profit before tax for 2014 and foreign currency translation effects.
In addition, our 2014 DCCP awards qualifying as AT1 capital led
to a decrease in the deduction for goodwill from CET1 capital.
All these positive effects were partly offset by accruals for capital
returns to shareholders.
Audited | As of 31 December 2014, our fully applied AT1 capital
was CHF 0.5 billion compared with zero as of 31 December
2013, due to the aforementioned DCCP awards which qualify as
Basel III-compliant AT1 capital. On a phase-in basis, our AT1
capital was zero, unchanged from 31 December 2013, as AT1
capital in the form of hybrid capital instruments and the afore-
mentioned DCCP was entirely offset by required deductions for
goodwill. ▲▲
(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:85)
(cid:43)(cid:80)(cid:2)(cid:7)
(cid:37)(cid:81)(cid:79)(cid:79)(cid:81)(cid:80)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:19)(cid:2)(cid:10)(cid:37)(cid:39)(cid:54)(cid:19)(cid:11)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)
(cid:19)(cid:26)(cid:16)(cid:23)
(cid:19)(cid:25)(cid:16)(cid:27)
(cid:19)(cid:26)(cid:16)(cid:20)
(cid:19)(cid:27)(cid:16)(cid:19)
(cid:19)(cid:27)(cid:16)(cid:22)
(cid:19)(cid:20)(cid:16)(cid:26)
(cid:19)(cid:21)(cid:16)(cid:20)
(cid:19)(cid:21)(cid:16)(cid:23)
(cid:19)(cid:21)(cid:16)(cid:25)
(cid:19)(cid:21)(cid:16)(cid:22)
(cid:20)(cid:20)(cid:16)(cid:20)
(cid:20)(cid:20)(cid:16)(cid:25)
(cid:19)(cid:23)(cid:16)(cid:22)
(cid:19)(cid:24)(cid:16)(cid:26)
(cid:20)(cid:21)(cid:16)(cid:27)
(cid:20)(cid:22)(cid:16)(cid:27)
(cid:20)(cid:23)(cid:16)(cid:23)
(cid:19)(cid:26)(cid:16)(cid:19)
(cid:19)(cid:26)(cid:16)(cid:25)
(cid:19)(cid:26)(cid:16)(cid:27)
(cid:21)(cid:18)
(cid:20)(cid:23)
(cid:20)(cid:18)
(cid:19)(cid:23)
(cid:19)(cid:18)
(cid:23)
(cid:18)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:21)(cid:19)(cid:16)(cid:21)(cid:16)(cid:19)(cid:22)
(cid:21)(cid:18)(cid:16)(cid:24)(cid:16)(cid:19)(cid:22)
(cid:21)(cid:18)(cid:16)(cid:27)(cid:16)(cid:19)(cid:22)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:21)(cid:19)(cid:16)(cid:21)(cid:16)(cid:19)(cid:22)
(cid:21)(cid:18)(cid:16)(cid:24)(cid:16)(cid:19)(cid:22)
(cid:21)(cid:18)(cid:16)(cid:27)(cid:16)(cid:19)(cid:22)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:40)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)
(cid:50)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)
(cid:21)(cid:18)
(cid:20)(cid:23)
(cid:20)(cid:18)
(cid:19)(cid:23)
(cid:19)(cid:18)
(cid:23)
(cid:18)
252
(cid:21)(cid:18)
(cid:20)(cid:23)
(cid:20)(cid:18)
(cid:19)(cid:23)
(cid:19)(cid:18)
(cid:23)
(cid:18)
(cid:21)(cid:18)
(cid:20)(cid:23)
(cid:20)(cid:18)
(cid:19)(cid:23)
(cid:19)(cid:18)
(cid:23)
(cid:18)
EDTF | Pillar 3 | Swiss SRB Basel III capital movement
CHF billion
Common equity tier 1 capital as of 31.12.13
Movements during 2014:
Operating profit / (loss) before tax
Own credit related to financial liabilities designated at fair value and replacement values, net of tax
Foreign currency translation effects
Goodwill, net of tax, less hybrid capital and high-trigger loss-absorbing capital
Defined benefit pension plans, 20% phase-in effect as of 1.1.14
Defined benefit plans
Deferred tax assets recognized for tax loss carry-forwards, 20% phase-in effect as of 1.1.14
Deferred tax assets recognized for tax loss carry-forwards
Deferred tax assets on temporary differences
Current tax effect
Compensation and own shares-related capital components (including share premium)
Proposed capital returns to shareholders
Other
Total movement
Common equity tier 1 capital as of 31.12.14
Additional tier 1 capital as of 31.12.13
Movements during 2014:
Issuance of high-trigger loss-absorbing capital
Goodwill, net of tax, offset against hybrid capital and high-trigger loss-absorbing capital
Total movement
Additional tier 1 capital as of 31.12.14
Tier 2 capital as of 31.12.13
Movements during 2014:
Issuance of loss-absorbing capital
Phase-out capital
Foreign currency translation effects and other
Total movement
Tier 2 capital as of 31.12.14
Total capital as of 31.12.14
Total capital as of 31.12.13
Phase-in
Fully applied
42.2
2.3
(0.2)
1.2
0.6
(0.7)
0.1
(1.3)
0.7
0.8
(0.5)
(0.5)
(1.9)
0.1
0.7
42.9
0.0
0.5
(0.5)
0.0
0.0
8.6
4.6
(1.2)
1.5
4.8
13.4
56.3
50.8
28.9
2.3
(0.2)
0.9
(0.5)
0.1
(0.5)
(0.5)
(1.9)
0.1
0.0
28.9
0.0
0.5
0.5
0.5
5.7
4.6
1.2
5.7
11.4
40.8
34.6
▲▲
Tier 2 capital
Audited | EDTF | Pillar 3 | During 2014, our fully applied tier 2 capital in-
creased by CHF 5.7 billion to CHF 11.4 billion. On a phase-in ba-
sis, our tier 2 capital increased by CHF 4.8 billion to CHF 13.4 bil-
lion. These increases were both mainly due to the issuance of EUR
2.0 billion and USD 2.5 billion of low-trigger loss-absorbing
Basel III-compliant tier 2 notes during the year.
As of 31 December 2014, low-trigger loss-absorbing capital
accounted for approximately CHF 10.5 billion of tier 2 capital and
consisted of one euro-denominated and four US dollar-denomi-
nated subordinated notes with a write-down threshold set at a
5% phase-in CET1 capital ratio. Furthermore, our tier 2 capital
included high-trigger loss-absorbing capital of approximately CHF
0.9 billion, as outstanding DCCP awards granted for the perfor-
mance years 2012 and 2013 continue to qualify as tier 2 loss-ab-
sorbing capital, with a write-down threshold set at a 7% phase-in
CET1 capital ratio, or 10% with respect to awards granted to
members of the Group Executive Board for the performance year
2013. In addition, our loss-absorbing capital instruments would
be written down if FINMA determined that a write-down were
necessary to ensure UBS’s viability, or if UBS received a commit-
ment of governmental support that FINMA determined to be nec-
essary to ensure UBS’s viability.
The remainder of tier 2 capital on a phase-in basis of approxi-
mately CHF 2.1 billion consisted of outstanding tier 2 instruments
which will be phased out by 2019, based on current FINMA regu-
lations. ▲▲▲
253
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Audited | EDTF | Pillar 3 | Reconciliation IFRS equity to Swiss SRB Basel III capital
Phase-in
Fully applied
CHF million
Equity attributable to UBS Group AG shareholders
Equity attributable to non-controlling interests in UBS AG
Equity attributable to preferred noteholders and other non-controlling interests
Total IFRS equity
Equity attributable to preferred noteholders and other non-controlling interests
Defined benefit plans (before phase-in, as applicable) 1
Defined benefit plans, 20% phase-in
Deferred tax assets recognized for tax loss carry-forwards (before phase-in, as applicable) 2
Deferred tax assets recognized for tax loss carry-forwards, 20% phase-in
Deferred tax assets on temporary differences, excess over threshold
Goodwill, net of tax, less hybrid capital and high-trigger loss-absorbing capital 3
Intangible assets, net of tax
Unrealized (gains) / losses from cash flow hedges, net of tax
Compensation and own shares-related capital components (not recognized in net profit)
Own credit related to financial liabilities designated at fair value and replacement values, net of tax
Unrealized gains related to financial investments available-for-sale, net of tax
Prudential valuation adjustments
Consolidation scope
Proposed capital returns to shareholders
Other 4
Common equity tier 1 capital
Hybrid capital subject to phase-out
High-trigger loss-absorbing capital
Goodwill, net of tax, offset against hybrid capital and high-trigger loss-absorbing capital
Additional tier 1 capital
Tier 1 capital
Tier 2 capital
Total capital
31.12.14
50,608
31.12.13
48,002
1,702
2,058
54,368
(2,058)
3,997
(799)
(1,605)
0
(3,010)
(410)
(2,156)
(1,219)
136
(384)
(123)
(88)
(2,827)
(959)
42,863
3,210
467
(3,677)
0
42,863
13,448
56,310
1,935
49,936
(1,935)
2,540
0
(3,044)
(435)
(1,463)
(1,430)
304
(325)
(107)
(55)
(942)
(864)
42,179
3,113
0
(3,113)
0
42,179
8,636
50,815
31.12.14
50,608
1,702
2,058
54,368
(2,058)
0
31.12.13
48,002
1,935
49,936
(1,935)
(952)
(8,047)
(6,665)
(604)
(6,687)
(410)
(2,156)
(1,219)
136
(384)
(123)
(88)
(2,827)
(959)
28,941
467
467
29,408
11,398
40,806
0
(6,157)
(435)
(1,463)
(1,430)
304
(325)
(107)
(55)
(942)
(864)
28,908
0
0
28,908
5,665
34,573
1 Phase-in number net of tax, fully applied number pre-tax. 2 Includes the reversal of deferred tax assets recognized for tax loss carry-forwards (CHF 688 million) related to the cumulative IAS 19R retained earnings
implementation effect. 3 Includes goodwill related to significant investments in financial institutions of CHF 375 million. 4 Includes the net charge for the compensation-related increase in high-trigger loss-absorbing
capital for tier 2 and additional tier 1 capital and other items. ▲▲▲
254
Pillar 3 | EDTF | Additional tier 1 and tier 2 capital instruments
Additional tier 1 capital (Basel III compliant)
million, except where indicated
No.
Issuer
1
UBS Group AG
Total additional tier 1 capital
Outstanding
amount as of
31.12.14
Date
31.12.14
CHF 467
High-trigger loss-absorbing tier 2 capital (Basel III compliant)
million, except where indicated
Issuer
UBS Group AG 1
UBS Group AG 1
No.
1
2
Total high-trigger loss-absorbing tier 2 capital
Outstanding
amount as of
31.12.14
CHF 450
CHF 496
Date
31.12.12
31.12.13
Low-trigger loss-absorbing tier 2 capital (Basel III compliant)
million, except where indicated
Amount
recognized in
regulatory
capital as of
31.12.14
CHF 467
CHF 467
Amount
recognized in
regulatory
capital as of
31.12.14
CHF 450
CHF 496
CHF 946
Amount
recognized in
regulatory
capital as of
31.12.14
Outstanding
amount as of
31.12.14
USD 2,000
USD 2,000
CHF 1,985
CHF 1,920
Issue date
22.02.12
17.08.12
No.
Issuer
1
2
3
UBS AG, Jersey branch
UBS AG, Stamford branch
UBS AG
22.05.13
USD 1,500
CHF 1,461
UBS AG
UBS AG
4
5
Total low-trigger loss-absorbing tier 2 capital
13.02.14
15.05.14
EUR 2,000
USD 2,500
CHF 2,524
CHF 2,561
CHF 10,451
Phase-out tier 2 capital
million, except where indicated
Issuer
UBS AG, NY branch
UBS AG, NY branch
UBS AG, NY branch
UBS AG, NY branch
UBS AG, NY branch
UBS AG, Jersey branch
UBS AG, Jersey branch
Amount
recognized in
regulatory
capital as of
31.12.14
CHF 350
CHF 0
CHF 0
CHF 298
CHF 120
CHF 227
CHF 0
Outstanding
amount as of
31.12.14
USD 350
USD 150
USD 300
USD 300
USD 300
GBP 150
CHF 488
Issue date
21.07.95
21.07.95
24.10.95
03.09.96
20.06.97
18.12.95
30.06.05
UBS AG, Jersey branch
21.06.06
GBP 163
CHF 253
No.
1
2
3
4
5
6
7
8
UBS AG, Jersey branch
9
UBS AG, Stamford branch
10
UBS AG
11
12
UBS AG
Total phase-out tier 2 capital
1 Issued by UBS AG and transferred in the fourth quarter of 2014 to UBS Group AG as part of the Group reorganization. ▲▲
CHF 381
CHF 181
CHF 87
CHF 154
CHF 2,050
19.11.07
26.07.06
28.06.06
27.12.07
GBP 250
USD 931
CHF 434
CHF 385
Coupon rate and frequency of payment
Optional call date
Issues in CHF: 4.0%, issues in USD: 7.125%,
payment subject to review and confirmation by UBS
01.03.20
Coupon rate and frequency of payment
Issues in CHF: 5.40%, issues in USD: 6.25%, annually
Issues in CHF: 3.50%, issues in USD: 5.125%, annually
Coupon rate and frequency of payment
7.25% / 6.061% + Mid Market Swap Rate
from 22 February 2017, annually
7.625%, semi-annually
4.75% / 3.765% + Mid Market Swap Rate
from 22 May 2018, annually
4.75% / 3.40% + Mid Market Swap Rate
from 12 February 2021, annually
5.125%, annually
Optional call date
22.02.17
22.05.18
12.02.21
Coupon rate and frequency of payment
7.50%, semi-annually
7.375%, semi-annually
7.0%, semi-annually
7.75%, semi-annually
7.375%, semi-annually
8.75%, annually
2.375%, annually
5.25% / 3-month Sterling LIBOR + 1.29%,
annually / quarterly
6.375% / 3-month Sterling LIBOR + 2.10%,
annually / quarterly
5.875%, semi-annually
3.125%, annually
4.125%, annually
Optional call date
21.06.16
19.11.19
255
Risk, treasury and capital management Pillar 3 | We have estimated the loss in capital that we could incur
as a result of the risks associated with the matters described in
“Note 22 Provisions and contingent liabilities” to our consoli-
dated financial statements. We have utilized 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 catego-
ries to which those matters correspond, as well as the external
environment affecting risks of these types, in isolation from other
areas. On this standalone basis, we estimate the 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 CHF 3.4 bil-
lion as of 31 December 2014. Because this estimate is based upon
historical data for the relevant risk categories, it does not consti-
tute a subjective assessment of UBS’s actual exposures in those
matters and does not take into account any provisions recognized
for those matters. For this reason, and because some of those
matters are not expected to be resolved within the next 12
months, any possible losses that we may incur with respect to
those matters may be materially more or materially less than this
estimated amount. ▲
➔ Refer to “Note 22 Provisions and contingent liabilities” in the
“Financial information” section of this report for more information
Differences between Swiss SRB and BIS Basel III capital
Our Swiss SRB Basel III and BIS Basel III capital have the same basis
of calculation, on both a fully applied and a phase-in basis, except
for two specific items. First, under Swiss SRB the amount of our
tier 2 high-trigger loss-absorbing capital, in the form of awards
under our 2012 and 2013 DCCP, was higher by CHF 279 million
as of 31 December 2014, due to its different regulatory treatment
than under BIS Basel III. Second, a portion of unrealized gains on
financial investments available-for-sale, totaling CHF 191 million
as of 31 December 2014, was recognized as tier 2 capital under
BIS Basel III, but not under Swiss SRB regulations.
Risk, treasury and capital management
Capital management
Additional capital information
Pillar 3 | In order to improve the consistency and comparability of
regulatory capital instruments disclosures for all market partici-
pants, BIS and FINMA Basel III Pillar 3 rules require banks and
banking groups to disclose the main features of eligible capital
instruments and their terms and conditions. This information is
available in the “Bondholder information” section of our Investor
Relations website. ▲
➔ Refer to “Bondholder information” at www.ubs.com/investors
for more information on the capital instruments of UBS Group
and UBS AG on a consolidated and standalone basis
Pillar 3 | In order to fulfill BIS and FINMA Basel III Pillar 3 composi-
tion of capital disclosure requirements, we disclose a full recon-
ciliation of all regulatory capital elements to the published IFRS
balance sheet in the “UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3 regulations” section of
this report. ▲
➔ Refer to the “UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3 regulations” section
of this report for more information
Pillar 3 | BIS and Swiss SRB Basel III rules require banks to disclose
differences between the accounting scope of consolidation and
the regulatory scope of consolidation.
The scope of consolidation for the purpose of calculating
Group regulatory capital is generally the same as the scope under
IFRS and includes subsidiaries directly or indirectly controlled by
UBS Group AG that are active in the banking and finance sector.
However, subsidiaries consolidated under IFRS that are active in
sectors other than banking and finance are excluded from the
regulatory scope of consolidation. More information on the IFRS
scope of consolidation as well as the list of significant subsidiaries
included in this scope as of 31 December 2014 are available in the
“Financial information” section of this report. Details on entities
which are treated differently under the regulatory and the IFRS
scope of consolidation are available in the “UBS Group AG con-
solidated supplemental disclosures required under Basel III Pillar 3
regulations” section of this report. ▲
➔ Refer to “Note 1 Summary of significant accounting policies,”
“Note 30 Interests in subsidiaries and other entities” and “UBS
Group AG consolidated supplemental disclosures required
under Basel III Pillar 3 regulations” in the “Financial information”
section of this report for more information
Pillar 3 | Capital information as of 31 December 2014 for UBS AG
(standalone) and UBS Limited (standalone) were disclosed in our
fourth quarter 2014 report. ▲
➔ Refer to the “Supplemental information” in the “Financial
information” section of our fourth quarter 2014 report for more
information on UBS AG (standalone) and UBS Limited (stand-
alone) capital information
256
Differences between Swiss SRB and BIS Basel III capital information
As of 31.12.14
Phase-in
Fully applied
CHF million, except where indicated
Tier 1 capital
of which: common equity tier 1 capital
of which: additional tier 1 capital (high-trigger loss-absorbing capital)
Tier 2 capital
of which: high-trigger loss-absorbing capital
of which: low-trigger loss-absorbing capital
of which: phase-out capital and other tier 2 capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
Swiss SRB
42,863
42,863
0
13,448
946
10,451
2,050
56,310
19.4
19.4
25.5
BIS
42,863
42,863
0
13,359
667
10,451
2,241
56,222
19.4
19.4
25.5
220,877
220,877
Differences Swiss
SRB versus BIS
Swiss SRB
0
0
0
89
279
0
(191)
89
0.0
0.0
0.0
0
29,408
28,941
467
11,398
946
10,451
40,806
13.4
13.6
18.9
BIS
29,408
28,941
467
11,309
667
10,451
191
40,718
13.4
13.6
18.8
216,462
216,462
Differences Swiss
SRB versus BIS
0
0
0
89
279
0
(191)
89
0.0
0.0
0.0
0
257
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Swiss SRB Basel III capital information (UBS AG consolidated)
As of 31 December 2014, fully applied CET1 capital of UBS AG
(consolidated) exceeded CET1 capital of UBS Group AG (consoli-
dated) by CHF 1,864 million. This difference was primarily due to
compensation-related regulatory capital accruals, liabilities and
capital instruments which are reflected on the level of UBS Group
AG, following the transfer of the grantor function for the Group’s
employee deferred compensation plans during the fourth quarter
of 2014.
The difference of CHF 946 million in fully applied tier 2 capital
between UBS Group AG (consolidated) and UBS AG (consoli-
dated) relates to 2012 and 2013 DCCP awards held at the UBS
Group AG (consolidated) level.
Risk-weighted assets of UBS AG (consolidated) do not differ
significantly from those of UBS Group AG (consolidated).
➔ Refer to “The new legal structure of UBS Group” section of this
report for more information on the transfer of deferred
compensation plans
Swiss SRB Basel III available capital versus capital requirements (phase-in) – UBS AG (consolidated)
CHF million, except where indicated
Phase-in
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital)
of which: effect of countercyclical buffer
Progressive buffer capital (loss-absorbing capital)
Phase-out capital (tier 2 capital)
Total
Requirement 1
31.12.14
Capital ratio (%)
Capital
Actual 2
Requirement
Actual 2
31.12.14
31.12.13
31.12.14
31.12.14
31.12.13
4.0
4.6
0.1
2.5
11.1
4.0
15.9
0.1
4.7
0.9
25.6
3.5
15.0
0.1
2.5
1.3
22.2
8,846
10,273
322
5,469
24,589
8,846
35,244
322
10,451
2,050
56,591
8,000
34,180
149
5,665
2,971
50,815
1 Prior to the implementation of the Basel III framework, FINMA also defined a total capital ratio target for UBS AG consolidated of 14.4% which is effective until the Swiss SRB Basel III transitional capital requirement
exceeds a total capital ratio of 14.4%. 2 Swiss SRB Basel III CET1 capital exceeding the base capital requirement is allocated to the buffer capital.
Swiss SRB Basel III capital information – UBS AG (consolidated)
CHF million, except where indicated
Phase-in
Fully applied
Tier 1 capital
of which: common equity tier 1 capital
Tier 2 capital
of which: high-trigger loss-absorbing capital
of which: low-trigger loss-absorbing capital
of which: phase-out capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
31.12.14
44,090 1
44,090
12,501
0
10,451
2,050
56,591
19.9
19.9
25.6
31.12.13
42,179 1
42,179
8,636
955
4,710
2,971
50,815
18.5
18.5
22.2
31.12.14
31.12.13
30,805
30,805
10,451
0
10,451
28,908
28,908
5,665
955
4,710
41,257
34,573
14.2
14.2
19.0
12.8
12.8
15.4
221,150
228,557
217,158
225,153
1 Includes additional tier 1 capital in the form of hybrid instruments, which was entirely offset by the required deductions for goodwill.
258
Swiss SRB Basel III available capital versus capital requirements (UBS Group AG vs UBS AG consolidated)
As of 31.12.14
CHF million, except where indicated
Tier 1 capital
of which: common equity tier 1 capital
of which: additional tier 1 capital (high-trigger loss-absorbing capital)
Tier 2 capital
of which: high-trigger loss-absorbing capital
of which: low-trigger loss-absorbing capital
of which: phase-out capital and other tier 2 capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
UBS Group AG
(consolidated)
Phase-in
UBS AG
(consolidated)
Differences
UBS Group AG
(consolidated)
Fully applied
UBS AG
(consolidated)
Differences
42,863
42,863
0
13,448
946
10,451
2,050
56,310
19.4
19.4
25.5
44,090
44,090
0
12,501
0
10,451
2,050
56,591
19.9
19.9
25.6
220,877
221,150
(1,228)
(1,228)
0
946
946
0
0
(281)
(0.5)
(0.5)
(0.1)
(273)
29,408
28,941
467
11,398
946
10,451
30,805
30,805
0
10,451
0
10,451
40,806
41,257
13.4
13.6
18.9
14.2
14.2
19.0
216,462
217,158
(1,397)
(1,864)
467
946
946
0
(451)
(0.8)
(0.6)
(0.1)
(696)
259
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Total equity of UBS Group AG (consolidated) includes non-
controlling interests in UBS AG, which qualify as CET1 capital. On
a phase-in basis, CET1 capital of UBS Group AG (consolidated) is
CHF 1.2 billion lower than that of UBS AG (consolidated). This
difference is mainly due to a deduction of CHF 1.2 billion from
IFRS equity for compensation and own shares-related adjustments
which are now taken at the UBS Group AG (consolidated) level
following the transfer of the employee deferred compensation
plans in the fourth quarter. In addition, UBS Group AG (consoli-
dated) reflects a CHF 679 million adjustment under “Other,”
which relates to the effect of 2012, 2013 and 2014 DCCP awards
held at the UBS Group AG (consolidated) level. The effect of these
differences was partially offset by regulatory capital of CHF 467
million related to 2014 DCCP awards issued by UBS Group AG,
which qualify as Basel III-compliant AT1 capital.
Audited | Reconciliation IFRS equity to Swiss SRB Basel III capital (UBS Group AG vs. UBS AG consolidated)
As of 31 December 2014
CHF million
UBS Group AG
(consolidated)
Phase-in
UBS AG
(consolidated) Differences
UBS Group AG
(consolidated)
Fully applied
UBS AG
(consolidated) Differences
Equity attributable to shareholders
Equity attributable to non-controlling interests in UBS AG
Equity attributable to preferred noteholders and other non-controlling interests
Total IFRS equity
Equity attributable to preferred noteholders and other non-controlling interests
Defined benefit plans (before phase-in, as applicable) 1
Defined benefit plans, 20% phase-in
Deferred tax assets recognized for tax loss carry-forwards
(before phase-in, as applicable) 2
Deferred tax assets recognized for tax loss carry-forwards, 20% phase-in
Deferred tax assets on temporary differences, excess over threshold
Goodwill, net of tax, less hybrid capital and high-trigger loss-absorbing capital 3
Intangible assets, net of tax
Unrealized (gains) / losses from cash flow hedges, net of tax
Compensation and own shares-related capital components
(not recognized in net profit)
Own credit related to financial liabilities designated at fair value
and replacement values, net of tax
Unrealized gains related to financial investments available-for-sale, net of tax
Prudential valuation adjustments
Consolidation scope
Proposed capital returns to shareholders
Other 4
Common equity tier 1 capital
Hybrid capital subject to phase-out
High-trigger loss-absorbing capital
Goodwill, net of tax, offset against hybrid capital and high-trigger
loss-absorbing capital
Additional tier 1 capital
Tier 1 capital
Tier 2 capital
Total capital
50,608
1,702
2,058
54,368
(2,058)
3,997
(799)
(1,605)
0
(3,010)
(410)
(2,156)
(1,219)
136
(384)
(123)
(88)
(2,827)
(959)
42,863
3,210
467
(3,677)
0
42,863
13,448
56,310
52,108
2,058
54,165
(2,058)
3,997
(799)
(1,605)
0
(3,478)
(410)
(2,156)
(1,499)
1,702
0
203
0
0
0
0
0
467
0
0
50,608
1,702
2,058
54,368
(2,058)
0
52,108
2,058
54,165
(2,058)
0
(8,047)
(8,047)
(604)
(6,687)
(410)
(2,156)
(435)
(6,687)
(410)
(2,156)
(1,499)
1,702
0
203
0
0
0
(169)
0
0
0
0
(1,219)
(1,219)
0
(1,219)
136
(384)
(123)
(88)
(2,827)
(280)
44,090
3,210
(3,210)
0
44,090
12,501
56,591
0
0
0
0
0
(679)
(1,228)
0
467
(467)
0
(1,228)
946
(281)
136
(384)
(123)
(88)
(2,827)
(959)
28,941
467
467
29,408
11,398
40,806
136
(384)
(123)
(88)
(2,827)
(280)
30,805
30,805
10,451
41,257
0
0
0
0
0
(679)
(1,864)
467
467
(1,397)
946
(451)
1 Phase-in number net of tax. 2 Includes the reversal of deferred tax assets recognized for tax loss carry-forwards (CHF 688 million) related to the cumulative IAS 19R retained earnings implementation effect. 3 Includes
goodwill related to significant investments in financial institutions of CHF 375 million. 4 UBS Group AG (consolidated) includes the net charge for the compensation-related increase in high-trigger loss-absorbing capital
for tier 2 and additional tier 1 capital and other items. ▲
260
EDTF | Phase-in Basel III risk-weighted assets
CHF billion
300
240
180
120
60
0
229
22.5
78
14
13
124
230
24.5
81
15
13
120
230
25.8
83
13
13
121
223
19.1
76
14
15
118
221
17.5
77
17
19
109
31.12.13
31.3.14
30.6.14
30.9.14
31.12.14
Credit risk
Non-counterparty-related risk
Market risk
Operational risk
of which incremental RWA resulting from the supplemental operational risk capital analysis
mutually agreed to by UBS and FINMA ▲
Risk-weighted assets (UBS Group)
EDTF | Our risk-weighted assets (RWA) under BIS Basel III are the
same as under Swiss SRB Basel III. RWA on a fully applied basis are
the same as on a phase-in basis, except for differences related to
the adoption of IAS 19 (revised) Employee Benefits, which are
phased in between 2014 and 2018, and DTA on temporary differ-
ences (excess over threshold).
On a fully applied basis, net defined benefit-related assets / lia-
bilities are determined in accordance with IAS 19 (revised), and
any net defined benefit asset that is recognized is deducted from
CET1 capital rather than being risk-weighted. On a phase-in basis,
defined benefit-related assets / liabilities are determined in accor-
dance with the previous IAS 19 requirements (corridor method),
and any net defined benefit asset that is recognized is risk-
weighted at 100%.
On a fully applied basis, DTA on temporary differences which
exceed the threshold are deducted from our CET1 capital and are
therefore not risk-weighted. On a phase-in basis, the DTA on tem-
porary differences is below the threshold due to the higher capital
base. Therefore all DTA on temporary differences are risk-weighted
at 250%.
Due to the aforementioned differences, our phase-in RWA as
of 31 December 2014 were CHF 4.4 billion higher than our fully
applied RWA.
RWA decreased by CHF 8.7 billion to CHF 216.5 billion on a
fully applied basis and by CHF 7.7 billion to CHF 220.9 billion on
a phase-in basis.
In accordance with our strategy to focus on sustainable, less
capital-intensive business activities and due to our active portfolio
management and risk-mitigation activities, RWA in Corporate
Center – Non-core and Legacy Portfolio were substantially re-
duced during 2014.
The tables “Basel III RWA by risk type, exposure and reporting
segment” and “Basel III RWA movement by key driver, risk type
and reporting segment” on the following pages provide more
granular disclosures of RWA movements by reporting segment. ▲
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
the “Risk management and control” section of this report for
more information
➔ Refer to “Table 2: Detailed segmentation of Basel III exposures
and risk-weighted assets” in the “UBS Group AG consolidated
supplemental disclosures required under Basel III Pillar 3
regulations” section of this report for more information on gross
and net exposure at default by exposure segment
261
Risk, treasury and capital management Risk, treasury and capital management
Capital management
EDTF | Basel III risk-weighted assets by risk type, exposure and reporting segment
CHF billion
Credit risk
Advanced IRB approach
Sovereigns 2
Banks 2
Corporates 2
Retail
Other 3
Standardized approach
Sovereigns
Banks
Corporates 4
Central counterparties 2
Retail
Other 3
Non-counterparty-related risk 4
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization in the trading book
Operational risk
of which: incremental RWA 6
Total RWA, phase-in
Phase-out items
Total RWA, fully applied
31.12.14
Wealth
Manage-
ment
Americas
Retail &
Corporate
Global
Asset
Manage-
ment
Invest-
ment
Bank
CC – Core
Functions
8.7
3.0
0.0
0.0
0.0
2.9
0.1
5.7
0.0
0.9
3.0
0.0
1.7
0.1
0.2
1.0
0.2
0.5
0.0
0.3
0.0
0.0
11.9
1.7
21.9
0.2
21.7
31.4
29.8
0.1
1.1
15.4
11.9
1.3
1.7
0.0
0.1
0.3
0.0
0.1
1.1
1.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.6
0.5
34.4
1.4
33.1
3.0
1.5
0.0
0.0
0.0
0.0
1.5
1.5
0.0
0.1
1.4
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.8
0.0
3.9
0.1
3.8
35.0
29.3
0.7
3.7
21.0
0.0
3.9
5.7
0.0
0.2
1.8
0.7
0.0
3.0
0.3
13.6
1.8
4.0
5.0
2.5
0.0
0.3
18.1
1.2
67.0
0.2
66.7
5.3
4.4
0.4
1.8
2.0
0.0
0.1
1.0
0.0
0.6
2.0
0.8
0.0
(2.4)
16.4
(1.8) 5
(0.5)
(1.1)
0.1
(0.2)
0.0
0.0
12.2
6.0
32.2
2.1
30.1
CC – Non-
core and
Legacy
Portfolio
12.8
10.2
0.1
1.4
2.3
0.0
6.4
2.6
0.0
0.3
1.0
0.0
0.0
1.3
0.0
3.6
0.5
0.8
0.9
0.4
0.1
1.0
19.3
2.6
35.7
0.0
35.7
Total
capital
require-
ment 1
12.1
9.6
0.1
0.9
4.6
2.4
1.5
2.5
0.0
0.3
1.2
0.2
0.4
0.4
2.1
1.8
0.2
0.5
0.7
0.3
0.0
0.1
8.5
1.9
24.6
Total
RWA
108.6
86.3
1.3
8.1
41.1
21.9
13.9
22.3
0.2
2.4
10.6
1.5
4.0
3.6
19.1
16.5
2.0
4.1
5.9
3.0
0.1
1.3
76.7
17.5
220.9
4.4
216.5
Wealth
Manage-
ment
12.3
8.2
0.0
0.0
0.4
7.1
0.6
4.1
0.1
0.2
1.1
0.0
2.2
0.5
0.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
12.9
5.5
25.8
0.4
25.4
1 Calculated based on our Swiss SRB Basel III total capital requirement of 11.1% of RWA. 2 Includes stressed expected positive exposures. 3 Includes securitization / re-securitization exposures in the banking book,
equity exposures in the banking book according to the simple risk weight method, credit valuation adjustments, settlement risk and business transfers. 4 RWA related to defined benefit plans are newly presented as
non-counterparty-related risk. In previous reports, these RWA were presented as credit risk RWA. Prior periods were not restated for this change in presentation. 5 Corporate Center – Core Functions market risk RWA
were negative as this included the effect of portfolio diversification across businesses. 6 Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA.
RWA movement by risk type, exposure and
reporting segment
Credit risk
EDTF | Phase-in credit risk RWA decreased by CHF 15.7 billion to
CHF 108.6 billion as of 31 December 2014, mainly due to a CHF
18.5 billion decrease of credit risk RWA in Corporate Center –
Non-core and Legacy Portfolio, partly offset by an increase of CHF
1.5 billion in Retail & Corporate.
a reduction of CHF 5.7 billion due to the sale of securitization
exposures as well as a CHF 6.1 billion reduction in RWA for
advanced and standardized credit valuation adjustments (CVA),
mainly due to derivative trade unwinds and trade compressions.
Higher credit risk RWA in Retail & Corporate was mainly due
to a CHF 1.5 billion increase in the Retail exposure segment,
primarily driven by the FINMA requirement to apply a higher mul-
tiplier on Swiss residential mortgages for banks using the IRB
approach.
The credit risk RWA decrease in Corporate Center – Non-core
and Legacy Portfolio mainly related to a CHF 13.4 billion reduc-
tion in the Other exposure segment. This was primarily driven by
RWA of CHF 3.0 billion related to defined benefit plans were
reclassified from credit risk to non-counterparty-related risk in the
fourth quarter of 2014. ▲
262
Basel III risk-weighted assets by risk type, exposure and reporting segment (continued)
CHF billion
Credit risk
Advanced IRB approach
Sovereigns
Banks
Corporates 2
Retail
Other 3
Standardized approach
Sovereigns
Banks
Corporates 4
Central counterparties
Retail
Other 3
Non-counterparty-related risk 4
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization in the trading book
Operational risk
of which: incremental RWA 6
Total RWA, phase-in
Phase-out items
Total RWA, fully applied
31.12.13
Wealth
Manage-
ment
Americas
Retail &
Corporate
Global
Asset
Manage-
ment
Invest-
ment
Bank
CC – Core
Functions
CC – Non-
core and
Legacy
Portfolio
8.1
2.4
0.0
0.0
0.0
2.3
0.1
5.7
0.0
0.8
3.0
0.0
1.7
0.1
0.0
1.6
0.4
0.9
0.0
0.3
0.0
0.0
14.8
4.3
24.5
0.2
24.3
29.9
27.4
0.1
1.5
14.5
10.4
0.9
2.5
0.0
0.1
2.0
0.0
0.0
0.5
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.4
0.4
31.4
1.7
29.7
2.7
1.4
0.0
0.0
0.0
0.0
1.4
1.2
0.0
0.1
1.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.1
0.3
3.8
0.1
3.7
35.5
28.9
0.5
7.3
17.7
0.1
3.4
6.6
0.1
0.1
1.9
1.0
0.0
3.5
0.1
7.6
1.6
2.5
1.2
2.1
0.0
0.1
19.4
5.6
62.6
0.4
62.3
4.8
3.8
0.1
1.0
2.3
0.0
0.5
1.0
0.1
0.3
2.3
0.6
0.0
(2.3)
12.2
(4.9) 5
(1.4)
(2.3)
0.1
(1.4)
0.0
0.0
9.2
2.7
21.3
0.7
20.7
31.3
25.3
0.2
1.7
5.9
0.0
17.5
6.0
0.0
0.5
1.7
0.2
0.0
3.6
0.0
9.4
1.1
1.5
0.6
0.3
4.2
1.7
22.8
6.6
63.5
0.0
63.5
Wealth
Manage-
ment
11.9
8.2
0.0
0.2
0.4
7.1
0.6
3.7
0.1
0.2
1.6
0.0
1.6
0.2
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
9.2
2.7
21.4
0.4
20.9
Total
capital
require-
ment 1
10.6
Total
RWA
124.3
8.3
0.1
1.0
3.5
1.7
2.1
2.3
0.0
0.2
1.2
0.2
0.3
0.5
1.1
1.2
0.1
0.2
0.2
0.1
0.4
0.2
6.7
1.9
19.6
97.5
0.8
11.6
40.9
19.9
24.3
26.8
0.3
2.0
13.6
1.8
3.3
5.8
12.6
13.7
1.7
2.6
2.0
1.4
4.2
1.8
77.9
22.5
228.6
3.4
225.2
1 Calculated based on our Swiss SRB Basel III total capital requirement of 8.6% of RWA. 2 Includes stressed expected positive exposures. 3 Includes securitization / re-securitization exposures in the banking book,
equity exposures in the banking book according to the simple risk weight method, credit valuation adjustments, settlement risk and business transfers. 4 RWA related to defined benefit plans are newly presented as
non-counterparty-related risk. In previous reports, these RWA were presented as credit risk RWA. Prior periods were not restated for this change in presentation. 5 Corporate Center – Core Functions market risk RWA
were negative as this included the effect of portfolio diversification across businesses. 6 Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA.
Non-counterparty-related risk
EDTF | Phase-in non-counterparty-related risk RWA increased by
CHF 6.5 billion to CHF 19.1 billion. The increase was mainly due
to the reclassification of RWA of CHF 3.0 billion related to defined
benefit plans from credit risk to non-counterparty-related risk in
the fourth quarter of 2014 as well as higher RWA of CHF 2.5 bil-
lion relating to an increase in DTA on temporary differences rec-
ognized in Corporate Center – Core Functions. ▲
billion higher add-on for RniV, a CHF 1.5 billion increase in
stressed VaR and a CHF 1.6 billion higher incremental risk charge
within the Investment Bank and Corporate Center – Core Func-
tions.
These increases were partly offset by a lower comprehensive
risk measure of CHF 4.1 billion due to sale of correlation trades
and trading book securitization exposures in Corporate Center
– Non-core and legacy portfolio. ▲
Market risk
EDTF | Phase-in market risk RWA increased by CHF 2.8 billion to
CHF 16.5 billion. The increase was primarily driven by a CHF 3.9
➔ Refer to the “Risk management and control” section of this
report for more information on market risk developments,
including the risks-not-in-VaR framework and the comprehensive
risk measure
263
Risk, treasury and capital management (11.1)
(10.4)
CC – Non-
core and
Legacy
Portfolio
CC – Core
Functions
0.5
0.6
0.3
0.8
(0.3)
0.0
(0.4)
0.0
(0.1)
0.3
(0.3)
0.2
0.0
(0.1)
4.2
3.1
0.9
1.2
0.0
1.2
0.0
0.0
3.0
3.3
(18.5)
(15.1)
(0.1)
(0.3)
(3.6)
0.0
(3.4)
0.0
(0.2)
(0.7)
(0.2)
0.0
(2.3)
0.0
(5.8)
(0.6)
(0.7)
0.3
0.1
(4.1)
(0.7)
(3.5)
(4.0)
10.9
1.4
9.4
(27.8)
0.0
(27.8)
Total
RWA
(15.7)
(11.2)
0.5
(3.5)
0.2
2.0
(4.5)
(0.1)
0.4
(3.0)
(0.3)
0.7
(2.2)
6.5
2.8
0.3
1.5
3.9
1.6
(4.1)
(0.5)
(1.2)
(5.0)
(7.7)
1.0
(8.7)
▲
Risk, treasury and capital management
Capital management
Basel III risk-weighted assets by risk type, exposure and reporting segment (continued)
31.12.14 vs. 31.12.13
CHF billion
Credit risk
Advanced IRB approach
Sovereigns
Banks
Corporates
Retail
Other
Standardized approach
Sovereigns
Banks
Corporates
Central counterparties
Retail
Other
Non-counterparty-related risk
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization in the trading book
Operational risk
of which: incremental RWA
Total RWA, phase-in
Phase-out items
Total RWA, fully applied
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
Retail &
Corporate
Global
Asset
Manage-
ment
0.4
0.0
0.0
(0.2)
0.0
0.0
0.0
0.4
0.0
0.0
(0.5)
0.0
0.6
0.3
0.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.7
2.8
4.4
0.0
4.5
0.6
0.6
0.0
0.0
0.0
0.6
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.2
(0.6)
(0.2)
(0.4)
0.0
0.0
0.0
0.0
(2.9)
(2.6)
(2.6)
0.0
(2.6)
1.5
2.4
0.0
(0.4)
0.9
1.5
0.4
(0.8)
0.0
0.0
(1.7)
0.0
0.1
0.6
1.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.1
3.0
(0.3)
3.4
0.3
0.1
0.0
0.0
0.0
0.0
0.1
0.3
0.0
0.0
0.3
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.3)
(0.3)
0.1
0.0
0.1
Invest-
ment
Bank
(0.5)
0.4
0.2
(3.6)
3.3
(0.1)
0.5
(0.9)
(0.1)
0.1
(0.1)
(0.3)
0.0
(0.5)
0.2
6.0
0.2
1.5
3.8
0.4
0.0
0.2
(1.3)
(4.4)
4.4
(0.2)
4.4
Operational risk
EDTF | Phase-in operational risk RWA decreased by CHF 1.2 billion to
CHF 76.7 billion as of 31 December 2014. Incremental operational
risk RWA based on the supplemental operational risk capital analy-
sis mutually agreed to by UBS and FINMA decreased by CHF 5.0
billion to CHF 17.5 billion as of 31 December 2014. This decrease
in incremental operational risk RWA was partly offset by higher
capital requirements based on the advanced measurement ap-
proach (AMA) model output using the latest FINMA-approved
model parameters, which increased RWA by CHF 3.8 billion. ▲
264
EDTF | Basel III RWA movement by key driver – phase-in
CHF billion
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global
Asset
Management
Investment
Bank
CC – Core
Functions
CC – Non-
core
and Legacy
Portfolio
Total RWA balance as of 31.12.13
21.4
24.5
31.4
Credit risk RWA movement during the year 2014:
Methodology changes
Model parameter updates
Acquisitions and disposals of business operations
Book quality
Book size
Foreign currency translation effects
Reclassification to non-counterparty-related risk RWA 1
Non-counterparty-related risk RWA movement
during the year 2014:
Exposure movements
Foreign currency translation effects
Reclassification from credit risk RWA 1
Market risk RWA movement during the year 2014:
Methodology changes
Model parameter updates
Regulatory add-ons
Movement in risk levels
Operational risk RWA movement during the year 2014:
Supplemental operational risk agreed with FINMA
Other model parameter updates
Total movement
Total RWA balance as of 31.12.14
0.4
0.0
0.0
0.0
0.0
0.4
0.3
(0.4)
0.4
0.0
0.0
0.4
0.0
0.0
0.0
0.0
0.0
3.7
0.3
3.3
0.6
0.0
0.0
0.0
0.0
0.0
0.9
(0.2)
0.2
0.0
0.0
0.2
(0.6)
0.0
0.0
0.0
(0.6)
(2.8)
(2.6)
(0.2)
4.4
25.8
(2.6)
21.9
1.5
1.4
0.0
0.0
0.0
1.1
0.4
3.8
0.3
0.0
0.0
0.0
0.0
0.2
0.2
(1.3)
(0.1)
1.3
0.0
0.0
1.3
0.0
0.0
0.0
0.0
0.0
0.1
2.5
(2.4)
3.0
34.4
0.1
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
(0.3)
(0.3)
0.0
0.1
3.9
62.6
(0.5)
(0.3)
(2.5)
0.0
0.1
0.5
1.9
(0.2)
0.2
0.0
0.0
0.2
6.0
0.0
0.0
3.3
2.7
(1.4)
(4.7)
3.3
4.3
67.0
21.3
0.5
0.3
0.0
0.0
0.0
0.7
0.2
(0.7)
4.2
3.1
0.4
0.7
3.2
0.0
0.0
(0.1)
3.3
3.0
3.3
(0.3)
10.9
32.2
63.5
(18.5)
(0.3)
0.0
0.0
(1.5)
(17.7)
1.0
0.0
0.0
0.0
0.0
0.0
(5.8)
2.3
0.0
0.2
(8.3)
(3.5)
(3.7)
0.2
(27.8)
35.7
Group
228.6
(15.7)
1.1
(2.5)
0.0
(1.4)
(14.7)
4.9
(3.0)
6.5
3.0
0.4
3.0
2.8
2.3
0.0
3.4
(2.9)
(1.2)
(5.0)
3.8
(7.7)
220.9
1 RWA related to defined benefit plans are newly presented as non-counterparty-related risk. In previous reports, these RWA were presented as credit risk RWA. Prior periods were not restated for this change in
presentation. ▲
RWA movement by key driver, risk type and
reporting segment
EDTF | The following pages include information about the defini-
tions of key driver categories and underlying judgments and as-
sumptions. ▲
Credit risk
EDTF | The decrease of CHF 15.7 billion in credit risk RWA was
mainly driven by a reduction in book size in Corporate Center –
Non-core and Legacy Portfolio, primarily due to the sale of stu-
dent loan auction rate securities and collateralized debt obliga-
tions along with the unwinding of derivative trades. ▲
Non-counterparty-related risk
EDTF | The increase of CHF 6.5 billion in non-counterparty-related
risk was mainly due to the reclassification of RWA of CHF 3.0 bil-
lion related to defined benefit plans from credit risk to non-coun-
terparty-related risk in the fourth quarter of 2014 as well as an
increase in RWA of CHF 3.1 billion in Corporate Center – Core Func-
tions relating largely to exposure movements in DTA on temporary
differences. ▲
Market risk
EDTF | The increase of CHF 2.8 billion in market risk RWA was
mainly due to regulatory add-ons of CHF 3.4 billion and method-
ology changes of CHF 2.3 billion, offset by lower risk levels of CHF
2.9 billion. Regulatory add-ons increased following a new calibra-
tion of RniV approved by FINMA. The increased RWA resulting
from the methodology change of CHF 2.3 billion was driven by
the underpinning of both net long and net short trading positions
in the trading book. As per FINMA Circular “Market Risk Banks”
only the higher of the net long or net short securitization posi-
tions in the trading book were to be underpinned for regulatory
capital purposes until 31 December 2013. ▲
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
the “Risk management and control” section of this report for
more information
265
Risk, treasury and capital management Risk, treasury and capital management
Capital management
EDTF | Key drivers of RWA movement by risk type
We employ a range of analyses in our RWA monitoring framework to identify the key drivers of movements in the positions. This includes a top-down
identification approach for several sub-components of the RWA movement, leveraging information available from our monthly detailed calculation,
substantiation and control processes. Particular attention is paid to identifying and segmenting items within the day-to-day control of the business and those
items that are driven by changes in risk models or regulatory methodology.
Movements
Key driver description
Credit risk RWA movements
Model updates
Represents RWA movements arising from the implementation of new models and from parameter changes to existing
models. The RWA impact of model updates is estimated based on the portfolio at the time of the implementation of the
change.
Methodology and policy
changes
Represents RWA movements due to methodological changes in calculations driven by regulatory policy changes, including
both revisions to existing regulations and new regulations. The impact of methodology and policy changes on RWA is
estimated based on the portfolio at the time of the implementation of the change.
Acquisitions and disposals
of business operations
Represents the movement in RWA as a result of the disposal or acquisition of business operations, quantified based on the
credit risk exposures as at the end of the month preceding a disposal or following an acquisition. Acquisition and disposal
of exposures in the ordinary course of business are reflected under book size.
Book quality
Book size
Foreign currency translation
effects
Non-counterparty-related risk
RWA movements
Exposure movements
Represents RWA movements resulting from changes in the underlying credit quality of counterparties. These are caused by
changes to risk parameters which arise from actions such as, but not limited to, change in counterparty ratings, loss given
default or changes in credit hedges.
Represents RWA movements arising in the normal course of business, such as growth in credit exposures or reduction in
book size from sales and write-offs. The amounts reported for each business division and the Corporate Center may also
include the effect of transfers and allocations of exposures between business divisions reflected in the period. Currently,
the movement in book size is estimated based on amounts derived from the other five drivers. We will continue to refine
our underlying RWA reporting and intend to provide more granular information in the future.
Represents RWA movements as a result of changes in exchange rates of the transaction currencies versus the Swiss franc.
Represents RWA movements arising in the normal course of business, such as the purchase or sale of relevant underlying
exposures, the movement in RWA as a result of a RWA reclassification related to defined benefit plans from credit risk to
non-counterparty-related risk and changes in DTA on temporary differences.
Foreign currency translation
effects
Represents foreign currency translation effects on RWA movements as a result of changes in exchange rates of the
transaction currencies versus the Swiss franc.
266
Market risk RWA movements
Methodology changes
Represents methodology changes to the calculation driven by regulatory and internal policy decisions. In some cases, the
effects of methodology changes have been assessed at the time of implementation, and may not reflect the effects for the
entire year 2014. Further, methodology changes may, on occasion, be implemented at the same time as parameter updates
and changes in regulatory add-ons, the effects of which cannot be fully disaggregated.
Model parameter updates
Includes routine updates to model parameters such as the roll-forward of the five-year historical data used for VaR. The
effect of each parameter update, assessed at the point of implementation, has been used to approximate the combined
effect over the year.
Regulatory add-ons
Represents entirely the “Risks-not-in-VaR” add-on described in the “Risk management and control” section of this report.
The effect of the annual recalibration has been calculated by applying the old and new multiplication factors to the year-
end VaR and SVaR-based RWA.
Movement in risk levels
Represents changes as a result of movements in risk levels that are derived after accounting for the movements in the
above three specific drivers. This includes changes in positions, effects of market moves on risk levels and currency
translation effects. The amounts reported for each business division and the Corporate Center may also include the effect
of transfers and allocations of exposures between business divisions reflected in the period.
Operational risk RWA movements
Incremental RWA
Other model parameter
updates
Represents RWA movements relating to changes in the incremental operational risk RWA based on the supplemental
operational risk capital analysis mutually agreed to by UBS and FINMA.
Represents RWA movements arising from the regular update of our advanced measurement approach (AMA) model.
▲
267
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Swiss SRB leverage ratio framework
EDTF | Our total leverage ratio requirements and actual ratios
Phase-in, except where indicated
Fully applied
5.4%
4.1%
2.6%
4.7%
3.4%
2.1%
3.6%
3.9%
3.1%
4.2%
4.4% 1
31.12.13
31.12.14
31.12.15
31.12.16
31.12.17
31.12.18
31.12.19
Total leverage ratio requirement (phase-in or fully applied, as applicable)2
Actual total leverage ratio (fully applied)
Actual total leverage ratio (phase-in)
1 The total leverage ratio requirement for 2019 would be reduced to 4.2% if the total capital ratio requirement is reduced as expected. 2 Defined as the respective total capital ratio requirement (excluding the countercyclical buffer
requirement) multiplied by 24%. Numbers for 31 December 2015 to 2019 are based on latest information available and current supervisory guidance from FINMA. ▲
Swiss SRB leverage ratio requirements
EDTF | The Swiss SRB leverage ratio is calculated by dividing the sum
of period-end CET1 capital, AT1 and other loss-absorbing capital
by the three-month average total adjusted exposure (leverage ra-
tio denominator), which consists of IFRS on-balance sheet assets
and off-balance sheet items, based on the regulatory scope of
consolidation and adjusted for netting of derivatives, the current
exposure method (CEM) add-on for derivatives and other items.
The “Swiss SRB leverage ratio requirements (phase-in)” table
on the next page shows our total leverage ratio requirement, as
well as the requirements by capital components and our actual
leverage ratio information. As of 31 December 2014, our CET1
capital covered the leverage ratio requirements for the base and
buffer capital components, while our high and low-trigger loss-
absorbing capital satisfied our leverage ratio requirement for the
progressive buffer component.
The Swiss SRB leverage ratio requirement is equal to 24% of
the total capital ratio requirement (excluding the countercyclical
buffer requirement). As of 31 December 2014, the effective total
leverage ratio requirement was 2.6%, resulting from multiplying
the total capital ratio requirement (excluding the countercyclical
buffer requirement) of 11.0% by 24%. As of 31 December 2013,
the total leverage ratio requirement was 2.1%.
In November 2014, FINMA issued its new circular “Leverage
ratio – banks,” covering the calculation rules for the leverage ratio
in Switzerland. For Swiss SRB, the new circular revises the way the
LRD is calculated in order to be aligned with the rules issued by
the BIS in January 2014. This change became effective on 1 Janu-
ary 2015. We are making use of a one-year transition period, un-
der which the existing Swiss SRB definition may still be used, but
we are required to disclose both leverage ratio measures (based
on existing Swiss SRB rules as well as on the BIS Basel III rules)
starting with our first quarter 2015 reporting. The current mini-
mum leverage ratio requirement as a percentage of the risk-based
capital ratio requirement (excluding the countercyclical buffer re-
quirement) remains unchanged for Swiss SRB. We estimate that
our year-end 2014 LRD based on BIS Basel III rules was slightly
higher than under Swiss SRB rules and we expect the difference to
be even smaller after the one-year transition period. ▲
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the new FINMA circular
268
6
5
4
3
2
1
0
Swiss SRB leverage ratio (UBS Group)
Our phase-in total Swiss SRB leverage ratio increased 0.7 percent-
age points to 5.4% as of 31 December 2014 from 4.7% as of
31 December 2013. This increase was mainly due to the afore-
mentioned increases in CET1 and loss-absorbing capital, which
contributed 0.6 percentage points to the improvement in the
leverage ratio on a phase-in basis. In addition, a CHF 18 billion
reduction in LRD to CHF 1,005 billion contributed 0.1 percentage
points to the improvement in the leverage ratio.
The LRD reduction of CHF 18 billion was primarily due to a
CHF 42 billion lower CEM add-on for derivative exposures as a
result of lower notional values due to trade novation of credit
derivatives. Average on-balance sheet assets increased by CHF 17
billion, primarily due to higher lending balances and cash and bal-
ances with central banks.
On a fully applied basis, our Swiss SRB leverage ratio increased
0.7 percentage points to 4.1% as of 31 December 2014 from
3.4% as of 31 December 2013.
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
the “Risk management and control” section of this report for
more information
➔ Refer to the “Balance sheet” section of this report for more
information on balance sheet movements
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:37)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:49)(cid:87)(cid:84)(cid:2)(cid:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:89)(cid:67)(cid:85)(cid:2)(cid:23)(cid:16)(cid:22)(cid:7)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:16)
(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)
(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)
(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)
(cid:10)(cid:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:11)
=
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:50)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:2)(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:13)(cid:2)
(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:19)(cid:2)(cid:13)(cid:2)
(cid:78)(cid:81)(cid:85)(cid:85)(cid:15)(cid:67)(cid:68)(cid:85)(cid:81)(cid:84)(cid:68)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:19)
(cid:124)(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:43)(cid:40)(cid:52)(cid:53)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:13)(cid:17)(cid:115)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:124)
=
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:22)(cid:16)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:22)(cid:20)(cid:16)(cid:27)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:13)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:13)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:19)(cid:16)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:14)(cid:18)(cid:18)(cid:23)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:14)(cid:18)(cid:21)(cid:27)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:115)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
= (cid:23)(cid:16)(cid:22)(cid:7)
(cid:35)(cid:70)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:25)(cid:19)(cid:16)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:28)(cid:2)(cid:37)(cid:39)(cid:47)(cid:2)(cid:67)(cid:70)(cid:70)(cid:15)(cid:81)(cid:80)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:21)(cid:16)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)(cid:14)(cid:2)(cid:81)(cid:72)(cid:72)(cid:15)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)
(cid:75)(cid:86)(cid:71)(cid:79)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:26)(cid:16)(cid:26)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:27)(cid:16)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)
(cid:38)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:18)(cid:23)(cid:16)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:28)(cid:2)(cid:80)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:26)(cid:22)(cid:16)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)(cid:14)(cid:2)(cid:80)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:72)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)
(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:84)(cid:67)(cid:80)(cid:85)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:16)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:22)(cid:16)(cid:27)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)
(cid:19)(cid:2)(cid:37)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:84)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:67)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:71)(cid:2)(cid:79)(cid:81)(cid:80)(cid:86)(cid:74)(cid:85)(cid:2)(cid:82)(cid:84)(cid:71)(cid:69)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:70)(cid:16)(cid:2)(cid:43)(cid:80)(cid:2)
(cid:67)(cid:69)(cid:69)(cid:81)(cid:84)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:86)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:70)(cid:71)(cid:80)(cid:81)(cid:79)(cid:75)(cid:80)(cid:67)(cid:86)(cid:81)(cid:84)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:85)(cid:86)(cid:67)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:85)(cid:14)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:70)(cid:71)(cid:79)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:79)(cid:71)(cid:86)(cid:74)(cid:81)(cid:70)(cid:2)(cid:10)(cid:37)(cid:39)(cid:47)(cid:11)(cid:2)(cid:67)(cid:70)(cid:70)(cid:15)(cid:81)(cid:80)(cid:85)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:71)(cid:90)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:15)(cid:86)(cid:84)(cid:67)(cid:70)(cid:71)(cid:70)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:2)(cid:10)(cid:39)(cid:54)(cid:38)(cid:11)(cid:14)(cid:2)(cid:68)(cid:81)(cid:86)(cid:74)(cid:2)(cid:82)(cid:84)(cid:81)(cid:82)(cid:84)(cid:75)(cid:71)(cid:86)(cid:67)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:73)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:80)(cid:85)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:49)(cid:54)(cid:37)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:2)
(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:67)(cid:2)(cid:83)(cid:87)(cid:67)(cid:78)(cid:75)(cid:72)(cid:91)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:71)(cid:80)(cid:86)(cid:84)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:82)(cid:67)(cid:84)(cid:86)(cid:91)(cid:16)(cid:2)(cid:86)
(cid:19)(cid:41)(cid:53)(cid:18)(cid:24)(cid:18)
EDTF | Swiss SRB leverage ratio requirements (phase-in)
CHF million, except where indicated
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital)
Progressive buffer capital (loss-absorbing capital)
Total
Swiss SRB leverage ratio (%)
Swiss SRB leverage ratio capital
Requirement 1
31.12.14
Actual 2, 3
Requirement
Actual 2, 3
31.12.14
31.12.13
31.12.14
31.12.14
31.12.13
1.0
1.1 4
0.6
2.6
1.0
3.3
1.1
5.4
0.8
3.3
0.6
4.7
9,647
10,853
5,965
26,464
9,647
33,216
11,398
54,260
8,593
33,587
5,665
47,844
1 Requirements for base capital (24% of 4%), buffer capital (24% of 4.5%) and progressive buffer capital (24% of 2.5%). 2 Swiss SRB Basel III CET1 capital exceeding the base capital requirement is allocated to the
buffer capital. 3 During the transition period until end of 2017, high-trigger loss-absorbing capital (LAC) can be included in the progressive buffer. 4 CET1 capital can be substituted by high-trigger loss-absorbing
capital up to 0.4% in 2014. ▲
269
Risk, treasury and capital management Risk, treasury and capital management
Capital management
EDTF | Swiss SRB leverage ratio
CHF million, except where indicated
Total on-balance sheet assets 1
Netting of securities financing transactions
Netting of derivative exposures
Current exposure method (CEM) add-on for derivative exposures
Off-balance sheet items
of which: commitments and guarantees – unconditionally cancellable (10%)
of which: commitments and guarantees – other than unconditionally cancellable (100%)
Assets of entities consolidated under IFRS but not in regulatory scope of consolidation
Items deducted from Swiss SRB tier 1 capital, phase-in (at period-end)
Total adjusted exposure (“leverage ratio denominator”), phase-in 2
Additional items deducted from Swiss SRB tier 1 capital, fully applied (at period-end)
Total adjusted exposure (“leverage ratio denominator”), fully applied 2
Common equity tier 1 capital (phase-in)
Loss-absorbing capital (phase-in)
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio phase-in (%)
Common equity tier 1 capital (fully applied)
Loss-absorbing capital (fully applied)
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio fully applied (%)
Average 4Q14
1,038,836
(6,141)
(184,265)
63,385
88,750
17,212
71,538
19,184
(14,879)
1,004,869
(7,047)
997,822
Average 4Q13 3
1,022,209
(1,537)
(206,807)
105,352
96,256
21,538
74,719
17,878
(10,428)
1,022,924
(7,617)
1,015,306
As of
31.12.14
31.12.13
42,863
11,398
54,260
5.4
42,179
5,665
47,844
4.7
As of
31.12.14
31.12.13
28,941
11,865
40,806
4.1
28,908
5,665
34,573
3.4
1 Represent assets recognized on the balance sheet in accordance with IFRS measurement principles, but based on the regulatory scope of consolidation. Refer to the “UBS Group AG consolidated supplemental disclo-
sures required under Basel III Pillar 3 regulations” section of this report for more information on the regulatory scope of consolidation. 2 In accordance with current Swiss SRB leverage ratio requirements, the leverage
ratio denominator excludes forward starting repos, securities lending indemnifications and CEM add-ons for exchange-traded derivatives (ETD), both proprietary and agency transactions, and for OTC derivatives with a
qualifying central counterparty. 3 Comparative figures in this table have been restated to reflect the adoption of “Amendments to IAS 32.” This change had no material impact on the leverage ratio. Refer to “Note 1b
Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report on the adoption of “Amendments to IAS 32.” ▲
270
Swiss SRB leverage ratio denominator by reporting segment
CHF billion
Total on-balance sheet assets 1
Netting of securities financing transactions
Netting of derivative exposures
Current exposure method (CEM) add-on for
derivative exposures
Off-balance sheet items
of which: commitments and guarantees –
unconditionally cancellable (10%)
of which: commitments and guarantees –
other than unconditionally cancellable (100%)
Assets of entities consolidated under IFRS but not in
regulatory scope of consolidation
Items deducted from Swiss SRB tier 1 capital,
phase-in (at period-end)
Total adjusted exposure (“leverage ratio
denominator”), phase-in 2
Additional items deducted from Swiss SRB tier 1 capital,
fully applied (at period-end)
Total adjusted exposure (“leverage ratio
denominator”), fully applied 2
Wealth
Manage-
ment
121.0
0.0
(0.2)
1.3
9.5
5.5
4.0
6.6
Wealth
Manage-
ment
Americas
Retail &
Corporate
54.1
143.8
0.0
0.0
0.0
9.0
8.0
1.0
0.2
0.0
(0.3)
1.1
21.2
3.4
17.8
0.1
Average 4Q14
Global
Asset
Manage-
ment
3.7
0.0
0.0
0.0
0.0
0.0
0.0
11.2
Investment
Bank
290.8
(2.1)
(81.3)
35.5
44.5
0.3
44.2
0.9
CC –
Core
Functions
255.9
(4.0)
3.4
0.1
0.0
0.0
0.0
0.3
(14.9)
CC –
Non-core
and Legacy
Portfolio
169.6
0.0
(105.9)
Total LRD
1,038.8
(6.1)
(184.3)
25.3
4.4
0.0
4.4
0.0
63.4
88.7
17.2
71.5
19.2
(14.9)
138.3
63.3
165.9
14.9
288.3
240.8
93.4
1,004.9
138.3
63.3
165.9
14.9
288.3
233.7
93.4
997.8
(7.0)
(7.0)
1 Represent assets recognized on the balance sheet in accordance with IFRS measurement principles, but based on the regulatory scope of consolidation. Refer to the “UBS Group AG consolidated supplemental disclo-
sures required under Basel III Pillar 3 regulations” section of this report for more information on the regulatory scope of consolidation. 2 In accordance with current Swiss SRB leverage ratio requirements, the leverage
ratio denominator excludes forward starting repos, securities lending indemnifications and CEM add-ons for exchange-traded derivatives (ETD), both proprietary and agency transactions, and for OTC derivatives with a
qualifying central counterparty.
CHF billion
Total on-balance sheet assets 1
Netting of securities financing transactions
Netting of derivative exposures
Current exposure method (CEM) add-on for
derivative exposures
Off-balance sheet items
of which: commitments and guarantees –
unconditionally cancellable (10%)
of which: commitments and guarantees –
other than unconditionally cancellable (100%)
Assets of entities consolidated under IFRS but not in
regulatory scope of consolidation
Items deducted from Swiss SRB tier 1 capital,
phase-in (at period-end)
Total adjusted exposure (“leverage ratio
denominator”), phase-in 2
Additional items deducted from Swiss SRB tier 1 capital,
fully applied (at period-end)
Total adjusted exposure (“leverage ratio
denominator”), fully applied 2
Wealth
Manage-
ment
104.9
0.0
(0.1)
1.2
9.6
5.9
3.7
6.6
Wealth
Manage-
ment
Americas
45.3
0.0
0.0
0.0
11.7
11.0
0.6
0.2
Retail &
Corporate
142.8
0.0
(0.3)
1.1
21.1
4.2
16.9
0.0
Average 4Q13 3
Global
Asset
Manage-
ment
Investment
Bank
4.0
0.0
0.0
0.0
0.0
0.0
0.0
10.0
245.5
(1.1)
(53.5)
34.4
44.2
0.4
43.9
0.9
CC –
Core
Functions
245.3
(0.4)
(0.2)
CC –
Non-core
and Legacy
Portfolio
234.6
0.0
(152.8)
68.6
9.6
0.0
9.6
0.0
0.0
0.0
0.0
0.0
0.2
(10.4)
Total LRD
1,022.2
(1.5)
(206.8)
105.4
96.3
21.5
74.7
17.9
(10.4)
122.1
57.2
164.7
14.0
270.3
234.5
160.0
1,022.9
122.1
57.2
164.7
14.0
270.3
226.9
160.0
1,015.3
(7.6)
(7.6)
1 Represent assets recognized on the balance sheet in accordance with IFRS measurement principles, but based on the regulatory scope of consolidation. Refer to the “UBS Group AG consolidated supplemental disclo-
sures required under Basel III Pillar 3 regulations” section of this report for more information on the regulatory scope of consolidation. 2 In accordance with current Swiss SRB leverage ratio requirements, the leverage
ratio denominator excludes forward starting repos, securities lending indemnifications and CEM add-ons for exchange-traded derivatives (ETD), both proprietary and agency transactions, and for OTC derivatives with a
qualifying central counterparty. 3 Comparative figures in this table have been restated to reflect the adoption of “Amendments to IAS 32.” This change had no material impact on the leverage ratio. Refer to “Note 1b
Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report on the adoption of “Amendments to IAS 32.”
271
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Swiss SRB leverage ratio (UBS AG consolidated)
There was no difference between the Swiss SRB leverage ratios
(fully applied and phase-in) for UBS Group AG (consolidated) and
UBS AG (consolidated) as of 31 December 2014. The LRD (fully ap-
plied and phase-in) of UBS Group AG (consolidated) was approxi-
mately CHF 1 billion lower than that of UBS AG (consolidated),
mainly due to the effect of compensation and own shares-related
adjustments which are now recognized at the UBS Group AG (con-
solidated) level following the transfer of the employee deferred com-
pensation plans. However, the effect of the lower LRD at the UBS
Group AG (consolidated) level was offset by CHF 0.3 billion lower
CET1 capital including loss-absorbing capital compared with UBS AG
(consolidated) on a phase-in basis. This difference was mainly caused
by the deduction for treasury shares, partly offset by the issuance of
the 2014 DCCP awards, which qualify as AT1 capital.
Swiss SRB leverage ratio requirements (phase-in) – UBS AG (consolidated)
CHF million, except where indicated
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital)
Progressive buffer capital (loss-absorbing capital)
Total
Swiss SRB leverage ratio (%)
Swiss SRB leverage ratio capital
Requirement 1
31.12.14
Actual 2, 3
Requirement
Actual 2, 3
31.12.14
31.12.13
31.12.14
31.12.14
31.12.13
1.0
1.1 4
0.6
2.6
1.0
3.4
1.0
5.4
0.8
3.3
0.6
4.7
9,658
10,865
5,971
26,494
9,658
34,432
10,451
54,542
8,593
33,587
5,665
47,844
1 Requirements for base capital (24% of 4%), buffer capital (24% of 4.5%) and progressive buffer capital (24% of 2.5%). 2 Swiss SRB Basel III CET1 capital exceeding the base capital requirement is allocated to the
buffer capital. 3 During the transition period until end of 2017, high-trigger loss-absorbing capital (LAC) can be included in the progressive buffer. 4 CET1 capital can be substituted by high-trigger loss-absorbing
capital up to 0.4% in 2014.
272
Swiss SRB leverage ratio (UBS Group AG vs. UBS AG consolidated)
Average 4Q14
CHF million, except where indicated
Total on-balance sheet assets 1
Netting of securities financing transactions
Netting of derivative exposures
Current exposure method (CEM) add-on for derivative exposures
Off-balance sheet items
of which: commitments and guarantees – unconditionally cancellable (10%)
of which: commitments and guarantees – other than unconditionally cancellable (100%)
Assets of entities consolidated under IFRS but not in regulatory scope of consolidation
Items deducted from Swiss SRB tier 1 capital, phase-in (at period-end)
Total adjusted exposure (“leverage ratio denominator”), phase-in 2
Additional items deducted from Swiss SRB tier 1 capital, fully applied (at period-end)
Total adjusted exposure (“leverage ratio denominator”), fully applied 2
As of 31.12.14
Common equity tier 1 capital (phase-in)
Loss-absorbing capital (phase-in)
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio phase-in (%)
As of 31.12.14
Common equity tier 1 capital (fully applied)
Loss-absorbing capital (fully applied)
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio fully applied (%)
UBS Group AG
consolidated
Differences
UBS AG
1,038,836
1,038,696
(6,141)
(184,265)
(6,141)
(184,265)
63,385
88,750
17,212
71,538
19,184
63,385
88,781
17,241
71,539
19,223
(14,879)
(13,678)
1,004,869
1,006,001
(7,047)
997,822
(6,877)
999,124
UBS AG
140
0
0
0
(31)
(30)
(2)
(40)
(1,201)
(1,132)
(169)
(1,301)
UBS Group AG
consolidated
Differences
42,863
11,398
54,260
5.4
44,090
10,451
54,542
5.4
UBS AG
(1,228)
946
(281)
0.0
UBS Group AG
consolidated
Differences
28,941
11,865
40,806
4.1
30,805
10,451
41,257
4.1
(1,864)
1,413
(451)
0.0
1 Represent assets recognized on the balance sheet in accordance with IFRS measurement principles, but based on the regulatory scope of consolidation. Refer to the “UBS Group AG consolidated supplemental disclosures
required under Basel III Pillar 3 regulations” section of this report for more information on the regulatory scope of consolidation. 2 In accordance with current Swiss SRB leverage ratio requirements, the leverage ratio
denominator excludes forward starting repos, securities lending indemnifications and CEM add-ons for exchange-traded derivatives (ETD), both proprietary and agency transactions, and for OTC derivatives with a qualify-
ing central counterparty.
273
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Equity attribution framework
Pillar 3 | The equity attribution framework reflects our objectives of
maintaining a strong capital base and managing performance by
guiding each business towards activities that appropriately bal-
ance profit potential, risk and capital usage. This framework,
which includes some forward-looking elements, enables us to in-
tegrate Group-wide capital management activities with those at a
business division level and to calculate and assess return on at-
tributed equity (RoAE) for each of our business divisions.
Tangible equity is attributed to our business divisions by apply-
ing a weighted-driver approach. This approach combines phase-in
Basel III capital requirements with internal models to determine the
amount of capital required to cover each business division’s risk.
Risk-weighted assets (RWA) and leverage ratio denominator
(LRD) usage are converted to their common equity tier 1 (CET1)
equivalents based on capital ratios as targeted by industry peers.
Risk-based capital (RBC) is converted to its CET1 equivalent based
on a conversion factor that considers the amount of RBC exposure
covered by loss-absorbing capital. In addition to tangible equity, we
allocate equity to support goodwill and intangible assets as well as
certain Basel III capital deduction items. The amount of equity at-
tributed to all business divisions and the Corporate Center corre-
sponds to the amount we believe is required to maintain a strong
capital base and to support our businesses adequately, and it can
differ from the Group’s actual equity during a given period. ▲
➔ Refer to the “Risk management and control” section of this
report for more information on risk-based capital
Pillar 3 | From 1 January 2015 onwards, the equity attribution
framework is based on fully applied Basel III capital requirements
to recognize the increased focus on fully applied capital. This
change increases the equity required to underpin certain Basel III
capital deductions, primarily related to deferred tax assets (DTA).
Further, to align attributed equity with Group capital targets, the
total attributed equity is determined based on the maximum of
the CET1 levels resulting from RWA, LRD and post-stress CET1
capital ratio. These changes are expected to contribute to an over-
all increase in average attributed equity for Corporate Center –
Core Functions in 2015. We expect that this will reduce the differ-
ence between average equity attributable to UBS Group AG
shareholders and average equity attributed to the business divi-
sions and Corporate Center. ▲
Average total equity attributed to the business divisions and
Corporate Center was CHF 39.9 billion in 2014, a decrease from
CHF 43.5 billion in 2013. This decrease was primarily due to lower
attributed equity in Corporate Center – Non-core and Legacy
Portfolio, reflecting further reductions related to RWA and LRD.
The increase in average attributed equity in Corporate Center –
Core Functions resulted mainly from equity required to underpin
certain Basel III capital deduction items that became relevant as of
1 January 2014.
Average equity attributable to UBS Group AG shareholders in-
creased to CHF 49.7 billion in 2014 from CHF 47.2 billion in 2013.
The difference between average equity attributable to UBS Group
Pillar 3 | Average attributed equity
CHF billion
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
of which: Core Functions
of which: Group items 1
of which: Non-core and Legacy Portfolio
Average equity attributed to the business divisions and Corporate Center
Difference
Average equity attributable to UBS Group AG shareholders
For the year ended
31.12.14
31.12.13
31.12.12
3.4
2.7
4.1
1.7
7.6
20.5
15.5
11.3
4.9
39.9
9.8
49.7
3.5
2.8
4.1
1.8
8.0
23.3
12.5
8.6
10.8
43.5
3.7
47.2
4.0
6.2
4.5
2.2
10.9
23.1
6.6
3.6
16.5
50.8
(2.1)
48.7
1 Group items within the Corporate Center carries common equity not allocated to the business divisions, reflecting equity that we have targeted above a 10% common equity tier 1 capital ratio. In addition, this includes
attributed equity for PaineWebber goodwill and intangible assets, for centrally held risk-based capital items and for certain Basel III capital deduction items. ▲
274
AG shareholders and average equity attributed to the business
divisions and Corporate Center increased to CHF 9.8 billion in
2014 from CHF 3.7 billion in 2013. This difference mainly results
from holding higher levels of equity than required under the
Basel III phase-in rules.
The return on equity (RoE) for the Group increased to 7.0% in
2014 from 6.7% in the prior year due to an increase in net profit
attributable to UBS Group AG shareholders. The Group’s RoE was
lower than the average RoAE of the business divisions due to the
negative RoAE of the Corporate Center and the fact that more
equity was attributable to UBS Group AG shareholders than the
total equity attributed to the business divisions and Corporate
Center.
Pillar 3 | Return on attributed equity and return on equity 1
In %
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Corporate Center – Non-core and Legacy Portfolio
UBS Group
1 Return on attributed equity shown for the business divisions and Corporate Center and return on equity shown for UBS Group. ▲
For the year ended
31.12.14
31.12.13
31.12.12
67.9
33.6
36.7
27.5
(0.6)
(4.7)
(39.9)
7.0
64.2
30.9
35.6
32.0
28.7
(14.8)
(21.4)
6.7
60.9
9.7
40.6
25.9
2.4
(56.2)
(22.8)
(5.1)
275
Risk, treasury and capital management Risk, treasury and capital management
Capital management
UBS shares
UBS Group AG shares
UBS AG shares
Audited | As of 31 December 2014, shares issued by UBS AG totaled
3,844,560,913 shares, of which 2,115,255 were held as treasury
shares, 3,716,910,207 were held by UBS Group AG and
125,535,451 were held by shareholders with a non-controlling
interest (NCI). The treasury shares as well as the shares held by
NCI, totaling a combined 127,650,706 shares, represent the pop-
ulation of UBS AG shares which were not exchanged into UBS
Group AG shares as of 31 December 2014. The number of UBS
AG shares issued increased by 2,558,844 shares in 2014 due to
the exercise of employee share options prior to the transfer of
deferred compensation plans to UBS Group AG. UBS AG shares
are registered shares with a par value of CHF 0.10 per share. ▲
Audited | As of 31 December 2014, total IFRS equity attributable to
UBS Group AG shareholders amounted to CHF 50,608 million
and was represented by a total of 3,717,128,324 shares issued,
reflecting 3,716,910,207 UBS AG shares that were tendered as
part of the share-for-share exchange offer or privately exchanged
into UBS Group AG shares and an additional 218,117 shares that
were issued upon exercise of employee share options after the
transfer of deferred compensation plans to UBS Group AG. For
the purpose of acquiring UBS AG shares, UBS Group AG’s Board
of Directors is authorized until 26 November 2016 to increase the
share capital of the company. The maximum number of shares
available as of 31 December 2014 to increase the share capital of
UBS Group AG for this purpose amounted to 127,650,706 regis-
tered shares.
Each share has a par value of CHF 0.10 and entitles the holder
to one vote at the UBS Group AG shareholders’ meeting, if entered
into the share register as having the right to vote, as well as a
proportionate share of distributed dividends. As the Articles of
Association of UBS Group AG indicate, there are no other classes
of shares and no preferential rights for shareholders. ▲
➔ Refer to “Capital structure” and “Shareholders’ participation
rights” in the “Corporate governance” section of this report for
more information
276
UBS shares
Shares outstanding
Shares issued
Treasury shares
Shares outstanding
of which: held by UBS Group AG
of which: held by shareholders with non-controlling interests
Earnings per share (CHF) 2
Basic
Diluted
Shareholders’ equity (CHF million)
Equity attributable to UBS shareholders
Less: goodwill and intangible assets 3
Tangible equity attributable to UBS shareholders
Book value per share (CHF)
Total book value per share
Tangible book value per share
Market capitalization and share price
Share price (CHF)
Market capitalization (CHF million) 4
UBS Group AG
UBS AG
As of
% change from
As of
% change from
31.12.14
31.12.13
31.12.13
31.12.14
31.12.13
31.12.13
3,717,128,324
87,871,737
3,629,256,587
3,844,560,913
3,842,002,069
2,115,255
73,800,252
3,842,445,658
3,768,201,817
0
(97)
2
3,716,910,207
125,535,451
UBS Group AG (consolidated) 1
UBS AG (consolidated)
As of or for the year ended
% change from
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.13
31.12.14
31.12.13
31.12.13
0.93
0.91
50,608
6,564
44,044
13.94
12.14
17.09
63,526
0.84
0.83
48,002
6,293
41,709
12.74
11.07
16.92
65,007
11
10
5
4
6
9
10
1
(2)
0.93
0.91
52,108
6,785
45,323
13.56
11.80
16.45
63,243
0.84
0.83
48,002
6,293
41,709
12.74
11.07
16.92
65,007
11
10
9
8
9
6
7
(3)
(3)
1 As UBS Group AG (consolidated) is considered to be the continuation of UBS AG (consolidated), comparative period information is the same for both. 2 Refer to “Note 9 Earnings per share (EPS) and shares out-
standing” in the “Financial information” section of this report for more information on UBS Group AG (consolidated) EPS. 3 Goodwill and intangible assets used in the calculation of tangible equity attributable to
UBS Group AG shareholders as of 31 December 2014 have been adjusted to reflect the non-controlling interests in UBS AG as of that date. 4 Market capitalization is calculated based on the total shares issued multiplied
by the share price at period end.
277
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Holding of UBS Group AG shares
We hold UBS Group AG own shares primarily to hedge employee
share and option participation plans.
In addition, the Investment Bank holds a limited number of
own shares in its capacity as a liquidity provider to the equity in-
dex futures market and as a market-maker in UBS Group AG
shares and derivatives on UBS Group AG shares. Furthermore, to
meet client demand, UBS has issued structured debt instruments,
including securitized leverage products, linked to UBS Group AG
shares, which are economically hedged by cash-settled derivatives
and, to a limited extent, own shares held by the Investment Bank.
As of 31 December 2014, we held 87,871,737 treasury shares,
or 2.4% of shares issued, compared with 73,800,252 UBS AG
own shares, or 1.9% of shares issued, as of 31 December 2013.
As of 31 December 2014, total future share delivery obliga-
tions in relation to employee share-based compensation awards
were 131 million shares (31 December 2013: 109 million shares),
taking into account the UBS Group AG share price at year-end
2014 as well as performance conditions. Share delivery obliga-
tions related to unvested and vested notional share awards, per-
formance share awards, options and stock appreciation rights.
As of 31 December 2014, we held 88 million UBS Group AG
treasury shares (31 December 2013: 73 million UBS AG shares)
which were available to satisfy delivery obligations related to no-
tional share awards, performance share awards, options and
stock appreciation rights. An additional 136 million unissued UBS
Group AG shares (31 December 2013: 139 million UBS AG shares)
in conditional share capital were available to satisfy the delivery
obligation related to options and stock appreciation rights. Trea-
sury shares held or newly issued shares are delivered to employees
at exercise or vesting.
The table below outlines the market purchases of UBS shares
by Group Treasury. It does not include the activities of the Invest-
ment Bank.
Treasury share activities 1
Month of purchase
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014
August 2014
September 2014
October 2014
November 2014
December 2014 2
Treasury shares purchased for employee share
and option participation plans and acquisitions
Total number of shares
Number of shares
Average price in CHF
Number of shares (Cumulative)
Average price in CHF
0
0
23,904,664
0
0
0
0
0
0
0
0
0
0.00
0.00
18.39
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0
0
23,904,664
23,904,664
23,904,664
23,904,664
23,904,664
23,904,664
23,904,664
23,904,664
23,904,664
23,904,664
0.00
0.00
18.39
18.39
18.39
18.39
18.39
18.39
18.39
18.39
18.39
18.39
1 This table excludes purchases for the purpose of hedging derivatives linked to UBS shares and for market making in UBS shares. The table also excludes UBS shares purchased by investment funds managed by UBS
for clients in accordance with specified investment strategies that are established by each fund manager acting independently of UBS and also excludes UBS shares purchased by pension and retirement benefit funds for
UBS employees, which are managed by a board of UBS management and employee representatives in accordance with Swiss law guidelines. UBS’s pension and other post-employment benefit funds purchased 2,092,369
UBS shares during the year and held 18,448,304 UBS Group AG shares as of 31 December 2014. 2 Reflects UBS Group AG shares. Previous months reflect UBS AG shares.
Trading volumes
1,000 shares
SIX Swiss Exchange total
SIX Swiss Exchange daily average
NYSE total
NYSE daily average
Source: Reuters
1 2014 data reflects UBS AG trading volumes up to 27 November 2014 and UBS Group AG trading volumes starting with 28 November 2014.
278
For the year ended
31.12.14 1
2,839,304
11,403
88,792
354
31.12.13
2,763,179
11,053
98,382
390
31.12.12
3,046,539
12,186
156,152
625
Listing of UBS shares
UBS Group AG shares were listed on the SIX Swiss Exchange (SIX)
on 28 November 2014 and also began regular way trading on the
New York Stock Exchange (NYSE) on the same date. They are
traded and settled as global registered shares. Global registered
shares provide direct and equal ownership for all shareholders,
irrespective of the country and stock exchange on which they are
traded.
UBS AG shares were delisted from the NYSE on 17 January
2015. The shares are currently listed on the SIX, however they will
be delisted upon the completion of either a squeeze-out proce-
dure according to the Swiss Stock Exchanges and Securities Trad-
ing Act or a squeeze-out merger of UBS AG into a subsidiary ac-
cording to the Swiss Merger Act.
The comparable average daily trading volume of UBS Group
AG shares from 28 November 2014 to 31 December 2014 as ad-
justed for the share exchange was 9.7 million shares on the SIX
and 0.2 million shares on the NYSE. The SIX is expected to remain
the main venue for determining the movement in our share price
due to the high volume traded on this exchange.
During the hours in which both the SIX and NYSE are simulta-
neously open for trading (generally 3:30 p.m. to 5:30 p.m. Cen-
tral European Time), price differences between these exchanges
are likely to be arbitraged away by professional market-makers.
Accordingly, the share price will typically be similar between the
two exchanges when considering the prevailing US dollar / Swiss
franc exchange rate. When the SIX is closed for trading, globally
traded volumes will typically be lower. However, the specialist firm
making a market in UBS shares on the NYSE is required to facili-
tate sufficient liquidity and maintain an orderly market in UBS
shares throughout normal NYSE trading hours.
(cid:55)(cid:36)(cid:53)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:82)(cid:84)(cid:75)(cid:69)(cid:71)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:86)(cid:2)(cid:88)(cid:85)(cid:2)(cid:38)(cid:44)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:54)(cid:75)(cid:86)(cid:67)(cid:80)(cid:85)(cid:2)(cid:43)(cid:80)(cid:70)(cid:71)(cid:90)
(cid:75)(cid:80)(cid:2)(cid:7)(cid:2)
(cid:52)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:82)(cid:84)(cid:75)(cid:69)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)(cid:2)(cid:87)(cid:80)(cid:86)(cid:75)(cid:78)(cid:2)(cid:20)(cid:25)(cid:2)(cid:48)(cid:81)(cid:88)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:41)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:20)(cid:26)(cid:2)(cid:48)(cid:81)(cid:88)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:2)(cid:81)(cid:80)(cid:89)(cid:67)(cid:84)(cid:70)(cid:85)(cid:16)
(cid:19)(cid:2)(cid:44)(cid:67)(cid:80)(cid:87)(cid:67)(cid:84)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)(cid:115) (cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:18)(cid:18)
(cid:19)(cid:25)(cid:23)
(cid:19)(cid:23)(cid:18)
(cid:19)(cid:20)(cid:23)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:51)(cid:19)(cid:20)
(cid:20)(cid:51)(cid:19)(cid:20)
(cid:21)(cid:51)(cid:19)(cid:20)
(cid:22)(cid:51)(cid:19)(cid:20)
(cid:19)(cid:51)(cid:19)(cid:21)
(cid:20)(cid:51)(cid:19)(cid:21)
(cid:21)(cid:51)(cid:19)(cid:21)
(cid:22)(cid:51)(cid:19)(cid:21)
(cid:19)(cid:51)(cid:19)(cid:22)
(cid:20)(cid:51)(cid:19)(cid:22)
(cid:21)(cid:51)(cid:19)(cid:22)
(cid:22)(cid:51)(cid:19)(cid:22)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:85)(cid:86)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:37)(cid:42)(cid:40)
(cid:38)(cid:44)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:54)(cid:75)(cid:86)(cid:67)(cid:80)(cid:85)(cid:2)(cid:43)(cid:80)(cid:70)(cid:71)(cid:90)(cid:2)(cid:37)(cid:42)(cid:40)
(cid:40)(cid:81)(cid:84)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:82)(cid:84)(cid:75)(cid:69)(cid:71)(cid:2)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:28)(cid:2)(cid:89)(cid:89)(cid:89)(cid:16)(cid:87)(cid:68)(cid:85)(cid:16)(cid:69)(cid:81)(cid:79)(cid:17)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:82)(cid:84)(cid:75)(cid:69)(cid:71)
Ticker symbols UBS Group AG
Ticker symbols UBS AG
Trading exchange
SIX Swiss Exchange
New York Stock Exchange
SIX / NYSE
Bloomberg
Reuters
UBSG
UBS
UBSG VX
UBS UN
UBSG.VX
UBS.N
Trading exchange
SIX Swiss Exchange
SIX
UBSN
Bloomberg
Reuters
UBSN SW
UBSN.S
Security identification codes
Security identification codes
ISIN
Valoren
Cusip
CH0244767585
24 476 758
CINS H42097 10 7
ISIN
Valoren
Cusip
CH0024899483
2 489 948
CINS H89231 33 8
279
(cid:20)(cid:18)(cid:18)(cid:16)(cid:18)
(cid:19)(cid:26)(cid:25)(cid:16)(cid:23)
(cid:19)(cid:25)(cid:23)(cid:16)(cid:18)
(cid:19)(cid:24)(cid:20)(cid:16)(cid:23)
(cid:19)(cid:23)(cid:18)(cid:16)(cid:18)
(cid:19)(cid:21)(cid:25)(cid:16)(cid:23)
(cid:19)(cid:20)(cid:23)(cid:16)(cid:18)
(cid:19)(cid:19)(cid:20)(cid:16)(cid:23)
(cid:19)(cid:18)(cid:18)(cid:16)(cid:18)
(cid:26)(cid:25)(cid:16)(cid:23)
(cid:25)(cid:23)(cid:16)(cid:18)
(cid:24)(cid:20)(cid:16)(cid:23)
(cid:23)(cid:18)(cid:16)(cid:18)
(cid:21)(cid:25)(cid:16)(cid:23)
(cid:20)(cid:23)(cid:16)(cid:18)
(cid:19)(cid:20)(cid:16)(cid:23)
(cid:18)(cid:16)(cid:18)
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Stock exchange prices
SIX Swiss Exchange
New York Stock Exchange
High (CHF)
Low (CHF)
Period end (CHF)
High (USD)
Low (USD)
Period end (USD)
19.10
17.84
17.84
17.15
16.75
16.93
16.93
16.58
16.93
18.74
18.30
18.65
18.74
19.10
18.95
18.91
19.10
19.60
19.30
19.60
18.02
16.39
15.62
15.62
12.60
12.79
13.60
19.13
12.23
15.75
17.60
19.13
18.60
17.83
18.53
18.60
17.50
19.65
19.34
19.65
17.51
17.00
13.95
13.95
16.44
16.36
13.95
15.20
16.17
15.20
15.57
16.21
16.21
17.34
17.32
16.76
17.57
17.40
16.76
14.09
16.12
15.62
14.09
14.23
9.69
11.39
9.69
10.55
10.64
9.34
9.80
9.34
14.37
15.43
13.31
14.92
13.94
14.15
13.31
8.20
14.76
12.50
10.56
8.20
17.09
17.09
17.09
17.13
16.70
16.66
16.66
16.46
15.67
16.27
16.27
17.98
18.40
18.26
18.26
18.87
17.99
16.92
16.92
18.50
16.08
14.55
14.27
14.27
11.45
11.05
12.65
11.18
11.18
10.54
15.33
16.48
15.35
15.35
16.68
14.46
17.14
16.05
16.05
18.97
13.29
10.70
21.50
18.22
18.22
18.13
17.43
18.95
18.12
18.10
18.95
21.15
20.42
21.08
21.15
21.50
21.45
21.50
21.00
21.61
21.61
21.48
18.70
17.65
16.99
16.99
13.57
14.15
14.77
20.08
14.21
18.63
20.03
20.08
18.48
18.48
18.47
17.75
16.84
19.31
19.18
19.31
15.82
15.31
15.04
15.04
17.03
16.96
15.04
16.78
17.27
16.78
17.12
18.22
18.22
19.62
19.59
18.49
20.12
19.17
18.49
15.09
17.94
16.54
15.09
15.11
9.78
12.32
9.78
10.96
11.17
10.42
10.47
10.42
17.20
16.11
12.26
14.99
13.04
12.26
12.40
7.06
15.03
11.25
9.40
7.06
17.05
17.05
17.05
17.99
17.38
17.37
17.37
17.94
17.17
18.32
18.32
20.13
20.91
20.72
20.72
21.36
19.87
19.25
19.25
20.52
16.95
15.39
15.74
15.74
12.18
11.71
14.02
11.83
11.83
11.43
18.26
18.05
16.47
16.47
17.03
13.22
16.28
15.51
15.51
18.31
12.21
9.43
2014
Fourth quarter 2014
December 1
November
October
Third quarter 2014
September
August
July
Second quarter 2014
June
May
April
First quarter 2014
March
February
January
2013
Fourth quarter 2013
Third quarter 2013
Second quarter 2013
First quarter 2013
2012
Fourth quarter 2012
Third quarter 2012
Second quarter 2012
First quarter 2012
2011
Fourth quarter 2011
Third quarter 2011
Second quarter 2011
First quarter 2011
2010
Fourth quarter 2010
Third quarter 2010
Second quarter 2010
First quarter 2010
2009
Fourth quarter 2009
Third quarter 2009
Second quarter 2009
First quarter 2009
1 UBS Group AG shares.
280
Corporate
governance,
responsibility and
compensation
Audited information according to the Swiss law and applicable regulatory
requirements and guidance
Disclosures provided are in line with the requirements of article 663c para. 1 and 3 of the Swiss Code of Obligations (supplemen-
tary disclosures for companies whose shares are listed on a stock exchange: shareholdings), the Ordinance against Excessive Com-
pensation in Listed Stock Corporations and applicable regulations and guidance. Tables containing such information are marked
as “Audited” throughout this section.
Information assured according to the Global Reporting Initiative (GRI)
Content of the sections “Corporate responsibility” and “Our employees” has been reviewed by Ernst & Young Ltd (EY) against the
GRI Sustainability Reporting Guidelines. This content has been prepared in accordance with the comprehensive option of GRI G4
as evidenced in the EY assurance report at www.ubs.com/global/en/about_ubs/corporate_responsibility/commitment_strategy/
reporting_assurance.html. The assurance by EY also covered other relevant text and data on the website of UBS which is refer-
enced in the GRI Content Index (www.ubs.com/gri).
281
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Corporate governance
Our corporate governance principles are designed to support our objective of sustainable profitability, as well as to
create value and protect the interests of our shareholders and other stakeholders. We use the term “corporate
governance” when referring to the organizational structure of the Group and operational practices of our management.
UBS Group AG is subject to, and compliant with, all relevant
Swiss legal and regulatory requirements regarding corporate gov-
ernance, including the SIX Swiss Exchange’s (SIX) Directive on
Information Relating to Corporate Governance, as well as the
standards established in the Swiss Code of Best Practice for Cor-
porate Governance, including the appendix on executive com-
pensation.
In addition, as a foreign company with shares listed on the
New York Stock Exchange (NYSE), UBS Group AG is compliant
with all relevant corporate governance standards applicable to
foreign private issuers.
Until 17 January 2015, UBS AG also had shares listed on the
NYSE. During the time it was so listed, it was compliant with all
relevant corporate governance standards applicable to foreign
private issuers.
Based on article 716b of the Swiss Code of Obligations and ar-
ticles 25 and 27 of the Articles of Association of UBS Group AG and
UBS AG (Articles of Association), the Board of Directors (BoD) ad-
opted the Organization Regulations of UBS Group AG and UBS AG
(Organization Regulations), which constitute our primary corporate
governance guidelines. The revised Organization Regulations will
become effective in March 2015. The BoD also adopted the cur-
rently applicable UBS Code of Business Conduct and Ethics (Code).
In this section, references to “our,” “we” and “us” relate to
both UBS Group AG and UBS AG, unless otherwise indicated,
and when we refer to corporate bodies or functions we mean
those of both UBS Group AG and UBS AG. In its decision of
22 December 2014, SIX Exchange Regulation exempted UBS
AG from the SIX Listing Rules requirement to publish informa-
tion about corporate governance in this report, but informa-
tion about UBS AG continues to be presented in response to
US Securities and Exchange Commission (SEC) regulations.
To the extent practicable the governance structure of UBS
Group AG mirrors that of UBS AG. The Articles of Association
of both entities are substantially similar and the two entities are
governed by a combined set of Organization Regulations. The
discussion of corporate governance in this section, therefore,
relates to both entities equally, except where specifically noted
to be different.
➔ Refer to the Articles of Association, the Organization
Regulations and the Code at www.ubs.com/governance for
more information
Differences from corporate governance standards relevant
to US-listed companies
According to the NYSE listing standards on corporate governance,
foreign private issuers are required to disclose any significant ways
in which their corporate governance practices differ from those
required to be followed by domestic companies.
Performance evaluation of the BoD committees
All BoD committees perform a self-assessment of their activities
and report back to the full BoD.
282
Responsibility of the Audit Committee with regard to indepen-
dent auditors
The Audit Committee is responsible for the compensation, reten-
tion and oversight of the independent auditors, but not for their
appointment. It assesses the performance and qualification of the
external auditors and submits its proposal for appointment, reap-
pointment or removal of the independent auditors to the full BoD.
In line with the Swiss Code of Obligations, the BoD in turn brings
its proposal to the shareholders for their vote at the Annual Gen-
eral Meeting (AGM) of shareholders.
Discussion of risk assessment and risk management policies by
the Risk Committee
In accordance with our Organization Regulations, the Risk Com-
mittee, on behalf of the BoD, oversees our risk principles and risk
capacity. The Risk Committee is responsible for monitoring our
adherence to those risk principles and for monitoring whether
business divisions and control units maintain appropriate systems
for risk management and control.
Supervision of the internal audit function
The Chairman of the BoD (Chairman) and the Audit Committee
share the supervisory responsibility and authority with respect to
the internal audit function.
Responsibility of the Human Resources and Compensation
Committee for performance evaluations of senior management
The Human Resources and Compensation Committee (HRCC),
together with the BoD, proposes to the shareholders for their
approval at the AGM the maximum aggregate amount of com-
pensation for the BoD, the maximum aggregate amount of
fixed compensation for the Group Executive Board (GEB) and
the aggregate amount of variable compensation for the GEB.
In line with Swiss law, the AGM elects the members of the
HRCC.
Responsibility of the Governance and Nominating Committee for
the evaluation of the Board of Directors
The BoD has direct responsibility and authority to evaluate its own
performance, based on a pre-evaluation by the Governance and
Nominating Committee.
Proxy statement reports of the Audit Committee and the Human
Resources and Compensation Committee
NYSE listing standards would require the abovementioned com-
mittees to submit their reports directly to shareholders. Under
Swiss law, all our reports addressed to shareholders, including
those from the abovementioned committees, are provided and
signed by the full BoD, which has ultimate responsibility vis-à-vis
the shareholders.
Shareholders’ votes on equity compensation plans
Swiss law authorizes the BoD to approve compensation plans.
Though Swiss law does not allocate such authority to sharehold-
ers, it requires that Swiss companies determine the nature and
components of capital in their articles of association, and each
increase in capital has to be submitted for shareholder approval.
This means that shareholder approval is mandatory if equity-based
compensation plans make an increase in capital necessary. No
shareholder approval is required if shares for such plans are pur-
chased in the market.
➔ Refer to “Board of Directors” in this section for more information
on the Board of Directors’ committees
➔ Refer to “Capital structure” in this section for more information
on capital
283
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Group structure and shareholders
UBS Group legal entity structure
UBS Group AG is organized as an Aktiengesellschaft (AG), a stock
corporation, pursuant to article 620ff. of the Swiss Code of Obli-
gations. UBS Group AG is the ultimate parent company of the
UBS Group (Group). UBS Group AG as the holding company of
the Group is a non-operating, financial holding company that will
issue debt and provide capital to its subsidiaries as required.
UBS AG is also organized as an AG pursuant to article 620ff. of
the Swiss Code of Obligations. As of 31 December 2014, UBS
Group AG owned 96.68% of the outstanding shares of UBS AG.
Upon the successful completion of the squeeze-out procedure,
UBS Group AG will own all the shares of UBS AG and is expected
to directly acquire certain other Group companies over time.
➔ Refer to the “UBS Group – Changes to our legal structure”
through local subsidiaries. This can be the case when required for
legal, tax or regulatory purposes, or when legal entities join the
Group through acquisition.
As previously announced, we intend to establish a new bank-
ing subsidiary of UBS AG in Switzerland, UBS Switzerland AG, to
which we will transfer our Retail & Corporate business division
and the Swiss-booked business of our Wealth Management busi-
ness division in a phased approach starting in mid-2015. We have
also started to implement a revised business and operating model
for UBS Limited in the UK and will set up an intermediate holding
company in the US under the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
➔ Refer to the “UBS Group – Changes to our legal structure”
section of this report for more information
section in this report for more information
Operational Group structure
Our legal entity structure is designed to support our businesses
with an efficient legal, tax and funding framework considering
regulatory restrictions in the countries where we operate. Cur-
rently, our business divisions and the Corporate Center primarily
operate out of UBS AG, through its branches worldwide, aiming
to capitalize on the business opportunities and cost efficiencies
that arise from the use of a single legal platform, and to enable
the flexible and efficient use of capital. Where it is neither possible
nor efficient to operate out of UBS AG, businesses operate
As of 31 December 2014, the operational structure of the Group
comprised five business divisions: Wealth Management, Wealth
Management Americas, Retail & Corporate, Global Asset Man-
agement and the Investment Bank, as well as the Corporate Cen-
ter with its components Core Functions and Non-core and Legacy
Portfolio.
➔ Refer to the “Financial and operating performance” section and
“Note 2 Segment reporting” in the “Financial information”
section of this report for more information
284
Listed and non-listed companies belonging to the Group
The Group includes a number of consolidated entities, of which
only UBS Group AG and UBS AG are listed on a stock exchange.
➔ Refer to “Corporate information” for UBS Group AG and UBS AG
in this report for more information
➔ Refer to “Note 30a Interests in subsidiaries” in the “Financial
information” section of this report for more information on the
significant subsidiaries of the Group
Significant shareholders
Under the Swiss Federal Act on Stock Exchanges and Securities
Trading of 24 March 1995 as amended (the Swiss Stock Exchange
Act), anyone holding shares in a company listed in Switzerland, or
holding derivative rights related to shares of such a company, must
notify the company and the SIX if the holding reaches, falls below
or exceeds one of the following thresholds: 3, 5, 10, 15, 20, 25,
331⁄3, 50, or 662⁄3% of voting rights, regardless of whether or not
such rights may be exercised. The detailed disclosure requirements
and the methodology for calculating the thresholds are defined in
the FINMA Ordinance on Stock Exchanges and Securities Trading
(SESTO-FINMA). In particular, the SESTO-FINMA sets forth that
nominee companies that cannot autonomously decide how voting
rights are exercised are not obligated to notify us and SIX if they
reach, exceed or fall below the threshold percentages.
In addition, pursuant to the Swiss Code of Obligations, we
must disclose in the notes to our financial statements the identity
of any shareholder with a holding of more than 5% of the total
share capital of UBS Group AG and UBS AG.
According to disclosure notifications filed with UBS Group AG
and the SIX under the Swiss Stock Exchange Act and the respec-
tive FINMA Ordinance, on 10 December 2014, GIC Private Limited
disclosed a holding of 7.07% of the total share capital of UBS
Group AG. The beneficial owner of this holding is the Govern-
ment of Singapore. On 10 December 2014, Norges Bank, Oslo,
the Central Bank of Norway, disclosed a holding of 3.30%. On
15 January 2015, BlackRock Inc., New York, disclosed a holding of
4.89%. In accordance with the Swiss Stock Exchange Act, the
percentages indicated above were calculated in relation to the
total share capital of UBS Group AG reflected in the Articles of
Association at the time of the respective disclosure notification.
Information on disclosures under the Swiss Stock Exchange Act is
available on the SIX Disclosure Office website at www.six-
exchange-regulation.com/obligations/disclosure/major_share-
holders_en.html.
According to the share register, the shareholders (acting in
their own name or in their capacity as nominees for other inves-
tors or beneficial owners) listed in the table below were registered
with 3% or more of the total share capital of UBS Group AG as of
31 December 2014.
With respect to UBS AG, the only shareholder that owns more
than 5% of its shares is UBS Group AG. At year-end 2014, UBS
Group AG owned 96.68% of the outstanding shares of UBS AG.
Cross-shareholdings
We have no cross-shareholdings in excess of a reciprocal 5% of
capital or voting rights with any other company.
Audited | Shareholders registered in the UBS Group AG share register with 3% or more of the total share capital 1
% of share capital
Chase Nominees Ltd., London
31.12.14
9.05
GIC Private Limited, Singapore
DTC (Cede & Co.), New York 2
Nortrust Nominees Ltd., London
3.52
1 Numbers for the years 2013 and 2012 refer to UBS AG. 2 DTC (Cede & Co.), New York, “The Depository Trust Company,” is a US securities clearing organization. ▲
5.76
6.61
31.12.13
11.73
6.39
5.89
3.75
31.12.12
11.94
6.40
5.28
3.84
285
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Capital structure
Issued ordinary share capital
Pursuant to the Swiss Code of Obligations, shareholders must de-
cide in a shareholders’ meeting upon any increase in the total
number of shares, which may arise from an ordinary share capital
increase or the creation of conditional or authorized capital. On
10 June 2014, UBS Group AG was entered in the commercial
register with an ordinary share capital of CHF 100,000 and a con-
ditional share capital of CHF 50,000. On 26 November 2014, at
the Extraordinary General Meeting (EGM) of UBS Group AG, the
ordinary share capital of CHF 100,000 was cancelled and subse-
quently increased to CHF 347,535,644.10 by means of a contri-
bution in kind in the form of UBS AG shares that were tendered
during the initial acceptance period of the share-for-share ex-
change offer. On the same date, the EGM agreed to create an
authorized share capital of CHF 36,920,447.20. On 16 December
2014, UBS Group AG’s BoD decided to increase the ordinary share
capital of UBS Group AG out of authorized share capital of CHF
24,155,376.60, by means of a contribution in kind in the form of
UBS AG shares either tendered in the additional acceptance pe-
riod of the share-for-share exchange offer or privately exchanged
with various shareholders and banks in Switzerland and elsewhere
outside the US after the end of the additional acceptance period
on the same terms and conditions as the exchange offer.
At year-end 2014, 3,717,128,324 UBS Group AG shares were
issued with a par value of CHF 0.10 each, leading to a share capi-
tal of CHF 371,712,832.40.
At year-end 2014, 3,844,560,913 UBS AG shares were issued
with a par value of CHF 0.10 each, leading to a share capital of
CHF 384,456,091.30.
Issued share capital of UBS Group AG
Issue of shares out of conditional capital due to employee options exercised in 2014
As of 31 December 2014
Share capital in CHF
Number of shares
Par value in CHF
21,812
218,117
371,712,832
3,717,128,324
0.10
0.10
Distribution of UBS Group AG shares
As of 31 December 2014
Number of shares registered
1–100
101–1,000
1,001–10,000
10,001–100,000
100,001–1,000,000
1,000,001–5,000,000
5,000,001–38,420,020 (1%)
1–2%
2–3%
3–4%
4–5%
Over 5%
Total registered
Unregistered 3
Total shares issued
Shareholders registered
Shares registered
Number
29,790
146,606
84,168
7,914
572
87
22
2
2
1
0
3 1
269,167
%
11.1
54.5
31.3
2.9
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
Number % of shares issued
1,722,377
68,397,699
235,665,824
187,875,793
157,772,529
195,333,401
246,899,459
92,090,895
189,999,567
130,915,291
0
795,961,628
2,302,634,463 2
1,414,493,861
3,717,128,324
0.0
1.9
6.3
5.1
4.2
5.3
6.6
2.5
5.1
3.5
0.0
21.4
61.9
38.1
100.0
1 On 31 December 2014, Chase Nominees Ltd., London, entered as a trustee / nominee, was registered with 9.05% of all UBS Group AG shares issued. However, according to the provisions of UBS Group AG, voting
rights of trustees / nominees are limited to a maximum of 5% of all UBS Group AG shares issued. The US securities clearing organization DTC (Cede & Co.), New York, was registered with 5.76% of all UBS Group AG
shares issued and is not subject to this 5% voting limit as a securities clearing organization. The same applies to the GIC Private Limited, Singapore, which was registered as beneficial owner with 6.61% of all UBS Group
AG shares issued. 2 Of the total shares registered, 343,649,250 shares did not carry voting rights. 3 Shares not entered in the UBS Group AG share register as of 31 December 2014.
286
Conditional share capital
As mentioned above, on 10 June 2014, UBS Group AG was en-
tered into the commercial register also with a conditional share
capital of CHF 50,000, structured as follows:
– a maximum of CHF 25,000, represented by a maximum of
250,000 fully paid registered shares with a par value of CHF 0.10
each, to be issued upon exercise of employees’ options issued to
employees and members of the management and of the Board
of Directors of UBS Group AG and its subsidiaries; and
– a maximum of CHF 25,000, represented by up to 250,000 fully
paid registered shares with a nominal value of CHF 0.10 each,
to be issued through the voluntary or mandatory exercise of
conversion rights and / or warrants granted in connection with
the issuance of bonds or similar financial instruments by UBS
Group AG or one of its Group companies on domestic or inter-
national capital markets.
At the EGM held on 26 November 2014, the provisions of the
Articles of Association concerning the conditional capital were
amended as follows:
– the conditional capital to be issued upon exercise of employ-
ees’ options was increased to a maximum of CHF 13,620,031.20
represented by a maximum of 136,200,312 fully paid regis-
tered shares with a par value of CHF 0.10 each; and
– the conditional capital to be issued through the voluntary or
mandatory exercise of conversion rights and / or warrants was
increased to a maximum of CHF 38,000,000 represented by up
to 380,000,000 fully paid registered shares with a nominal
value of CHF 0.10 each.
➔ Refer to article 4a of UBS Group AG’s Articles of Association for
more information on the terms and conditions of the issue of
shares out of existing conditional capital. The Articles of Associa-
tion are available on our website at www.ubs.com/governance
By 31 December 2014, options on 218,117 shares were exer-
cised under the option plans with a total of 135,982,195 condi-
tional capital shares being available at the end of 2014 to satisfy
further exercises of options. Conversely, at year-end 2014, the
BoD had not made use of the allowance to issue bonds or war-
rants with conversion rights covered by conditional share capital.
➔ Refer to “Note 11 Share capital and significant shareholders” to
UBS AG (standalone) financial statements in the “Financial
information” section of this report for information about the
conditional share capital of UBS AG
Authorized share capital
The EGM held on 26 November 2014 authorized the BoD of UBS
Group AG to increase, at any time until 26 November 2016, the
share capital by a maximum of CHF 36,920,447.20, by issuing up
to 369,204,472 fully paid registered shares with a par value of
CHF 0.10 each, for the purpose (i) of acquiring shares in UBS AG,
with shares of UBS Group AG, or (ii) financing or re-financing any
acquisition for cash of shares in UBS AG, howsoever structured,
including in connection with an exchange offer, a squeeze-out
pursuant to the Swiss Stock Exchange Act, a squeeze-out merger
or through on-exchange or off-exchange purchases.
➔ Refer to article 4b of UBS Group AG’s Articles of Association for
more information on the terms and conditions of the issue of
shares out of existing authorized capital. The Articles of Associa-
tion are available on our website at www.ubs.com/governance
On 16 December 2014, in connection with the second settle-
ment of the share-for-share exchange offer, the Board of Directors
made use of the authorization under article 4b of the Articles of
Association by increasing the share capital of UBS Group AG by
CHF 24,155,376.60 out of authorized capital. As a result, the
Articles of Association have been amended to reflect a remaining
authorized capital in the maximum amount, available as of 31 De-
cember 2014, of CHF 12,765,070.60, represented by 127,650,706
fully paid registered shares with a par value of CHF 0.10 each.
UBS AG had no authorized share capital available as of
31 December 2014, 2013 and 2012.
Conditional capital of UBS Group AG
Employee equity participation plans
Conversion rights / warrants granted in connection with bonds
Total
Authorized capital of UBS Group AG
Authorized capital
Total
Maximum number of
shares to be issued
Year approved by Extraor-
dinary General Meeting
% of shares issued
31.12.14
135,982,195
380,000,000
515,982,195
2014
2014
31.12.14
3.66%
10.22%
13.88%
Maximum number of
shares to be issued
Year approved by Extraor-
dinary General Meeting
% of shares issued
31.12.14
127,650,706
127,650,706
2014
31.12.14
3.43%
3.43%
287
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Shareholders, legal entities and nominees: type and geographical distribution
As of 31 December 2014
Individual shareholders
Legal entities
Nominees, fiduciaries
Total registered shares
Unregistered shares
Total
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: Germany
of which: UK
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Total registered shares
Unregistered shares
Total
Individual shareholders
Legal entities
Number
7,126
6,375
4,875
13,515
4,702
5,202
3,469
142
%
2.6
2.4
1.8
5.0
1.7
1.9
1.3
0.1
Number
175
76
119
273
23
12
228
10
237,956
88.4
4,928
263,472
97.9
5,495
%
0.1
0.0
0.0
0.1
0.0
0.0
0.1
0.0
1.8
2.0
Shareholders registered
Number
263,472
5,495
200
%
97.9
2.0
0.1
269,167
100.0
Total
Number
7,340
6,479
5,017
13,874
4,731
5,224
3,767
152
%
2.7
2.4
1.9
5.2
1.8
1.9
1.4
0.1
242,936
90.3
Nominees
Number
39
28
23
86
6
10
70
0
52
%
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
200
0.1
269,167
100.0
730,190,335
19.6
1,072,537,215
28.9
3,717,128,324
100.0
Individual shareholders
Legal entities
Number of shares
Number of shares
Nominees
Number of shares
Total
Number of shares
35,535,059
33,748,243
31,735,039
57,519,389
14,013,568
34,673,601
8,363,058
469,162
375,117,426
499,906,913
0
499,906,913
%
1.0
0.9
0.9
1.5
0.4
0.9
0.2
0.0
10.1
13.4
13.4
53,473,605
49,250,086
320,312,890
26,475,612
245,657
2,310,469
23,507,436
412,050
329,928,228
730,190,335
0
%
1.4
1.3
8.6
0.7
0.0
0.1
0.6
0.0
8.9
19.6
312,293,295
312,080,197
9,416,610
731,768,182
13,459,114
585,835,122
132,473,946
19,059,128
1,072,537,215
0.0
0
%
8.4
8.4
0.3
19.7
0.4
15.8
3.6
0.0
0.5
28.9
Shares registered
Number
499,906,913
730,190,335
1,072,537,215
2,302,634,463
1,414,493,861
3,717,128,324
401,301,959
395,078,526
361,464,539
815,763,183
27,718,339
622,819,192
164,344,440
881,212
724,104,782
2,302,634,463
1,414,493,861
%
13.4
19.6
28.9
61.9
38.1
100.0
%
10.8
10.6
9.7
21.9
0.7
16.8
4.4
0.0
19.5
61.9
38.1
Changes of shareholders’ equity and shares
In accordance with International Financial Reporting Standards
(IFRS), Group equity attributable to UBS Group AG shareholders
amounted to CHF 50.6 billion as of 31 December 2014 (for refer-
ence, equity attributable to UBS AG shareholders as of 31 Decem-
ber 2013 amounted to CHF 48.0 billion, and as of 31 December
2012, CHF 45.9 billion). UBS Group AG shareholders’ equity was
represented by 3,717,128,324 issued shares as of 31 December
2014 (for reference, UBS AG shareholders’ equity in 2013:
3,842,002,069 shares and in 2012: 3,835,250,233 shares).
➔ Refer to the “Statement of changes in equity” in the “Financial
information” section of this report for more information on
changes in shareholders’ equity over the last three years
Ownership
Ownership of UBS Group AG shares is widely spread. The tables
in this section provide information about the distribution of UBS
Group AG shareholders by category and geographical location.
This information relates only to registered shareholders and can-
not be assumed to be representative of UBS Group AG’s entire
investor base nor the actual beneficial ownership. Only sharehold-
ers registered in the share register as “shareholders with voting
rights” are entitled to exercise voting rights.
➔ Refer to “Shareholders’ participation rights” in this section for
more information
As of 31 December 2014, 1,958,985,213 UBS Group AG
shares carried voting rights, 343,649,250 shares were entered in
the share register without voting rights and 1,414,493,861 shares
were not registered. All shares were fully paid up and eligible for
dividends. There are no preferential rights for shareholders, and
no other classes of shares are issued by UBS Group AG.
At year-end 2014, we owned 87,871,737 UBS Group AG reg-
istered shares corresponding to 2.36% of the total share capital
of UBS Group AG. At the same time, we had disposal positions
relating to 271,666,117 voting rights of UBS Group AG, corre-
sponding to 7.31% of the total voting rights of UBS Group AG.
7.08% thereof consisted of voting rights on shares deliverable in
respect of employee awards. The calculation methodology for the
disposal position is based on the SESTO-FINMA, which sets forth
that all future potential share delivery obligations irrespective of
the contingent nature of the delivery must be taken into account.
UBS AG shares are held predominantly by UBS Group AG. At
year-end 2014, UBS Group AG owned 96.68% of the outstand-
ing shares of UBS AG.
Shares and participation certificates
We have only one unified class of shares issued. Our shares are is-
sued in registered form, and are traded and settled as global regis-
tered shares. Each registered share has a par value of CHF 0.10 and
carries one vote subject to the restrictions set out under “Transfer-
ability, voting rights and nominee registration.” Global registered
shares provide direct and equal ownership for all shareholders,
288
Shareholders, legal entities and nominees: type and geographical distribution
Shareholders registered
Shares registered
As of 31 December 2014
Individual shareholders
Legal entities
Nominees, fiduciaries
Total registered shares
Unregistered shares
Total
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: Germany
of which: UK
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Total registered shares
Unregistered shares
Total
269,167
100.0
Number
263,472
5,495
200
Number
7,340
6,479
5,017
13,874
4,731
5,224
3,767
152
%
97.9
2.0
0.1
%
2.7
2.4
1.9
5.2
1.8
1.9
1.4
0.1
Number
7,126
6,375
4,875
13,515
4,702
5,202
3,469
142
%
2.6
2.4
1.8
5.0
1.7
1.9
1.3
0.1
Number
175
76
119
273
23
12
228
10
Nominees
Number
39
28
23
86
6
10
70
0
52
%
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
%
0.1
0.0
0.0
0.1
0.0
0.0
0.1
0.0
1.8
2.0
237,956
88.4
4,928
242,936
90.3
263,472
97.9
5,495
200
0.1
269,167
100.0
Individual shareholders
Legal entities
Total
Individual shareholders
Legal entities
Number
499,906,913
730,190,335
1,072,537,215
2,302,634,463
1,414,493,861
3,717,128,324
Total
Number of shares
401,301,959
395,078,526
361,464,539
815,763,183
27,718,339
622,819,192
164,344,440
881,212
724,104,782
2,302,634,463
1,414,493,861
%
13.4
19.6
28.9
61.9
38.1
100.0
%
10.8
10.6
9.7
21.9
0.7
16.8
4.4
0.0
19.5
61.9
38.1
%
1.4
1.3
8.6
0.7
0.0
0.1
0.6
0.0
8.9
19.6
Nominees
Number of shares
312,293,295
312,080,197
9,416,610
731,768,182
13,459,114
585,835,122
132,473,946
0.0
19,059,128
1,072,537,215
0
%
8.4
8.4
0.3
19.7
0.4
15.8
3.6
0.0
0.5
28.9
Number of shares
35,535,059
33,748,243
31,735,039
57,519,389
14,013,568
34,673,601
8,363,058
469,162
375,117,426
499,906,913
0
499,906,913
%
1.0
0.9
0.9
1.5
0.4
0.9
0.2
0.0
10.1
13.4
13.4
Number of shares
53,473,605
49,250,086
320,312,890
26,475,612
245,657
2,310,469
23,507,436
412,050
329,928,228
730,190,335
0
730,190,335
19.6
1,072,537,215
28.9
3,717,128,324
100.0
irrespective of the country and stock exchange on which they are
traded. We have no participation certificates outstanding.
➔ Refer to “UBS shares” in the “Capital management” section of
this report for more information
Distributions to shareholders
The decision to pay a dividend, and the amount of any dividend, de-
pends on a variety of factors, including our profits and cash flow
generation and on our progress towards achieving our targeted capital
ratios. For financial year 2014, the BoD intends to propose a dividend
payment of CHF 0.50 per share against reserves from capital contribu-
tion to be voted upon by shareholders at the AGM on 7 May 2015. This
is a 100% increase from the previous years’ dividend payment by UBS
AG. The BoD also intends to propose to the UBS Group AG sharehol-
ders that they approve the distribution of a supplementary capital re-
turn out of capital contribution reserve of CHF 0.25 per share upon and
subject to the successful completion of the squeeze-out procedure.
Transferability, voting rights and nominee registration
We do not apply any restrictions or limitations on the transferabil-
ity of shares. Voting rights may be exercised without any restric-
tions by shareholders entered into the share register if they ex-
pressly render a declaration of beneficial ownership according to
the provisions of the Articles of Association.
We have special provisions for the registration of fiduciaries and
nominees. Fiduciaries and nominees are entered in the share reg-
ister with voting rights up to a total of 5% of all issued UBS Group
AG and UBS AG shares if they agree to disclose, upon our request,
beneficial owners holding 0.3% or more of all issued UBS Group
AG and UBS AG shares. An exception to the 5% voting limit rule
is in place for securities clearing organizations, such as The Depo-
sitory Trust Company in New York.
➔ Refer to “Shareholders’ participation rights” in this section for
more information
Convertible bonds and options
As of 31 December 2014, there were no contingent capital securi-
ties or convertible bonds outstanding requiring the issuance of
new shares.
➔ Refer to the “Capital management” section of this report for
more information on our outstanding capital instruments
As of 31 December 2014, there were 126,085,196 employee
options outstanding, including stock appreciation rights. Options
and stock appreciation rights equivalent to 31,750,042 shares
were in-the-money and exercisable. Option-based compensation
plans are sourced by either purchasing UBS Group AG shares in
the market, or issuing new shares out of conditional capital. As
mentioned above, as of 31 December 2014, 135,982,195 unis-
sued shares in conditional share capital were available for this
purpose.
➔ Refer to the “Conditional share capital” section in this report for
more information on outstanding options
289
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Shareholders’ participation rights
We are committed to shareholder participation in our decision-
making process. Around 280,000 shareholders are directly regis-
tered, some 130,000 US shareholders via nominee companies.
Shareholders are regularly informed about our activities and per-
formance, and are personally invited to the general meetings of
shareholders.
➔ Refer to “Information policy” in this section for more
information
Our registered shareholders can access personalized services
and important information related to share register entries and
our shareholder meetings on www.ubs.com/shareholderportal.
Registered shareholders can enter their voting instructions elec-
tronically through the shareholder portal ahead of our general
meetings of shareholders, and they can verify their voting instruc-
tions before and after the general meetings using cryptography.
This method of encryption ensures that the voting instructions
remain secret through the entire voting process. In addition,
shareholders can order admission cards and register changes to
their address details. The website also allows them to manage
their subscriptions to shareholder-related publications and to
communicate directly with UBS Shareholder Services via a secure
channel. The shareholder portal is fully integrated into our web-
site.
Relations with shareholders
We fully subscribe to the principle of equal treatment of all share-
holders, who range from large institutions to individual investors,
and regularly inform them about Group developments.
The Annual General Meeting (AGM) offers shareholders the
opportunity to raise any questions to the Board of Directors (BoD)
and Group Executive Board (GEB), as well as to our internal and
external auditors.
Voting rights, restrictions and representation
We place no restrictions on share ownership and voting rights.
However, pursuant to general principles formulated by the BoD,
nominee companies and trustees, who normally represent a large
number of individual shareholders and may hold an unlimited
number of shares, have voting rights limited to a maximum of 5%
of all issued UBS Group AG shares in order to avoid the risk of
unknown shareholders with large stakes being entered in the
share register. Securities clearing organizations, such as The De-
pository Trust Company in New York, are not subject to this 5%
voting limit.
In order to be recorded in the share register with voting rights,
shareholders must confirm that they acquired UBS Group AG
shares in their own name and for their own account. Nominee
companies and trustees are required to sign an agreement con-
firming their willingness to disclose, upon our request, individual
beneficial owners holding more than 0.3% of all issued UBS
Group AG shares.
All shareholders registered with voting rights are entitled to
participate in general meetings of shareholders. If they do not
wish to attend in person, they can issue instructions to accept,
reject or abstain on each individual item on the meeting agenda,
either by giving instructions to an independent proxy designated
by UBS Group AG or by appointing another registered share-
holder of their choice to vote on their behalf. Alternatively, regis-
tered shareholders can issue their voting instructions to the inde-
pendent proxy electronically through our shareholder portal.
Nominee companies normally submit the proxy material to the
beneficial owners and transmit the collected votes to the inde-
pendent proxy.
Statutory quorums
Motions, including the election and re-election of BoD members
and the appointment of the auditors, are decided at a general
meeting of shareholders by an absolute majority of the votes cast,
excluding blank and invalid ballots. For the approval of certain
specific issues, the Swiss Code of Obligations requires a positive
vote from a two-thirds majority of the votes represented at a gen-
eral meeting of shareholders, and from the absolute majority of
the par value of shares represented at the meeting. Such issues
include the creation of shares with privileged voting rights, the
introduction of restrictions on the transferability of registered
shares, conditional and authorized capital increases, and restric-
tions or exclusions of shareholders’ pre-emptive rights.
The Articles of Association also require a two-thirds majority of
votes represented for approval of any change to provisions of the
Articles regarding the number of BoD members, and any decision
to remove one quarter or more of the BoD members.
Votes and elections are normally conducted electronically to
ascertain the exact number of votes cast. Voting by a show of
hands remains possible if a clear majority is predictable. Share-
holders representing at least 3% of the votes represented may
request that a vote or election is carried out electronically or by
written ballot. In order to allow shareholders to clearly express
their views on all individual topics, each item on the agenda is put
to a vote separately and BoD members are elected on a person-
by-person basis.
290
Convocation of general meetings of shareholders
The AGM must be held within six months of the close of the finan-
cial year and normally takes place in late April or early May. A per-
sonal invitation including a detailed agenda and explanation of each
motion is sent to every registered shareholder at least 20 days ahead
of the scheduled AGM. The meeting agenda is also published in the
Swiss Official Gazette of Commerce and in selected Swiss newspa-
pers, as well as on the Internet at www.ubs.com/agm.
Extraordinary General Meetings may be convened whenever
the BoD or the auditors consider it necessary. Shareholders indi-
vidually or jointly representing at least 10% of the share capital
may at any time ask in writing for an Extraordinary General Meet-
ing to be convened to address a specific issue they put forward.
Such a request may also be made during an AGM.
Placing of items on the agenda
Pursuant to our Articles of Association, shareholders individually
or jointly representing shares with an aggregate minimum par
value of CHF 62,500 may submit proposals for matters to be
placed on the agenda for consideration at the next AGM.
We publish the deadline for submitting such proposals in the
Swiss Official Gazette of Commerce and on our website at
www.ubs.com/agm. Requests for items to be placed on the
agenda must include the actual motions to be put forward, to-
gether with a short explanation. The BoD formulates opinions on
the proposals, which are published together with the motions.
Registrations in the share register
The general rules for entry with voting rights into our Swiss share
register also apply before general meetings of shareholders. The
same rules apply for our US transfer agent that operates the US
share register for all UBS Group AG shares in a custodian account
in the US. There is no closing of the share register in the days
before a shareholder meeting. Registrations, including the trans-
fer of voting rights, are processed for as long as technically pos-
sible, normally until two business days before a shareholder
meeting.
291
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Board of Directors
At the Extraordinary General Meeting (EGM) of UBS Group AG on
26 November 2014, all Board of Directors (BoD) members of UBS
AG were elected to become BoD members of UBS Group AG as
well. At the same EGM, the UBS AG’s Chairman of the Board and
members of the Human Resources and Compensation Committee
(HRCC) were also elected as Chairman and members of the HRCC
of UBS Group AG. The identical governance structure, in terms of
board and committee composition and membership, is reflected
in the newly adopted Organization Regulations, as approved by
the BoD of UBS AG and by the BoD of UBS Group AG in its con-
stitutional meeting on 26 November 2014. The current Organiza-
tion Regulations were reviewed and passed by the BoD of both
UBS Group AG and UBS AG on 5 February 2015 and will become
effective in March 2015.
The BoD of UBS Group AG and UBS AG, each under the lead-
ership of the Chairman, decides on the strategy of the Group
upon recommendation of the Group Chief Executive Officer
(Group CEO), exercises ultimate supervision over senior manage-
ment, and appoints all Group Executive Board (GEB) members.
The BoD also approves all financial statements for issue and pro-
poses the individual nominated to be Chairman, who in turn is
elected by the shareholders at the general meetings of sharehold-
ers. In addition, shareholders elect each member of the BoD indi-
vidually, as well as the members of the HRCC. The BoD in turn
appoints one or more Vice Chairmen, a Senior Independent Direc-
tor, members of the BoD committees other than the HRCC and
their respective Chairpersons, and the Company Secretary.
292
Members of the Board of Directors
Axel A. Weber was the sole Director of UBS Group AG from its
incorporation until the EGM held on 26 November 2014, when all
BoD members of UBS AG were elected to become BoD members
of UBS Group AG as well, namely Michel Demaré, David Sidwell,
Reto Francioni, Ann F. Godbehere, Axel P. Lehmann, Helmut
Panke, William G. Parrett, Isabelle Romy, Beatrice Weder di Mauro
and Joseph Yam. Following their election, the BoD appointed Mi-
chel Demaré as Vice Chairman and David Sidwell as Senior Inde-
pendent Director of UBS Group AG. At the same time, Axel A.
Weber was elected Chairman of the Board of Directors, and Ann
F. Godbehere, Michel Demaré, Reto Francioni and Helmut Panke
were elected as members of the HRCC of UBS Group AG. Addi-
tionally, ADB Altorfer Duss & Beilstein AG was elected indepen-
dent proxy agent.
On 17 December 2014, the BoD announced that it will nomi-
nate Jes Staley, Managing Partner at BlueMountain Capital Man-
agement LLC since February 2013, for election to the BoD at the
2015 AGM.
Our Articles of Association (AoA) limit the number of man-
dates that members of the BoD may hold outside the UBS
Group. Article 31 of the AoA limits the maximum number of
permitted mandates of members of the BoD to four board mem-
berships in listed companies (other than UBS Group AG and UBS
AG) and five additional mandates in non-listed companies. In
addition, members of the BoD may hold no more than ten man-
dates at the request of the company and ten mandates in asso-
ciations, charities, trusts, and employee welfare foundations. No
member of the BoD reaches the thresholds described in article
31 of the Articles of Association. The following biographies pro-
vide information on the BoD members and the Company Secre-
tary. For reasons of transparency the biographies include, in ad-
dition to information on mandates, information on memberships
or other activities or functions, as required by the SIX Corporate
Governance Directive.
Axel A. Weber
German, born 8 March 1957
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Michel Demaré
Belgian, born 31 August 1956
Syngenta International AG, Schwarzwaldallee 215, CH-4058 Basel
Functions at UBS Group AG
Chairman of the Board of Directors / Chairperson of the Corporate Culture and Responsibility
Committee / Chairperson of the Governance and Nominating Committee
Functions at UBS Group AG
Independent Vice Chairman / member of the Audit Committee / member of the Governance
and Nominating Committee / member of the Human Resources and Compensation
Committee
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2009
Professional history and education
Michel Demaré was elected to the BoD at the 2009 AGM. In April 2010, he was appointed
independent Vice Chairman. He has been a member of the Audit Committee since 2009 and
the Governance and Nominating Committee since 2010. He became a member of the Human
Resources and Compensation Committee in 2013. Mr. Demaré joined ABB in 2005 as Chief
Financial Officer (CFO) and as a member of the Group Executive Committee. He stepped
down from his function in ABB in January 2013. Between February and August 2008, he
acted as the interim CEO of ABB. From September 2008 to March 2011, he combined his role
as CFO with that of President of Global Markets. Mr. Demaré joined ABB from Baxter
International Inc., where he was CFO Europe from 2002 to 2005. Prior to this, he spent 18
years at the Dow Chemical Company, holding various treasury and risk management posi-
tions in Belgium, France, the US and Switzerland. Between 1997 and 2002, Mr. Demaré was
CFO of the Global Polyolefins and Elastomers division. He began his career as an officer in
the multinational banking division of Continental Illinois National Bank of Chicago, and was
based in Antwerp. Mr. Demaré graduated with an MBA from the Katholieke Universiteit
Leuven, Belgium, and holds a degree in applied economics from the Université Catholique de
Louvain, Belgium.
Other activities and functions
– Chairman of the Board of Syngenta
– Board member of Louis-Dreyfus Commodities Holdings BV
– Supervisory Board member of IMD, Lausanne
– Chairman of SwissHoldings in Berne
– Chairman of the Syngenta Foundation for Sustainable Agriculture
– Advisory Board member of the Department of Banking and Finance at the
University of Zurich
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2012
Professional history and education
Axel A. Weber was elected to the Board of Directors (BoD) at the 2012 AGM and was there-
after appointed Chairman of the BoD. He has chaired the Governance and Nominating
Committee since 2012 and became Chairperson of the Corporate Culture and Responsibility
Committee in 2013. Mr. Weber was president of the German Bundesbank between 2004 and
2011, during which time he also served as a member of the Governing Council of the
European Central Bank, a member of the Board of Directors of the Bank for International
Settlements, German governor of the International Monetary Fund, and as a member of the
G7 and G20 Ministers and Governors. He was a member of the steering committees of the
European Systemic Risk Board in 2011 and the Financial Stability Board from 2010 to 2011.
On leave from the University of Cologne from 2004 to 2012, he was a visiting professor at
the University of Chicago Booth School of Business from 2011 to 2012. From 2002 to 2004,
Mr. Weber served as a member of the German Council of Economic Experts. He was a profes-
sor of international economics and Director of the Center for Financial Research at the
University of Cologne from 2001 to 2004, and a professor of monetary economics and
Director of the Center for Financial Studies at the Goethe University in Frankfurt am Main
from 1998 to 2001. From 1994 to 1998, he was a professor of economic theory at the
University of Bonn. Mr. Weber holds a PhD in economics from the University of Siegen, where
he also received his habilitation. He graduated with a master’s degree in economics at the
University of Constance and holds honorary doctorates from the universities of Duisburg-
Essen and Constance.
Other activities and functions
– Board member of the Swiss Bankers Association
– Board member of the Swiss Finance Council
– Board member of the Institute of International Finance
– Board member of the International Monetary Conference
– Board member of the Financial Services Professional Board, Kuala Lumpur
– Member of the Group of Thirty, Washington, DC
– Member of the Board of Trustees of Avenir Suisse
– Member of the IMD Foundation Board, Lausanne
– Member of the European Financial Services Roundtable
– Member of the European Banking Group
– Advisory Board member of the Department of Economics at the University of Zurich
– Advisory Board member of the German Market Economy Foundation
– Member of the European Money and Finance Forum, Vienna
– Member of the Monetary Economics and International Economics Councils of the Verein
für Socialpolitik
– Senior research fellow at the Center for Financial Studies in Frankfurt am Main
– Research fellow at the Center for Economic Policy Research, London
293
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
David Sidwell
American (US) and British, born 28 March 1953
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Reto Francioni
Swiss, born 18 August 1955
Deutsche Börse AG, D-60485 Frankfurt am Main
Functions at UBS Group AG
Senior Independent Director / Chairperson of the Risk Committee / member of the
Governance and Nominating Committee
Functions at UBS Group AG
Member of the Corporate Culture and Responsibility Committee / member of the
Human Resources and Compensation Committee
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2008
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2013
Professional history and education
David Sidwell was elected to the BoD at the 2008 AGM. In April 2010, he was appointed
Senior Independent Director. He has chaired the Risk Committee since 2008 and has been a
member of the Governance and Nominating Committee since 2011. Mr. Sidwell was
Executive Vice President and CFO of Morgan Stanley between 2004 and 2007. Before joining
Morgan Stanley he worked for JPMorgan Chase & Co., where, in his 20 years of service, he
held a number of different positions, including controller and, from 2000 to 2004, CFO of the
Investment Bank. Prior to this, he was with Price Waterhouse in both London and New York.
Mr. Sidwell graduated from Cambridge University and qualified as a chartered accountant
with the Institute of Chartered Accountants in England and Wales.
Other activities and functions
– Director and Chairperson of the Risk Policy and Capital Committee of Fannie Mae,
Washington, DC
– Senior advisor at Oliver Wyman, New York
– Board member of Ace Limited
– Board member of GAVI Alliance
– Chairman of the Board of Village Care, New York
– Director of the National Council on Aging, Washington, DC
Professional history and education
Reto Francioni was elected to the BoD at the 2013 AGM. He has been a member of the
Corporate Culture and Responsibility Committee since 2013 and the Human Resources and
Compensation Committee since 2014. He has been CEO of Deutsche Börse AG since 2005.
Since 2006, he has been a professor of applied capital markets theory at the University of
Basel. From 2002 to 2005, he was Chairman of the Supervisory Board and President of the
SWX Group, Zurich. Mr. Francioni was co-CEO and Spokesman for the Board of Directors of
Consors AG, Nuremberg, from 2000 to 2002. Between 1993 and 2000, he held various
management positions at Deutsche Börse AG, including that of Deputy CEO from 1999 to
2000. From 1992 to 1993, he served in the corporate finance division of Hoffmann-La Roche,
Basel. Prior to this, he worked for several years for Association Tripartite Bourses and, from
1985 to 1988, for the former Credit Suisse, holding positions in the equity sales and legal
departments. He started his professional career in 1981 in the commerce division of Union
Bank of Switzerland. Mr. Francioni completed his studies in law in 1981 and his PhD in 1987
at the University of Zurich.
Other activities and functions
– Board mandates at Deutsche Börse Group subsidiaries:
– Chairman of Eurex Frankfurt AG
– Chairman of the Supervisory Board of Eurex Zürich AG
– Advisory Board member of Moscow International Financial Center
– International Advisory Board member of the Instituto de Empresa
– Member of the Shanghai International Financial Advisory Committee
– Member of the Steering Committee of the Project “Role of Financial Services in Society,“
World Economic Forum (WEF)
– Member of the Franco-German Round table
– Member of the Strategic Advisory Group of VHV Insurance
294
Ann F. Godbehere
Canadian and British, born 14 April 1955
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Axel P. Lehmann
Swiss, born 23 March 1959
Zurich Insurance Group, Mythenquai 2, CH-8002 Zurich
Functions at UBS Group AG
Chairperson of the Human Resources and Compensation Committee / member of the
Audit Committee
Function at UBS Group AG
Member of the Risk Committee
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2009
Professional history and education
Ann F. Godbehere was elected to the BoD at the 2009 AGM. She has chaired the Human
Resources and Compensation Committee since 2011 and has been a member of the Audit
Committee since 2009. Ms. Godbehere was appointed CFO and Executive Director of
Northern Rock in February 2008, serving in these roles during the initial phase of the busi-
ness’s public ownership until the end of January 2009. Prior to this role, she served as CFO
of Swiss Re Group from 2003 to 2007. Ms. Godbehere was CFO of its Property & Casualty
division in Zurich for two years. Prior to this, she served as CFO of the Life & Health division
in London for three years. From 1997 to 1998, she was CEO of Swiss Re Life & Health Canada
and head of IT for Swiss Re North America. Between 1996 and 1997, she was CFO of Swiss
Re Life & Health North America. Ms. Godbehere is a certified general accountant and was
made a fellow of the Chartered Professional Accountant Association in 2014 and fellow of
the Certified General Accountant Association of Canada in 2003.
Other activities and functions
– Board member of Prudential plc (chairman of the audit committee)
– Board member of Rio Tinto plc (chairman of the audit committee)
– Board member of Rio Tinto Limited (chairman of the audit committee)
– Board member of British American Tobacco plc
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2009
Professional history and education
Axel P. Lehmann was elected to the BoD at the 2009 AGM. He has been a member of the Risk
Committee since 2009. He is a member of the Group Executive Committee of Zurich
Insurance Group (Zurich) and has been Group Chief Risk Officer since January 2008 and
Regional Chairman Europe since October 2011. He was responsible for Group IT from 2008
to 2010. In September 2004, Mr. Lehmann was appointed CEO of Zurich American Insurance
Company and the North America Commercial business division in Schaumburg, Illinois. He
became a member of Zurich’s Group Executive Committee and CEO of its Continental Europe
business division in 2002 and, in 2004, was responsible for integrating it with the UK, Ireland
and South Africa. In 2001, he took over responsibility for Northern, Central and Eastern
Europe and was appointed CEO of Zurich Group Germany. In 2000, Mr. Lehmann became a
member of the Group Management Board with responsibility for group-wide business devel-
opment functions. Mr. Lehmann holds a PhD and a master’s degree in business administra-
tion and economics from the University of St. Gallen. He is also a graduate of the Wharton
Advanced Management Program and an honorary professor of business administration and
service management at the University of St. Gallen.
Other activities and functions
– Mandates on boards of Zurich Insurance Group subsidiaries:
– Chairman of the Board of Farmers Group, Inc., Los Angeles
– Chairman of Zurich Insurance plc, Dublin
– Chairman of the Board of Trustees of the Pension Plans 1 and 2 of the
Zurich Insurance Group
– Supervisory Board member of Zurich Beteiligungs-AG, Frankfurt am Main
– Board member of economiesuisse
– Chairman of the Global Agenda Council on the Global Financial System of WEF
– Chairman of the Board of the Institute of Insurance Economics of University of St. Gallen
– Member of the International and Alumni Advisory Board of University of St. Gallen
– Former Chairman and member of the Chief Risk Officer Forum
295
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Helmut Panke
German, born 31 August 1946
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
William G. Parrett
American (US), born 4 June 1945
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Functions at UBS Group AG
Member of the Human Resources and Compensation Committee / member of the
Risk Committee
Functions at UBS Group AG
Chairperson of the Audit Committee / member of the Corporate Culture and
Responsibility Committee
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2004
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2008
Professional history and education
Helmut Panke was elected to the BoD at the 2004 AGM. He has been a member of the
Human Resources and Compensation Committee and the Risk Committee since 2008.
Between 2002 and 2006, Mr. Panke was Chairman of the Board of Management of BMW
Group after becoming a member of BMW’s Board of Management in 1996. Between 1993
and 1996, he was Chairman and CEO of BMW Holding Corporation in the US. Subsequent to
joining BMW as Head of Planning and Controlling, Research and Development in 1982, he
assumed management functions in corporate planning, organization and corporate strategy.
Prior to this, he worked as a consultant at McKinsey & Company in both Düsseldorf and
Munich. Mr. Panke graduated from the University of Munich with a PhD in physics, and un-
dertook research work at both the University of Munich and the Swiss Institute for Nuclear
Research.
Professional history and education
William G. Parrett was elected to the BoD at the October 2008 Extraordinary General
Meeting. He has chaired the Audit Committee since 2009 and has been a member of the
Corporate Culture and Responsibility Committee since 2012. Mr. Parrett served his entire
career with Deloitte Touche Tohmatsu. He was CEO from 2003 until his retirement in 2007.
Between 1999 and 2003, he was a Managing Partner of Deloitte & Touche USA LLP and
served on Deloitte’s Global Executive Committee between 1999 and 2007. Mr. Parrett founded
Deloitte’s US National Financial Services Industry Group in 1995 and its Global Financial
Services Industry Group in 1997, both of which he led as Chairman. In his 40 years of experi-
ence in professional services, Mr. Parrett served public, private, governmental, and state-
owned clients worldwide. Mr. Parrett has a bachelor’s degree in accounting from St. Francis
College, New York, and is a certified public accountant.
Other activities and functions
– Board member of Microsoft Corporation (chairman of the Regulatory and
Public Policy Committee)
– Board member of Singapore Airlines Ltd. (chairman of the Safety and Risk Committee)
– Supervisory Board member of Bayer AG
Other activities and functions
– Board member of the Eastman Kodak Company (chairman of audit committee)
– Board member of the Blackstone Group LP (chairman of audit committee and
chairman of the conflicts committee)
– Board member of Thermo Fisher Scientific Inc. (chairman of audit committee)
– Board member of IGATE Corporation
– Member of the Committee on Capital Markets Regulation
– Member of the Carnegie Hall Board of Trustees
– Past Chairman of the Board of the United States Council for International Business
– Past Chairman of United Way Worldwide
296
Isabelle Romy
Swiss, born 4 January 1965
Froriep, Bellerivestrasse 201, CH-8034 Zurich
Beatrice Weder di Mauro
Italian and Swiss, born 3 August 1965
Johannes Gutenberg University Mainz, Jakob Welder-Weg 4, D-55099 Mainz
Functions at UBS Group AG
Member of the Audit Committee / member of the Governance and Nominating Committee
Functions at UBS Group AG
Member of the Audit Committee / member of the Risk Committee
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2012
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2012
Professional history and education
Isabelle Romy was elected to the BoD at the 2012 AGM. She has been a member of the Audit
Committee and the Governance and Nominating Committee since 2012. Ms. Romy is a
partner at Froriep, a large Swiss business law firm. From 1995 to 2012, she worked for an-
other major Swiss law firm based in Zurich, where she was a partner from 2003 to 2012. Her
legal practice includes litigation and arbitration in cross-border cases. Ms. Romy has been an
associate professor at the University of Fribourg and at the Federal Institute of Technology in
Lausanne (EPFL) since 1996. Between 2003 and 2008, she served as a deputy judge at the
Swiss Federal Supreme Court. From 1999 to 2006, she was a member of the Ethics
Commission at the EPFL. Ms. Romy earned her PhD in law (Dr. iur.) at the University of
Lausanne in 1990 and has been a qualified attorney-at-law admitted to the bar since 1991.
From 1992 to 1994, she was a visiting scholar at Boalt Hall School of Law, University of
California, Berkeley, and completed her professorial thesis at the University of Fribourg in
1996.
Other activities and functions
– Vice Chairman of the Sanction Commission of SIX Swiss Exchange
Professional history and education
Beatrice Weder di Mauro was elected to the BoD at the 2012 AGM. She has been a member
of the Audit Committee since 2012 and became a member of the Risk Committee in 2013.
She has been a professor of economics, economic policy and international macroeconomics
at the Johannes Gutenberg University of Mainz since 2001. Ms. Weder di Mauro was a
member of the German Council of Economic Experts from 2004 to 2012. In 2010, she was a
resident scholar at the International Monetary Fund (IMF) in Washington, DC, and, in 2006,
a visiting scholar at the National Bureau of Economic Research, Cambridge, MA. She was an
associate professor of economics at the University of Basel between 1998 and 2001 and a
research fellow at the United Nations University in Tokyo from 1997 to 1998. Prior to this,
she was an economist at the IMF in Washington, DC. Ms. Weder di Mauro earned her PhD in
economics at the University of Basel in 1993 and received her habilitation there in 1999.
Other activities and functions
– Board member of Roche Holding Ltd., Basel
– Supervisory Board member of Robert Bosch GmbH, Stuttgart
– Economic Advisory Board member of Fraport AG
– Advisory Board member of Deloitte Germany
– Deputy Chairman of the University Council of the University of Mainz
– Member of the Corporate Governance Commission of the German Government
– Member of the Senate of the Max Planck Society
– Member of the Global Agenda Council on Sovereign Debt of the WEF
297
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Joseph Yam
Chinese and Hong Kong citizen, born 9 September 1948
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Functions at UBS Group AG
Member of the Corporate Culture and Responsibility Committee / member of the
Risk Committee
Year of initial election to UBS Group AG: 2014
Year of initial election to UBS AG: 2011
Professional history and education
Joseph Yam was elected to the BoD at the 2011 AGM. He has been a member of the
Corporate Culture and Responsibility Committee and the Risk Committee since 2011. He is
Executive Vice President of the China Society for Finance and Banking and in that capacity
has served as an advisor to the People’s Bank of China since 2009. Mr. Yam was instrumental
in the establishment of the Hong Kong Monetary Authority and served as Chief Executive
from 1993 until his retirement in 2009. He began his career in Hong Kong as a statistician in
1971 and served the public for over 38 years. During his service, he occupied several posi-
tions such as Director of the Office of the Exchange Fund from 1991, Deputy Secretary for
Monetary Affairs from 1985 and Principal Assistant Secretary for Monetary Affairs from 1982.
Mr. Yam graduated from the University of Hong Kong in 1970 with first class honors in social
sciences. He holds honorary doctorate degrees and professorships from a number of universi-
ties in Hong Kong and overseas.
Other activities and functions
– Board member of Johnson Electric Holdings Limited
– Board member of UnionPay International Co., Ltd.
– Board member of The Community Chest of Hong Kong
– International Advisory Council member of China Investment Corporation
– Distinguished Research Fellow at the Institute of Global Economics and Finance at the
Chinese University of Hong Kong
Company Secretary
Luzius Cameron
Australian and Swiss, born 11 September 1955
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Function at UBS Group AG
Company Secretary for UBS Group AG since 2014 and for UBS AG
since 2005
Professional history and education
Luzius Cameron was appointed Company Secretary by the BoD for the
first time in 2005. He is a Group Managing Director and was appointed
to the former Group Managing Board in 2002. From 2002 to 2005,
Mr. Cameron was the Director of Strategic Planning and New Business
Development, Wealth Management USA. Prior to this role, he was Head
of Group Strategic Analysis, and before that, Head of Corporate
Business Analysis. Mr. Cameron joined Swiss Bank Corporation in 1989,
where he started out in Corporate Controlling before assuming a num-
ber of senior roles at Warburg Dillon Read, including Chief of Staff to
the Chief Operating Officer in London and Business Manager of the
Global Rates Business in Zurich. From 1984 to 1989, he was a lecturer
in astrophysics at the University of Basel. Between 1980 and 1989, he
was a research analyst at the Institute of Astronomy at the University of
Basel and European Southern Observatory. Mr. Cameron holds a PhD in
astrophysics from the University of Basel.
298
Elections and terms of office
In accordance with article 20 para. 1 of the Articles of Association,
all BoD members are to be elected on an individual basis for a
one-year term of office. As a result, shareholders must confirm
the entire membership of the BoD on a yearly basis at the AGM.
As set out in the Organization Regulations, BoD members are
normally expected to serve for a minimum of three years. No BoD
member can serve for more than 10 consecutive terms of office or
continue to serve beyond the AGM held in the calendar year fol-
lowing their 70th birthday. In exceptional circumstances the BoD
can extend both these limits.
Organizational principles and structure
Following each AGM, the BoD meets to appoint one or more
Vice Chairmen, a Senior Independent Director, BoD committee
members, other than the HRCC members who are elected by the
shareholders, and their respective Chairpersons. At the same
meeting, the BoD appoints a Company Secretary, who acts as
secretary to the BoD and its committees.
According to the Articles of Association, the BoD meets as of-
ten as business requires, but must meet at least six times a year.
From 26 November to end of December 2014, a total of five BoD
meetings were held for UBS Group AG, three times with the pres-
ence of GEB members and a meeting and a call without GEB
participation. On average, 95% of BoD members were present at
BoD meetings without GEB participation, and 82% at meetings
with GEB participation. The average duration of these meetings
and calls was 80 minutes (in 2014, the BoD held a total of 31
meetings and calls for UBS AG, 11 times with the presence of GEB
members and 20 times for meetings and calls without GEB par-
ticipation).
At every BoD meeting, each committee chairperson provides
the BoD with an update on current activities of his or her commit-
tee as well as important committee issues.
At least once per year, the BoD reviews its own performance as
well as the performance of each of its committees. This review is
based on an assessment of the BoD under the auspices of the
Governance and Nominating Committee, as well as on a
self-assessment of the BoD committees, and seeks to determine
whether the BoD and its committees are functioning effectively
and efficiently. The BoD committees’ last self-assessment was
completed in spring 2014, at that time for UBS AG only. It con-
cluded that the BoD is operating effectively. The next self-assess-
ment for UBS Group AG will be completed in spring 2015.
The committees listed below assist the BoD in the performance
of its responsibilities. These committees and their charters are de-
scribed in the Organization Regulations, published at www.ubs.
com/governance. Topics of common interest or affecting more
than one committee were discussed at joint committees meet-
ings. One joint committees meeting was held for UBS Group AG
during 2014 (eight for UBS AG).
Audit Committee
EDTF | The Audit Committee consists of five BoD members, all of
whom having been determined by the BoD to be fully indepen-
dent and financially literate. On 31 December 2014, William G.
Parrett chaired the Audit Committee with Michel Demaré, Ann F.
Godbehere, Isabelle Romy and Beatrice Weder di Mauro as addi-
tional members. All members have accounting or related financial
management expertise and the majority qualify as a “financial
expert” under the rules established pursuant to the US Sarbanes-
Oxley Act of 2002.
The Audit Committee itself does not perform audits, but mon-
itors the work of the external auditors, Ernst & Young Ltd (EY),
who in turn are responsible for auditing UBS Group AG’s and UBS
AG’s consolidated and standalone annual financial statements
and for reviewing the quarterly financial statements.
The function of the Audit Committee is to serve as an inde-
pendent and objective body with oversight of the following:
(i) UBS Group AG’s, UBS AG’s and the Group’s accounting poli-
cies, financial reporting and disclosure controls and procedures,
(ii) the quality, adequacy and scope of external audit, (iii) UBS
Group AG’s, UBS AG’s and the Group’s compliance with financial
reporting requirements, (iv) senior management’s approach to
internal controls with respect to the production and integrity of
the financial statements and disclosure of the financial perfor-
mance and (v) the performance of Group Internal Audit in con-
junction with the Chairman. For these purposes, the Audit Com-
mittee has the authority to meet with regulators and external
bodies, in consultation with the Group CEO. Senior management
is responsible for the preparation, presentation and integrity of
the financial statements. ▲
The Audit Committee reviews the annual and quarterly con-
solidated as well as standalone financial statements of UBS Group
AG and UBS AG, as proposed by management, with the external
auditors and Group Internal Audit in order to recommend their
approval (including any adjustments the Audit Committee consid-
ers appropriate) to the BoD.
Periodically, and at least annually, the Audit Committee as-
sesses the qualifications, expertise, effectiveness, independence
and performance of the external auditors and their lead audit
partner, in order to support the BoD in reaching a decision in rela-
tion to the appointment or dismissal of the external auditors and
the rotation of the lead audit partner. The BoD then submits these
proposals to the shareholders for approval at the AGM.
From 26 November to end of December 2014, the Audit Com-
mittee held one meeting with all members present that lasted
over three hours for UBS Group AG (for UBS AG, the Audit Com-
mittee held a total of eight meetings and 15 telephone confer-
ences in 2014).
The Audit Committee reports to the BoD about its discussions
with our external auditors. Once per year, the lead representatives
of our external auditors present their long-form report to the BoD,
as required by FINMA.
299
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
The NYSE listing standards on corporate governance set more
stringent independence requirements for members of audit com-
mittees than for the other members of the BoD. Each of the five
members of the Audit Committee is an external BoD member
who, in addition to satisfying our independence criteria, does not
receive, directly or indirectly, any consulting, advisory or other
compensatory fees other than in his or her capacity as a BoD mem-
ber, does not hold, directly or indirectly, UBS Group AG shares in
excess of 5% of the outstanding capital and (except as noted be-
low) does not serve on the audit committees of more than two
other public companies. The NYSE listing standards on corporate
governance allow for an exemption for audit committee members
to serve on more than three audit committees of public compa-
nies, provided that all BoD members determine that the candidate
has the time and the availability to fulfill his or her obligations.
Considering the credentials of William G. Parrett and Ann F. God-
behere, the BoD has granted this exemption in their cases.
Corporate Culture and Responsibility Committee
The Corporate Culture and Responsibility Committee (formerly
Corporate Responsibility Committee) supports the BoD in fulfilling
its duty to safeguard and promote the Group’s reputation for re-
sponsible and sustainable conduct. It reviews and assesses stake-
holder concerns and expectations pertaining to the societal perfor-
mance of UBS, and recommends appropriate actions to the BoD.
The majority of the Corporate Culture and Responsibility Commit-
tee members must be independent. As of 31 December 2014, the
Corporate Culture and Responsibility Committee was chaired by
Axel A. Weber, with independent BoD members Reto Francioni,
William G. Parrett and Joseph Yam as additional members. The
Corporate Culture and Responsibility Committee is advised and
supported by a number of senior business representatives. No
meetings were held for UBS Group AG from 26 November to end
of December 2014 (for UBS AG, the Corporate Culture and Re-
sponsibility Committee met four times and held one telephone
conference in 2014).
➔ Refer to the “Corporate responsibility” section of this report for
more information
Governance and Nominating Committee
The Governance and Nominating Committee supports the BoD in
fulfilling its duty to establish best practices in corporate gover-
nance across the Group, to conduct a BoD annual self-assess-
ment, to establish and maintain a process for appointing new BoD
and GEB members (in the latter case, upon proposal by the Group
CEO), and to manage the succession planning for all GEB mem-
bers. The Governance and Nominating Committee comprises
three independent BoD members and, as of 31 December 2014,
was chaired by Axel A. Weber, with Michel Demaré, Isabelle Romy
and David Sidwell as additional members. From 26 November to
end of December 2014, one meeting was held for UBS Group AG,
with a 100% participation rate and a duration of 30 minutes (for
UBS AG, the Governance and Nominating Committee met eight
times in 2014).
300
Human Resources and Compensation Committee
EDTF | The Human Resources and Compensation Committee is re-
sponsible for the following functions: (i) supporting the BoD in its
duties to set guidelines on compensation and benefits, (ii) approv-
ing the total compensation for the Chairman and the non-inde-
pendent BoD members, (iii) evaluating, in consultation with the
Chairman, the performance of the Group CEO and other GEB
members compared to agreed goals and objectives, as well as in-
forming the Board of the outcome of the performance evaluation
of the Group CEO, (iv) proposing, together with the Chairman,
total individual compensation for the independent BoD members
and Group CEO for approval by the BoD and (v) proposing to the
BoD for approval, upon recommendation by the Group CEO, the
total individual compensation for GEB members. The Human Re-
sources and Compensation Committee also reviews the compen-
sation disclosure included in this report.
The Human Resources and Compensation Committee com-
prises four independent BoD members and, as of 31 December
2014, Ann F. Godbehere chaired it with Michel Demaré, Reto
Francioni and Helmut Panke as additional members. Pillar 3 | From
26 November to end of December 2014, one meeting and one
telephone conference for UBS Group AG were held with an aver-
age duration of 130 minutes and a participation rate of 75%. The
meetings were conducted in the presence of external advisors,
the Chairman and the Group CEO (for UBS AG, the Human Re-
sources and Compensation Committee met ten times for meet-
ings and telephone conferences in 2014). ▲▲
➔ Refer to “Our Total Reward Principles and compensation
governance” in the “Compensation” section of this report for
more information on the Human Resources and Compensation
Committee’s decision-making procedures
Risk Committee
EDTF | The Risk Committee is responsible for overseeing and sup-
porting the BoD in fulfilling its duty to supervise and set appropri-
ate risk management and control principles in the following areas:
(i) risk management and control, including credit, market, coun-
try, legal, conduct and operational risks, (ii) treasury and capital
management, including funding, liquidity and equity attribution
and (iii) balance sheet management. The Risk Committee consid-
ers the potential effects of the aforementioned risks on the
Group’s reputation. For these purposes, the Risk Committee re-
ceives all relevant information from the GEB and has the authority
to meet with regulators and external bodies in consultation with
the Group CEO. As of 31 December 2014, the Risk Committee
comprised five independent BoD members. David Sidwell chaired
the Risk Committee with Axel P. Lehmann, Helmut Panke, Beatrice
Weder di Mauro and Joseph Yam as additional members. From
26 November to end of December 2014, the Risk Committee held
for UBS Group AG one committee meeting with 80% member
participation rate and a meeting duration of nearly eight hours
(for UBS AG, the Risk Committee held a total of eight meetings
and two calls in 2014). ▲
Ad-hoc committees
The Strategy Committee and the Special Committee are two ad-
hoc committees that have a standing composition and are called
and held on an ad-hoc basis.
In 2014, the Strategy Committee focused on the evaluation of
collateral consequences of various scenarios on the strategy and
its resolution and recovery program. As of 31 December 2014,
the Strategy Committee comprised four BoD members. Axel A.
Weber chaired the Strategy Committee with Michel Demaré, Reto
Francioni and David Sidwell as additional members. From
26 November to end of December 2014, one meeting was held
with a duration of 40 minutes and a participation rate of 75% for
UBS Group AG (for UBS AG, one telephone conference and three
meetings were held in 2014).
The Special Committee, composed of three independent BoD
members, focused on internal and regulatory investigations re-
lated to foreign exchange. As of 31 December 2014, David
Sidwell chaired the Special Committee with Isabelle Romy and
Joseph Yam as additional members. From 26 November to end of
December 2014, a committee meeting and a telephone confer-
ence were held for UBS Group AG with a participation of 100%
and an average duration of 45 minutes (for UBS AG, the Special
Committee held eight meetings and 16 telephone conferences in
2014).
Roles and responsibilities of the Chairman of the
Board of Directors
Axel A. Weber, the Chairman of the BoD, serves on the basis of a
full-time employment contract.
provide support and advice to the Chairman. At least twice a year,
the Senior Independent Director organizes and leads a meeting of
the independent BoD members in the absence of the Chairman.
From 26 November to end of December 2014, one independent
BoD meeting was held for UBS Group AG with a participation of
90% and a duration of one hour (for UBS AG, three meetings
were held in 2014). The Senior Independent Director relays to the
Chairman any issues or concerns brought forth by the indepen-
dent BoD members and acts as a point of contact for shareholders
and stakeholders seeking to engage in discussions with an inde-
pendent BoD member.
Important business connections of independent members
of the Board of Directors
As a global financial services provider and a major Swiss bank, we
enter into business relationships with many large companies, in-
cluding some in which our BoD members assume management or
independent board responsibilities. The Governance and Nomi-
nating Committee determines in each instance whether the na-
ture of the Group’s business relationship with such a company
might compromise our BoD member’s capacity of independent
judgment.
Our Organization Regulations require three-quarters of the
BoD members to be independent. For this purpose, independence
is determined in accordance with the FINMA circular 08/24 “Su-
pervision and Internal Control," the New York Stock Exchange
rules, and the rules and regulations of other securities exchanges
on which the UBS Group AG shares are listed, if any, applying the
strictest respective standard.
The Chairman coordinates tasks within the BoD, calls BoD
meetings and sets their agendas. Under the leadership of the
Chairman, the BoD decides on the strategy of the Group on rec-
ommendations by the Group CEO, exercises ultimate supervision
over management and appoints all GEB members.
In 2014, our BoD met the standards of the Organization Regu-
lations for the percentage of directors that are considered inde-
pendent under the criteria described above. Due to our Chair-
man’s full-time employment by UBS AG he is not considered
independent.
The Chairman presides over all general meetings of sharehold-
ers, and works with the committee chairpersons to coordinate the
work of all BoD committees. Together with the Group CEO, the
Chairman is responsible for ensuring effective communication
with shareholders and other stakeholders, including government
officials, regulators and public organizations. This is in addition to
establishing and maintaining a close working relationship with
the Group CEO and other GEB members, and providing advice
and support when appropriate.
Roles and responsibilities of the Vice Chairmen and the
Senior Independent Director
All relationships and transactions with UBS Group AG’s inde-
pendent BoD members are conducted in the ordinary course of
business, and are on the same terms as those prevailing at the
time for comparable transactions with non-affiliated persons. All
relationships and transactions with BoD members’ associated
companies are conducted at arm’s length.
➔ Refer to “Note 34 Related parties” in the “Financial information”
section of this report for more information
Checks and balances: Board of Directors and Group
Executive Board
The BoD appoints one or more Vice Chairmen and a Senior Inde-
pendent Director. If the BoD appoints more than one Vice Chair-
man, one of them must be independent. Michel Demaré has been
appointed as Vice Chairman and David Sidwell has been ap-
pointed as Senior Independent Director. A Vice Chairman is re-
quired to lead the BoD in the absence of the Chairman and to
We operate under a strict dual board structure, as mandated by
Swiss banking law. The separation of responsibilities between the
BoD and the GEB is clearly defined in the Organization Regula-
tions. The BoD decides on the strategy of the Group on recom-
mendation by the Group CEO, and supervises and monitors the
business, whereas the GEB, headed by the Group CEO, has execu-
tive management responsibility. The functions of Chairman of the
301
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
BoD and Group CEO are assigned to two different people, ensur-
ing a separation of power. This structure establishes checks and
balances and preserves the institutional independence of the BoD
from the day-to-day management of the Group, for which re-
sponsibility is delegated to the GEB under the leadership of the
Group CEO. No member of one board may simultaneously be a
member of the other.
Supervision and control of the GEB remains with the BoD. The
authorities and responsibilities of the two bodies are governed by
the Articles of Association and the Organization Regulations, in-
cluding the latter document’s “Annex B – Responsibilities and au-
thorities.”
➔ Refer to www.ubs.com/governance for more information on
checks and balances for the Board of Directors and Group
Executive Board
Information and control instruments vis-à-vis the
Group Executive Board
The BoD is kept informed of the activities of the GEB in various
ways, including minutes of GEB meetings being made available to
the BoD. The Group CEO and other GEB members also regularly
update the BoD on important issues at BoD meetings.
At BoD meetings, BoD members may request from BoD or GEB
members any information about matters concerning the Group
that they require to fulfill their duties. Outside meetings, BoD
members may request information from other BoD and GEB
members. Such requests must be approved by the Chairman.
Group Internal Audit independently, objectively and systemati-
cally assesses the adherence to our strategy, the effectiveness of
governance, risk management and control processes at Group,
divisional and regional levels, and monitors compliance with legal,
regulatory and statutory requirements, as well as with internal
policies and contracts. The internal audit organization has a func-
tional reporting line to the Audit Committee in line with their re-
sponsibilities as set forth in our Organization Regulations. The
Audit Committee approves the appropriateness of Group Internal
Audit’s annual audit plan and annual audit objectives and must be
in regular contact with the Head Group Internal Audit. Group In-
ternal Audit provides the Audit Committee and the Chairman
with written reports, including an annual report summarizing the
function’s activities and significant audit results.
➔ Refer to the “Risk management and control” section of this
report for more information
302
Group Executive Board
We operate under a strict dual board structure, as mandated by
Swiss banking law, and therefore the BoD delegates the manage-
ment of the business to the Group Executive Board (GEB).
Members of the Group Executive Board
to one board membership in a listed company (other than UBS
Group AG and UBS AG) and five additional mandates in non-
listed companies. In addition, GEB members may hold no more
than ten mandates at the request of the company and eight man-
dates in associations, charities, trusts, and employee welfare
foundations.
On 10 June 2014 Sergio P. Ermotti and Tom Naratil were ap-
pointed members of the management board of UBS Group AG.
Subsequently, on 26 November 2014, in connection with the first
settlement of the share-for-share exchange offer, the BoD of UBS
Group AG appointed all members of the UBS AG GEB as mem-
bers of the UBS Group AG GEB.
No member of the GEB reaches the threshold described in ar-
ticle 36 of the Articles of Association. The following biographies
provide information on the GEB members. For reasons of trans-
parency, in addition to information on mandates, the biographies
include memberships or other activities or functions, as required
by the SIX Corporate Governance Directive.
In line with Swiss law, our Articles of Association limit the num-
ber of mandates that members of the GEB may hold outside the
UBS Group. Article 36 of the Articles of Association limits the
maximum number of permitted mandates of members of the GEB
In line with the revised Organization Regulations, which will
become effective in March 2015, the titles for regional and divi-
sional CEOs have changed to regional and divisional Presidents.
303
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Sergio P. Ermotti
Swiss, born 11 May 1960
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Function at UBS Group AG
Group Chief Executive Officer
Markus Diethelm
Swiss, born 22 October 1957
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Function at UBS Group AG
Group General Counsel
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2011
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2008
Professional history and education
Sergio P. Ermotti has been Group Chief Executive Officer since November 2011, having held
the position of Group Chief Executive Officer on an interim basis since September 2011. Mr.
Ermotti became a member of the GEB in April 2011 and was Chairman and CEO of UBS
Group Europe, Middle East and Africa from April to November 2011. From 2007 to 2010, he
was Group Deputy Chief Executive Officer at UniCredit, Milan, and was responsible for the
strategic business areas of Corporate and Investment Banking, and Private Banking. He
joined UniCredit in 2005 as Head of Markets & Investment Banking Division. Between 2001
and 2003, he worked at Merrill Lynch, serving as co-Head of Global Equity Markets and as a
member of the Executive Management Committee for Global Markets & Investment Banking.
He began his career with Merrill Lynch in 1987, and held various positions within equity de-
rivatives and capital markets. Mr. Ermotti is a Swiss-certified banking expert and is a graduate
of the Advanced Management Programme at Oxford University.
Professional history and education
Markus U. Diethelm was appointed Group General Counsel and became a member of the
GEB in September 2008. From 1998 to 2008, he served as Group Chief Legal Officer at Swiss
Re, and was appointed to its Group Executive Board in 2007. Prior to this, he was at the Los
Angeles-based law firm Gibson, Dunn & Crutcher, and focused on corporate matters, securi-
ties transactions, litigation and regulatory investigations while working out of the firm’s
Brussels and Paris offices. From 1989 to 1992, he practiced at Shearman & Sterling in New
York, specializing in mergers and acquisitions. In 1988, he worked at Paul, Weiss, Rifkind,
Wharton & Garrison in New York, after starting his career in 1983 with Bär & Karrer. Mr.
Diethelm holds a law degree from the University of Zurich and a master’s degree and PhD
from Stanford Law School. Mr. Diethelm is a qualified attorney-at-law admitted to the bar in
Zurich and in New York State.
Other activities and functions
– Chairman of the Fondazione Ermotti, Lugano
– Board member of the Fondazione Lugano per il Polo Culturale, Lugano
– Board member of Global Apprenticeship Network
– Board member of the Swiss-American Chamber of Commerce
– Member of the Institut International D’Etudes Bancaires
– Member of the Financial Services Forum
Other activities and functions
– Chairman of the Swiss-American Chamber of Commerce’s legal committee
– Member of the Committee on Capital Markets Regulation
– Member of the Swiss Advisory Council of the American Swiss Foundation
– Member of the Foundation Council of the UBS International Center of
Economics in Society
– Member of the Conseil de Fondation du Musée International de la Croix-Rouge et
du Croissant-Rouge
– Member of the Professional Ethics Commission of the Association of
Swiss Corporate Lawyers
304
Lukas Gähwiler
Swiss, born 4 May 1965
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Functions at UBS Group AG
President Retail & Corporate and President Switzerland
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2010
Professional history and education
Lukas Gähwiler became a member of the GEB and was appointed President Switzerland
(formerly CEO of UBS Switzerland) in April 2010. In his role as President of UBS Switzerland,
he is responsible for all businesses – retail, wealth management, corporate and institutional,
investment banking and asset management – in UBS’s home market. Since January 2012, he
has also been President Retail & Corporate (formerly CEO of Retail & Corporate). Between
April 2010 and January 2012, he combined the position of CEO of UBS Switzerland with the
role of co-CEO of UBS Wealth Management & Swiss Bank. From 2003 to 2010, he was Chief
Credit Officer at Credit Suisse and was accountable for the worldwide credit business of
Private Banking, including Commercial Banking in Switzerland. In 1998, Mr. Gähwiler was
appointed Chief of Staff to the CEO of Credit Suisse’s Private and Corporate business unit
and, prior to this, held various front-office positions in Switzerland and North America. He
earned a bachelor’s degree in business administration from the University of Applied Sciences
in St. Gallen. Mr. Gähwiler completed an MBA program in corporate finance at the
International Bankers School in New York, as well as the Advanced Management Program at
Harvard Business School.
Other activities and functions
– Foundation Board member of the UBS Pension Fund
– Member of the Foundation Council of the UBS International Center of Economics in Society
– Board member of Opernhaus Zürich AG
– Board member of economiesuisse
– Vice Chairman of the Board of the Zurich Chamber of Commerce
– Vice Chairman of the Swiss Finance Institute Foundation Board
– Board member of the Zürcher Volkswirtschaftliche Gesellschaft
Ulrich Körner
German and Swiss, born 25 October 1962
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Functions at UBS Group AG
President Global Asset Management and President Europe, Middle East and Africa
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2009
Professional history and education
Ulrich Körner became a member of the GEB in April 2009 and was appointed President
Global Asset Management (formerly CEO Global Asset Management) in January 2014. He
was Group Chief Operating Officer from 2009 to 2013. In addition, he was appointed
President Europe, Middle East and Africa (formerly CEO of UBS Group Europe, Middle East
and Africa) in December 2011. In 1998, Mr. Körner joined Credit Suisse. He served as a
member of the Credit Suisse Group Executive Board from 2003 to 2008, holding various
management positions, including CFO and Chief Operating Officer. From 2006 to 2008, he
was responsible for the entire Swiss client business as CEO Credit Suisse Switzerland.
Mr. Körner received a PhD in business administration from the University of St. Gallen, and
served for several years as an auditor at Price Waterhouse and as a management consultant
at McKinsey & Company.
Other activities and functions
– Deputy Chairman of the Supervisory Board of UBS Deutschland AG
– Board member of OOO UBS Bank Russia
– Chairman of the Foundation Board of the UBS Pension Fund
– Chairman of the Widder Hotel, Zurich
– Vice President of the Board of Lyceum Alpinum Zuoz
– Member of the Financial Service Chapter Board of the
Swiss-American Chamber of Commerce
– Advisory Board member of the Department of Banking and Finance at the
University of Zurich
– Member of the business advisory council of the Laureus Foundation Switzerland
305
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Philip J. Lofts
British, born 9 April 1962
UBS AG, 677 Washington Boulevard, Stamford, CT 06901 USA
Function at UBS Group AG
Group Chief Risk Officer
Robert J. McCann
American (US) and Irish, born 15 March 1958
UBS AG, 1200 Harbor Boulevard, Weehawken, NJ 07086 USA
Functions at UBS Group AG
President Wealth Management Americas and President Americas
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2008
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2009
Professional history and education
Philip J. Lofts became a GEB member in 2008, and was re-appointed as Group Chief Risk
Officer in December 2011 after serving in the same role from 2008 to 2010. He was CEO of
UBS Group Americas from January to November 2011. Mr. Lofts, who began his career with
UBS over 30 years ago, became Group Risk Chief Operating Officer in 2008 after three years
serving as Group Chief Credit Officer. Prior to this, Mr. Lofts worked for the Investment Bank
in a number of business and risk control positions in Europe, Asia Pacific and the US. Mr. Lofts
joined Union Bank of Switzerland in 1984 as a credit analyst and was appointed Head of
Structured Finance in Japan in 1996. Mr. Lofts successfully completed his A-levels at
Cranbrook School. From 1981 to 1984, he was a trainee at Charterhouse Japhet plc, a mer-
chant bank, which was acquired by the Royal Bank of Scotland in 1985.
Professional history and education
Robert J. McCann was appointed President Wealth Management Americas (formerly CEO of
Wealth Management Americas), and became a member of the GEB in October 2009. In ad-
dition, he has been President Americas since December 2011 (formerly CEO of UBS Group
Americas). From 2003 to 2009, he worked for Merrill Lynch as Vice Chairman and President
of the Global Wealth Management Group. In 2003, he served as Vice Chairman of Distribution
and Marketing for AXA Financial. He began his career with Merrill Lynch in 1982, working in
various positions in capital markets and research. From 2001 to 2003, he was Head of Global
Securities Research and Economics. In 2000, he was appointed Chief Operating Officer of
Global Markets and Investment Banking. From 1998 to 2000, he was Global Head of Global
Institutional Debt and Equity Sales. Mr. McCann graduated with a bachelor’s degree in eco-
nomics from Bethany College, West Virginia, and holds an MBA from Texas Christian
University.
Other activities and functions
– Board member of UBS Optimus Foundation
– Member of The Clearing House Supervisory Board
– Vice Chairman of the Bethany College Board of Trustees
– Member of the Committee Encouraging Corporate Philanthropy
– Board member of the American Ireland Fund
– Board member of the Partnership for New York City
– Board member of the Catholic Charities of the Archdiocese of New York
– Advisory Board member for the Billie Jean King Leadership Initiative
306
Tom Naratil
American (US), born 1 December 1961
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Andrea Orcel
Italian, born 14 May 1963
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Functions at UBS Group AG
Group Chief Financial Officer and Group Chief Operating Officer
Function at UBS Group AG
President Investment Bank
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2011
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2012
Professional history and education
Tom Naratil was appointed Group CFO and became a member of the GEB in June 2011. In
addition to this role, he was appointed Group Chief Operating Officer in January 2014. He
served as CFO and Chief Risk Officer of Wealth Management Americas from 2009 until his
appointment as Group CFO. Before 2009, he held various senior management positions
within UBS, including heading the Auction Rate Securities Solutions Group during the finan-
cial crisis in 2008. He was named Global Head of Marketing, Segment & Client Development
in 2007, Global Head of Market Strategy & Development in 2005, and Director of Banking
and Transactional Solutions, Wealth Management USA, in 2002. During this time, he was a
member of the Group Managing Board. He joined Paine Webber Incorporated in 1983, and
after the merger with UBS became Director of the Investment Products Group. Mr. Naratil
holds an MBA in economics from New York University and a Bachelor of Arts in history from
Yale University.
Other activities and functions
– Board member of the American Swiss Foundation
Professional history and education
Andrea Orcel was appointed President Investment Bank (formerly CEO of the Investment
Bank) in November 2012. Since December 2014, he has additionally taken on the position as
Chief Executive for UBS Limited and UBS AG London branch. He had been appointed co-CEO
of the Investment Bank and a member of the GEB in July 2012. He joined UBS from Bank of
America Merrill Lynch, where he had been Executive Chairman since 2009, President of
Emerging Markets (excluding Asia) since 2010 and CEO of European Card Services since
2011. Prior to the acquisition of Merrill Lynch by Bank of America, Mr. Orcel was a member
of Merrill Lynch’s global management committee and Head of Global Origination, which
combined Investment Banking and Capital Markets. He held a number of other leadership
positions, including President of Global Markets & Investment Banking for Europe, Middle
East and Africa (EMEA) and Head of EMEA Origination beginning in 2004. Between 2003
and 2007, he led the Global Financial Institutions Group, of which he had been part since
joining Merrill Lynch in 1992. Prior to this, he worked at Goldman Sachs and the Boston
Consulting Group. Mr. Orcel holds an MBA from INSEAD and a degree in economics and
commerce, summa cum laude, from the University of Rome.
Other activities and functions
– Board member UBS Limited
307
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Chi-Won Yoon
Korean, born 2 June 1959
UBS AG, 2 International Finance Centre 52/F, 8 Finance Street, Central, Hong Kong
Jürg Zeltner
Swiss, born 4 May 1967
UBS Group AG, Bahnhofstrasse 45, CH-8001 Zurich
Function at UBS Group AG
President Asia Pacific
Function at UBS Group AG
President Wealth Management
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2009
Year of initial appointment to UBS Group AG: 2014
Year of initial appointment to UBS AG: 2009
Professional history and education
Chi-Won Yoon was appointed President Asia Pacific (formerly CEO of UBS Group Asia Pacific)
in April 2012 and has been a member of the GEB since June 2009. He held the position of
co-Chairman and co-CEO of UBS Group Asia Pacific from November 2010 to March 2012.
From June 2009 to November 2010, he served as sole Chairman and CEO of UBS AG, Asia
Pacific. In a previous role, Mr. Yoon served as Head of UBS’s securities business in Asia Pacific:
Asia Equities, which he oversaw from 2004; and Asia Pacific Fixed Income, Currencies and
Commodities, which he led from 2009. He joined the firm in 1997, serving as Head of Equity
Derivatives. Mr. Yoon began his career in financial services in 1986, working at Merrill Lynch
in New York and Lehman Brothers in New York and Hong Kong. Before embarking on a Wall
Street career, he worked as an electrical engineer in satellite communications. In 1982, Mr.
Yoon earned a bachelor’s degree in electrical engineering from MIT, and a master’s degree in
management from MIT’s Sloan School of Management in 1986.
Other activities and functions
– Board member of UBS Securities Co. Ltd
– Chairman of the Asian Executive Board for the MIT Sloan School of Management
– Advisory Board member of the MIT Center for Finance and Policy
Professional history and education
Jürg Zeltner became a member of the GEB in February 2009 and is President of Wealth
Management (formerly CEO of UBS Wealth Management). Between February 2009 and
January 2012, he served as co-CEO of UBS Wealth Management & Swiss Bank. In November
2007, he was appointed as Head of Wealth Management North, East & Central Europe. From
2005 to 2007, he was CEO of UBS Deutschland, Frankfurt, and, prior to this, he held various
management positions in the former Wealth Management division of UBS. Between 1987
and 1998, he was with Swiss Bank Corporation in various roles within the Private and
Corporate Client division in Berne, New York and Zurich. Mr. Zeltner holds a diploma in busi-
ness administration from the College of Higher Vocational Education in Berne and is a grad-
uate of the Advanced Management Program at Harvard Business School.
Other activities and functions
– Board member of the German-Swiss Chamber of Commerce
– Chairman of the UBS Optimus Foundation Board
308
Responsibilities, authorities and organizational principles
of the Group Executive Board
Under the leadership of the Group CEO, the GEB has executive
management responsibility for the Group and its business. It as-
sumes overall responsibility for developing the Group and busi-
ness division strategies and the implementation of approved strat-
egies. The GEB constitutes itself as the risk council of the Group.
In this function, the GEB has overall responsibility for the follow-
ing: establishing and supervising the implementation of risk man-
agement and control principles, approving major risk policies as
proposed primarily by the Group Chief Risk Officer and controlling
the risk profile of the Group as a whole, as determined by the BoD
and the Risk Committee. From 26 November to end of December
2014, the GEB held two meetings for UBS Group AG (for UBS AG
the GEB held a total of 21 meetings in 2014).
➔ Refer to the Organization Regulations at www.ubs.com/
governance for more information on the authorities of the
Group Executive Board
Responsibilities and authorities of the Group Asset and
Liability Management Committee
The Group Asset and Liability Management Committee (Group
ALCO), established by the GEB, is responsible for setting strategies
to maximize the financial performance of the Group, and is subject
to the guidelines, constraints and risk tolerances set by the BoD.
The Group ALCO is also responsible for managing the balance
sheet of the business divisions through allocation and monitoring
of limits, as well as managing capital, liquidity and funding and
promoting a one-firm financial management culture. The Organi-
zation Regulations additionally specify which powers of the GEB
are delegated to the Group ALCO. In 2014, the Group ALCO held
one meeting for UBS Group AG (and 9 meetings for UBS AG).
Management contracts
We have not entered into management contracts with any com-
panies or natural persons that do not belong to the Group.
309
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Change of control and defense measures
We refrain from restrictions regarding change of control and de-
fense measures that would hinder developments initiated in, or
supported by, the financial markets. We also do not have any
specific defenses in place to prevent hostile takeovers.
Duty to make an offer
According to the Swiss Stock Exchange Act, an investor who ac-
quired more than 331⁄3% of all voting rights of a company listed
in Switzerland (directly, indirectly or in concert with third parties),
whether they are exercisable or not, is required to submit a take-
over offer for all listed shares outstanding. We have not elected to
change or opt out of this rule.
Clauses on change of control
Neither the employment agreement with the Chairman of the
BoD, nor any employment contracts with the GEB members or
employees holding key functions within the company (Group
Managing Directors), contain change of control clauses.
All employment contracts with GEB members stipulate a notice
period of six months. During the notice period, GEB members are
entitled to their salaries and the continuation of existing employ-
ment benefits and may be eligible to be considered for a discre-
tionary performance award based on their contribution during
the time worked.
In case of a change of control, we may, at our discretion, ac-
celerate the vesting of and / or relax applicable forfeiture provi-
sions of employees’ awards, and defer lapse date of options or
stock appreciation rights.
310
Auditors
Audit is an integral part of corporate governance. While safe-
guarding their independence, the external auditors closely coordi-
nate their work with Group Internal Audit. The Audit Committee,
and ultimately the Board of Directors (BoD), supervises the effec-
tiveness of audit work.
Special auditor for capital increase
At the EGM on 26 November 2014, BDO AG was appointed as
special auditor for the period until the 2015 AGM. The special
auditors provide audit opinions independently from the auditors
in connection with capital increases.
➔ Refer to “Board of Directors” in this section for more information
on the Audit Committee
External independent auditors
At the Extraordinary General Meeting (EGM) held on 26 Novem-
ber 2014, Ernst & Young Ltd (EY) were elected as auditors for the
Group until the 2015 AGM. EY assume virtually all auditing func-
tions according to laws, regulatory requests and the Articles of
Association. The EY lead partner in charge of the Group financial
audit since 2010 has been Jonathan Bourne. Due to a five-year
rotation requirement, he will be succeeded in 2015 by Marie-
Laure Delarue. The co-signing partner for the financial statement
audit is Troy J. Butner since 2011, with an incumbency limit of
seven years. Rolf Walker has been the Lead Auditor to FINMA
since 2013. He will be succeeded by Patrick Schwaller due to a
rotation requirement as Rolf Walker’s incumbency is limited to
two years due to prior audit service to the Group in another role.
The co-signing partner for the FINMA audit has been Marc Ryser
since 2012, with an incumbency limit of seven years.
Fees paid to external independent auditors
The fees (including expenses) paid to our auditors EY are set forth
in the table below. In addition, EY received CHF 29,727,000 in
2014 (CHF 34,445,000 in 2013) for services performed on behalf
of our investment funds, many of which have independent fund
boards or trustees.
Audit work includes all services necessary to perform the audit
for the Group in accordance with applicable laws and generally
accepted auditing standards, as well as other assurance services
that conventionally only the auditor can provide. These include
statutory and regulatory audits, attest services, and the review of
documents to be filed with regulatory bodies. The additional ser-
vices classified as audit in 2014 included several engagements for
which EY were mandated at the request of FINMA related to the
establishment of UBS Switzerland AG, and to review new or re-
mediated processes, whether in response to regulatory changes,
such as Basel III, or as a result of control deficiency remediation,
for example, in connection with the 2011 unauthorized trading
incident.
Fees paid to external independent auditors
UBS Group AG and its subsidiaries (including UBS AG) paid the following fees (including expenses) to its external independent auditors.
CHF thousand
Audit
Global audit fees
Additional services classified as audit (services required by law or statute, including work of a non-recurring nature mandated by regulators)
Total audit
Non-audit
Audit-related fees
of which: assurance and attest services
of which: control and performance reports
of which: consultation concerning financial accounting and reporting standards
Tax services
Other
Total non-audit
31.12.14
31.12.13
47,450
14,374
61,824
7,133
3,205
3,840
87
1,083
1,573
9,789
49,522
17,604
67,126
11,708
6,922
4,386
400
950
1,601
14,258
311
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Audit-related work comprises assurance and related services
that are traditionally performed by the auditor, such as attest
services related to financial reporting, internal control reviews,
performance standard reviews, and consultation concerning fi-
nancial accounting and reporting standards.
Tax work involves services performed by professional staff in
EY’s tax division, and includes tax compliance and tax consultation
with respect to our own affairs.
“Other” services are permitted services which include on-call
advisory services and assessments of regulatory and internal con-
trol frameworks.
Pre-approval procedures
To ensure EY’s independence, all services provided by them have
to be pre-approved by the Audit Committee. A pre-approval may
be granted either for a specific mandate, or in the form of a blan-
ket pre-approval authorizing a limited and well-defined type and
amount of services.
The Audit Committee has delegated pre-approval authority to
its Chairperson, and the Group Chief Financial Officer (Group
CFO) submits all proposals for services by EY to the Chairperson
of the Audit Committee for approval, unless there is a blanket
pre-approval in place. At each quarterly meeting, the Audit Com-
mittee is informed of the approvals granted by its Chairperson
and of services authorized under blanket pre-approvals.
Group Internal Audit
With 402 personnel worldwide as of 31 December 2014, Group
Internal Audit (GIA) performs the internal auditing function for
the Group. It is an independent and objective function that sup-
ports both the Group, in achieving its defined strategic, opera-
tional, financial and compliance objectives, and the BoD, sup-
ported by its committees, in discharging their governance
responsibilities. GIA provides assurance by assessing the reliability
of financial and operational information, as well as compliance
with legal, regulatory and statutory requirements. All reports with
key issues are provided to the Group CEO, GEB members respon-
sible for the business divisions and other responsible manage-
ment. In addition, the Chairman, the Audit Committee and the
Risk Committee of the BoD are regularly informed about impor-
tant issues. GIA further assures the closure and successful reme-
diation of issues, irrespective of the function which identified
them, including those which are self-identified by management
(first line of defense) or are raised by control functions (second
line of defense), GIA (third line of defense), external auditors and
regulators. GIA cooperates closely with internal and external legal
advisors and risk control units on investigations into major control
issues.
To maximize its independence from management, the Head of
GIA, James P. Oates, reports directly to the Chairman of the BoD as
well as to the Audit Committee. In their assessment, GIA is quan-
titatively and qualitatively well resourced to perform its function.
The role, position, responsibilities and accountability of GIA are set
out in our Organization Regulations as well as in the Charter for
Group Internal Audit, published at www.ubs.com/governance.
GIA has unrestricted access to all accounts, books, records, sys-
tems, property and personnel, and must be provided with all infor-
mation and data needed to fulfill its auditing duties. The Audit
Committee may order special audits to be conducted. Other BoD
members, committees or the Group CEO may request such audits
with the approval of the Audit Committee.
Coordination and close cooperation with the external auditors
enhance the efficiency of GIA’s work.
312
Information policy
We provide regular information to our shareholders and to the
financial community.
tion lists to internal and external stakeholders and reduced printed
stocks, which benefits the environment and yields significant an-
nual savings.
Financial reports for UBS Group AG will be published as
follows
➔ Refer to www.ubs.com/investors for a complete set of published
reporting documents and a selection of senior management
First quarter 2015
Second quarter 2015
Third quarter 2015
5 May 2015
28 July 2015
3 November 2015
The Annual General Meeting of shareholders of
UBS Group AG will take place as follows
2015 1
2016
7 May 2015
10 May 2016
1 The Annual General Meeting of shareholders of UBS AG will also take place on Thursday, 7 May 2015.
➔ Refer to the corporate calendar at www.ubs.com/investors for
future financial report publication and other key dates
We meet with institutional investors worldwide throughout the
year and regularly hold results presentations, attend and present
at investor conferences and, from time to time, host investor days.
Investor meetings are always attended by members of our Inves-
tor Relations team and, if possible, senior management. We use
various technologies such as webcasting, audio links and cross-
location video conferencing to widen our audience and maintain
contact with shareholders around the world.
Registered shareholders may opt to receive our annual report
or review booklet, which reflects on specific 2014 initiatives and
achievements of the Group and provides an overview of the
Group’s activities during the year as well as some key financial
information. Each quarter, shareholders have the option to receive
a brief mailed update on the Group’s quarterly financial perfor-
mance. Shareholders can also request UBS Group AG’s complete
financial reports, produced on a quarterly and annual basis.
We make our publications available to all shareholders simulta-
neously to ensure they have equal access to our financial informa-
tion.
Shareholders can help us achieve our environmental ambitions
by opting to read our financial publications electronically through
our Investor Relations website rather than receiving printed cop-
ies. In addition, shareholders can change their subscription prefer-
ences at any time using our shareholder portal (www.ubs.com/
shareholderportal). We have reviewed and shortened our distribu-
industry conference presentations
➔ Refer to the “Information sources” section of this report for
more information
Financial disclosure principles
We fully support the notion of transparency and consistent and
informative disclosure. We aim to communicate our strategy and
results in a manner that allows stakeholders to gain a good under-
standing of how our Group works, what our growth prospects are
and the risks our businesses and our strategy entail. We continu-
ally assess feedback from analysts and investors and, where ap-
propriate, reflect this in our disclosures. To continue achieving
these goals, we apply the following principles in our financial re-
porting and disclosure:
– Transparency that enhances the understanding of economic
drivers and builds trust and credibility
– Consistency within each reporting period and between report-
ing periods
– Simplicity that allows readers to gain a good understanding of
the performance of our businesses
– Relevance by focusing on what is required by regulation or
statute and what is relevant to our stakeholders
– Best practice that leads to improved standards
We endorse the work of the Enhanced Disclosure Task Force
(EDTF) and our financial reports contain disclosures aligned with
the recommendations issued by the EDTF on 29 October 2012 in
its report “Enhancing the Risk Disclosures of Banks.” Certain dis-
closures in our Annual Report 2012 were cited by the EDTF in its
July 2013 “Progress Report on Implementation of Disclosure Rec-
ommendations” as leading practice. We made significant further
enhancements to our disclosures in the Annual Report 2013 and
achieved an even better assessment by the EDTF in its “2014
Progress Report on Implementation of the EDTF Principles and
Recommendations.” We have further enhanced the disclosures in
this report and also present now at the start of the “Risk, treasury
and capital management” section of this report a refined index to
help readers locate disclosures related to specific EDTF recommen-
dations. Consistent with our financial reporting and disclosure
313
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
principles, we regard the enhancement of disclosures as an ongoing
commitment and we expect to make further refinements to our
disclosures in 2015 and beyond.
➔ Refer to the “Risk, treasury and capital management” section of
this report for more information on our implementation of the
EDTF recommendations
Financial reporting policies
We report our Group’s results after the end of every quarter, in-
cluding a breakdown of results by business division and disclo-
sures relating to risk management and control, capital, liquidity
and funding management.
UBS Group AG’s and UBS AG’s consolidated financial state-
ments are prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Account-
ing Standards Board.
➔ Refer to “Note 1 Summary of significant accounting policies”
in the “Financial information” section of this report for more
information on the basis of accounting
We are committed to maintaining the transparency of our re-
ported results and to ensuring that analysts and investors can
make meaningful comparisons with prior periods. If there is a ma-
jor reorganization of our business divisions, or if changes to ac-
counting standards or interpretations lead to a material change in
the Group’s reported results, our results are restated for previous
periods as required by applicable accounting standards. These re-
statements show how results would have been reported accord-
ing to the new basis and provide clear explanations of all relevant
changes.
US disclosure requirements
As a foreign private issuer, we must file reports and other informa-
tion, including certain financial reports, with the US Securities and
Exchange Commission (SEC) under the US federal securities laws.
We file an annual report on Form 20-F, and furnish our quarterly
financial reports and other material information under cover of
Form 6-K to the SEC. These reports are available at www.ubs.
com/investors and on the SEC’s website at www.sec.gov.
An evaluation was carried out under the supervision of man-
agement, including the Group CEO and Group CFO, of the ef-
fectiveness of our disclosure controls and procedures (as defined
in Rule 13a–15e) under the US Securities Exchange Act of 1934.
Based on that evaluation, the Group CEO and Group CFO con-
cluded that our disclosure controls and procedures were effective
as of 31 December 2014. No significant changes have been
made to our internal controls or to other factors that could sig-
nificantly affect these controls subsequent to the date of their
evaluation.
In accordance with section 404 of the US Sarbanes-Oxley Act
of 2002, our management is responsible for establishing and
maintaining adequate internal control over financial reporting.
The “Financial information” section of this report contains man-
agement’s assessment of the effectiveness of internal control over
financial reporting as of 31 December 2014. The external audi-
tors’ report on this assessment is also included in this report.
➔ Refer to the “Financial information” section of this report for
more information
314
Corporate responsibility
EDTF | To us, corporate responsibility means “doing the right thing” – both now and in the future. Our commitment to this is
incorporated in the principles and standards set out in our Code of Business Conduct and Ethics (Code). These apply to all
aspects of our business and the ways in which we engage with our stakeholders, from the products and services we offer
our clients, our management of environmental and social risks, to the way we protect the well-being of our employees.
Corporate responsibility is embedded at every level of the firm, helping us to adopt a responsible and sustainable approach
to doing business while underlining our desire to contribute to the communities in which we operate.
The successful delivery of our corporate responsibility commit-
ments and activities relies on the firm commitment to conducting
our business in a sustainable way. The guiding principles and stan-
dards set out in our Code are designed to shape our business ac-
tivities and all our dealings with our stakeholders including clients,
colleagues, shareholders, regulators and business partners. Proper
implementation of the Code contributes to the wider societal
goal of sustainable development. Policies and guidelines, as well
as associated objectives related to this aspiration, are guided from
and supervised at the highest level of the firm. We demonstrate
accountability for our corporate responsibility commitments and
activities at both Board of Directors (BoD) and Group Executive
Board (GEB) levels. At the end of 2014, we started an in-depth
review of our Code and the revised Code will be published in
2015. ▲
➔ Refer to www.ubs.com/responsibility for more information
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:86)(cid:2)(cid:55)(cid:36)(cid:53)
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:86)(cid:2)(cid:55)(cid:36)(cid:53)
(cid:42)(cid:81)(cid:89)(cid:2)(cid:89)(cid:71)(cid:2)(cid:70)(cid:81)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)
(cid:42)(cid:81)(cid:89)(cid:2)(cid:89)(cid:71)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:42)(cid:81)(cid:89)(cid:2)(cid:89)(cid:71)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:87)(cid:80)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:37)(cid:78)(cid:71)(cid:67)(cid:84)(cid:2)(cid:82)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:80)(cid:71)(cid:69)(cid:71)(cid:85)(cid:85)(cid:67)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:68)(cid:81)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:75)(cid:85)(cid:2)(cid:71)(cid:85)(cid:85)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:89)(cid:74)(cid:71)(cid:80)(cid:2)(cid:86)(cid:67)(cid:69)(cid:77)(cid:78)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:15)(cid:70)(cid:67)(cid:91)(cid:2)(cid:69)(cid:74)(cid:67)(cid:78)(cid:78)(cid:71)(cid:80)(cid:73)(cid:71)(cid:85)(cid:16)(cid:2)
(cid:57)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:88)(cid:75)(cid:70)(cid:71)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:75)(cid:80)(cid:80)(cid:81)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)
(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:67)(cid:70)(cid:70)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:85)(cid:81)(cid:69)(cid:75)(cid:71)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:80)(cid:69)(cid:71)(cid:84)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:84)(cid:75)(cid:88)(cid:71)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:71)(cid:86)(cid:86)(cid:71)(cid:84)(cid:16)
(cid:57)(cid:71)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:87)(cid:80)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:89)(cid:71)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:86)(cid:74)(cid:84)(cid:81)(cid:87)(cid:73)(cid:74)(cid:2)
(cid:88)(cid:67)(cid:84)(cid:75)(cid:81)(cid:87)(cid:85)(cid:2)(cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:16)
(cid:37)(cid:52)(cid:67)(cid:86)(cid:55)(cid:36)(cid:53)(cid:65)(cid:71)(cid:80)(cid:73)
315
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
UBS and Society – integrating societal and financial performance for the benefit of
our clients, our communities and our firm
What we do:
For a long time, we have been helping
clients to invest along sustainable and
responsible criteria. In 2014, we launched
UBS and Society – a cross-divisional
umbrella initiative that covers all our
activities and capabilities in sustainable
investing and philanthropy, as well as
our firm’s community interaction. The
purpose of this initiative is to support the
development of our dedicated, industry-
leading platform that delivers compre-
hensive research, advisory and product
capabilities in sustainable investments
and philanthropy. We want to do this
holistically, channeling a growing
portion of investable client assets through
innovative financial mechanisms to
address societal challenges and make
societal performance part of every
client conversation.
To us, sustainability in banking means
both seizing opportunities and managing
risk. As our sustainable investment
offering grows and our focus shifts from
“doing no harm” to “doing good,” we
must also align our client and supplier
relationships with our strict environmental
and social risk management standards.
Our environmental and social risk policy
framework clearly demonstrates our
approach to environmental and social risk
and our strict standards with regard to
topics such as climate change, deforesta-
tion, biodiversity and human rights.
➔ Refer to our environmental and
social risk policy framework
at www.ubs.com/esr for more
information
Why we do it:
We want to ingrain a culture of long-
term thinking and action throughout
the firm. Our objective is to be sustain-
able for our clients, shareholders and
employees as well as for the communi-
ties, in which we live and work. Focusing
on sustainability is both the key to the
future and makes good business sense.
We are aware of our clients’ growing
interest in societal issues and their wish
to use their resources for the benefit
and advancement of individuals, commu-
nities and societies around the world.
As a global firm, and the world’s largest
wealth manager, we are in a unique
position to help them address these
concerns. We recognize this responsibility
and we take it seriously. We also embrace
our duty to lead the debate on important
societal topics – within our industry and
beyond – thus contributing to the wider
goal of sustainable devel opment.
How we are different:
With our compelling UBS and Society
initiative we aim to integrate societal and
financial performance for the maximum
and mutual benefit of our clients and our
firm as well as to generate a long-term,
sustainable and measurable positive
impact on our local communities.
Appointed in 2014, the global head of
the initiative is already driving forward
the common strategic direction for the
initiative across our business. Ultimately,
we aim to make sustainability the
every-day standard throughout our firm.
How we do it:
It is through the lens of sustainability that
we have created some of the world’s most
innovative products, such as the first
impact investing fund focused on small
and mid-sized enterprises (SMEs) in
developing countries, or the first clean
energy infrastructure fund in Switzerland.
Together with our comprehensive
environmental and social risk policy
316
UBS and Society – integrating societal and financial performance for the benefit of
our clients, our communities and our firm
framework, these products drive change
for the better. In 2014, we received the
coveted CommunityMark award in the UK
– a critical recognition for our community
investment activities in the UK as well as
our global corporate responsibility
approach.
What we have done:
To date, 21% of our total invested assets
are invested along sustainable investment
criteria, as illustrated in the sustainable
investment (SI) invested assets table
below. We have integrated environmental
and social considerations across all
business divisions into our advisory,
research, investment, finance and
ownership processes. Our shelf of
products ranges from sustainable portfolio
management across environmental, social
and governance (ESG) research to
sustainable investment funds, combining
established and innovative approaches.
expanded our impact investing offering.
Impact investing also provides an excellent
example of how we combine investment
opportunities with thought leadership.
Represented by our firm’s Group Chief
Executive Officer (Group CEO), UBS forms
part of the World Economic Forum’s
Mainstreaming Impact Investing initiative
to promote impact investing globally and
engage in ground-breaking research. In
2014, the group published a key report to
help potential investors navigate the
different approaches on offer and identify
opportunities. It also offers industry
guidance on building capabilities and
attracting top talent, as the market is
becoming increasingly sophisticated
and mature. In 2014, we also contributed
to the G8 Taskforce report on Social
Impact Investment, which calls on global
governments to modernize their fiduciary
duty concepts, and on trustees to take
account of impact investing.
In 2013, we launched the Impact
Investing SME Focus Fund – the largest
privately funded vehicle of its kind,
which invests in emerging markets sectors
and businesses that drive social or envi-
ronmental change. In 2014, we further
We continue to spearhead thinking on
sustainable investing. Already in 2013,
UBS Research Focus had highlighted the
approach while, in December 2014,
sustainable investing was featured in
CIO Year Ahead.
UBS is also at the forefront in developing
social finance instruments. In 2014,
UBS Optimus Foundation partnered with
Children’s Investment Fund Foundation
to launch the first Development Impact
Bond as a proof of concept in the
education sector and beyond. In the UK
we developed two social investment
vehicles: the UBS-supported Young
Academy investment fund, which is part
of the Young Foundation’s education
incubator, and – in partnership with CAN
Invest – a new social investment loan
fund aimed at accelerating positive early
intervention impact on communities
and individuals in the boroughs of East
London.
As a global bank, we are particularly well
positioned to act as an intermediary
between capital and investment, and to
offer our clients investments which
combine a financial and societal purpose.
We will continue to expand our capabili-
ties in order to provide our clients with
an industry-leading and integrated range
of sustainable investing products and
services, which will enable them to
continue to invest with societal goals
in mind.
317
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Our approach
Corporate responsibility governance
EDTF | The BoD is responsible for setting our firm’s values and stan-
dards and ensuring that we meet our obligations to our stake-
holders. Our Chairman of the BoD and our Group CEO play key
roles in safeguarding our reputation and ensuring that we com-
municate effectively with all our stakeholders.
All BoD committees monitor our business performance in the
context of creating sustainable value. The Corporate Culture and
Responsibility Committee focuses specifically on assessing how
we meet our stakeholders’ expectations with regard to corporate
responsibility. It also monitors and reviews our policies and regula-
tions as well as the implementation of our stated commitments
from a corporate responsibility perspective. For areas such as UBS
and Society, environmental and human rights, or community in-
vestment, the Corporate Culture and Responsibility Committee
even defines the strategic direction and goals. ▲
➔ Refer to the UBS Code of Business Conduct and Ethics at
www.ubs.com/code for more information
➔ Refer to the Organization Regulations of UBS at www.ubs.com/
governance for the charter of the Corporate Culture and
Responsibility Committee
EDTF | In 2014, Axel A. Weber, Chairman of the BoD, chaired the
Corporate Culture and Responsibility Committee that consists
of three additional members. The Group CEO and the Global
Head of UBS and Society, are permanent guests of the Commit-
tee, while the regional presidents attend two of the six annual
Committee meetings as guests. Various senior-level committees
and boards are in charge of particular aspects of corporate re-
sponsibility. They include the Global Environmental & Social Risk
Committee, chaired by the Group Chief Risk Officer, who man-
ages the development and implementation of principles and
appropriate independent control frameworks related to envi-
ronmental and social risks within UBS. This committee resolves
trans actional and policy matters relating to environmental and
social risks and their associated reputational risks. Additionally,
our Environmental & Human Rights Committee supervises the
operational execution of UBS’s Environmental and Human
Rights Policy, which we revised at the beginning of 2014 to in-
corporate commitments made in the areas of climate change
and human rights. On 1 March 2015, the Environmental and
Human Rights Committee was transformed into the UBS and
Society Operating Committee, chaired by Juerg Zeltner, Presi-
dent Wealth Management, and by Chi-Won Yoon, President
Region Asia Pacific. This committee, consisting of business area
and regional representatives, focuses on implementing the UBS
and Society agenda in their respective areas.
The GEB oversees our efforts to combat money laundering,
corruption and terrorist financing. These efforts are led by a dedi-
cated financial crime team of anti-money laundering (AML) com-
pliance experts. Also overseen by the GEB is our approach to di-
versity and inclusion. In 2014, we appointed a global head of
diversity and inclusion to drive a Group-wide strategy comple-
mented by divisional and regional initiatives. ▲
➔ Refer to the “Our employees” section of this report for more
information on labor standards and diversity programs
EDTF | In line with our commitment to responsible banking, we as-
sess our policies and practices regularly and rigorously. We also
pay close attention to any societal issues that might be of rele-
vance to UBS. Our corporate responsibility functions and commit-
tees are positioned at top management and governance levels,
which reflects the level of priority we attach to these tasks. ▲
(cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:49)(cid:87)(cid:84)(cid:2)(cid:69)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:73)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:87)(cid:78)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:52)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)(cid:2)(cid:10)(cid:37)(cid:37)(cid:52)(cid:37)(cid:11)
(cid:35)(cid:73)(cid:71)(cid:80)(cid:70)(cid:67)
(cid:38)(cid:81)(cid:69)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:50)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:67)(cid:78)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:35)(cid:70)(cid:88)(cid:75)(cid:69)(cid:71)
(cid:47)(cid:67)(cid:80)(cid:70)(cid:67)(cid:86)(cid:71)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:14)(cid:2)(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:42)(cid:71)(cid:67)(cid:70)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:53)(cid:81)(cid:69)(cid:75)(cid:71)(cid:86)(cid:91)(cid:14)(cid:2)(cid:67)(cid:73)(cid:71)(cid:80)(cid:70)(cid:67)(cid:15)(cid:85)(cid:82)(cid:71)(cid:69)(cid:75)(cid:386)(cid:69)(cid:2)(cid:75)(cid:80)(cid:88)(cid:75)(cid:86)(cid:71)(cid:71)(cid:85)
(cid:48)(cid:71)(cid:86)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:84)(cid:86)(cid:85)
(cid:35)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:52)(cid:71)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)
(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:36)(cid:67)(cid:80)(cid:77)
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)
(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)
(cid:24)(cid:18)(cid:26)(cid:15)(cid:22)(cid:19)(cid:18)(cid:25)(cid:16)(cid:19)(cid:2)
(cid:86)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)
(cid:71)(cid:90)(cid:82)(cid:71)(cid:84)(cid:86)(cid:85)
318
External commitments and initiatives
EDTF | As a global firm, we embrace our responsibility to lead the
debate on important social topics, contribute to setting the stan-
dards and promoting international collaboration across industries.
These contributions are part of our efforts to advance in areas
that are already mandated by governments and regulators, as
well as in areas that are still largely voluntary, but nonetheless
significantly strengthen our corporate responsibility agenda.
In 2014, we endorsed the Banking Environment Initiative’s and
Consumer Goods Forum’s ‘Soft Commodities’ Compact and
committed to supporting the sustainability performance of soft
commodity supply chains. We expect soy, timber or palm oil-pro-
ducing clients to be fully certified according to applicable sustain-
ability certification schemes, such as the Roundtable on Sustain-
able Palm Oil, by 2020. We also joined the Swiss Better Gold
Association, which aims to create a sustainable gold value chain
from mine to market.
In October 2013, we co-launched the Thun Group of Banks’
discussion paper on banking and human rights, which aims to
support banks in mapping and analyzing their potentially adverse
impacts on human rights, and also looks at related risks, including
reputational, legal, operational and financial risks. The paper was
very positively received and the Thun Group has continued its dis-
cussions since, notably in a meeting with a large group of diverse
stakeholders (including supranational organizations, governments
and civil society) in June 2014 at the UBS Conference Center in
Thun, Switzerland. ▲
Discussions with employees covered various sustainability top-
ics, including climate change. A key annual campaign, the UBS
Environmental Month in April, again raised awareness among
employees and external stakeholders about our efforts to reduce
the environmental impact of our operations and banking activi-
ties. Working together with investors and rating agencies, we also
considered key environmental, social and governance issues. Dis-
cussions with non-governmental organizations focused on the
subjects of human rights, mountaintop removal coal mining, food
speculation and climate change, particularly in relation to coal. In
addition, we sought input from our employees regarding our cor-
porate responsibility strategy and associated activities. An inter-
nal, cross-divisional and cross-regional network of experts meets
on a quarterly basis and plays an important role, as its members
provide critical input on stakeholder expectations and concerns.
These contributions are relayed to the Corporate Culture and Re-
sponsibility Committee to complement the information gathered
through other monitoring channels.
We believe it is crucial that we keep our stakeholders informed
about our sustainability commitments and activities. To this end,
we include sections on our corporate responsibility and our em-
ployees in this report. These sections, other relevant annual report
content and information on our website are audited, in line with
the Global Reporting Initiative’s Sustainability Reporting Guide-
lines. ▲
➔ Refer to www.ubs.com/gri for more information
➔ Refer to www.ubs.com/materiality for the GRI materiality matrix
Stakeholder engagement
EDTF | We regularly engage with our stakeholders on a wide range
of topics, which gives us important information about their ex-
pectations and concerns. Key issues identified in these discussions
are reviewed by the Corporate Culture and Responsibility Com-
mittee for their potential relevance to our firm. Our relationship
with stakeholders is multi-faceted and includes interactions with
large groups, regular communications with representatives from a
particular group, as well as meetings with individuals such as cli-
ents and investors.
We piloted a comprehensive stakeholder survey as part of the
UBS Materiality Assessment (as defined by the Global Reporting
Initiative (GRI)) for 2014. The results of this comprehensive assess-
ment of the issues deemed relevant by our stakeholders are sum-
marized in a materiality matrix. This matrix distils the views of the
stakeholders with which our firm interacts and it covers 30 topics
including, as most relevant, financial stability, prevention of fraud
and manipulation, client protection and compliance.
In 2014, we talked with clients on values-based investing at
venues such as the UBS Global Philanthropy Forum (on the theme
of “scaling up: building on success and maximizing impact”), the
APAC Family Legacy and Philanthropy Forum, the 2014 Young
Successors Program conference “Passion to Action,” the Wom-
en’s Symposium, UBS Roundtables and the annual Private Wealth
Management Conference dedicated to Sustainable Investing in
the US.
External ratings and awards
EDTF | Our performance and success in the area of sustainability is
reflected in the key external ratings and rankings we received in
2014. We were ranked among the top three companies in our
sector for 2014 in RobecoSAM’s Corporate Sustainability Assess-
ment. RobecoSAM, together with S&P Dow Jones Indices, also
publishes the globally recognized Dow Jones Sustainability Indi-
ces (DJSI). The indices track leading sustainability-driven compa-
nies worldwide and define leading companies as those that inte-
grate environmental and social factors into their long-term
strategies and performance reviews. We improved our overall
rank in the DJSI and took the lead in the indices’ environmental
dimension.
In 2014, we also received a top percentile rating in the FTSE-
4Good index series, in which we have been included since its in-
ception in 2001. Meanwhile, oekom research – another leading
sustainability rating agency – awarded corporate responsibility
prime status to UBS. In oekom’s corporate rating system, prime
status is awarded to companies that are among their industries’
leaders and meet industry-specific minimum requirements. We
are one of only few banks to hold this status.
We were the only Swiss bank included in “The A List: The CDP
Climate Performance Leadership Index 2014” for our efforts in
reducing carbon emissions and mitigating the business risks
of climate change. The index presents 187 listed companies – out
of a total of nearly 2,000 independently assessed companies –
319
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
identified as demonstrating a superior approach to climate change
mitigation.
We received the American Foreign Policy Association 2014
Corporate Social Responsibility award in acknowledgment of our
firm’s support of projects focusing on education and entrepre-
neurship in communities around the world. We were also awarded
the CommunityMark accreditation, the UK’s highest award for
businesses that demonstrate how they maximize positive and
minimize negative community impacts. ▲
Training and raising awareness
EDTF | We actively engage in internal and external education and
awareness-raising on corporate responsibility topics and issues.
Through induction, education and broader awareness-raising ac-
tivities, we ensure that our employees understand their responsi-
bilities in complying with our policies and the importance of our
societal commitments. General information is published on our
intranet and corporate responsibility website.
In 2014, we continued training and raising employee aware-
ness by embracing the Code. All employees have to confirm an-
nually that they have read UBS’s key documents and policies, in-
cluding the Code. Employees were also informed of the firm’s
corporate responsibility strategy and activities through other
training and awareness-raising activities. Approximately 2,800
employees received training on environmental issues; 1,400 of
them received general training on our environmental policy and
programs and 1,400 participated in specialist training targeted at
their respective areas of expertise and influence. Employee
speaker sessions, exhibitions and lunchtime training sessions were
delivered in all regions alongside specific technical training for the
regional environmental teams. Community Affairs engagement
forms part of our key internal leadership programs, while skills-
based employee volunteering further contributes towards staff
development. Employees are also required to undergo regular re-
fresher training in issues relating to AML, sanctions compliance
and anti-corruption. This includes online training, awareness cam-
paigns and seminars. ▲
➔ Refer to “Learning and development” in the “Our employees”
section of this report for more information
Our clients
We are focused on gaining and retaining the trust of our stake-
holders, as well as achieving our goal of generating sustainable
earnings and creating long-term shareholder value. In addition,
we are constantly striving to ensure that our products and services
are suited to the needs and requirements of our clients. Through
our corporate responsibility efforts, we demonstrate that we are
not only listening to our stakeholders, but also aiming to be in an
industry-leading position and meet their expectations.
Combating financial crime
We take a rigorous risk-based approach in our commitment to
combating money laundering, corruption and terrorist financing.
320
(cid:49)(cid:87)(cid:84)(cid:2)(cid:71)(cid:80)(cid:88)(cid:75)(cid:84)(cid:81)(cid:80)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:74)(cid:87)(cid:79)(cid:67)(cid:80)(cid:2)(cid:84)(cid:75)(cid:73)(cid:74)(cid:86)(cid:85)(cid:2)(cid:82)(cid:81)(cid:78)(cid:75)(cid:69)(cid:91)
(cid:39)(cid:80)(cid:88)(cid:75)(cid:84)(cid:81)(cid:80)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:74)(cid:87)(cid:79)(cid:67)(cid:80)(cid:2)(cid:84)(cid:75)(cid:73)(cid:74)(cid:86)(cid:85)(cid:2)(cid:82)(cid:81)(cid:78)(cid:75)(cid:69)(cid:91)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)
(cid:81)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:87)(cid:80)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:49)(cid:87)(cid:84)(cid:2)(cid:71)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:71)(cid:71)(cid:85)
(cid:49)(cid:87)(cid:84)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:78)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:71)(cid:82)(cid:71)(cid:80)(cid:70)(cid:71)(cid:80)(cid:86)(cid:78)(cid:91)(cid:2)(cid:88)(cid:71)(cid:84)(cid:75)(cid:386)(cid:71)(cid:70)
(cid:54)(cid:84)(cid:67)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:87)(cid:80)(cid:75)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:22)(cid:37)(cid:52)(cid:18)(cid:18)(cid:21)(cid:65)(cid:71)
We are also committed to complying with sanctions laws. Our
policies and procedures are designed to detect and mitigate fi-
nancial crime-related risks. We adhere to strict know-your-client
rules and use advanced technology to help identify suspicious
transaction patterns. If suspicious activities are discovered, they
are promptly escalated to independent control units and external
authorities, as required by law. We assess annually the money
laundering, corruption and sanctions risks associated with our
business against our control framework, and take actions to fur-
ther mitigate that risk.
UBS is a founding member of the Wolfsberg Group, an asso-
ciation of global banks that aims to develop financial services in-
dustry standards for policies on preventing money laundering and
terrorist financing, and on know-your-client principles. The Wolfs-
berg Group also works closely with the Financial Action Task
Force, an inter-governmental body that helps develop national
and international policies on preventing money laundering and
terrorist financing through consultation with the private sector.
The Wolfsberg Group continued to influence AML in 2014
through its annual forum and regional reach-out meetings with
banks globally. It continues to work on guidance papers in key
areas of AML and, in 2014, it issued such a guidance paper on
mobile and internet payment services.
Our environmental and social risk policy framework
EDTF | In 2014, we published a comprehensive document on our
environmental and social risk policy framework to ensure that our
stakeholders have a good understanding of our approach to envi-
ronmental and social risk. We apply the environmental and social
risk policy framework to all our activities. This helps us identify
and manage potential adverse impacts on the environment and
human rights, as well as the associated risks affecting our clients
and our firm. We have set standards in product development, in-
vestments, financing and for supply chain management decisions.
As part of our due diligence process, we engage with clients and
suppliers to better understand their processes and policies and to
explore how any environmental and social risks may be mitigated.
We avoid transactions, products, services, activities or suppliers if
there are material environmental and social risks that cannot be
properly assessed. We will not do business with a counterparty or
an issuer who we judge is not addressing environmental or social
issues in an appropriate and responsible manner. The foundation
of UBS’s environmental and social risk policy framework is estab-
lished in the Code of Business Conduct and Ethics of UBS and the
UBS Environmental and Human Rights Policy. ▲
Our focus
EDTF | Our industry is playing an increasingly active role in address-
ing global issues such as the protection of human rights and the
environment. Growing environmental and human rights concerns
have resulted in a fast-changing regulatory and competitive land-
scape that affects our firm, our suppliers and our clients. In re-
sponse to these emerging risks and opportunities, we are shaping
appropriate commitments and solutions.
Climate change is one of the greatest challenges of our time.
It will impact ecosystems, societies, and economies worldwide.
Population growth, energy security, loss of biodiversity and access
to drinking water and food, are all closely intertwined with cli-
mate change. This makes the transition to a low-carbon economy
vital. As a leading global financial services firm, we are well posi-
tioned to help our clients as they prepare for this transition. Our
climate change strategy focuses on investments, financing, re-
search and risk management, as well as our own operations.
Deforestation and forest degradation is a threat to biodiversity.
Recognizing related risks, we became members of the Roundtable
on Sustainable Palm Oil in 2012 and joined its complaints panel in
2014; we endorsed the Banking Environment Initiative’s and Con-
sumer Goods Forum’s ’Soft Commodities’ Compact; and we iden-
tified certain activities that lead to deforestation and its related
impacts, in which we will not engage.
UBS is committed to respecting and promoting human rights
in all our business activities. To address human rights issues, we
established a UBS Position on human rights in 2006. In 2013, we
revised the firm’s Environmental and Human Rights Policy to
reflect the Thun Group’s discussion paper and to formalize
accountability for human rights issues. We stipulated that we will
not engage in commercial activities involving child labor and
forced labor, or that infringe the rights of indigenous peoples.
We will continue our work with the Thun Group to understand
how best to implement the UN Guiding Principles across our
operations. ▲
Our standards
EDTF | We have set standards for our product development, invest-
ments, financing and supply chain management decisions. In this
vein, we have identified controversial activities UBS will not en-
gage in, and other areas of concern UBS will only engage in if
stringent criteria are met. UBS will not knowingly provide any fi-
nancial or advisory services to corporate clients whose primary
business activity, or where the proposed transaction, is associated
with severe environmental or social damage to world heritage
sites, wetlands, endangered species, high conservation value for-
ests, indigenous peoples’ rights or through use of illegal fire or
logging and child or forced labor. Specific guidelines and escala-
tion criteria apply to transactions with corporate clients engaged
in areas of concern such as soft commodities (palm oil, soy, tim-
ber), power generation (coal-fired power plants, large dams, nu-
clear power) and extractives (hydraulic fracturing, oil sands, arctic
drilling, mountaintop removal coal-mining, precious metals, dia-
monds).
Our guidelines and escalation criteria apply to loans, trade fi-
nance, securities and loan underwriting transactions, as well as
investment banking advisory assignments. Transactions in these
areas are subject to an enhanced due diligence and approval pro-
cess. This means that we will take a close look at regulatory com-
pliance, adherence to UBS’s controversial activities standards, past
and present environmental and human rights performance, as
EDTF | Environmental and social risk assessments
Cases referred for assessment 2
by region
Americas
Asia Pacific
Europe, Middle East and Africa
Switzerland
by business division
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center 3
GRI 1
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
For the year ended
31.12.14
1,812
31.12.13
1,716
31.12.12
1,039
354
317
297
844
291
21
749
7
654
90
367
296
373
680
298
46
598
14
657
103
288
222
225
304
157
5
223
12
533
109
% change from
31.12.13
6
(4)
7
(20)
24
(2)
(54)
25
(50)
(0)
(13)
1 Global Reporting Initiative (see also www.globalreporting.org). FS stands for the Performance Indicators defined in the GRI Financial Services Sector Supplement. 2 Transactions and onboarding requests referred to
and assessed by the environmental and social risk function. 3 Relates to procurement / sourcing of products and services. ▲
321
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
well as concerns of stakeholder groups, and we will also examine
whether the area-specific criteria are fully met. ▲
➔ Refer to www.ubs.com/esr for the complete definition of our
standards and specific assessment criteria
Our processes and governance
EDTF | Our standard risk, compliance and operations processes in-
volve procedures and tools for identifying, assessing and monitor-
ing environmental and social risks. This includes client onboard-
ing, transaction due diligence, product development and
investment decision processes, own operations, supply chain
management and portfolio reviews. These processes are geared
toward identifying clients, transactions or suppliers potentially in
breach of our standards, or otherwise subject to significant envi-
ronmental and human rights controversies. Advanced data ana-
lytics on companies associated with such risks is integrated into
the web-based compliance tool we use before we enter into a
client or supplier relationship, or a transaction. The systematic na-
ture of this tool significantly enhances our ability to identify po-
tential risk. In 2014, over 1,800 referrals were assessed by our
environmental and social risk unit, of which more than 50 were
rejected or not pursued, and more than 180 were approved with
qualifications.
Should our business or control staff identify during the regular
due diligence processes that any client, supplier or transaction in-
volves potential material environmental and social risks, they will
refer the matter to a specialized environmental and social risk unit
for enhanced due diligence. If we find reasons to assume that a
transaction might involve significant environmental or social risks,
we escalate it for approval to senior management, at divisional,
regional, or Group level, depending on its significance.
In view of the many environmental and social challenges glob-
ally, these topics will continue to gain in relevance for banks.
Therefore, we assess the adequacy of our policies and practices
regularly and rigorously, based on accurate monitoring and analy-
ses of societal topics that may be relevant to UBS. This process
is the responsibility of our Global Environmental & Social Risk
Committee. ▲
➔ Refer to www.ubs.com/esr for the complete environmental and
social risk policy framework
Sustainable products and services
We want to work with our clients towards a better society. The
spirit and ambition of our client-focused approach is designed to
help our clients express their values and achieve financial benefits
while addressing societal concerns.
➔ Refer to “Our climate change commitment” in this section for
more information about our contribution to addressing societal
challenges
Investment advisory
Sustainability and philanthropy are part of our advisory process.
We define sustainable investing as a set of investment strategies
(impact investing; exclusion; integration) that incorporate envi-
ronmental, social and governance (ESG) considerations into in-
vestment decisions. Sustainable Investing strategies seek to fulfill
at least one of the following goals: achieve a positive environmen-
tal or social impact, align investments with an investor’s personal
values, or improve portfolio risk and return characteristics by bet-
ter understanding how sustainability factors impact the value of
securities. Applying a client’s defined personal criteria may ex-
clude certain activities and assets from a portfolio, such as to-
bacco, alcohol or weapons; ESG integration uses the analysis of
ESG factors for portfolio decisions; and impact investing includes
a variety of structures such as microfinance or tailored lending or
private equity.
Our wealth management businesses and Global Asset Man-
agement offer sustainable investment products and services for
wealth management and institutional clients. Our teams provide
thought leadership, advice and sustainable portfolio manage-
ment, such as mandate solutions and separately managed ac-
counts. We also offer impact investing products and arrange plat-
forms, roundtables and networking events for our clients to
exchange ideas and gather know-how. UBS Portfolio Screening
Services are mainly offered to ultra high net worth clients to align
their portfolios with their values by assessing portfolios along spe-
cific sustainability criteria.
In 2014, we established a dedicated Values-Based Investing
team in Asia Pacific, and in January 2015, we also launched a
dedicated investment mandate with sustainable investing focus
for Swiss charitable foundations.
Investment products
Global Asset Management is committed to environmental, social
and governance integration and has been a signatory to the UN-
supported Principles for Responsible Investment since 2009.
These provide a voluntary framework for investors to take into
account environmental, social and governance issues in their de-
cision-making and ownership practices, and to align their objec-
tives with the broader societal objectives.
Global Asset Management offers a range of sustainable invest-
ment funds that combine material sustainability factors with a
rigorous fundamental investment process. We apply the concept
of shared value, according to which companies that pursue sus-
tainability practices (for example, conserving resources, maintain-
ing a high-quality workforce and a strong supply chain) not only
create value for the shareholder but also for a wider range of
stakeholders. Our investment themes include energy efficiency,
environment, social and healthcare, and demographics. We also
manage six exchange-traded funds that track MSCI’s Socially Re-
sponsible Indices (MSCI SRI) and that are listed on the Deutsche
Börse (Xetra), the SIX Swiss Exchange and the London and Milan
Stock Exchanges. In 2014, we launched two MSCI SRI exchange-
traded funds (ETF). The new (Luxembourg) UBS MSCI Emerging
Markets SRI UCITS ETF invests in emerging market companies and
has been listed on the SIX Swiss Exchange. The second (Luxem-
bourg) UBS MSCI UK IMI SRI UCITS ETF is exposed to UK compa-
nies and has been listed on the London Stock Exchange.
322
Sustainable investments 1
For the year ended
% change
from
CHF billion, except where indicated
GRI 2
31.12.14
31.12.13
31.12.12
31.12.13
UBS total invested assets
UBS SI products and mandates
positive criteria
positive criteria / RPI3
exclusion criteria 4
policy-based restrictions 5
Third-party 7
Total Sustainable investments
Proportion of total invested assets (%) 8
2,734
2,390
2,230
FS11
FS11
FS11
FS11
FS11
FS11
2.62
43.57
68.60
466.52
4.34
585.65
21.42%
2.18
39.00
56.09
444.62 6
3.70
545.60
22.83%
1.60
32.15
35.68
181.64
2.66
253.73
11.38%
14
20
12
22
5
17
7
1 All figures are based on the level of knowledge as of January 2015. 2 FS stands for the Performance Indicators defined in the Global
Reporting Initiative Financial Services Sector Supplement. 3 UBS Global Asset Management Responsible Property Investment strategy.
4 Includes customized screening services (single or multiple exclusion criteria). 5 Assets subject to restrictions under UBS policy on the pro-
hibition of investments in companies related to anti-personnel mines and cluster munitions (includes all invested assets held in Global Asset
Management actively managed discretionary segregated mandates and all actively managed funds (retail and institutional) held by Global As-
set Management, Wealth Management, Wealth Management Americas and Retail & Corporate). 6 Invested assets, subject to policy-based
restrictions in 2013, have been restated. 7 SI products from third-party providers apply either positive and exclusion criteria or a combination
thereof. 8 Total SI / UBS’s invested assets.
Sustainable investing is an approach that seeks to
incorporate environmental, social and governance
considerations into investment decisions. SI strategies seek
to achieve one or several of the following goals: achieve a
positive environmental or social impact, align investments
with an investor’s personal values, or improve portfolio
risk and return characteristics.
Positive criteria apply to the active selection of
companies, focusing on how a company’s strategies,
processes and products impact its financial success, the
environment and society. This includes best-in-class,
thematic investments or environmental, social and
governance (ESG) integration.
Exclusion criteria one or several sectors are excluded
based on environmental, social or ethical criteria, for
example, companies involved in weapons, tobacco,
gambling, or companies with high negative environmen-
tal impacts. This also includes faith-based investing
consistent with principles and values of a particular
religion.
Through our open architecture, we also offer our wealth man-
agement clients the opportunity to invest in sustainable equities
and microfinance products from leading third-party providers. In
2014, we launched an impact investment platform that intends to
take private equity stakes in inclusive financial institutions across
Asia and Latin America, in collaboration with a third-party pro-
vider specialized in developing markets.
As of 31 December 2014, sustainable investments increased to
CHF 586 billion (from CHF 546 billion at the end of 2013), repre-
senting 21.4% of our total invested assets. While invested assets
in all our sustainable investment classes increased throughout
2014, the proportion of sustainable investments declined from
22.8% in 2013, due to a stronger increase in our total invested
asset base. Major increases were observed among our institu-
tional clients in particular for screened mandates and for funds
subject to the Global Asset Management responsible property in-
vestment strategy.
➔ Refer to the table “Sustainable investments” in this section for
more information
Research
In response to increasing client demand for integrating sustain-
ability issues into fundamental investment analysis and advisory
processes, we research the impact of ESG issues on various sec-
tors and companies. Our specialized teams regularly publish re-
search on topics that will shape our future, including climate
change, energy efficiency, resource scarcity and demographics.
Our experience and sector knowledge help us determine what is
material by raising questions about the effect environmental, so-
cial and governance issues are having on the competitive land-
scape in the global sectors we cover, as well as about how com-
panies are affected in relative terms.
Sustainable Investing was featured for the first time in the
“CIO Year Ahead” 2015 issue. In the US, we launched the new
flagship publication “Your Wealth and Life” and we dedicated
the second issue to philanthropy and sustainable investing. We
also released a UBS Investor Watch publication about philan-
thropy titled “Doing well at doing good: Why there is more to
giving than checkbook philanthropy.” Our Intellectual Capital
Blog features contributions on sustainable investing since 2013. In
a 2014 blog post, we highlighted various approaches to sustain-
able investing.
The UBS Q-Series® focuses on thought-provoking discussions
about pivotal investment questions, and on making clear invest-
ment conclusions, leading to a Group-wide drive for more
thoughtful, proprietary and valuable research. An example pub-
lished in 2014 is “Does good governance demand a valuation
premium in Emerging Markets?” Other publications focused on
linking quantitative investment approaches and sustainability and
on understanding how employee satisfaction drives higher reve-
nue productivity in food and staples retailers. Our “ESG Keys”
publications address the what, how and why of ESG issues and
sustainability investment styles. Reports in 2014 addressed corpo-
rate governance, the environmental credit crunch, water risks and
climate change.
Corporate and private clients financing and advisory
UBS provides capital raising and strategic advisory services glob-
ally to companies offering products that make a positive contribu-
tion to climate change mitigation and adaptation, including those
in the solar, wind, hydro, energy efficiency, waste and biofuels,
and transport sectors.
In Switzerland, we help SMEs to save energy and launched a
new offering to support SME when upgrading utility vehicles to
the new EU 6 Norm. We also support retail clients when under-
taking energy-efficient renovations.
323
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Voting rights
We believe that voting rights have economic value and should be
treated accordingly. Where Global Asset Management has been
given the discretion to vote on behalf of our clients, we will exer-
cise our delegated fiduciary responsibility by voting in the manner
we believe will be most favorable to the value of their invest-
ments. In 2014, we voted on more than 74,600 individual resolu-
tions at 7,325 shareholder meetings. We take an active approach
to corporate governance and we integrate it in our investment
process. We are an active member of a number of collaborative
shareholder bodies.
Since 2010, Global Asset Management in Switzerland has
been offering UBS Voice, a service enabling holders of Swiss insti-
tutional funds to express voting preferences ahead of shareholder
meetings of major Swiss corporations. This provides additional
Our climate change commitment
Financial institutions are increasingly
playing an active role in the transition to
a low-carbon economy, and we are
determined to support our clients in
preparing for success in an increasingly
carbon-constrained world. UBS has been
included in “The A List: The CDP Climate
Performance Leadership Index 2014”
for its actions toward reducing carbon
emissions and mitigating the business risks
of climate change. As a leading global
financial services provider, we focus our
climate change strategy on risk manage-
ment, investments, financing, research
and our own operations. Our contribution
to these areas in 2014 included:
Risk management: seeking to protect
our clients’ and our own assets
from climate change risks, within
our sphere of influence.
At the portfolio level, we regularly review
sensitive sectors and activities prone to
bearing environmental and social risks.
We assess client exposure and revenue in
such sectors and attempt to benchmark
the portfolio quality against regional and
or sector averages. Such portfolio reviews
give us an accurate aggregated exposure
profile and an enhanced insight into our
transaction and client onboarding
processes. Based on the outcome of
these reviews, we can explore ways to
improve the future portfolio profile along
a range of risk parameters.
We estimate our firm’s vulnerability to
climate change risks using a scenario-
based stress testing approach that consid-
ers direct impacts on UBS from severe
weather events as well as from regional
regulatory responses that affect the
overall economy.
We participate in international efforts led
by the UN Environment Programme
Finance Initiative and World Resources
Institute to develop greenhouse gas
accounting and reporting guidance for
financial intermediaries. In 2014, we
were active members of the technical
working groups on accounting and risk
management.
Investments: helping to mobilize
private and institutional capital
towards investments facilitating
climate change mitigation and
adaptation.
Our investments making a positive
contribution to climate change mitigation
and adaptation aspects include: Global
Asset Management’s sustainable real estate
funds, with CHF 44 billion in assets under
management. Eight of these funds,
representing more than half of these
assets, obtained the top ranking (”green
star”) and four of them received “sector
leader” status from the 2014 Global Real
Estate Sustainability Benchmark. This was
recognition for our efforts in defining and
implementing a sustainable and responsible
property investment strategy. Most of the
13 funds entered ranked within the top
quartile of their respective peer set, among
more than 630 real estate portfolios.
Another example is UBS Clean Energy
Infrastructure Switzerland which offers
institutional investors unprecedented
access to a diversified portfolio of Swiss
infrastructure facilities and companies in
the field of renewable energies and
energy efficiency. Capital commitments
reached approximately CHF 400 million
as of 31 December 2014. Overall, such
climate change-related investments
account for approximately 8% of our
sustainable investments.
Financing: supporting this transition
as corporate advisor, and / or with our
lending capacity.
324
Our climate change commitment
shareholder input into the voting decisions of the funds’ manage-
ment company. This service is available for 45% of invested assets
eligible to use UBS Voice.
Client events and conferences
In addition to the abovementioned stakeholder engagement
events, we also hosted our web conference “Investment Intelli-
gence – Responsible investment and Global AM.” Moreover, the
2014 UBS European Conference, featuring experts and UBS re-
search analysts, hosted two sustainability panels “The Future of
Energy – Grassroots Revolution” and “Does good governance
demand a valuation premium in Emerging Markets?”
In 2014, Investment Bank supported
175 clients that contribute to climate
change mitigation and adaptation, either
in equity or debt capital market trans-
actions (total deal value CHF 17 billion) or
as financial advisor (total deal value CHF
14 billion).
We supported Swiss SMEs in saving
energy, as promoted by the Swiss Energy
Agency’s SMEs Model. Clients benefited
from the Agency’s energy check-up for
SMEs at a discount, and were granted
cash premiums for committing to an
energy reduction plan within this scheme.
By the end of 2014, 238 companies had
signed up.
Swiss private clients benefited from the
UBS eco mortgage when building
energy-efficient homes. In support of our
commitment as a financing partner to the
energy transition in Switzerland, we have
been a Premium Partner of the Swiss
Energy and Climate Summit since 2013.
Research: offering our clients research
capacity on climate change issues.
Investment Bank’s ESG Keys publications
covered climate change repeatedly in
2014, on topics such as “Fossil fuel
disinvestment – Is it the answer?”, “What
if there was a global climate agreement
in 2015?”, “CO2 concentration crosses
400ppm; Exploring a two degrees
scenario,” “Water risks – California
drought and what it means for inves-
tors,” “Carbon capture and storage:
What are the odds?” and “Climate
change: adaptation, resilience, transfor-
mation”. The Q-Series® report ”Global
Utilities, Autos & Chemicals: Will solar,
batteries and electric cars re-shape the
electricity system?” was well received
beyond our client base and was show-
cased at the UBS European Conference
“The Future of Energy – Grassroots
Revolution” panel in London. We also
published the 4th edition of the ESG
Analyser. In a survey with 154 UBS sector
analysts worldwide, we identified
companies that are proactive adapters
and thus well positioned with regard to
climate change risks.
In 2014, Global Asset Management
published “Real estate and sustainability:
investing for returns and the future”
examining how investors and businesses
increasingly incorporate information on
environmental issues into their invest-
ment strategies and their decisions on
which buildings to occupy. Our Chief
Investment Office (CIO) Wealth Manage-
ment research published one of the “Lon-
ger Term Investment” series with a focus
on water scarcity, and the CIO credit
team published an education note on
Green Bonds.
Our operations: reducing our firm’s
greenhouse gas emissions.
In 2014, we continued to reduce UBS’s
greenhouse gas (GHG) emissions and are
now at 51% below the levels of baseline
year 2004. Measures taken in 2014
included the replacement of a fossil
heating system in a major building in
Switzerland with a geothermal heat
pump, reducing the building’s annual
GHG emissions by more than 500 metric
tons. We also sold a self-operated gas
power house (producing heating and
air-conditioning for UBS, other office
buildings and a residential area) to a local
utility company to facilitate the upcoming
switch to renewable energy, reducing our
GHG footprint by more than 3,000 metric
tons per annum.
➔ Refer to www.ubs.com/climate for our
complete climate change commitment
325
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Our operations
We exercise our corporate responsibility by reducing our own en-
vironmental impact in the buildings we occupy, data centers and
IT systems we operate and our staff’s business travel. In addition,
responsible procurement is a key aspect of our approach to hu-
man rights and the environment.
Our Environmental Program was introduced in the 1970s, and
since 1999, we have managed the program through an Environ-
mental Management System in accordance with ISO 14001. We
were the first bank to obtain ISO 14001 certification for our Group-
wide environmental management system. In addition, our GHG
emissions data is externally verified by SGS on the basis of ISO
14064 standards. Since 2006, we have been setting Group-wide
quantitative targets for reducing the firm’s environmental impact
and have continuously improved our environmental performance.
Continuously reducing UBS’s GHG footprint
In 2014, we further reduced UBS’s GHG emissions by 7%, or 4%
per full-time employee, year on year, which means a total reduc-
tion of 51% from baseline year 2004 and an early overachieve-
ment on our original target of a 50% reduction by 2016. We
achieved this strong performance by adopting energy efficiency
measures and increasing the proportion of renewable energy.
Emissions – such as from business travel by air – that cannot be
reduced by other means are offset.
Improving energy efficiency in our buildings
Since 2012, we reduced our energy consumption by more than
9%, thus approaching our target of a 10% reduction by 2016.
One of the key drivers for this achievement is our Group-wide real
estate strategy, which includes:
– consolidating work space in larger and more energy-efficient
buildings with alternative workplace concepts, resulting in a
smaller, less energy-intense real estate footprint of our opera-
tions;
– investing in energy-efficient infrastructure, such as obtaining
green building certifications (Leadership in Energy and Environ-
mental Design or similar), for our flagship buildings; and
– implementing established energy reduction measures, such as
optimizing heating, air-conditioning and lighting controls in
the buildings we occupy.
Another key driver in 2014 was our renewed commitment to
the governmental energy strategy in Switzerland to an energy ef-
ficiency increase of 40% by 2020, compared to 2000 levels. This
accounts for approximately one-third of our global energy con-
sumption. On the technology side, we have been consolidating
and virtualizing our servers, reducing the amount of electronic
equipment and ensuring that new appliances are more energy-
efficient than the equipment they replace. We have achieved sig-
nificant energy savings in recent years, for instance by reducing
the electricity consumption of our data centers by more than 3%
in 2014.
Increasing the share of renewable energy
We are reducing our use of carbon-intensive energy by replacing
fossil-fueled heating infrastructure, where feasible. In 2014, we
purchased 50% of our worldwide electricity consumption from
renewable sources. We have been sourcing 100% of electricity
from renewable sources, mainly hydro power, in Switzerland and
Germany since 2007 and 2012, respectively. In the UK, we pur-
chased 91 GWh of electricity from renewable sources, which is
more than 85% of our consumption.
Environmental targets and performance in our operations1
GRI2
2014
Target 2016
Total net greenhouse gas emissions (GHG footprint) in t CO2e 3
EN15-17
177,695
Energy consumption in GWh
Share of renewable energy
GHG offsetting (business air travel) in t CO2e
Paper consumption in kg per FTE 7
Share of recycled and FSC paper
Waste in kg per FTE 7
EN3
EN3
EN18
EN1
EN2
EN23
700
48.9%
75,305
121
61.8%
213
–50%
–10%
increase
100%
–5%
60%
–5%
% change
from baseline
Progress /
Achievement 6
–50.7
–9.6
104.8
100
–0.8
10.6
–8.2
Baseline
360,501 4
774 5
23.9% 4
0 4
122 5
55.8% 5
232 5
53.9% 5
1.22 5
2013
2012
190,977
222,710
751
47.9%
72,612
121
57.6%
214
55.3%
1.09
774
40.9%
73,024
122
55.8%
232
53.9%
1.22
Waste recycling ratio
Water consumption 8 in m m 3
Legend: CO2e = CO2 equivalents; FTE = full-time employee; GWh = giga watt hour; kWh = kilo watt hour; km = kilometer; kg = kilogram; m m3 = million cubic meter; t = tonne
54.7%
–11.6
EN23
1.08
–5%
60%
EN8
1.4
1 Detailed environmental indicators are available on the internet at www.ubs.com/environment. Reporting period 2014 (1 July 2013 – 30 June 2014). 2 Related to Global Reporting Initiative (see also
www.globalreporting.org). EN stands for the environmental performance indicators as defined in the GRI. 3 GHG footprint equals gross GHG emissions minus GHG reductions from renewable energy and GHG offsets
(gross GHG emissions include: direct GHG emissions by UBS; indirect GHG emissions associated with the generation of imported / purchased electricity (grid average emission factor), heat or steam; and other indirect GHG
emissions associated with business travel, paper consumption and waste disposal). 4 Baseline year 2004. 5 Baseline year 2012. 6 Green: on track / amber: behind schedule. 7 FTEs are calculated on an average basis
including contractors. 8 Change in methodology (new: drinking water consumption only), 2013 and 2012 data restated accordingly.
326
(cid:55)(cid:36)(cid:53)(cid:111)(cid:85)(cid:2)(cid:73)(cid:84)(cid:71)(cid:71)(cid:80)(cid:74)(cid:81)(cid:87)(cid:85)(cid:71)(cid:2)(cid:73)(cid:67)(cid:85)(cid:2)(cid:10)(cid:41)(cid:42)(cid:41)(cid:11)(cid:2)(cid:72)(cid:81)(cid:81)(cid:86)(cid:82)(cid:84)(cid:75)(cid:80)(cid:86)(cid:124)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:86)(cid:81)(cid:80)(cid:80)(cid:71)(cid:85)(cid:2)(cid:37)(cid:49)(cid:20) (cid:71)(cid:2)
(cid:53)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:80)(cid:71)(cid:89)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:71)(cid:80)(cid:71)(cid:84)(cid:73)(cid:91)(cid:2)(cid:10)(cid:75)(cid:80)(cid:2)(cid:7)(cid:11)
(cid:22)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:21)(cid:24)(cid:18)(cid:14)(cid:23)(cid:18)(cid:20)
(cid:21)(cid:25)(cid:20)(cid:14)(cid:19)(cid:26)(cid:22)
(cid:21)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:20)(cid:27)(cid:21)(cid:14)(cid:19)(cid:24)(cid:27)
(cid:20)(cid:26)(cid:19)(cid:14)(cid:25)(cid:18)(cid:23)
(cid:20)(cid:24)(cid:22)(cid:14)(cid:19)(cid:27)(cid:25)
(cid:20)(cid:22)(cid:27)(cid:14)(cid:19)(cid:18)(cid:19)
(cid:2)(cid:20)(cid:21)(cid:27)(cid:14)(cid:24)(cid:20)(cid:22)(cid:2)
(cid:2)(cid:20)(cid:20)(cid:24)(cid:14)(cid:22)(cid:25)(cid:27)
(cid:20)(cid:20)(cid:20)(cid:14)(cid:25)(cid:19)(cid:18)
(cid:22)(cid:26)
(cid:23)(cid:19)
(cid:22)(cid:23)
(cid:22)(cid:21)
(cid:22)(cid:22)
(cid:22)(cid:19)
(cid:19)(cid:27)(cid:18)(cid:14)(cid:27)(cid:25)(cid:25)
(cid:19)(cid:25)(cid:25)(cid:14)(cid:24)(cid:27)(cid:23)
(cid:22)(cid:26)
(cid:22)(cid:27)
(cid:21)(cid:22)
(cid:20)(cid:22)
(cid:20)(cid:21)
(cid:20)(cid:18)(cid:18)(cid:22) (cid:20)(cid:18)(cid:18)(cid:23) (cid:20)(cid:18)(cid:18)(cid:24) (cid:20)(cid:18)(cid:18)(cid:25) (cid:20)(cid:18)(cid:18)(cid:26) (cid:20)(cid:18)(cid:18)(cid:27) (cid:20)(cid:18)(cid:19)(cid:18) (cid:20)(cid:18)(cid:19)(cid:19) (cid:20)(cid:18)(cid:19)(cid:20) (cid:20)(cid:18)(cid:19)(cid:21) (cid:20)(cid:18)(cid:19)(cid:22)
(cid:38)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:41)(cid:42)(cid:41)(cid:2)(cid:71)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:10)(cid:81)(cid:75)(cid:78)(cid:14)(cid:2)(cid:73)(cid:67)(cid:85)(cid:14)(cid:2)(cid:72)(cid:87)(cid:71)(cid:78)(cid:85)(cid:11)
(cid:43)(cid:80)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:41)(cid:42)(cid:41)(cid:2)(cid:71)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:10)(cid:71)(cid:78)(cid:71)(cid:69)(cid:86)(cid:84)(cid:75)(cid:69)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2)(cid:74)(cid:71)(cid:67)(cid:86)(cid:11)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:41)(cid:42)(cid:41)(cid:2)(cid:71)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:10)(cid:86)(cid:84)(cid:67)(cid:88)(cid:71)(cid:78)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:16)(cid:2)(cid:81)(cid:72)(cid:72)(cid:85)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)(cid:14)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:14)(cid:2)(cid:89)(cid:67)(cid:85)(cid:86)(cid:71)(cid:11)
(cid:53)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:80)(cid:71)(cid:89)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:71)(cid:80)(cid:71)(cid:84)(cid:73)(cid:91)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:16)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:69)(cid:86)(cid:2)(cid:74)(cid:71)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:10)(cid:75)(cid:80)(cid:2)(cid:7)(cid:11)
(cid:2)(cid:2)(cid:19)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:25)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
Business travel and offsetting carbon dioxide (CO2) emissions
In an effort to minimize our CO2 emissions in business travel, we
encourage our employees to choose alternatives to air travel, such
as high-speed rail, and to use video-conferencing technology
instead of travelling. Since 2007, we have been offsetting all our
CO2 emissions from business air travel. The offsetting projects we
selected meet the requirements of the Gold Standard for volun-
tary emissions reductions.
100
Reducing paper consumption, waste generation and water usage
We are committed to further reducing our environmental foot-
print and are on track to reach our 2016 targets, compared to
2012 as the baseline. Despite our efforts to reduce paper con-
sumption, we only achieved a 1% reduction per FTE since 2012
due to an increase in print volumes sent to clients. We increased
the proportion of office paper from the Forest Stewardship Coun-
cil or recycled sources, to 62% in 2014, reaching our target two
years ahead of time. The continued implementation of bin-less
offices in many larger locations has helped us reduce the waste
per employee by 8% since 2012, and exceed our 5% reduction
target set for 2016. By the end of 2014, our waste recycling ratio
improved to 55%, from 54% in 2012 – a step in the right direc-
tion towards reaching our target of 60% by 2016. We reduced
our water consumption by 12%, compared with 2012, reaching
our 2016 target ahead of schedule.
0
➔ Refer to the table “Environmental targets and performance in
our operations” in this section for more information
Engaging our employees
We offer our employees sustainability education and incentives,
encouraging their environmental awareness both at work and at
home. In March 2014, we once again participated in Earth Hour
by switching off UBS office lights in 73 cities around the world for
one hour. This also marked the start of our annual internal envi-
ronmental awareness campaign. Our focus in 2014 was on con-
tributing to the transition to a low-carbon economy by providing
sustainable solutions to our clients. Campaign activities included
regional panel discussions with opinion leaders, a photo contest,
as well as articles and interviews with senior management posted
on our internal websites.
(cid:27)(cid:26)(cid:14)(cid:27)(cid:19)(cid:26)
(cid:21)(cid:24)(cid:14)(cid:21)(cid:20)(cid:21)
(cid:21)(cid:19)(cid:14)(cid:24)(cid:21)(cid:23)
(cid:19)(cid:19)(cid:19)(cid:14)(cid:25)(cid:25)(cid:21)
(cid:20)(cid:20)(cid:23)(cid:14)(cid:26)(cid:23)(cid:22)
Responsible supply chain management
The responsible supply chain management (RSCM) principles
embed UBS’s ethics and values in our interactions with our sup-
pliers, contractors and service partners. In this context, we apply
an RSCM framework to identify, assess and monitor supplier
practices with regard to human and labor rights, the environ-
ment, health and safety, and anti-corruption principles. In 2014,
our sourcing and procurement services units were transferred to
Chain IQ, a newly-founded company that will continue to apply
UBS’s unchanged RSCM framework and processes. In the new
setting, the experienced procurement and sourcing specialists at
Chain IQ perform supplier due diligence and establish remedia-
tion measures, supported by a centralized team of experts within
UBS. In 2014, remediation measures were requested for 56% of
suppliers of newly-sourced goods or services with potentially
high impacts to improve their adherence to UBS’s RSCM stan-
dards.
(cid:24)(cid:19)(cid:22)(cid:15)(cid:22)(cid:19)(cid:19)(cid:19)(cid:16)(cid:19)(cid:2)
(cid:20)(cid:19)(cid:26)(cid:14)(cid:24)(cid:26)(cid:19)
(cid:20)(cid:21)(cid:18)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:21)(cid:19)(cid:14)(cid:23)(cid:19)(cid:27)
(cid:20)(cid:24)(cid:14)(cid:25)(cid:18)(cid:19)
(cid:22)(cid:19)(cid:14)(cid:26)(cid:23)(cid:26)
(cid:21)(cid:22)(cid:14)(cid:23)(cid:23)(cid:24)
Our communities
Our community investment activities are a key component of our
firm’s corporate responsibility. They comprise the engagement
and activities of UBS and its employees to achieve a demonstrable
positive impact in the social and economic well-being of the local
communities in which we operate.
Our longstanding Community Affairs program aims to over-
come disadvantage in our local communities through a combina-
tion of targeted funding and the commitment and skills of our
employees. Globally, we focus on education and entrepreneur-
ship, both of which align to our business and resonate with em-
ployees and stakeholders. We help people develop the skills and
attainment they need to reach their potential and work with our
communities to support local enterprises. Our approach is long-
term and founded on building sustainable and successful partner-
ships with non-profit organizations and social enterprises to en-
sure that our contribution has a lasting impact. Proximity to our
partners allows us to better understand the needs and require-
ments of our communities.
We engage far beyond just financial support – our direct cash
donations, community investment program, matched-giving
schemes and disaster relief efforts are complemented by a com-
prehensive range of volunteering opportunities for our employ-
ees. Coordinated globally, our initiatives are implemented region-
ally and based on local needs. This enables us to generate
sustainable impact in our local communities while offering em-
ployee volunteering opportunities. We encourage employee par-
ticipation by offering up to two working days a year to engage in
volunteering efforts.
327
500000.093750
437500.082031
375000.070312
312500.058594
250000.046875
187500.035156
125000.023438
62500.011719
0.000000
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Key examples of UBS’s community investment activities across the globe
Switzerland
Unlocking potential within Switzerland
remains our main goal. Hence we support
people from all over Switzerland and from
all backgrounds in achieving their full
potential. In 2014, we again engaged in a
range of educational and entrepreneurial
projects. SwissSkills Berne, the first
national championship for apprentices in
70 different professions, was among the
highlights. As main partner of this event
and presenter of the parallel International
Congress on Vocational Education, we
emphasized our long-term commitment
to the Swiss vocational training system.
Our presence at the event, the UBS
volunteers and the UBS IT apprentice who
won a silver medal, all contributed to a
successful event.
We strengthened our commitment to the
growing Swiss social enterprise sector
by introducing a skill-based mentoring
program in collaboration with the Social
Entrepreneurs Initiative Foundation (seif).
Experienced UBS professionals consult
social entrepreneurs in their start-up
phase. In addition, we presented an
award for educational innovation
to GORILLA, a Social Enterprise that
educates young people about food,
health and exercise in a fresh and
impactful way.
For the seventh year running, we
partnered with Young Enterprise Switzer-
land (YES) in their company program.
More than 160 real-life businesses,
entirely set up and run by groups of
high-school students, worked hard
throughout the year to qualify for the big
finale in Zurich. The learning experience
was supported by mentors, teachers and
YES. UBS was part of the national jury
and awarded the company with the most
innovative product a prize. The winners
could later present their business case at a
UBS event and thoroughly impressed
some of our corporate clients with their
drive and passion.
Across the country, more than 2,700 UBS
employees continued to volunteer in a
range of selected programs focusing on
education, as well as on social and
environmental matters. Our community
investment efforts were also advanced by
the UBS Culture Foundation, the UBS
Foundation for Social Issues and Educa-
tion, and the “A Helping Hand from UBS
Employees” association. In 2014, all three
organizations made valuable contributions
to important causes and furthered our
efforts to help beneficiaries unleash their
full potential.
Americas
Following the 2013 strategic re-launch of
the Community Affairs & Corporate
Responsibility Americas platform, in 2014
we continued to grow our entrepreneur-
ship programming, launched a new
flagship education initiative and enhanced
our employee engagement platform.
Announced in June 2014, UBS NextGen
Leaders is our signature education
initiative to increase college graduation
success among disadvantaged people.
The USD 10 million, five-year commitment
will leverage strategic partnerships with
leading college access and success
organizations. Our initial effort, in
partnership with SEO Scholars, is an inten-
sive college success program for young
men of color and is aligned with President
Obama’s My Brother’s Keeper initiative. In
addition, UBS is working with Tennessee
College Access & Success Network to
build a scalable platform that will boost
graduation rates more broadly.
Through our signature Elevating Entrepre-
neurs initiative, we continue to expand
our commitment to drive entrepreneurial
growth by providing access to mentoring,
capital and training. In 2014, we offered
mentoring programs to small businesses
in New York and Chicago, and produced
Ascent: Capital & Connections half-day
workshops on small-business financing.
Along with our partners UBS Bank USA
and VEDC, lending began under the
Tri-State Business Opportunity Fund in the
New York region and expanded to Florida
through the Greater Miami Business
Opportunity Fund. To date, 57 small
businesses have received funding,
resulting in the creation or retention of
1,439 jobs. We further expanded our
geographic reach and investments in the
entrepreneurship ecosystem through
strategic partnerships with Venture for
America, Initiative for a Competitive Inner
City and Launch Tennessee.
In an effort to capitalize on our employ-
ees’ enthusiasm for volunteering, we
launched a new volunteer platform, UBS
Community Corps, as part of the kick-off
to the third annual Season of Service
campaign. With the support of this
unified and reenergized commitment to
volunteering, more than 1,400 UBS
employees volunteered a total of more
than 6,000 hours during the three-month
Season of Service – more than tripling per
capita participation compared with 2013.
The success of Season of Service brought
328
Key examples of UBS’s community investment activities across the globe
the yearly volunteering total to more than
2,500 employees and the number of
hours to over 20,000.
Asia Pacific
In Asia Pacific, UBS continued to invest in
programs that range from direct impact
on disadvantaged and at-risk youth, such
as reading angels, after-school develop-
ment programs, mentoring and leadership
training, to capacity building, which
encompasses projects such as upgrading
school infrastructure, train the teacher
programs, fostering innovative teaching
methodologies, and charity leadership
development series. Together, these
programs benefit almost 20,000 children
and youths in the Asia Pacific region every
year.
In Japan, UBS announced its continued
long-term commitment to the Kamaishi
region by financing Phase 3 of the
Kamaishi Community Regeneration
Project, which focuses on sustainability
and regeneration. 53,000 citizens from
Kamaishi City and Yamada Town, coastal
communities in Iwate Prefecture, are
expected to benefit in areas of job and
income generation, temporary and
long-term recovery housing, capacity
building among the local civil society and
non-profit organizations, psychological
care and education, and risk reduction
and disaster preparedness for the future.
This is a response to the changing needs
of the local community from the phase of
survival and restoration to regeneration.
UBS Korea’s community initiatives were
introduced in the “White paper on
Corporate Social Responsibility” by Korea
Financial Investment Association.
UBS Singapore invested in two new
six-month leadership mentoring programs
for at-risk and / or disadvantaged youths
aged 15 to 19, and young adults aged 20
to 26. The youth program is aimed to
help youths in their struggle for greater
resilience to continue their education and
overcome their critical schooling years, as
well as to instill a deeper sense of
self-accountability and a goal-oriented
mindset. The young adults program is
designed to help participants learn life
skills and acquire self-confidence, and to
support them in enhancing their employ-
ability and in gaining economic indepen-
dence. Youths and young adults partici-
pated in these structured programs with
the support of UBS employee mentors.
EMEA
In EMEA in 2014, we were focused on
increasing our support for clients’
philanthropy, strengthening employee
engagement and measuring our impact
on the community and the business.
We supported the objectives of UBS and
Society by developing social enterprises in
the UK: The UBS-supported Young
Academy investment fund, part of the
Young Foundation’s education incubator,
started to disburse funding (loan finance)
to scale up UK social enterprises whose
work tackles educational inequalities. Our
support leveraged GBP 750,000 from the
UK government. In addition, we worked
closely with our colleagues in Wealth
Management to launch a joint initiative,
UK Philanthropy Services, to support our
clients’ giving. One of the strands of this
initiative, the UBS UK Donor-Advised
Foundation, launched in the first quarter
of 2014 – received GBP 23 million in
donations by the end of 2014. We also
worked with the Guy Fox History Project
and Hackney school children to produce
a guide to the economy for children.
As well as being used in schools across
the UK, this guide has been distributed
to more than 5,000 UBS clients world-
wide.
The roll-out of the global Education
Initiative across EMEA through the
partnership with Young Enterprise – Junior
Achievement was part of our drive for
more strategic alignment across regions.
Launched in September 2014, this
initiative has already supported nearly 900
students in 5 countries, with 137 students
sitting the “Entrepreneurial Skills Pass”
exam – a ground-breaking internationally
recognized skills qualification. This builds
on our seven-year partnership with Young
Enterprise in Switzerland.
We further increased employee engage-
ment in line with the strategic themes of
Education and Entrepreneurship. We
rolled out impact measurement to cover
100% of strategic Community Affairs
projects across EMEA.
The UBS EMEA flagship partner, the
Bridge Academy, which is located in an
area of extreme deprivation in London,
received its first set of A-level results in
August – 65% of its students secured
places at universities including Cam-
bridge, Manchester, Nottingham and
Bath. This represents a notable achieve-
ment for both the school and the UBS
volunteers who supported the students.
➔ Refer to www.ubs.com/community for
more information
329
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Community Affairs activities in 2014
In 2014, UBS and its affiliated foundations made direct cash con-
tributions totaling CHF 27.2 million. Our support focused pre-
dominantly on UBS’s key themes of education and entrepreneur-
ship. Additionally, we invested CHF 14.1 million in the UBS
Anniversary Education Initiative, which was launched in 2012. In
2014, UBS contributed CHF 13 million to the UBS Optimus Foun-
dation, which leveraged more than CHF 40 million from clients
and partners. These funds are being donated to carefully selected
programs aimed at improving children’s health, education and
protection globally.
Our contributions, combined with the volunteering activities of
our employees, have continued to provide substantial benefits to
people and projects around the world, as demonstrated by the
regional examples provided below. Across all business regions,
our employees continued to play a very active role in our com-
munity investment efforts, in particular through their volunteer-
ing. In 2014, 12,428 employees spent 103,500 hours volunteer-
ing, an increase of 17% and 14%, respectively, compared with
2013. For the third consecutive year, we granted the UBS Global
Employee Volunteer Awards to employees who had demonstrated
outstanding volunteering commitment.
Furthermore, we expanded the measurement of the impact of
our Community Affairs activities across all regions using the Lon-
don Benchmarking Group model. Understanding where we make
an impact helps us evaluate and focus our program.
Client foundation
The UBS Optimus Foundation is an expert grant-making founda-
tion established by UBS in 1999. Through the Foundation, our
clients can support programs in places where children face adver-
sity. The Foundation funds leading organizations dedicated to im-
proving the health, education and protection of children and to
helping them reach their full potential. Since its inception, the
Foundation has received more than 29,000 donations, totaling
over CHF 218 million. In 2014, the Foundation supported 107
projects in 38 countries with a total amount of CHF 73.3 million.
As UBS bears all administrative costs related to the UBS Optimus
Foundation, 100% of every donation goes directly towards the
projects funded.
330
Our employees
Our employees’ drive, skill, insight and experience are key to meeting our clients’ needs and growing our businesses. In
light of this, we continually invest in our employees and work to further build our reputation as a leading employer.
Our performance and development-oriented culture is based on integrity, collaborating across the firm and challenging
the status quo to develop better solutions for our clients and colleagues. Our principles of client focus, excellence
and sustainable performance are the basis for all our endeavors, helping us focus on key opportunities to create value
for our stakeholders.
Our workforce
For the past three years, we have worked to build our capital
strength, improve efficiency and effectiveness, and further
strengthen our risk management. These three pillars are the ba-
sis of our business strategy and everything we do. At the same
time, we have been strengthening our corporate culture to gen-
erate sustainable value for the long term. We made significant
headway in attaining our goals in 2014, while continuing to
ensure that we hire, develop and retain a global workforce that
meets today’s business challenges and positions us for future
success.
Our overall workforce number remained relatively stable dur-
ing 2014. As of 31 December 2014, we employed 60,155 people
(on a full-time equivalent basis), 50 fewer than a year earlier. In
2014, our employees worked in 56 countries, with approximately
36% of our staff employed in Switzerland, 35% in the Americas,
17% in Europe, Middle East and Africa, and 12% in Asia Pacific.
Additionally, our employees worked in 893 offices, spoke more
than 130 languages and were citizens of 147 countries. Our
workforce spans four generations, with an average age of 41 and
an average length of employment at UBS of 9.2 years. In Switzer-
land, more than 48% of employees have worked at UBS for more
than 10 years. This experience enables them to have stronger
skills, better understanding and more institutional knowledge of
our clients’ needs and how to meet them.
A mobile workforce builds relationships across business divi-
sions, regions and cultures and helps us to better leverage our
employees’ skills. It also helps ensure that we have the right peo-
ple in the right roles. In 2014 we moved 1,063 employees be-
tween business divisions, and 421 employees to roles in a differ-
ent region. Employee turnover, in relation to average overall
headcount, was 13.4% in 2014, compared with 15% in 2013.
Employee-initiated turnover was 8.5%, a decrease of 0.2% from
2013.
Attracting and retaining talent
To promote sustainable performance, we must attract and recruit
talented individuals, support their ongoing development and le-
verage their skills to meet our clients’ evolving needs. We strive to
be as forward-looking as possible when planning our talent re-
quirements. Regular talent reviews enable us to understand our
employees’ capabilities, potential and ambitions, and to fill any
Personnel by business division and Corporate Center
Full-time equivalents
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
of which: Core Functions
of which: Non-core and Legacy Portfolio
Total
of which: Corporate Center – Core Functions personnel (before allocations) 1
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes.
As of
% change from
31.12.14
31.12.13
31.12.12
31.12.13
16,760
16,134
9,200
3,817
11,794
2,450
970
1,480
60,155
23,637
16,414
16,344
9,463
3,729
11,615
2,640
1,055
1,585
60,205
23,860
16,210
16,094
10,156
3,781
13,595
2,792
488
2,304
62,628
25,351
2
(1)
(3)
2
2
(7)
(8)
(7)
0
(1)
331
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
gaps by developing or recruiting talent at all levels. Our integrated
approach links our recruitment, diversity, learning, mobility, per-
formance management, talent review, compensation and succes-
sion practices to foster a high-performance and development-
focused culture.
Recruiting new employees
When filling open positions, we give priority to existing staff and
list open positions internally before looking externally. In 2014,
50% of all hires, including 71% of managing director hires, were
filled by internal candidates. Alongside building on our existing
employees’ skills, we are committed to hiring the best available
talent, as required, to sustain and grow our core businesses. In
2014, we recruited 8,216 external candidates across the firm,
with Wealth Management recruiting 416 client advisors and
Wealth Management Americas hiring 451 financial advisors.
In 2014, we expanded our online marketing and recruiting ac-
tivities. As part of this, we built a strong presence on the recruit-
ment and networking platform LinkedIn. We also increased our
careers-related content on social media channels such as Face-
book, Twitter and Google+, and launched the UBS Careers Blog
on our website.
Investing in educating, hiring and training a pipeline of young
talent is a priority for us. Participants in our undergraduate and
MBA graduate training programs bring new perspectives and
skills to our global teams and are a source of high-quality talent.
In 2014, 476 university graduates were hired into one of our
graduate training programs, along with 991 interns.
Our Emerging Talent Program, a special summer internship
within the UBS Education Initiative, targets students early in their
university careers. In 2014, 72 students from 46 universities par-
ticipated in a hands-on program that immersed them in solving
real business challenges for their sponsoring business areas.
In Switzerland, this was the second year that we increased the
number of new apprentices in conjunction with the UBS Educa-
tion Initiative, hiring a total of 313. We also recruited 192 trainees
into our All-round Traineeship Program for Swiss high school
graduates.
In 2014, Working Mother magazine named UBS among the
top 100 US companies for our leadership in establishing policies,
programs and a corporate culture that supports working mothers.
We were also ranked in the global top 40 in Universum’s 2014
World’s Most Attractive Employers list. In Universum’s 2014 Ideal
Employer surveys, among business graduates and experienced
professionals, the firm was ranked number three overall, and the
top financial services firm in Switzerland. In Asia Pacific, among
other honors, UBS earned the Hays Award for Employer of Choice
in Singapore.
➔ Refer to www.ubs.com/careers for more information and to
follow the UBS Careers Blog
➔ Refer to www.ubs.com/awards for more information on UBS’s
rankings as an employer
Personnel by region
Full-time equivalents
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: UK
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Total
As of
% change from
31.12.14
31.12.13
31.12.12
31.12.13
20,951
19,715
7,385
10,254
5,425
4,663
166
21,564
60,155
21,317
20,037
7,116
10,052
5,595
4,303
153
21,720
60,205
21,995
20,833
7,426
10,829
6,459
4,202
167
22,378
62,628
(2)
(2)
4
2
(3)
8
8
(1)
0
Gender distribution by employee category 1
Headcount as of 31.12.14
Male
Female
Total
Officers
(Director and above)
Officers
(other officers)
Employees
Total
Number
18,170
5,166
23,336
%
78
22
100
Number
12,224
7,912
20,136
%
61
39
100
Number
7,722
10,591
18,313
%
42
58
100
Number
38,116
23,669
61,785
%
62
38
100
1 Calculated on the basis that a person (working full time or part time) is considered one headcount (in this table only). This accounts for the total UBS employee number of 61,785 as of 31 December 2014, which
excludes staff from UBS Card Center, Hotel Seepark Thun, Wolfsberg and Hotel Widder.
332
networks. These inclusive groups, representing elements such as
gender, culture, life stage and sexual orientation, foster cross-
business relationships and an open workplace.
Managing performance
Leadership matters. It drives the development of a corporate cul-
ture that supports sustainable success, as well as being a source
of pride and competitive advantage. Especially now, our leaders
must be transformational, pushing for positive change in the
ways our employees work together and how we manage our
businesses. At UBS, we know it is important to be clear about
what leadership means to us and in September 2014, we outlined
explicit expectations for excellent leadership in The UBS House
View on Leadership.
The UBS House View on Leadership promotes a shared under-
standing and consistent standard for our leaders. It builds on and
complements the firm’s principles – client focus, excellence and
sustainable performance – and the expected behaviors of integ-
rity, collaboration and challenge that bring our principles to life in
daily workplace interactions. We ask leaders across the firm to
demonstrate these qualities as individuals and as team heads, and
to make sure they are reflected in their hiring, development and
promotion decisions. The UBS House View on Leadership became
an integral part of the 2014 managing director promotions pro-
cess. It will be embedded into promotion, hiring and development
decisions for director-level roles and higher in 2015.
Good performance management is essential to individual,
Group and corporate success. Done right, it improves team and
business performance and enables individuals to advance in their
careers. Ultimately, consistently good management enables the
firm to successfully deliver its strategy. Our global performance
management framework provides regular opportunities for em-
(cid:55)(cid:36)(cid:53)(cid:2)(cid:42)(cid:81)(cid:87)(cid:85)(cid:71)(cid:2)(cid:56)(cid:75)(cid:71)(cid:89)(cid:2)(cid:81)(cid:80)(cid:2)(cid:46)(cid:71)(cid:67)(cid:70)(cid:71)(cid:84)(cid:85)(cid:74)(cid:75)(cid:82)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:42)(cid:81)(cid:87)(cid:85)(cid:71)(cid:2)(cid:56)(cid:75)(cid:71)(cid:89)(cid:2)(cid:81)(cid:80)(cid:2)(cid:46)(cid:71)(cid:67)(cid:70)(cid:71)(cid:84)(cid:85)(cid:74)(cid:75)(cid:82)
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:86)(cid:2)(cid:55)(cid:36)(cid:53)
(cid:50)(cid:71)(cid:81)(cid:82)(cid:78)(cid:71)
(cid:78)(cid:71)(cid:67)(cid:70)(cid:71)(cid:84)(cid:85)(cid:74)(cid:75)(cid:82)(cid:2)
(cid:36)(cid:71)(cid:2)(cid:67)(cid:80)(cid:2)(cid:75)(cid:80)(cid:85)(cid:82)(cid:75)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:84)(cid:81)(cid:78)(cid:71)(cid:2)(cid:79)(cid:81)(cid:70)(cid:71)(cid:78)
(cid:37)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:78)(cid:71)(cid:67)(cid:70)(cid:71)(cid:84)(cid:85)(cid:74)(cid:75)(cid:82)(cid:2)
(cid:37)(cid:84)(cid:71)(cid:67)(cid:86)(cid:71)(cid:2)(cid:78)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)
(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)
(cid:37)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:2)(cid:8)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:85)(cid:2)
(cid:78)(cid:71)(cid:67)(cid:70)(cid:71)(cid:84)(cid:85)(cid:74)(cid:75)(cid:82)(cid:2)
(cid:54)(cid:67)(cid:77)(cid:71)(cid:2)(cid:81)(cid:89)(cid:80)(cid:71)(cid:84)(cid:85)(cid:74)(cid:75)(cid:82)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:78)(cid:75)(cid:88)(cid:71)(cid:84)
(cid:41)(cid:71)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:73)(cid:71)(cid:81)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:19)(cid:124)(cid:2)
(cid:42)(cid:71)(cid:67)(cid:70)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:2)
(cid:20)(cid:22)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:26)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:24)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:20)(cid:19)(cid:14)(cid:20)(cid:26)(cid:27)(cid:2)
(cid:25)(cid:14)(cid:23)(cid:19)(cid:22)(cid:2)
(cid:19)(cid:18)(cid:14)(cid:24)(cid:21)(cid:23)(cid:2)
(cid:20)(cid:20)(cid:14)(cid:21)(cid:22)(cid:25)
(cid:26)(cid:14)(cid:18)(cid:23)(cid:24)
(cid:19)(cid:21)(cid:14)(cid:20)(cid:21)(cid:21)
(cid:21)(cid:14)(cid:23)(cid:23)(cid:26)
(cid:21)(cid:14)(cid:27)(cid:23)(cid:24)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:35)(cid:85)(cid:75)(cid:67)(cid:2)(cid:50)(cid:67)(cid:69)(cid:75)(cid:386)(cid:69)
(cid:47)(cid:67)(cid:78)(cid:71)
(cid:40)(cid:71)(cid:79)(cid:67)(cid:78)(cid:71)
(cid:21)(cid:14)(cid:27)(cid:26)(cid:22)
(cid:24)(cid:14)(cid:24)(cid:23)(cid:19)
(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:14)
(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:72)(cid:84)(cid:75)(cid:69)(cid:67)
(cid:26)(cid:14)(cid:18)(cid:25)(cid:19)
(cid:19)(cid:22)(cid:14)(cid:20)(cid:25)(cid:24)
(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:2)(cid:37)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:67)(cid:2)(cid:82)(cid:71)(cid:84)(cid:85)(cid:81)(cid:80)(cid:2)(cid:10)(cid:89)(cid:81)(cid:84)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)(cid:81)(cid:84)(cid:2)(cid:82)(cid:67)(cid:84)(cid:86)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)(cid:11)(cid:2)(cid:75)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:70)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:74)(cid:71)(cid:67)(cid:70)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:2)
(cid:81)(cid:80)(cid:78)(cid:91)(cid:16)(cid:2)(cid:46)(cid:81)(cid:81)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:86)(cid:2)(cid:85)(cid:87)(cid:68)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:70)(cid:67)(cid:86)(cid:67)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:55)(cid:53)(cid:35)(cid:2)(cid:67)(cid:86)(cid:2)(cid:20)(cid:18)(cid:14)(cid:18)(cid:18)(cid:27)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:67)(cid:86)(cid:2)
(cid:19)(cid:14)(cid:20)(cid:26)(cid:18)(cid:16)(cid:2)(cid:39)(cid:47)(cid:39)(cid:35)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:55)(cid:45)(cid:2)(cid:67)(cid:86)(cid:2)(cid:23)(cid:14)(cid:23)(cid:26)(cid:25)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:2)(cid:67)(cid:86)(cid:2)(cid:22)(cid:14)(cid:26)(cid:23)(cid:25)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:72)(cid:84)(cid:75)(cid:69)(cid:67)(cid:2)(cid:67)(cid:86)(cid:2)(cid:19)(cid:27)(cid:19)(cid:16)(cid:2)(cid:54)(cid:74)(cid:75)(cid:85)(cid:2)
(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:71)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:71)(cid:71)(cid:2)(cid:80)(cid:87)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:24)(cid:19)(cid:14)(cid:25)(cid:26)(cid:23)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:14)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:85)(cid:86)(cid:67)(cid:72)(cid:72)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)
(cid:37)(cid:67)(cid:84)(cid:70)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:14)(cid:2)(cid:42)(cid:81)(cid:86)(cid:71)(cid:78)(cid:2)(cid:53)(cid:71)(cid:71)(cid:82)(cid:67)(cid:84)(cid:77)(cid:2)(cid:54)(cid:74)(cid:87)(cid:80)(cid:14)(cid:2)(cid:57)(cid:81)(cid:78)(cid:72)(cid:85)(cid:68)(cid:71)(cid:84)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:57)(cid:75)(cid:70)(cid:70)(cid:71)(cid:84)(cid:2)(cid:42)(cid:81)(cid:86)(cid:71)(cid:78)(cid:16)
Strengthening our inclusive work environment
and diverse workforce
In a world where demographic changes are accelerating, where
our clients are becoming increasingly diverse and where the tradi-
tional talent pool is shrinking, diversity and inclusion support our
business strategy and help prepare us for the future. They directly
impact our business results in positive ways, including:
– Enhanced client focus and effectiveness: we believe diverse
teams better understand and relate to the needs of our clients,
building trust through their inclusive approach to doing busi-
ness.
– High-quality employees: an inclusive work environment is a
magnet for high-quality people, and it helps us attract and re-
tain diverse talent and engage them to perform at their best.
– Improved decision-making: our goal is diversity of thought,
opinion and experience. Achieved through a combination of
visible and invisible diversity, this kind of diversity drives better
decision making, thought leadership, innovation and agile
thinking, while helping avoid institutional blindness.
Aware that good leadership is key to leveraging the benefits of
diverse teams, we provide learning opportunities to help manag-
ers become inclusive leaders who support their employees’ career
development. This includes training to help eliminate unconscious
biases in decisions about roles, assignments, working arrange-
ments, promotions and performance evaluations. Complement-
ing this, our human resource policies and processes have global
coverage and outline our commitment to a non-discriminating,
harassment-free workplace with equal opportunities for all em-
ployees.
Our employee networks are key change agents, partnering
with other stakeholders to deliver on our strategy. In 2014, nearly
17,000 employees across UBS were members of 27 employee
333
(cid:20)(cid:22)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:26)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)(cid:18)
(cid:24)(cid:18)(cid:18)(cid:18)
(cid:18)
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
ployee-manager dialogue and consistent assessment processes
that link performance, behavior, demonstrated achievement and
compensation. It enables employees to set clear performance
and development goals, to be effective in their roles and to ad-
vance their careers. It also provides a platform for managers to
support their employees in contributing their full potential
towards the firm’s success. In 2014, 100% of the employees
eligible to participate in the firm’s performance assessment
processes were reviewed.
Our performance management process measures both what
was achieved, and how those results were achieved. Since 2013,
we have specified the behaviors we expect of employees and
have embedded them into our performance evaluations. As a re-
sult, in addition to rating effectiveness in achieving business ob-
jectives, the employee, manager and any additional reviewers are
expected to rate how well integrity, collaboration and challenge
have been demonstrated.
Continually improving risk management is an important part
of leadership at UBS. Helping employees understand and appro-
priately manage all types of risk was critical in 2014. Measurable
risk objectives were again required for all employees and consid-
ered in performance reviews and compensation decisions. Em-
ployees in key risk-taker roles were also subject to additional mea-
sures. Due to their roles, key risk-takers can materially commit,
use or control the firm’s resources, and they may exert significant
influence over our risk profile. In addition to self, manager and
other relevant 360-degree reviews, at least one person in a con-
trol function such as finance or compliance was required to pro-
vide constructive feedback regarding the employee’s understand-
ing and management of risk in the work they do.
Learning and development
Our learning and development activities are an integral part of
our talent and people management framework. They are de-
signed to help our businesses achieve their goals, develop our
future leaders, and enable employees to build their skills in line
with business requirements and their career plans. They also ad-
dress regulatory and compliance requirements and support the
firm’s ongoing transformation. Our long-term success relies on
our employees continuing to develop their portfolio of skills and
reaching toward their full potential. We are committed to sup-
porting this in a variety of ways.
In 2014, we leveraged education as a vehicle for culture
change. Special focus was placed on embedding the firm’s behav-
iors in our people management processes and enabling leaders to
live up to the firm’s high expectations of them as role models. The
most visible example was our Senior Leadership Experience. This
program reinforced the links among business strategy, leadership,
and our principles and behaviors. Regional sessions for the firm’s
top 250 leaders held in April 2014 focused on our behaviors and
personal leadership; a second session in September dealt with our
principles and organizational change. Participants strengthened
their understanding of, and support for, the firm’s strategy and
334
culture and were given tools to further engage their teams on
these topics to increase employee commitment and thus build on
our momentum.
Beyond these strategic leadership initiatives, our offerings in
2014 included other senior leadership and key talent develop-
ment, business and client education, and role-specific education
for all employees. For instance, high potential director-level em-
ployees were invited to participate in Ascent, a 12-month pro-
gram to develop leadership capabilities and cross-business net-
works. Divisional initiatives in 2014 included specialized programs
for key-talent managing directors in Wealth Management and a
series of specially designed workshops promoting cross-divisional
collaboration that were attended by more than 2,500 line manag-
ers in Asia Pacific.
We invest in training programs for all employees, with a special
emphasis on client-facing staff in our wealth management busi-
nesses. Initiatives like the Master in Wealth Management by UBS
and Rochester-Bern Executive Program help ensure our client ad-
visors can provide superior investment advice and solutions for
our wealthy clients. At the same time, our Wealth Planning Ana-
lyst program in Wealth Management Americas is developing a
new generation of advisors through a three-year job rotation.
These initiatives complement long-running programs such as the
Wealth Management Diploma, which is required for all client ad-
visors in UBS Wealth Management.
All employees can access a broad range of development and
learning opportunities related to their jobs. Our eLearning portfo-
lio contains more than 5,100 courses on topics such as communi-
cation skills, management and leadership, financial markets and
information technology. Specialized learning modules on risk, fi-
nance and compliance topics help employees work effectively in
their roles and within evolving business and regulatory environ-
ments. In 2014, our permanent employees participated in ap-
proximately 757,000 development activities, an average of 12.3
training sessions per employee or 2.4 training days. This total in-
Lifelong learning
Global demographic changes mean that many individuals
experience longer careers in a rapidly evolving work environ-
ment. As a result, ongoing training and personal development
have gained in significance. We are committed to investing in
training for young talent as well as in the further education and
development of experienced employees. In early 2013, UBS
launched a targeted lifelong learning initiative especially for
employees in Switzerland aged 45 and above. The program was
expanded in 2014 to offer career planning sessions, as well as
training in office tools and applications, languages, social media,
networking and multi-generational collaboration. More than 800
employees participated in at least one lifelong learning event
during 2014.
cluded more than 579,000 sessions on topics such as money laun-
dering prevention, supervision, fraud awareness and information
security. They are valuable learning experiences for all employees,
help us meet our regulatory commitments and are mandatory for
defined groups of employees, including external staff working in
those respective areas.
➔ Refer to the 2014 Annual Review for more information on our
wealth management education initiatives
Compensation
We strive to find the right balance of return for both our employ-
ees and our shareholders. We offer our employees competitive
base salaries and variable performance awards that reflect their
overall contributions. Our approach recognizes the need to com-
pensate individuals for their performance within the context of
market conditions, risk considerations, a fast-changing commer-
cial environment and evolving regulatory requirements. We seek
to encourage and reward behavior that contributes to the firm’s
long-term success.
Our compensation structures and programs are designed to be
appropriately balanced between fixed and variable elements. We
emphasize the variable component as an incentive to excel and to
foster a performance-driven culture, while supporting appropriate
and controlled risk-taking. Employee compensation is viewed
within a total reward framework that takes into account base
salaries, discretionary performance awards and benefits.
Our compensation framework is based on our Total Reward
Principles, particularly in terms of integrating risk control and
managing performance, as well as in specifying how we structure
our compensation and performance award pool funding. The
Principles reflect our long-standing focus on pay for performance,
sustained profitability, risk awareness and sound governance.
We have Group-wide ranks and country-specific salary ranges
applicable to all employees, as well as a global role classification
model. Human resource processes based on these global role pro-
files support clearly defined career paths and development plans
for all employees.
➔ Refer to the “Compensation” section of this report for more
information
Employee share ownership
Our employee share purchase plan, Equity Plus, is a voluntary eq-
uity-based program whereby eligible employees can purchase
UBS shares at market price and receive one matching share for
free for every three shares purchased. These matching shares vest
in three years, subject to continued employment at UBS and re-
tention of the purchased shares.
We also use UBS shares as a significant component in our per-
formance award deferral programs. As of 31 December 2014,
current employees held an estimated 7% of UBS shares outstand-
ing (including approximately 5% in unvested/blocked actual and
notional shares from our compensation programs). This figure is
based on all known shareholdings from employee participation
plans, personal holdings and individual retirement plans. At the
end of 2014, an estimated 41% of all employees held UBS shares.
➔ Refer to the “Compensation” section of this report for more
information
Our vision and our commitment to be a responsible
employer
We have a clear vision. We want to be recognized for creating
superior value for our clients, employees and shareholders. Fur-
ther, we aim to be the world’s leading wealth manager and the
top universal bank in Switzerland, and for our investment bank
and asset management businesses to be leaders in their respective
areas of focus.
We are committed to making our unique culture a winning
one. Relationships based on respect, trust and mutual under-
standing are the foundation for all of our business activities. Cli-
ent focus and sustainable performance are at the heart of our
business model and we strive for excellence in everything we do,
from the people we employ to the products and services we offer
to our clients. These concepts are integrated into our corporate
decision-making and people management processes, and they
shape the daily actions of our employees.
How we accomplish our goals is as important as achieving the
goals themselves. Therefore, over the past two years, we have
defined and communicated the specific behaviors we expect of
our employees and have integrated them into our business and
human resource practices. Integrity, collaboration and challenge
are concepts that define what we stand for individually and char-
acterize our daily interactions with clients and colleagues. During
2014, we embedded these behaviors into our business and hu-
man resources practices, from leadership skills building and busi-
ness process simplification to our recruiting and performance
management practices.
Listening to the voice of our employees
Culture is a critical component of our transformation, because
companies with strong, productive cultures outperform those
without. We have spent the past few years focusing on the basics
of culture-building: clearly communicating our vision and strat-
egy, embedding the firm’s principles and behaviors in our daily
work, and focusing on initiatives that will help ensure sustainable
performance.
To gauge our progress, we regularly solicit feedback from em-
ployees across all business divisions and regions. Our most com-
prehensive feedback tool is our biennial employee survey, con-
ducted in June 2014. This all-staff survey seeks employees’ views
on how well we are achieving our strategy, acting according to
our principles and behaviors, and ensuring a work environment
where employees can succeed.
Globally, 45,463 employees participated in the survey, repre-
senting 78% of our permanent total workforce at the time. We
compared our results to 2012, and also to an external benchmark
of financial peers. Overall, the survey showed that we have per-
335
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
formed better than our external benchmark and have made prog-
ress in changing the firm to ensure long-term success:
– At a strategic level, 74% of participating employees believe we
are responding effectively to industry changes and 80% under-
stand how their individual roles support the firm’s broader
strategy.
– Client focus remains core to our business strategy and culture;
85% of respondents agree that we care about our clients, and
84% agree that we strive to deliver high quality solutions and
services to them.
– Our employees are highly engaged, with 77% of respondents
seeing UBS as a good place to work and 75% agreeing that
they are highly motivated to go the extra mile.
– Regarding our culture change journey, we were pleased to see
from employees’ responses and comments that our principles
and behaviors have been embraced and are becoming deeply
embedded in our day-to-day routines.
Considering our strategic transformation and the external
pressures on our industry, our overall results demonstrate a high
level of stability and resilience. It is nevertheless clear there are
some perceived weaknesses that need firm-wide attention. In par-
ticular, employees told us that getting things done is often more
difficult than it needs to be and that retaining our most talented
employees should continue to be a priority.
Following the conclusion of the survey, the Group Executive
Board, as well as leaders of business divisions and functions,
agreed on specific action plans to reinforce our strengths and to
address areas for improvement. One immediate priority has been
to develop initiatives to increase accountability, as well as gener-
ally making it easier for employees to do their jobs.
Benefits and well-being
We strive to maintain a collaborative, respectful and healthy
working environment. We offer all of our employees a market-
competitive and comprehensive suite of benefits, which can in-
clude such elements as insurance, pension, retirement and both
paid and unpaid time off. Our benefits are designed to enhance
employees’ work experience and help them manage their profes-
sional and personal interests.
In many cases, our offerings go beyond those required by local
law or market practice. For example, we support flexible work ar-
rangements in our major locations. In Switzerland, employees can
request Time Flex options such as teleworking, part-time or job-
sharing arrangements, or begin partial retirement starting at the
age of 58. HR policies in the UK and the US specify part-time,
flexible, job-sharing and home-working opportunities that may
be appropriate for employees whose roles are amenable to fle-
xible working conditions. We also offer employees time off to
volunteer in their local communities.
We are committed to providing a supportive work environ-
ment for employees at all stages of their careers and personal
lives. For example, our HR policies seek to ensure that employees
have the opportunity to take sufficient parental leave upon the
birth or adoption of a child and to continue their careers at UBS
upon their return. Parental leave entitlement is governed by local
legislation, and it varies by country. UBS meets the statutory pa-
rental leave requirements in all locations, and in most locations
we exceed them.
We seek to support our employees in managing challenges
that arise in their work or personal lives. We offer a wide range of
employee assistance programs in a number of locations, including
the UK, the US, Switzerland, Hong Kong, Singapore and Japan.
These programs include specialist support and counseling for
stress, illness, personal conflict, finances, bereavement, mental
health, performance, elder care and other work-life challenges.
Employees in a number of locations can access company-provided
or subsidized health services, child care and fitness options.
Having a supportive work environment is especially important
in changing market conditions, when certain employee groups
may be impacted by organizational restructuring. We have rede-
ployment and outplacement initiatives in every region to provide
assistance. For example, we provide career transition support, in
addition to severance pay and health benefits, to eligible employ-
ees in the US. In Switzerland, our COACH program helps affected
employees find new roles either within UBS or outside the firm.
Employees below the level of Director participate in a social plan
336
that sets terms for redundancies as well as internal hiring, job
transfers and severance.
We have a longstanding commitment to support the well-be-
ing of all our employees, as noted in our Code of Business Con-
duct and Ethics. Our guidelines emphasize the importance of a
good physical infrastructure and a work environment that pro-
motes the health and safety of both employees and external staff.
As part of this mandate, we track accident and illness rates for our
employees. In 2014, 49,779 work days were recorded in our HR
system as having been impacted by accidents, with 336,911 im-
pacted by illness. This amounted to an average of five work days
per employee.
➔ Refer to www.ubs.com/health-safety for our health and safety
statement
Employee representation
As part of our commitment to being a responsible employer, we
maintain an open dialogue with all of our employee representa-
tion groups in the EMEA region. The UBS Employee Forum for
Europe was established in 2002 and includes representatives from
14 countries across Europe. It facilitates open dialogue on pan-
European issues that may affect our regional performance, pros-
pects or operations. Other local forums address topics such as
health and safety, changes to workplace conditions, pensions,
collective redundancies and business transfers. In Switzerland, for
example, the elected members of the Employee Representation
Committee meet with senior management for annual salary ne-
gotiations and represent employee interests on specific topics.
The UK Employee Forum, with elected representatives from our
UK businesses and appointed management representatives, focu-
ses on economic, financial and social activities concerning UK
employees. Collectively, the UBS Employee Forum, including the
Employee Representation Committee and UK Employee Forum,
represents approximately 52% of our global workforce.
Resolving workplace issues
We recognize that workplace issues may sometimes arise. There-
fore, we have processes in place in each region to deal with
work-related grievances or complaints. We are committed to try-
ing to resolve any employee grievance issues that arise in a timely
and effective manner. In many cases, such concerns can be re-
solved on an informal basis, although more formal procedures
are available if needed. The process for raising a concern is out-
lined in our employee handbooks or other appropriate local doc-
umentation.
Employees who have a concern about a work-related matter
are encouraged to speak with their direct line manager or an HR
representative. They are also encouraged to promptly report any
conduct by other employees, consultants, clients or service pro-
viders that may constitute a breach of laws, regulations, rules,
policies or procedures. Our internal policies prohibit adverse ac-
tion against employees placing complaints in good faith. We also
have a global whistleblowing policy and established procedures
(including a telephone hotline) for submitting, investigating and
handling these reports confidentially and protecting anonymity.
Background information is available online, is referenced in our
employee handbooks and is detailed on our global whistleblow-
ing web page, easily accessible from a link on the firm’s employee
website.
337
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Compensation
Dear shareholders,
Pillar 3 | This year’s compensation decisions
have been shaped by the need to balance
a number of key objectives – rewarding
our employees for an overall strong
performance, ensuring that we appropri-
ately consider matters related to our
foreign exchange business (on an indi-
vidual and collective basis) and maintain-
ing an overall competitive compensation
program which continues to support
our ability to effectively attract and retain
the best talent in the industry.
2014 performance
In 2014, UBS employees remained
focused on delivering improved perfor-
mance despite challenging market
conditions. Net profit attributable to UBS
shareholders was CHF 3.5 billion, up 9%
compared with 2013. The firm also
continued to strengthen its fully applied
Basel III common equity tier 1 capital ratio
to be the best in our peer group of large
global banks, which supports the firm’s
commitment to return at least 50% of net
profit attributable to UBS Group AG
shareholders.
As a result, the UBS Board of Directors
(BoD) intends to propose a dividend of
CHF 0.50 for 2014. This is an increase of
100% on 2013 and represents 55% 1 of
the Group’s reported net profit for 2014.
In addition, the firm is on track with the
implementation of the new Group
1 Ordinary dividend per share as a % of diluted earnings per share.
338
holding company structure. As part of this
process, the firm intends to propose a
one-time supplementary capital return of
CHF 0.25 per share.
The BoD continues to recognize the
importance of creating an environment
that attracts and retains key contributors
while holding our people accountable for
their actions.
Compensation funding and
governance
While the 2014 performance award pool
takes into account the firm’s strong
performance over the year, it also
recognizes the effects of charges for
provisions for litigation, regulatory and
similar matters. During the fourth quarter
of 2014, the firm continued to proactively
manage these issues from the past as it
reached resolutions with several regula-
tory authorities in connection with
industry-wide investigations into foreign
exchange markets.
The protection of the firm’s reputation
and the interests of shareholders and
clients remain paramount. In consider-
ation of the matters related to our foreign
exchange business, the 2014 performance
award pool has been reduced signifi-
cantly, mainly in the Investment Bank,
from what it would otherwise have been
in the absence of these events. As a
result, the firm’s total performance award
pool for 2014, which includes the Group
Executive Board (GEB), is CHF 3.1 billion,
down 5% compared with the prior year.
This is aligned with a 6% reduction in the
IFRS performance award-related expenses.
2014 compensation framework
We believe UBS has one of the most
demanding performance award frame-
works relative to its peers. This framework
has remained broadly unchanged in 2014.
We have built a robust compensation
model premised on generating attractive
and sustainable returns for shareholders.
The firm’s performance awards are
designed to support this philosophy by
emphasizing appropriate risk-taking and
long-term performance, and by placing a
substantial portion of compensation at
risk. For instance, for 2014, we have over
5,000 employees with 54% of their
performance award in deferred compen-
sation that vests over two to five years.
With respect to the matters related to our
foreign exchange business, in addition to
the significant reduction in the 2014
performance award pool noted above, a
further amount of CHF 14 million was for-
feited. This includes employees who
resigned or whose contracts were
terminated, with an additional CHF 19
million in awards under legal hold
pending the outcomes of investigations.
Additionally, GEB members will forfeit
Advisory vote 56% of the 2015 vesting tranche of
their Performance Equity Plan awards
given the underlying targets of
economic profit and relative total
shareholder return were not fully
achieved.
To further strengthen our capital
position, we have enhanced certain
features of our employee compensation
framework in anticipation of increased
focus on tier 1 capital instruments.
Starting with compensation for 2014,
Deferred Contingent Capital Plan
(DCCP) awards will qualify as fully
applied additional tier 1 capital under
Basel III regulations. Consistent with the
prior year, 40% of the deferred annual
performance award will be deferred
under the DCCP for five years and 60%
will be deferred in UBS notional shares
under the Equity Ownership Plan over
two to five years.
In other developments in 2014, the EU
Capital Requirements Directive IV which
requires a cap on the fixed to variable
compensation ratio for certain employ-
ees within the EU came into effect. As
part of the implementation of such a
cap, and in response to competitive
practices, we have implemented
role-based allowances as a feature of
the fixed compensation for those
employees.
Annual General Meeting 2015
In line with the Ordinance against
Excessive Compensation in Switzerland, at
the Annual General Meeting (AGM) 2015,
shareholders will be asked to vote on:
– the maximum aggregate amount of
remuneration for the BoD for the
period from AGM 2015 to AGM 2016;
– the maximum aggregate amount of
fixed compensation for the GEB for
2016; and,
– the aggregate amount of variable
compensation for the GEB for 2014. ▲
Further, on a voluntary basis, shareholders
will again be asked for an advisory vote
on the Compensation Report 2014.
Finally, the BoD and I would like to offer
our sincere thanks to our shareholders for
the time they took to share their views on
compensation during the year. On the
following pages you will find more
information about UBS’s compensation
for 2014. We will seek your support for
the compensation matters at our AGM on
7 May 2015.
Ann F. Godbehere
Chair of the Human Resources and
Compensation Committee of
the Board of Directors
Ann F. Godbehere
Chair of the Human
Resources and
Compensation Committee
of the Board of Directors
339
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
2014 performance and compensation funding
Our performance in 2014 demonstrated both the strength of our business model, which is designed to deliver attractive
returns with an efficient capital and risk profile, and the disciplined manner in which we continue to implement our
strategy. Overall, the performance award pool for 2014 was CHF 3.1 billion, 5% lower than in 2013, balancing our strong
performance with the effects of charges for provisions for litigation, regulatory and similar matters.
Our performance in 2014
In 2014, we delivered net profit attributable to UBS Group AG
shareholders of CHF 3.5 billion, a 9% increase on the prior year. At
the same time, we continued to reduce risk-weighted assets (RWA)
and improve our leverage ratio, and our 13.4% fully applied
Basel III common equity tier 1 (CET1) capital ratio remained the
best in our peer group of large global banks.
We owe our thanks to our employees for their continued ded-
ication and hard work in delivering superior advice and service to
our clients. Their achievements have enabled us to deliver on our
commitment to significantly increase returns to our shareholders.
As previously announced, we intend to propose an ordinary divi-
dend of CHF 0.50 per share for the financial year 2014, an in-
crease of 100% on the prior year and a payout ratio of 55% 1 of
reported net profit. Reflecting progress in the establishment of
the new Group holding company, including the successful com-
pletion of the share-for-share exchange offer, we fully accrued a
supplementary capital return of CHF 0.25 per share in the fourth
quarter of 2014. Subject to shareholder approval at the forthcom-
ing Annual General Meeting (AGM), UBS Group AG intends to
pay this one-time supplementary capital return upon successful
completion of the squeeze-out procedure.
1 Ordinary dividend per share as a % of diluted earnings per share.
Our success in 2014 is highlighted by the fact that we have
now achieved the key targets we set out in 2011 and 2012. We
have reduced risk-weighted assets since 2011 by over CHF 160
billion, added almost 700 basis points to our fully applied Basel III
CET1 capital ratio, surpassing our target of 13%, and our Invest-
ment Bank is less complex and delivering more consistent under-
lying returns.
In addition, the firm’s leverage ratio on a fully applied basis for
Swiss systemically relevant banks (SRB) increased in 2014 by 70
basis points to 4.1%, close to our 2019 regulatory requirement of
4.2%. UBS ended the year with CHF 216 billion in RWA, just CHF
1 billion above our target for the end of 2015.
Market conditions remained challenging throughout the year,
with heightened geopolitical tensions, diverging monetary policy,
and sharp falls in commodity prices causing increased volatility
and greater investor caution. Our business divisions performed
well in 2014, as they executed on our strategy with the intensity,
agility and focus required to overcome the challenges we faced.
Our Wealth Management business delivered a strong perfor-
mance, with adjusted profit before tax up 4% to CHF 2.5 billion.
Net new money (NNM) was strong at CHF 34.4 billion, and al-
though gross margin declined by 3 basis points to 85 basis points,
this reflected the very rapid increase in invested assets, which rose
Net profit attributable
to UBS Group AG shareholders
CHF million
Diluted earnings per share (EPS)
CHF
Return on tangible equity (RoTE)
in %
Full year 2014 / 2013
Full year 2014 / 2013
Full year 2014 / 2013
+ 9 %
+ 10 %
+ 20 bps
3,172
3,466
1.20
0.80
0.83
0.91
0.40
8.0
8.2
10.0
8.0
6.0
4.0
2.0
0.0
2013
2014
2013
2014
2013
2014
4,000
2,000
0
340
Advisory vote 11% or CHF 101 billion in the year. The business also delivered
high quality results, with recurring revenue up 6% despite regula-
tory headwinds, reflecting successful strategic initiatives to grow
lending, increase mandate penetration and reprice certain prod-
ucts.
It was another record-breaking year for Wealth Management
Americas, with operating income, gross loans, financial advisor
productivity, invested assets and adjusted1 profit before tax reach-
ing all-time highs. Despite elevated charges for litigation, regula-
tory and similar matters, the business delivered USD 1 billion in
adjusted1 profit before tax for the second year in a row. The busi-
ness’s NNM performance was below its target range. However,
we are confident that this is not indicative of future trends.
Our Retail & Corporate business delivered a 4% increase in
adjusted1 profit before tax, despite operating income, which was
broadly unchanged from the prior year, and achieved all its targets
for the year. Net new business volume growth for retail clients
was 2.3% compared with a target range of 1% to 4%, and 2014
was our best year for new Swiss retail client acquisition since
2008.
Global Asset Management recorded a 13% decline in adjusted 1
pre-tax profits, mainly due to charges for provisions for litigation,
regulatory and similar matters. However, the business division at-
tracted strong NNM, excluding money market flows, of nearly
CHF 23 billion compared with outflows of CHF 5 billion in 2013,
resulting in a growth rate of 4.4%. This substantial turnaround
was achieved largely through greater engagement and collabora-
tion with our wealth management businesses.
Client focus, improved productivity and resource efficiency re-
mained important drivers of our Investment Bank’s strong under-
lying performance, as the business recorded an adjusted 1 profit
before tax, excluding charges for litigation, regulatory and similar
matters, of CHF 2,054 million. The business continued to grow its
Corporate Client Solutions business, with revenues up 8% and
operated within its targeted resource levels throughout the year.
Corporate Center reported a loss before tax of CHF 2.7 billion,
compared with a loss of CHF 4.2 billion in the prior year. Overall
revenues were negative CHF 0.9 billion, with losses recorded pri-
marily in Non-Core and Legacy Portfolio, which included negative
funding and debit valuation adjustments on derivatives, as well as
losses from unwind and novation activity. Expenses were reduced
by CHF 1.7 billion, with CHF 0.3 billion related to our strategic
cost savings initiatives. In the Non-core and Legacy Portfolio, we
achieved significant reductions in RWA and leverage ratio denom-
inator.
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:13)
(cid:50)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:71)(cid:70)
(cid:81)(cid:80)(cid:71)(cid:15)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)
(cid:85)(cid:87)(cid:82)(cid:82)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:84)(cid:91)(cid:2)
(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)
(cid:72)(cid:81)(cid:78)(cid:78)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:85)(cid:83)(cid:87)(cid:71)(cid:71)(cid:92)(cid:71)(cid:15)(cid:81)(cid:87)(cid:86)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:19)(cid:18)
(cid:18)(cid:16)(cid:19)(cid:23)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)
(cid:50)(cid:67)(cid:91)(cid:81)(cid:87)(cid:86)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:20)(cid:18)(cid:19)(cid:19)
(cid:27)(cid:7)
(cid:20)(cid:18)(cid:19)(cid:20)
(cid:48)(cid:17)(cid:47)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:21)(cid:18)(cid:7)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:23)(cid:23)(cid:7)(cid:2)
(cid:10)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)(cid:11)(cid:19)
(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)
(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)
(cid:96)(cid:24)(cid:16)(cid:25)(cid:7)
(cid:96)(cid:27)(cid:16)(cid:26)(cid:7)
(cid:19)(cid:20)(cid:16)(cid:26)(cid:7)
(cid:19)(cid:21)(cid:16)(cid:22)(cid:7)
(cid:49)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)
(cid:50)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:50)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:71)(cid:15)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:84)(cid:91)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)
1 Refer to the “Group performance” in the “Financial and operating performance” section of the Annual
Report 2014 for more information on adjusted results.
(cid:19)(cid:2)(cid:49)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:67)(cid:85)(cid:2)(cid:67)(cid:2)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:75)(cid:78)(cid:87)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:16)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
341
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Performance award pool funding
Pillar 3 | Our compensation funding framework is based on business
performance, which we measure in a variety of ways. These in-
clude profitability, quality of earnings, contribution before perfor-
mance award, and economic contribution before performance
award, which is a risk-adjusted measure of performance. In addi-
tion, we use a number of criteria to assess the performance of our
business divisions and Corporate Center, such as those in the
chart below.
EDTF | Certain risk-related objectives are common across all busi-
ness divisions and Corporate Center, and include adherence to
risk investment guidelines, Group risk policies, value-at-risk limits
and the avoidance of significant operational risk events.
Each business division’s performance award pool is accrued as
a percentage of profit before performance award, which is risk
adjusted by factoring in a risk capital charge. We also consider
progress against our strategic initiatives, affordability and market
positioning. Business division performance is adjusted for items
which do not reflect their underlying performance, including
gains or losses related to divestments or sales of real estate,
restructuring charges, and gains or losses on own credit.
The accrual percentage increases or decreases as performance
declines or improves. As a result, if a business division’s profits
increase, the proportion of profits we allocate to pay performance
awards is generally reduced. In good years, this helps prevent ex-
cessive compensation and allows us to return more capital to
shareholders. In lean years, it provides us with the flexibility to
make adequate provisions to retain key employees.
Target ranges
2014 results
2014 target report card
Wealth Management
– Adjusted PbT +4% to CHF 2.5 billion
2014 highlights
– Generated CHF 34 billion of net new money
– Recurring income of CHF 5.9 billion, +6%
Wealth Management
Americas
– Adjusted PbT +4% to record level, > USD 1 billion
– Invested assets +6% to record level, > USD 1 trillion
2014 targets
NNM growth rate
Gross margin (bps)
Adjusted cost / income ratio
NNM growth rate
Gross margin (bps)
– Recurring income +12% to a record USD 5.7 billion
Adjusted cost / income ratio
3–5%
95–105
60–70%
2–4%
75–85
80–90%
Retail & Corporate
– Adjusted PbT +4% to CHF 1.6 billion
NNBV growth rate (retail business)
1–4%
Global Asset
Management
– Net interest margin +3 basis points to +159 basis points
Net interest margin (bps)
– Best year for Swiss retail client acquisition since 2008
Adjusted cost / income ratio
– Generated CHF 22.6 billion of net new money excl. money market
NNM growth rate excl. MM
– Invested assets +14% to CHF 664 billion
Gross margin (bps)
Adjusted cost / income ratio
Investment Bank
– Strong performance in CCS with revenues +8% to 3.2 billion
Adjusted RoAE
– Strong performance in Equities with CHF 3.7 billion in revenues
Adjusted cost / income ratio
– RWA down 44% to CHF 36 billion, already meeting
2015 year-end target
– LRD down 42% to CHF 93 billion
Basel III RWA limit (CHF billion)
Funded assets limit (CHF billion)
Basel III RWA (CHF billion)
Target is applicable for 31.12.15
Non-core and
Legacy Portfolio
= 2014 target not met
= 2014 target met
342
140–180
50-60%
3–5%
32–38
60–70%
>15%
65–85%
< 70
< 200
< ~40
3.9%
85
68.2%
1.0%
76
86.6%
2.3%
159
56.6%
4.4%
31
73.2%
2.6%
97.6%
67
171
36
Advisory vote We assess Group performance using criteria such as risk-ad-
justed profits, performance relative to the industry, and general
market competitiveness. We also consider progress against our
strategic initiatives, including RWA and balance sheet reduction,
delivery of cost efficiencies, and capital accretion. We look at the
firm’s risk profile and culture, the extent to which operational risks
and audit issues have been identified and resolved, and the suc-
cess of risk reduction initiatives. ▲
The chart below illustrates the performance award pool fund-
ing process, the factors taken into account, and how the Human
Resources and Compensation Committee (HRCC) applies its dis-
cretion before making its final recommendation to the Board of
Directors (BoD). ▲
Performance award funding process – illustrative overview
1
Financial
performance
2
Risk
adjustment
3
Levers
Qualitative,
risk and
regulatory
assessment
Relative
performance
vs peers
Market
position
and trends
Divisional KPI
4
HRCC /BoD
governance
and discretion
5
Final
performance
award pool
1
2
3
4
Financial performance
Risk adjustment
The preliminary performance award pool amount is driven by financial performance and assessed in light of a series of financial KPI.
Predetermined business division-specific performance award pool funding rates are applied to risk-adjusted performance. This takes
into account credit, market, liquidity, funding, operational risk, including legal and compliance, reputational risk and the number of
operational risks and audit recommendations that are effectively resolved.
Divisional KPI
Each division is assessed based on specific KPI (e.g., NNM growth rate, return on RWA, etc.).
Qualitative, risk and regulatory
assessment
Qualitative assessment (quality of earnings, industry awards, etc.), assessment of regulatory compliance and risk assessment.
Qualitative assessment also ensures full alignment to our Total Reward Principles.
Relative performance vs peers
Performance is also assessed relative to our peers.
Market position and trends
Market intelligence based on internal and external advisors helps assessing the competitiveness of our pay level and compensation
structure. It also provides a prospective view of market trends in terms of absolute compensation levels, compensation framework and
industry practice.
HRCC / BoD governance and discretion
The performance award pool determination process results in a performance award pool recommendation from the Group CEO (after
consultation with the business division Presidents), which is submitted to the HRCC for consideration. The HRCC, having monitored the
forecasted full-year performance award regularly, has full discretion to adjust it (up- or downwards), as deemed appropriate. The HRCC
considers the recommendation in the context of our overall performance, capital strength, risk profile, market positioning, as well as
business and geographic trends. The committee ensures it is in line with our strategies embodied in our Total Reward Principles to create
sustainable shareholder value.
343
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
2014 performance award pool and expenses
Matters related to our foreign exchange business
The performance award pool, which includes all discretionary,
performance-based variable awards for 2014 was CHF 3.1 billion,
a decrease of 5% compared with 2013. Overall, while our perfor-
mance improved and we made further progress toward achieving
our strategic and financial objectives, the potential increase in the
performance award pool in 2014 was offset by a significant reduc-
tion, mainly in the Investment Bank, due to the impact of matters
related to our foreign exchange business.
Performance award expenses for 2014 decreased 6% to CHF
2.8 billion. The reduction was mainly due to lower expenses for
awards related to 2014 compensation, as well as lower expenses
related to the amortization of awards from prior years. The “Per-
formance award expenses” chart below compares the perfor-
mance award pool with the performance award expenses.
In addition to the significant reduction in the performance award
pool, we took disciplinary measures against those employees who
were found to have been involved in the misconduct or who
failed in their supervisory duties, including terminating their em-
ployment. We continue to assess whether sanctions against other
current and former employees should be taken based on our on-
going reviews. Potential sanctions include disciplinary measures,
reductions in their compensation and forfeiture of part or all of
their current outstanding deferred compensation.
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Performance award expenses
CHF billion
(5%)1
3.0
0.7
2.3
Amortization
of prior-
year awards
Awards
expenses for
performance
year
3.2
0.9
Awards
for
performance
year deferred
to future
periods2
(incl.
accounting
adjustments)
2.8
0.6
2.2
Amortization
of prior-
year awards
Awards
expenses for
performance
year
3.1
0.9
Awards
for
performance
year deferred
to future
periods2
(incl.
accounting
adjustments)
Performance
award pool
2013
Performance
award pool
2014
(6%)
1 Excluding add-ons such as social security. 2 Estimate. The actual amount to be expensed in future periods
may vary, for example due to forfeitures.
344
Advisory vote Advisory vote
2014 compensation for the Group CEO and the other GEB members
Group Executive Board (GEB) performance awards are at the discretion of the Board of Directors (BoD). The overall
amount of performance awards for GEB members for 2014 decreased 7% year-on-year, consistent with the 5% reduction
in the performance award pool including all employees. At the Annual General Meeting (AGM) 2015, UBS’s shareholders
will vote on the proposed 2014 GEB performance award pool. The invitation to the AGM 2015 will set out the proposed
aggregate amount.
Key features of our 2014 compensation framework for the Group CEO and the other GEB members
Pillar 3 | Pay for performance
Safeguards
The Human Resources and Compensation Committee (HRCC) reviews the performance
of our Group CEO and other GEB members against the Group’s performance targets.
The GEB’s performance awards are based on quantitative and qualitative performance
measures and consider performance of the individual and the Group overall.
– The Group CEO / GEB performance scorecard is based on a set of quantitative and qualita-
tive measures, and provides a framework for a balanced assessment. Group level, business
division, regional, functional and qualitative performance measures are included in combi-
nation, depending on the individual GEB member’s remit.
Our compensation framework contains a number of features designed to ensure
that risk is appropriately managed with safeguards to limit inappropriate risk-taking.
Our framework has
– a balanced mix of shorter-term and longer-term performance awards with a focus on
deferral
– a cap on the total GEB performance award pool of 2.5% of adjusted Group profit
before tax
– Compensation plan forfeiture provisions enable the firm to reduce the unvested deferred
portion if the compensation plans’ relevant performance conditions are not achieved.
This means
– individual caps on the proportion of fixed to variable pay for the Group CEO and other
GEB members
– the vesting of Equity Ownership Plan awards depends on both Group and divisional
performance
– Deferred Contingent Capital Plan awards only vest in full if the firm delivers an adjust-
ed profit before tax and our phase-in tier 1 capital ratio does not fall below 10%. The
firm may, at its discretion, elect to cancel any interest payments.
– a share ownership policy under which each GEB member must build up and hold a
minimum of 350,000 shares. The Group CEO must build up and hold a minimum of
500,000 shares
– an evaluation of the risk control effectiveness and adherence of each GEB member
as part of their individual qualitative assessment
– employment contracts that include a six-month notice period
– EDTF | provisions that enable the firm to trigger forfeiture of some, or all, of the unvested
deferred performance award if an employee commits certain harmful acts, or if the em-
ployment is terminated for cause. Generally, we regard the following as harmful acts
– contributing substantially to a significant downward restatement of the Group’s or
a business division’s results, or to the Group incurring significant financial losses
– engaging in conduct and / or failing to discharge supervisory or managerial
responsibilities that results in detriment to UBS, including reputational harm
– engaging in conduct that materially violates legal and regulatory requirements or
internal policies and procedures
– improperly disclosing confidential or proprietary information ▲
▲
345
Corporate governance, responsibility and compensation
Corporate governance, responsibility and compensation
Compensation
Pillar 3 | 2014 compensation framework for GEB members
Of the annual performance award, up to 20% is paid in the form of immediate cash and 80% is granted as a longer-term performance award, with 50% paid in deferred equity and
the remaining 30% in deferred notional instruments.
Illustrative example
Payout of performance award
Payout of performance award
2014
DCCP
30%
EOP
50%1
Notional additional tier 1 (AT1) instruments.
The award cliff vests in year 5, subject to forfeiture if a capital
ratio trigger or viability event occurs. The award is subject to
20% forfeiture for each financial year if UBS does not achieve
an adjusted Group profit before tax.
Notional interest payments will be made annually subject to
review and confirmation by the firm.
The award is subject to continued employment and harmful
acts provisions.
Notional shares.
The award vests in equal installments in years 3, 4 and 5, subject
to both Group and divisional performance over the three financial
years before vesting. The amount forfeited may be up to 100% of
the installment due to vest.
The award is subject to continued employment and harmful acts
provisions.
2013
DCCP
30%
EOP
50%1
20%
Cash
Up to
20%
Base
salary
Up to 20% paid out immediately, subject to a cash cap of
CHF/USD 1 million. To the extent that less than 20% is paid in
immediate cash, the excess amount will be granted in EOP.
20%
Cash
Up to
20%
Base
salary
30%
16%
e
r
u
t
i
e
f
r
o
f
f
o
k
s
i
r
t
a
d
r
a
w
a
e
c
n
a
m
r
o
f
r
e
p
f
o
%
0
8
t
s
a
e
l
t
A
e
c
n
a
m
r
o
f
r
e
p
f
o
n
i
d
i
a
p
d
r
a
w
a
2
h
s
a
c
e
t
a
i
d
e
m
m
i
%
0
2
o
t
p
U
17%
17%
30%
16%
e
r
u
t
i
e
f
r
o
f
f
o
k
s
i
r
t
a
d
r
a
w
a
e
c
n
a
m
r
o
f
r
e
p
f
o
%
0
8
t
s
a
e
l
t
A
e
c
n
a
m
r
o
f
r
e
p
f
o
n
i
d
i
a
p
d
r
a
w
a
2
h
s
a
c
e
t
a
i
d
e
m
m
i
%
0
2
o
t
p
U
17%
17%
2014
2015 2016 2017 2018 2019 2020
Share
retention
500,000 shares for Group CEO
350,000 shares for other GEB members
GEB members are required to hold a certain number of UBS
shares as long as they are in office.
This holding has to be built up within a maximum period of five
years from the date of their appointment to the GEB.
2013
2014 2015 2016 2017 2018 2019
Share
retention
500,000 shares for Group CEO
350,000 shares for other GEB members
1 At least 50% of the performance award is granted under the Equity Ownership Plan (EOP). 2 UK Code Staff receive 50% in the form of blocked shares. ▲
346
Advisory vote
Base salary, role-based allowance, pensions and benefits
Each GEB member receives a fixed base salary, which is reviewed
annually by the Human Resources and Compensation Committee
(HRCC). Since the Group CEO’s appointment in 2011, his annual
base salary has remained unchanged at CHF 2.5 million. Other
GEB members’ salaries were unchanged at CHF 1.5 million (or
local currency equivalent).
One GEB member is considered as UK Code Staff and receives
a role-based allowance in addition to his base salary. This allow-
ance reflects the market value of a specific role and is only paid as
long as the GEB member is considered to be UK Code Staff. The
introduction of this allowance represents a shift in the compensa-
tion mix between fixed and variable compensation and is not an
increase in total compensation. The allowance consists of a de-
ferred UBS notional share award which is granted annually. This
deferred award vests in equal portions in years 3, 4 and 5, respec-
tively.
Pension contributions and benefits for GEB members are in line
with local practices for other employees. No enhanced or supple-
mentary pension contributions are made for GEB members. Be-
ginning at the AGM 2015, the GEB members’ aggregate fixed
compensation will be subject to shareholder approval. Sharehold-
ers will prospectively vote on the maximum aggregate amount of
such fixed compensation for the GEB to be paid in 2016.
➔ Refer to “Our compensation governance framework” section of
this report for more information on the shareholders’ vote on
the GEB compensation
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Financial information” section of the Annual
Report 2014 for more information on the major post-employ-
ment benefit plans established in Switzerland and other
countries
How we set variable performance award levels for our
Group CEO and other GEB members – performance
scorecard assessment
Pillar 3 | The Group CEO and other GEB members are eligible to re-
ceive an annual performance award, which is at the full discretion
of the BoD and, in aggregate, subject to shareholder approval at
the AGM. Our performance assessment is based on a balanced
scorecard, which allows us to assess an individual’s performance
against a number of quantitative and qualitative key performance
indicators (KPI).
The quantitative measures for the Group CEO are based on
overall Group performance. For other GEB members, they are split
between Group and the individual’s business division and / or re-
gional performance. Those who lead Group control functions, or
who are solely regional Presidents, are assessed on the perfor-
mance of the Group and of the functions / regions they oversee.
Quantitative measures include business division financial, re-
gional, and functional measures, and account for 65% of the as-
sessment. Qualitative measures account for 35% of the assess-
ment and are the same for all GEB members, including the Group
CEO. The table on the following page provides an overview of the
quantitative and qualitative KPI on which the scorecard is based.
The weighting between Group, business division, regional, and
functional KPI varies depending on a GEB member’s role. There is
a significant weighting on Group KPI for all GEB members.
The degree to which an individual has achieved these quanti-
tative measures, coupled with an assessment of performance
against qualitative measures, provides an overall rating. This is
the starting point for a GEB member’s annual performance
award. In addition, target total compensation is reviewed against
the market value of the respective role. This approach is not in-
tended to be mechanical, as the HRCC can exercise its judgment
and, in exceptional circumstances, may apply an appropriate
degree of discretion. The HRCC’s final compensation recommen-
dations for GEB members are based on the performance assess-
ment, the assessment against the market value for the role, and
the Group CEO’s recommendation (the Group CEO makes no
recommendation on his own award). For 2014, the HRCC also
considered the nature and impact of matters related to our for-
eign exchange business. Therefore, the final HRCC recommenda-
tions on the GEB member’s performance awards were lower than
performance would otherwise have called for. The HRCC’s rec-
ommendations are then reviewed, and must be approved, by the
BoD. The BoD retains full discretion in determining the variable
compensation levels for GEB members. The HRCC and then the
full BoD go through a similar process in setting the compensation
for the Group CEO. The final 2014 performance award for the
GEB in aggregate is subject to shareholder approval at the AGM
2015. The individual variable performance awards for each GEB
member will only be granted following shareholder approval at
the AGM. ▲
347
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Pillar 3 | Overview of the quantitative and qualitative measures on which the performance scorecard is based
Quantitative measures (65% weighting)
Qualitative measures (35% weighting)
The quantitative measures are aligned with the Group’s strategic plan. They are mainly
based on the Group measures, supplemented with business division, regional or functional
KPI for business division, regional or Corporate Center GEB members, and include the fol-
lowing:
The qualitative measures utilized in assessing the effectiveness of the Group CEO and
other GEB members are the following:
Pillars:
Capital management
– establishes and maintains capital strength and CET1 capital ratio. Generate efficiencies
and deploy our capital more efficiently and effectively.
Efficiency & effectiveness
– contributes to the development and execution of our strategy. The measure also looks to
ensure that there is success across all business lines, functions and regions.
Risk management
– ensures risk management through an effective control framework. Captures the degree
to which risks are self-identified and focuses on the individual’s success in ensuring com-
pliance with all the various regulatory frameworks. Helps shape the firm’s relationships
with regulators through ongoing dialogue.
Principles:
EDTF | Client focus
– increases client satisfaction and maintaining high levels of satisfaction over the long
term. This includes promoting cross-business division collaboration and fostering the de-
livery of the whole firm to our clients.
Sustainable performance
– Brand and Reputation – protects the Group’s reputation and ensures full compliance
with our standards and principles.
– Culture – takes personal role in making Principles and Behaviors front and center of
the requirements of the business. Furthermore, this measure evaluates the individual’s
ability to reinforce a culture of accountability and responsibility, demonstrating our
commitment to be a responsible corporate citizen and to act with integrity in all our
interactions with our stakeholders.
Excellence
– Human Capital Management – develops successors for the most senior positions, facili-
tates talent mobility within the firm and promotes a diverse and inclusive workforce.
– Product and Service Quality – strives for excellence in products and services we offer
to our clients.
Behaviors:
Integrity
– is responsible and accountable for what they say and do; caring about clients, investors
and colleagues; acting as a role model.
Collaboration
– puts benefits of clients and the firm before their own and those of their business; work-
ing across the firm; respecting and valuing diverse perspective.
Challenge
– encourages self and others to constructively challenge the status quo; learning
from past mistakes and experiences. ▲
▲
– Group Return on Equity
– adjusted Group profit before tax
– CET1 capital ratio
– business division and / or regional KPI (if applicable)
– functional KPI (for Corporate Center GEB members)
Both regional and functional KPI may include qualitative measures.
348
Advisory vote Weightings of quantitative and qualitative measures
in %
Key performance indicators (KPI)
Group RoE, adjusted Group profit before tax and Basel III CET1 capital ratio (fully applied)
Business division / regional KPI
Functional KPI
Quantitative
Qualitative
Total
Group CEO
Business division /
regional Presidents
Weighting
Functional heads
65
65
35
100
35
30
65
35
100
45
20
65
35
100
Caps on compensation
Benchmarking against peers
The total potential GEB performance award pool is capped at
2.5% of the adjusted Group profit before tax. This links overall
GEB compensation to the firm’s profitability. As the Group’s ad-
justed profit before tax for 2014 was CHF 2.8 billion, the GEB
2014 performance award pool was capped at CHF 69 million.
The actual total GEB performance award pool for 2014 was
CHF 58 million or 2.1% of the Group’s adjusted profit before tax
compared with CHF 63 million or 1.5% in 2013. Furthermore,
100% of a GEB member’s deferred compensation is subject to
performance conditions.
Last year we introduced individual compensation caps on the
proportion of fixed pay to variable pay for all GEB members. The
Group CEO’s performance award was capped at five times his
base salary. Performance awards of other GEB members were
capped at seven times their base salaries.
For 2014, performance awards for GEB members and Group
CEO were, on average, 3.1 times the base salary.
The HRCC reviews GEB compensation levels against those of a
peer group of companies selected for the comparability of their
size, business and geographic mix, and the extent to which they
are our competitors for talent. The HRCC also considers the prac-
tices of these peers that may influence their pay strategies and
pay levels as well as their respective regulatory environments.
In 2014, the HRCC reviewed our peer group and determined
that it remained appropriate. The peer group consists of: Bank of
America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche
Bank, Goldman Sachs, HSBC, JP Morgan Chase, Julius Baer, Mor-
gan Stanley, and Nomura.
Overall, total compensation for GEB members is targeted at
market pay for market performance.
349
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Comparability assessment against main peers
Benchmarking ensures that our executive compensation is appropriate relative to our industry peer group. The key benchmarking
criteria are summarized in the table below:
Size 1
Business
mix 2
Geographic
mix 3
Competitors
for talent 4
HQ location:
regulatory 5
HQ location:
geographical 6
Firm
Bank of America
Barclays
BNP Paribas
Citigroup
Credit Suisse
Deutsche Bank
Goldman Sachs
HSBC
JP Morgan Chase
Julius Baer
Morgan Stanley
Nomura
Mostly comparable
Moderately comparable
Less comparable
1 Size: evaluated in terms of revenue, profitability, assets and number of employees. This would potentially impact management complexity outside of the impact of product mix and geographical. 2 Business mix:
in terms of type and size of major businesses. This would impact pay strategy / levels and approach and, importantly, risk profile. 3 Geographic mix: evaluated not only in terms of mix, but also from a European
Headquarters (HQ) perspective. Impacts executive role definition and management complexity. 4 Competitors for talent: firms from which UBS recruits and / or firms which recruit from UBS. 5 HQ location / regulatory:
impact of the regulatory environment based on home regulator. 6 HQ location / geographical: culture and practice that impacts pay strategy / levels.
2014 deferral of performance awards and vesting of
awards granted in prior years impacted by performance
conditions
Pillar 3 | At least 80% of a GEB member’s performance award is
deferred and is only granted following shareholder approval on
the overall performance award pool at the AGM. For performance
year 2014, a minimum of 50% of the overall performance award
is granted under the Equity Ownership Plan (EOP), which vests in
three equal installments from year 3 to 5, subject to performance
conditions being met.
The remaining 30% is granted under the Deferred Contingent
Capital Plan (DCCP). Under the DCCP, GEB members are awarded
notional additional tier 1 (AT1) instruments that vest in year 5,
with discretionary annual interest payments. In addition to a
phase-in tier 1 capital ratio trigger of 10%, DCCP awards granted
to GEB members are subject to a further performance condition.
If UBS does not achieve an adjusted Group profit before tax for
any year during the vesting period, GEB members forfeit 20% of
the award for each loss-making year. This means that 100% of
the award is subject to risk of forfeiture in addition to the phase-in
tier 1 capital ratio trigger.
For each GEB member, a maximum of 20% of the overall per-
formance award can be paid out in the form of immediate cash,
subject to a cap of CHF / USD 1 million (or local currency equiva-
lent). Any amount beyond this cap is granted in notional shares
under the EOP. In addition, for GEB members who are considered
UK Code Staff for the year 2014, 50% of any immediate cash
must be delivered in vested shares which are blocked for six
months and each EOP installment vesting on 1 March of years 3
to 5 will be subject to additional blocking for a further six months.
The average deferral period for deferred awards for GEB mem-
bers in 2014 is 4.4 years (in line with 2013). Our compensation
plans have no upward leverage, such as multiplier factors, and
therefore do not encourage excessive risk-taking.
The HRCC has determined that 56% of the Performance Eq-
uity Plan (PEP) 2012 for GEB members was forfeited as a result of
the economic profit and total shareholder return targets not be-
ing fully achieved. All other awards for GEB members due to vest
in March 2015 will vest in full based on the performance condi-
tions having been met. ▲
➔ Refer to the “Our deferred variable compensation plans” section
in this report for more information
➔ Refer to the “Our compensation model for employees other than
GEB members” section in this report for more information on UK
Code Staff
➔ Refer to the “Vesting of outstanding awards granted in prior
years impacted by performance conditions” section in this report
for more information
350
Advisory vote (cid:39)(cid:38)(cid:54)(cid:40)(cid:2)(cid:94)(cid:2)(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:2)(cid:21)(cid:2)(cid:94)(cid:2)(cid:49)(cid:88)(cid:71)(cid:84)(cid:88)(cid:75)(cid:71)(cid:89)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:85)(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:75)(cid:85)(cid:2)(cid:75)(cid:80)(cid:88)(cid:81)(cid:78)(cid:88)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:78)(cid:78)(cid:2)(cid:85)(cid:86)(cid:67)(cid:73)(cid:71)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:69)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:15)(cid:79)(cid:67)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:85)(cid:14)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:386)(cid:80)(cid:67)(cid:78)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:88)(cid:67)(cid:78)(cid:2)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:81)(cid:38)(cid:2) (cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:49)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:85)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)
(cid:57)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:15)
(cid:75)(cid:80)(cid:73)
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:69)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:38)(cid:71)(cid:78)(cid:75)(cid:88)(cid:71)(cid:84)(cid:91)
(cid:51)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:51)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)
(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:85)(cid:14)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)
(cid:70)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)
(cid:67)(cid:84)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:14)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)
(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:17)(cid:81)(cid:84)(cid:2)
(cid:72)(cid:87)(cid:80)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:14)(cid:2)
(cid:70)(cid:71)(cid:82)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:81)(cid:78)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)
(cid:54)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:69)(cid:2)(cid:82)(cid:78)(cid:67)(cid:80)(cid:2)
(cid:24)(cid:23)(cid:7)
(cid:51)(cid:87)(cid:67)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:51)(cid:87)(cid:67)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)
(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:2)(cid:74)(cid:81)(cid:89)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:67)(cid:69)(cid:74)(cid:75)(cid:71)(cid:88)(cid:71)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:85)
(cid:2)
(cid:21)(cid:23)(cid:7)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:70)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:71)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:89)(cid:74)(cid:67)(cid:86)(cid:2)(cid:71)(cid:90)(cid:86)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:79)(cid:71)(cid:86)(cid:2)(cid:71)(cid:67)(cid:69)(cid:74)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:72)(cid:81)(cid:78)(cid:78)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:2)(cid:83)(cid:87)(cid:67)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:14)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:75)(cid:80)(cid:2)(cid:67)(cid:80)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:67)(cid:78)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:28)
(cid:50)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:85)(cid:2)
(cid:115)(cid:2)(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:115)(cid:2)(cid:39)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:8)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)
(cid:115)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:50)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)(cid:2)
(cid:115)(cid:2)(cid:37)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:72)(cid:81)(cid:69)(cid:87)(cid:85)(cid:2)
(cid:115)(cid:2)(cid:53)(cid:87)(cid:85)(cid:86)(cid:67)(cid:75)(cid:80)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:115)(cid:2)(cid:39)(cid:90)(cid:69)(cid:71)(cid:78)(cid:78)(cid:71)(cid:80)(cid:69)(cid:71)
(cid:36)(cid:71)(cid:74)(cid:67)(cid:88)(cid:75)(cid:81)(cid:84)(cid:85)(cid:2)
(cid:115)(cid:2)(cid:43)(cid:80)(cid:86)(cid:71)(cid:73)(cid:84)(cid:75)(cid:86)(cid:91)(cid:2)
(cid:115)(cid:2)(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:68)(cid:81)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:115)(cid:2)(cid:37)(cid:74)(cid:67)(cid:78)(cid:78)(cid:71)(cid:80)(cid:73)(cid:71)
(cid:57)(cid:74)(cid:71)(cid:80)(cid:2)(cid:70)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:82)(cid:67)(cid:91)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:78)(cid:85)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:72)(cid:81)(cid:78)(cid:78)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:85)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:28)
(cid:115)(cid:2)(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:69)(cid:67)(cid:84)(cid:70)(cid:19)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:2)
(cid:115)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)
(cid:115)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:115)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:82)(cid:67)(cid:84)(cid:67)(cid:79)(cid:71)(cid:86)(cid:71)(cid:84)(cid:85)(cid:2)(cid:70)(cid:71)(cid:71)(cid:79)(cid:71)(cid:70)(cid:2)(cid:84)(cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(cid:80)(cid:86)
(cid:54)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:85)(cid:2)(cid:84)(cid:71)(cid:88)(cid:75)(cid:71)(cid:89)(cid:71)(cid:70)(cid:2)
(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:84)(cid:81)(cid:78)(cid:71)(cid:16)(cid:2)(cid:54)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:111)(cid:85)(cid:2)(cid:386)(cid:80)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:84)(cid:71)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:80)(cid:70)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)
(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:69)(cid:67)(cid:84)(cid:70)(cid:85)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:81)(cid:78)(cid:71)(cid:14)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:111)(cid:85)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:80)(cid:70)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:10)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:2)(cid:79)(cid:67)(cid:77)(cid:71)(cid:85)(cid:2)(cid:80)(cid:81)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:80)(cid:15)
(cid:70)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:74)(cid:75)(cid:85)(cid:2)(cid:81)(cid:89)(cid:80)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:11)(cid:16)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:78)(cid:2)(cid:70)(cid:71)(cid:69)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:85)(cid:2)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:84)(cid:71)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:81)(cid:38)(cid:16)
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:75)(cid:85)(cid:2)(cid:82)(cid:67)(cid:75)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:2)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)(cid:71)(cid:84)(cid:15)
(cid:86)(cid:71)(cid:84)(cid:79)(cid:14)(cid:2)(cid:75)(cid:79)(cid:79)(cid:71)(cid:70)(cid:75)(cid:67)(cid:86)(cid:71)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:2)(cid:78)(cid:81)(cid:80)(cid:73)(cid:71)(cid:84)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:72)(cid:71)(cid:84)(cid:84)(cid:71)(cid:70)(cid:2)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:75)(cid:85)(cid:2)(cid:70)(cid:71)(cid:72)(cid:71)(cid:84)(cid:84)(cid:71)(cid:70)(cid:2)
(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:386)(cid:88)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:85)
(cid:21)(cid:18)(cid:7)
(cid:19)(cid:24)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:38)(cid:37)(cid:37)(cid:50)
(cid:21)(cid:18)(cid:7)
(cid:39)(cid:49)(cid:50)
(cid:23)(cid:18)(cid:7)
(cid:20)(cid:18)(cid:7)
(cid:37)(cid:67)(cid:85)(cid:74)
(cid:55)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)
(cid:20)(cid:18)(cid:7)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:2)
(cid:85)(cid:67)(cid:78)(cid:67)(cid:84)(cid:91)
(cid:20)(cid:18)(cid:19)(cid:22)(cid:2)
(cid:20)(cid:18)(cid:19)(cid:23)(cid:2) (cid:20)(cid:18)(cid:19)(cid:24)(cid:2) (cid:20)(cid:18)(cid:19)(cid:25)(cid:2) (cid:20)(cid:18)(cid:19)(cid:26)(cid:2) (cid:20)(cid:18)(cid:19)(cid:27)(cid:2) (cid:20)(cid:18)(cid:20)(cid:18)
(cid:53)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)
(cid:84)(cid:71)(cid:86)(cid:71)(cid:80)(cid:15)
(cid:86)(cid:75)(cid:81)(cid:80)
(cid:23)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)
(cid:21)(cid:23)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:2)(cid:53)(cid:71)(cid:71)(cid:2)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:69)(cid:67)(cid:84)(cid:70)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:72)(cid:81)(cid:78)(cid:78)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:67)(cid:73)(cid:71)(cid:85)(cid:16)(cid:2)(cid:86)(cid:86)(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:16)(cid:2)
Share ownership requirements: aligning GEB members’
interests with those of our shareholders
bers are not permitted to sell their UBS shares until the above-
mentioned thresholds have been reached. At the end of 2014, all
GEB members had met the required share ownership level.
We require the Group CEO to hold a minimum of 500,000 UBS
shares and other GEB members to hold a minimum of 350,000
UBS shares. These shareholdings must be built up within five years
from the date a GEB member is appointed and must be retained
for as long as the GEB member remains in office. The number of
UBS shares held by each GEB member is determined by adding
any vested or unvested shares to privately held shares. GEB mem-
Overview of GEB compensation determination process
The illustration above shows how GEB compensation is deter-
mined under the governance and oversight of the HRCC and the
BoD.
351
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
2014 compensation for the Group Chief Executive Officer
As described earlier in this section, the performance awards for
the Group CEO, Sergio P. Ermotti, and each member of the GEB
are based on the achievement of both quantitative targets and
qualitative performance objectives.
In Mr. Ermotti’s performance assessment, there is a 65%
weighting for quantitative performance based on Group financial
performance, and a 35% weighting based on his performance
against qualitative measures.
The table below summarizes the criteria according to which
Mr. Ermotti’s performance was assessed as Group CEO for 2014
by the full BoD.
The BoD recognized that under Mr. Ermotti’s continuing sound
leadership, the Group’s financial performance for 2014 was
strong although tempered by charges for provisions for litigation,
regulatory and similar matters, as outlined in the “2014 perfor-
mance and compensation funding” section of this report. The
BoD also considered the continued reduction in RWA, where
progress was ahead of target, and further improvements in the
firm’s fully applied Basel III CET1 capital ratio as important achieve-
ments. In addition, UBS’s book value increased from CHF 12.74
per share at year-end 2013 to CHF 13.94 per share at year-end
2014, representing a 9% increase.
The BoD also noted that, under Mr. Ermotti’s leadership, the
firm continued to reach key milestones in the ambitious strategic
transformation of the bank. The BoD was pleased that Mr. Ermotti
successfully steered the firm through turbulent market conditions,
demonstrating the strength and resilience of the firm’s strategy
and operating model as well as the value of continued de-risking
of businesses and the emphasis on our wealth management
capabilities globally. The BoD also appreciated the disciplined
manner in which he worked to address legacy issues and posi-
tively acknowledged his proactive and personal engagement not
only in the review and investigatory process, but also in reaching
resolutions with several regulatory authorities, as well as putting
in place processes to ensure appropriate remediation.
Net profit attributable to UBS shareholders was CHF 3.5 billion,
up 9% compared with 2013. Further, the Group return on equity
increased to 7.0%. UBS further enhanced its position as one of
the world’s best-capitalized banks, exceeding its year-end capital
ratio targets, combining an ambitious capital strategy with disci-
plined execution. Tier 1 capital ratio targets were achieved ahead
of schedule, including being above the post-stress capital ratio tar-
Scorecard for the Group CEO
Quantitative measures1
2014 results
Weighting
Assessment relative to plan
Group
(65%)
Group RoE
Group profit before tax 2
7.0%
CHF 5 billion
Basel III CET1 capital ratio (fully applied)
13.4% 3
20%
25%
20%
Qualitative measures
Weighting
Target
Assessment
Target
Capital management, efficiency & effectiveness,
risk management, client focus, sustainable performance,
excellence, integrity, collaboration, challenge
35%
1 Quantitative measures and target levels were based on internal performance objectives in our 2014 Operating Plan. 2 Adjusted Group profit before tax excluding certain charges for provisions for litigation, regula-
tory and similar matters. 3 Additionally above the objective of 10% on a post-stress scenario basis.
352
Advisory vote get of 10%, while increasing dividend accruals for shareholders.
The firm surpassed its Basel III RWA reduction target for the year
and also continued to successfully deleverage its balance sheet.
The firm’s Basel III funding, liquidity and leverage ratios remained
comfortably above regulatory requirements in 2014.
In addition to the strategic, quantitative and qualitative accom-
plishments noted above, the BoD also recognized Mr. Ermotti’s
leadership in the transformation of the Group legal structure to
meet future regulatory requirements, with the establishment of
UBS Group AG as a first step.
In a challenging environment, UBS’s business divisions demon-
strated strong performance throughout the year. UBS further
strengthened its position as the world’s largest Wealth Manager,
successfully targeting the fastest growing wealth segments and
high-quality revenues. Clients continued to have great confi-
dence in UBS’s strategy, as demonstrated, for example, by NNM
inflows into the firm’s wealth management businesses.
Mr. Ermotti drove strong performance against the key quanti-
tative metrics, as outlined above, even after litigation provisions
are considered.
Regarding the qualitative measures, the BoD considered the
progress of the cultural change in the bank under Mr. Ermotti’s
leadership. The UBS principles and behaviors have been embed-
ded deeper into the organization and have become an important
element of the firm’s promotion and compensation consider-
ations. The BoD’s performance assessment also recognized his
drive to build a strong risk management culture with more effec-
tive operational risk management, a stronger compliance function
and a comprehensive end-to-end control environment, all of
which are essential in supporting UBS’s sustainable success.
Reflecting Mr. Ermotti’s overall achievements in 2014, and in-
cluding consideration of the impact of litigation provisions, the
BoD approved the proposal by the HRCC (subject to shareholder
approval as part of the aggregate GEB 2014 variable compensa-
tion) to grant him a performance award of CHF 8.4 million,
bringing his total compensation for the year (excluding benefits
and contributions to his retirement benefit plan) to CHF 10.9 mil-
lion. Additionally, the BoD approved the recommendation that
the Group CEO would not receive an immediate cash perfor-
mance award and that any approved performance award would
instead be delivered 100% in deferred instruments subject to
performance conditions. The performance award therefore will
be deferred under EOP (70% of his performance award) and un-
der DCCP (30% of his performance award). The future actual
payouts under EOP and DCCP are dependent upon the firm’s
future performance, as described in more detail in later sections.
➔ Refer to the “Our deferred variable compensation plans for
2014” section of this report for more information on about the
terms of our deferred variable compensation plans
353
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Total compensation for GEB members for the performance
years 2014 and 2013
Employment contracts
The table on the next page shows the total compensation for GEB
members for the performance years 2014 and 2013. At the AGM
2015, UBS’s shareholders will vote on the overall 2014 GEB per-
formance award pool.
➔ Refer to the “Our compensation governance framework” section
of this report for more information on the shareholders’ vote
scheme in relation to GEB compensation
➔ Table: “Total compensation for GEB members for the perfor-
mance years 2014 and 2013”
The employment contracts of the GEB members do not include
special severance terms, sometimes referred to as golden para-
chutes, or supplementary pension plan contributions. All employ-
ment contracts for GEB members are subject to a notice period of
six months. If a GEB member leaves the firm before the end of a
performance year they may be considered for a discretionary per-
formance award based on their contribution during that perfor-
mance year in line with the approach outlined earlier in this
report. Such awards are at the full discretion of the BoD, which
may decide not to grant any awards.
➔ Refer to the “Supplemental information” section of this report
and “Note 34 Related parties” in the “Financial information”
Loans
section of the Annual Report 2014 for information on vested and
unvested shares and options for GEB members
In line with article 38 of our Articles of Association, GEB mem-
bers may be granted loans, fixed advances and mortgages. Such
loans are made in the ordinary course of business on substantially
the same terms as those granted to other employees, including
interest rates and collateral, and neither involve more than the
normal risk of collectability nor contain any other unfavorable
features for the firm. The total amount of such loans shall not
exceed CHF 20 million per GEB member.
➔ Refer to the “Supplemental information” section and “Note 34
Related parties” in the “Financial information” section of the
Annual Report 2014 for more information on loans granted to
current and former GEB members
➔ Refer to our corporate governance website at www.ubs.com/
governance for more information
354
Advisory vote Audited | Pillar 3 | Total compensation for GEB members for the performance years 2014 and 2013
CHF, except where indicated 1
Name, function
Sergio P. Ermotti, Group CEO
(highest-paid)
For the year
2014
Base salary 2
2,500,000
Contribution
to retirement
benefits plan 3
202,822
Total fixed
compen-
sation
2,763,347
Benefits 4
60,525
Immediate
cash 5
0
Annual
performance
award under
EOP 6
5,880,000
Annual
performance
award under
DCCP 7
2,520,000
Total
variable
compen-
sation
Total fixed
and vari-
able com-
pensation8
8,400,000 11,163,347
Sergio P. Ermotti, Group CEO
2013
2,500,000
202,822
127,300
2,830,122
1,000,000
4,530,000
2,370,000
7,900,000 10,730,122
Andrea Orcel, President
Investment Bank (highest-paid)
Aggregate of all GEB members
who were in office at the end
of the year 9
Aggregate of all GEB
members who stepped
down during the year 10
2013
1,500,000
202,822
727,048
2,429,870
1,000,000
5,300,000
2,700,000
9,000,000 11,429,870
2014
19,090,186
1,343,168
1,224,633 21,657,987
8,423,177
32,459,299
17,521,060 58,403,535 80,061,523
2013
16,873,360
1,347,784
1,548,784 19,769,927
9,949,062
33,894,646
18,790,161 62,633,869 82,403,796
2014
2013
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of the Annual Report 2014. 2 Includes role-based allowances
that have been made in line with market practice in response to the EU Capital Requirements Directive of 2013 (CRD IV). 3 This figure includes the portion related to the employer’s contribution to the statutory pen-
sion scheme. 4 Benefits are all valued at market price. 5 Under the 2014 and 2013 compensation framework, up to 20% of the performance award is paid out in immediate cash, subject to a cash cap of CHF / USD
1 million. The BoD approved the recommendation that the Group CEO would not receive an immediate cash performance award for 2014. As a consequence, his entire performance award will be deferred. Due to ap-
plicable UK Prudential Regulation Authority remuneration code, the immediate cash includes blocked shares for Andrea Orcel. 6 For EOP awards for the performance year 2014, the number of shares to be allocated at
grant (on 8 May 2015), subject to shareholder approval, is determined by dividing the amount by CHF 16.50 or USD 17.41, the average closing share price of UBS Group AG shares over the last ten trading days in Feb-
ruary 2015. For 2013, the value was CHF 18.60 and USD 20.88 based on the average closing share price of UBS AG shares over the ten trading days prior to and including the grant date which was 28 February 2014.
7 DCCP awards for 2014 to be granted on 8 May 2015, subject to shareholder approval, are due to vest in March 2020. The amount reflects the amount of the notional additional tier 1 (AT1) instrument excluding future
notional interest. For DCCP awards for the performance year 2014, the notional interest rate is set at 7.125% for awards denominated in USD and 4.000% for awards denominated in CHF. For DCCP awards for the per-
formance year 2013, the notional interest rate is set at 5.125% for awards denominated in USD and 3.500% for awards denominated in CHF. 8 This figure excludes the portion related to the legally required employer’s
social security contributions for 2014, which are estimated at grant for CHF 3,689,582, of which CHF 704,077 for the highest-paid GEB member. The legally required employee’s social security contributions are included
in the amounts shown in the table above, as appropriate. 9 10 GEB members were in office on 31 December 2014 and 11 GEB members were in office on 31 December 2013, respectively. 10 During the years of 2014
and 2013 no GEB members stepped down. ▲▲
Pillar 3 | Fixed and variable compensation for GEB members 1
Total for the year
ended 2014
Not deferred
Deferred 2
CHF million, except where indicated
Amount
%
Amount
Total compensation
Amount
Number of beneficiaries
Fixed compensation 4
Cash-based
Equity-based
Variable compensation
Immediate cash 5
Equity Ownership Plan (EOP)
Deferred Contingent Capital Plan (DCCP)
77
10
19
17
3
58
8
32
18
100
25
21
3
75
11
42
23
25
17
17
0
8
8
0
0
%
32
87
100
14
100
Amount
52
3
0
3
50
0
32
18
Total for the
year ended
2013 3
Amount
80
11
17
17
0
63
10
34
19
%
68
13
100
86
100
100
1 The figures refer to all GEB members in office in 2014. 2 This is based on the specific plan vesting and reflects the total award value at grant which may differ from the accounting expenses. 3 2013 figures as
reported in Annual Report 2013. 4 Includes base salary and role-based allowances, rounded to the nearest million. 5 Includes allocation of vested but blocked shares, in line with UK Prudential Regulation Authority
remuneration code. ▲
355
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
2014 compensation for the Board of Directors
Board of Directors (BoD) members receive fixed fees for their services, 50% of which they must use to purchase blocked
UBS shares. Alternatively, they may elect to purchase blocked UBS shares using 100% of their fees. BoD members do not
receive variable compensation. This reinforces their focus on long-term strategy, supervision and governance, and helps
them remain independent of the firm’s senior management. The Chairman, as a non-independent BoD member, receives
a cash payment, UBS blocked shares and benefits. At the Annual General Meeting (AGM) 2015, UBS’s shareholders will
vote on the maximum aggregate amount of remuneration for the BoD, including compensation for the Chairman, for
the period from the AGM 2015 to the AGM 2016. The invitation to the AGM 2015 will set out the proposed aggregate
maximum amount.
Chairman of the BoD
As described in our 2013 Compensation Report, the HRCC has
changed the contract for the Chairman to cap his total compen-
sation at last year’s amount of CHF 5.7 million. As this change
became effective in May 2014, his total compensation for 2014
was a combination of four months under the old contract and
eight months under the new contract. This corresponds to a cash
payment of CHF 3 million and a share component of CHF
2,566,672, delivered in 155,556 UBS shares blocked from distri-
bution for four years (at a share price of CHF 16.50). Accordingly,
his total compensation, including benefits and pension fund con-
tribution for his service as Chairman for the full year of 2014 was
CHF 5,939,851 (down 2% from last year).
The share component ensures that the Chairman’s pay is
aligned with the longer-term performance of the firm. The Chair-
man’s service agreement does not provide for special severance
terms, nor supplementary contributions to pension plans. Bene-
fits for the Chairman are in line with local practices for other
employees. The HRCC annually approves the Chairman’s com-
pensation taking into consideration fee and / or compensation
levels for comparable roles outside UBS.
receive performance awards, severance payments or benefits.
Base fees, committee retainers and any other payments to be
received by independent BoD members are subject to an annual
review with a proposal being submitted by the Chairman of the
BoD to the HRCC, which in turn submits a recommendation to
the BoD for approval. The BoD proposes the aggregate amount
of BoD remuneration, including compensation for the Chair-
man, from AGM to AGM to shareholders for their approval.
The Remuneration details and additional information for inde-
pendent BoD members table shows the remuneration received by
independent BoD members between the AGM 2014 and 2015.
Fees have remained unchanged during this period, and have been
broadly flat since 1998. Remuneration levels for BoD members
other than the Chairman ranged from CHF 475,000 to CHF
1,075,000. Total remuneration for the independent BoD mem-
bers for the period between the AGM 2014 and AGM 2015 was
CHF 7,100,000, down 7% year-on-year due to 10 independent
BoD members in office in the reporting period compared with 11
independent BoD members in office in the prior year period.
In accordance with BoD compensation practice, one BoD
member chose to use 100% of his fees, less applicable deduc-
tions, to purchase blocked UBS shares.
Independent BoD members
Loans
With the exception of the Chairman, all BoD members are
deemed to be independent directors and receive fixed base fees
of CHF 325,000 for each year of service. In addition to the base
fee, independent BoD members receive fees known as commit-
tee retainers that reflect their workload in serving on the firm’s
various board committees. The Senior Independent Director and
the Vice Chairman of the BoD each receive an additional retainer
of CHF 250,000. As noted above, independent BoD members
are required to use a minimum of 50% of their fees to purchase
UBS shares that are blocked for four years. However, they may
elect to use 100% of their fees to purchase blocked UBS shares.
In all cases, the number of shares that independent BoD mem-
bers are entitled to receive is calculated with a discount of 15%
below the market price prevailing at the time of issuance. In ac-
cordance with their roles, independent BoD members do not
In line with article 33 of our Articles of Association, loans to inde-
pendent BoD members are made in the ordinary course of busi-
ness at general market conditions. The Chairman, as a non-inde-
pendent member may receive a loan in the ordinary course of
business on substantially the same terms as those granted to UBS
employees, including interest rates and collateral, and neither in-
volve more than the normal risk of collectability nor contain any
other unfavorable features for the firm. The total amount of such
loans shall not exceed CHF 20 million per BoD member.
➔ Refer to the “Supplemental information” section of this report
and “Note 34 Related parties” in the “Financial information”
section of the Annual Report 2014 for more information on loans
granted to current and former BoD members
➔ Refer to our corporate governance website at www.ubs.com/
governance for more information
356
Advisory vote Audited | Total payments to BoD members
CHF, except where indicated 1
Aggregate of all BoD members
For the year
2014
2013
Total 2
13,039,851
13,694,516
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of the Annual Report 2014. 2 This figure includes social
security contributions paid by the BoD members, but excludes the portion related to the legally required social security contributions paid by UBS, which for 2014 are estimated at grant at CHF 623,790. ▲
Audited | Compensation details and additional information for non-independent BoD members
CHF, except where indicated 1
Name, function 2
Axel A. Weber, Chairman
For the year
2014
2013
Base salary
3,000,000
2,000,000
Annual share
award 3
2,566,672
3,720,000
Contributions
to retirement
benefit plans 5
260,070
260,070
Benefits 4
113,109
89,446
Total 6
5,939,851
6,069,516
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of the Annual Report 2014. 2 Axel A. Weber was the only
non-independent member in office on 31 December 2014 and on 31 December 2013 respectively. 3 These shares are blocked for four years. 4 Benefits are all valued at market price. 5 This figure includes the
portion related to UBS’s contribution to the statutory pension scheme. 6 This figure excludes the portion related to the legally required social security contributions paid by UBS for 2014, which are estimated at grant
to CHF 363,488. The legally required social security contributions paid by the non-independent BoD members are included in the amounts shown in the table above, as appropriate. ▲
357
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Audited | Remuneration details and additional information for independent BoD members
CHF, except where indicated 1
e
e
t
t
i
m
m
o
C
t
i
d
u
A
M
M
M
M
C
C
M
M
M
M
&
s
e
c
r
u
o
s
e
R
n
a
m
u
H
n
o
i
t
a
s
n
e
p
m
o
C
e
e
t
t
i
m
m
o
C
&
e
c
n
a
n
r
e
v
o
G
g
n
i
t
a
n
m
o
N
i
e
e
t
t
i
m
m
o
C
&
e
r
u
t
l
u
C
e
t
a
r
o
p
r
o
C
y
t
i
l
i
b
i
s
n
o
p
s
e
R
e
e
t
t
i
m
m
o
C
M
M
M
M
C
C
M
M
M
M
M
M
M
M
M
M
M
M
M
M
e
e
t
t
i
m
m
o
C
k
s
i
R
C
C
For the
period
AGM to AGM
2014 / 2015
2013 / 2014
2014 / 2015
2013 / 2014
2014 / 2015
2013 / 2014
2014 / 2015
M
2013 / 2014
2014 / 2015
2013 / 2014
2014 / 2015
2013 / 2014
2014 / 2015
2013 / 2014
2014 / 2015
2013 / 2014
2014 / 2015
2013 / 2014
2014 / 2015
2013 / 2014
2014 / 2015
2013 / 2014
M
M
M
M
M
M
M
M
Base fee
325,000
325,000
325,000
325,000
325,000
325,000
–
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
Committee
retainer(s)
400,000
400,000
500,000
500,000
150,000
50,000
–
300,000
500,000
500,000
200,000
200,000
300,000
300,000
350,000
350,000
300,000
300,000
400,000
400,000
250,000
250,000
Additional
payments
250,000 7
250,000 7
250,000 7
250,000 7
Share
percentage 4
50
Number of
shares 5, 6
34,746
50
50
50
50
50
–
100
50
50
100
100
50
50
50
50
50
50
50
50
50
50
30,834
38,310
33,997
16,928
11,859
–
37,394
29,401
26,091
35,388
31,403
22,273
19,765
24,055
21,347
22,273
19,765
25,837
22,928
20,491
18,184
Total 3
975,000
975,000
1,075,000
1,075,000
475,000
375,000
–
625,000
825,000
825,000
525,000
525,000
625,000
625,000
675,000
675,000
625,000
625,000
725,000
725,000
575,000
575,000
7,100,000
7,625,000
Name, function 2
Michel Demaré,
Vice Chairman
David Sidwell,
Senior Independent Director
Reto Francioni,
member
Rainer-Marc Frey,
former member
Ann F. Godbehere,
member
Axel P. Lehmann,
member
Helmut Panke,
member
William G. Parrett,
member
Isabelle Romy,
member
Beatrice Weder di Mauro,
member
Joseph Yam,
member
Total 2014 / 2015
Total 2013 / 2014
Legend: C = Chairperson of the respective Committee, M = Member of the respective Committee
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of the Annual Report 2014. 2 There were 10 independent
BoD members in office on 31 December 2014. Rainer-Marc Frey did not stand for re-election at the AGM on 7 May 2014. There were 11 independent BoD members in office on 31 December 2013. Reto Francioni was
appointed at the AGM on 2 May 2013, and Wolfgang Mayrhuber did not stand for re-election at the AGM on 2 May 2013. 3 This figure excludes UBS’s portion related to the legally required social security contribu-
tions which for the period from the AGM 2014 to the AGM 2015 are estimated at grant to CHF 260,302. The legally required social security contributions paid by the independent BoD members are included in the
amounts shown in the table above, as appropriate. 4 Fees are paid 50% in cash and 50% in blocked UBS shares. However, independent BoD members can elect to have 100% of their remuneration paid in blocked
UBS shares. 5 For 2014, UBS Group AG shares, valued at CHF 16.50 (average price of UBS Group AG shares at SIX Swiss Exchange over the last 10 trading days of February 2015), were granted with a price discount
of 15% for a new value of CHF 14.03. These shares are blocked for four years. For 2013, UBS AG shares, valued at CHF 18.60 (average price of UBS AG shares at SIX Swiss Exchange over the last 10 trading days of Feb-
ruary 2014), were granted with a price discount of 15% for a new value of CHF 15.81. These shares are blocked for four years. 6 Number of shares is reduced in case of the 100% election to deduct social security
contri butions. All remuneration payments are subject to social security contributions / withholding tax. 7 This payment is associated with the Vice Chairman or the Senior Independent Director function, respectively. ▲
358
Advisory vote
Our compensation governance framework
Ensuring we have strong governance and oversight of our compensation process is the responsibility of the Human
Resource and Compensation Committee (HRCC). The HRCC is a committee of the Board of Directors (BoD) and consists
of four independent BoD members who are elected annually by the Annual General Meeting (AGM).
Pillar 3 | Human Resources and Compensation Committee
As determined in the Articles of Association and the Organiza-
tion Regulations of the firm, the HRCC serves as the supervisory
body for our human resources and compensation policies. The
HRCC ensures that we have appropriate governance and
oversight of our compensation process, that we have strong
correlation between pay and performance, and that our com-
pensation system does not encourage inappropriate or excessive
risk-taking.
Among its other responsibilities, the HRCC, on behalf of the
BoD
– reviews our Total Reward Principles
– annually reviews and approves the design of the compensation
framework, including compensation programs and plans
– reviews performance award funding throughout the year and
proposes the final performance award pool to the BoD for ap-
proval
– together with the Group CEO, establishes performance tar-
gets, evaluates performance and proposes base salaries and
annual performance awards for other GEB members to the
BoD, which approves the total compensation of each GEB
member
– together with the Chairman of the BoD, establishes perfor-
mance targets, evaluates performance and proposes the com-
pensation for the Group CEO to the BoD
– approves the total compensation for the Chairman of the BoD
– together with the Chairman, proposes the total individual
compensation for independent BoD members for approval by
the BoD
– proposes, together with the BoD, the maximum aggregate
amounts of compensation for the BoD and for the GEB, to be
submitted for approval by the AGM
– reviews the Compensation Report and approves any material
public disclosures of compensation matters
Activities of the HRCC for 2014 / 2015
For 2014, the HRCC spent a considerable amount of time on compensation-related matters. Besides their regular activities in relation to their role and responsibility, they also reviewed
2014 specific compensation-related topics.
Regular activities
Specific activities for 2014 / 2015
– Regular review of the accruals and full-year forecast for the performance award pool
– Detailed review and advice on the impact of matters related to our foreign exchange
business to ensure that this was appropriately reflected in the final disciplinary decisions
and in the related compensation decisions
– Review the impact of the UBS share-for-share exchange on our deferred compen sation
plans
– Regular engagement with key regulators on compensation matters
– Review and approval of the compensation-related proposals in relation to the implemen-
tation of the Ordinance against Excessive Compensation in Listed Stock Corporations
(binding say-on-pay vote)
– Review and approval of the compensation-related proposals in relation to the implemen-
tation of the Capital Requirements Directive IV regime
– Review and approval of any compensation framework-related changes such as the
modifications to DCCP to make these awards additional tier 1 capital compliant
funding
– Based on a balanced scorecard, establishment and review of the achievement of the
quantitative and qualitative performance targets for each GEB member, including the
Group CEO, and informing the BoD on the assessment as the basis for approval of the
respective individual variable performance awards for the GEB members, including the
Group CEO
– Review and recommendation of the remuneration of the BoD members (including the
Chairman) and of the compensation of the GEB (including the Group CEO), respectively
– Review of the performance achievement in respect of the vesting of awards which
contain specific performance conditions under the UBS compensation plans
– Monitoring of market trends and regulatory developments in compensation matters and
review of any proposals related to the implementation of the compensation framework
for both GEB members and other employees
– Review and approval of the UBS peer group for executive compensation benchmarking
purposes
– Periodic engagement with the Risk Committee to review risk management in the
compensation processes
– Regular engagement in stakeholder communication on compensation-related matters
– Ensuring the preparation of the annual Compensation Report for UBS shareholders
– Review of governance matters, such as the HRCC charter and its roles and responsi-
bilities under UBS’s Organization Regulations
– Monitoring of progress in relation to specific human capital topics within UBS, for
example, diversity
359
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
The HRCC meets at least four times a year. In 2014, the HRCC
held seven meetings and three conference calls for UBS AG and
one meeting and one telephone conference for UBS Group AG
with an average attendance of 88%. The Chairman of the BoD
and the Group CEO were present at all meetings, however, they
were absent during discussions related to their own compensa-
tion. The Chair person of the HRCC may also invite other execu-
tives to join the meeting in an advisory capacity. No individual is
allowed to attend meetings during which specific decisions will be
made about their own compensation. Such decisions are at the
discretion of the HRCC and the BoD.
Following such meetings the Chairperson of the HRCC reports
to the BoD on the activities of the HRCC and the matters debated.
In addition, where necessary, the Chairperson submits proposals
for approval by the full BoD. The minutes of HRCC meetings are
made available to all members of the BoD.
On 31 December 2014, the HRCC members were Ann F.
Godbehere, who chairs the committee, Michel Demaré, Reto
Francioni and Helmut Panke. ▲
External advisors
Pillar 3 | The HRCC may retain external advisors to support it in ful-
filling its duty. In 2014, Hostettler, Kramarsch & Partner provided
impartial advice on compen sation matters. The company holds no
other mandates with UBS. The compensation consulting firm
Towers Watson, appointed by Human Resources, continued to
provide the HRCC with data on market trends and benchmarks,
including in relation to GEB and BoD compensation. Various sub-
sidiaries of Towers Watson provide similar data to Human Re-
sources in relation to compensation at lower levels of the organi-
zation. Towers Watson holds no other compensation-related
mandates with UBS. ▲
The Risk Committee’s role in compensation
EDTF | We are engaged in a risk management business and our suc-
cess depends on prudent risk-taking. We will not tolerate inap-
propriate behavior that can harm the firm, its reputation or the
interests of our various stakeholders. The Risk Committee, a BoD
committee, works closely with the HRCC to ensure our approach
to compensation reflects proper risk management and control.
The Risk Committee supervises and sets appropriate risk manage-
ment and control principles and receives regular briefings on how
risk is factored into the compensation process. It also monitors
Risk Control’s involvement in compensation and reviews risk-
related aspects of the compensation process. ▲
➔ Refer to our corporate governance website at www.ubs.com/
governance for more information
Compensation authorities
The BoD has the ultimate responsibility for approving the compensation strategy proposed by the HRCC, a BoD committee that
determines the appropriate level of resources for compensation matters.
Recipients
Compensation recommendations
developed by
Chairman of the BoD
Chairperson of the HRCC
Approved by
HRCC 1
Communicated by
HRCC
Independent BoD members
(remuneration system and fees)
HRCC and Chairman of the BoD
BoD 1
Chairman of the BoD
Group CEO
HRCC and Chairman of the BoD
Other GEB members
HRCC and Group CEO
BoD 1
BoD 1
Key Risk Takers
Respective GEB member together with
functional management team
Divisional pools: HRCC
Overall pool: BoD
Recipients
Employees
Variable compensation
recommendations developed by
Approved by
Respective GEB member together with
functional management team
Divisional pools: HRCC
Overall pool: BoD
1 Aggregate compensation for the GEB and aggregate remuneration for the BoD are subject to shareholder approval.
360
Chairman of the BoD
Group CEO
Line manager
Communicated by
Line manager
Advisory vote Shareholder engagement and say-on-pay vote at the AGM
The say-on-pay requirements provided for in the Articles of As-
The BoD and the HRCC are committed to maintaining an ongoing
dialogue with our shareholders to ascertain their perspectives on
developments and trends in compensation matters. In this con-
text, we implemented the annual advisory vote on the Compen-
sation Report already in 2009 to provide shareholders with the
opportunity to express their views on our compensation frame-
work for the GEB members and the BoD.
Beginning with the AGM 2015, and in line with the Swiss Or-
dinance against Excessive Compensation in Listed Stock Corpora-
tions, we will also seek binding shareholder approval of the ag-
gregate compensation for the GEB and aggregate remuneration
for the BoD.
sociation (AoA) were approved at the AGM 2014.
The BoD believes that prospective approval of the fixed re-
muneration for the BoD and the GEB provides the firm and its
governing bodies with the certainty needed to operate effectively.
Further, the shareholders’ approval of the GEB’s variable compen-
sation retrospectively is consistent with the alignment of the total
compensation for the GEB to performance and contribution and
to developments in the market landscape. The combination of the
binding votes on compensation and the advisory vote on the
compensation framework reflects our full commitment to ensur-
ing that our shareholders have a true say-on-pay.
The table below provides details on the elements subject to
shareholder approval at the AGM 2015. Further details on these
votes will be provided in the invitation to the AGM 2015.
Say-on-pay – Compensation-related votes at the AGM 2015
Binding vote on BoD remuneration
The BoD proposes that the shareholders prospectively approve the maximum aggregate amount of remuneration for the BoD
for the period from AGM 2015 to AGM 2016. This ensures that the term of office and the compensation period are aligned.
The AGM 2015 invitation will set out the amount and details.
Binding vote on fixed GEB
compensation
The BoD proposes that the shareholders prospectively approve the maximum aggregate amount of fixed compensation for the GEB
for the financial year 2016. The AGM 2015 invitation will set out the amount and further details.
Binding vote on GEB variable
compensation
The BoD proposes that the shareholders retrospectively approve the aggregate amount of variable compensation
of the GEB for the performance year 2014. The AGM 2015 invitation will set out the amount and further details.
Advisory vote on Compensation Report
The BoD proposes that the shareholders approve the Compensation Report 2014. This provides us with valuable feedback
on our compensation practice in relation to the Compensation Framework 2014, governance and policy.
361
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Provisions of the Articles of Association in relation to compensation
Under the new say-on-pay provisions in
Switzerland, shareholders of Swiss-listed
companies have more influence over
board and management compensation.
This is achieved by means of an annual
binding say-on-pay vote and additional
provisions in the Articles of Association
(AoA). The Group’s revised AoA were
approved at the AGM 2014 and include
the following provisions related to
compensation:
Say-on-pay: The AGM shall approve the
proposals of the BoD in relation to the
maximum aggregate amount of compen-
sation of the BoD for the period until the
next AGM, the maximum aggregate
amount of fixed compensation of the GEB
for the following financial year and the
aggregate amount of variable compensa-
tion of the GEB for the preceding financial
year. The BoD may submit for approval
deviating or additional proposals. In the
event the AGM does not approve a
proposal the BoD shall determine, taking
into account all relevant factors, an
aggregate amount or partial amounts for
subsequent approval by shareholders.
Principles of compensation: compensation
of the BoD comprises a base remunera-
tion and may comprise other compensa-
tion elements and benefits. Compensa-
tion of the GEB consists of fixed and
variable compensation elements. Variable
compensation elements depend on
quantitative and qualitative performance
measures as determined by the BoD.
Remuneration of the BoD and compensa-
tion of the GEB may be paid or granted in
the form of cash, shares, financial
instruments or units, in kind or in the
form of benefits. The BoD determines the
key features such as grant, vesting,
exercise and forfeiture conditions and
applicable harmful acts provisions.
Additional amount for GEB members
hired after the vote on the aggregate
amount of compensation by the AGM: for
the compensation of GEB members who
will be appointed after the approval of
compensation by the AGM, and to the
extent that the aggregate amount of
compensation as approved does not
suffice, an amount of up to 40% of the
average of total annual compensation
paid or granted to the GEB during the
previous three years is available without
further approval of the AGM.
➔ Refer to our corporate governance
website at www.ubs.com/governance
Say-on-pay – Time-based delineation of BoD remuneration / GEB compensation, subject to shareholder approval
The following chart shows the prospective and retrospective elements of the say-on-pay votes
Shareholder approval requested at the AGM 2015
2014
Aggregate BoD remuneration (AGM 2015 to AGM 2016)
2015
Remuneration
period
2016
Aggregate 2016 fixed compensation for the GEB
Compensation period
Aggregate 2014 variable compensation for the GEB
Performance period
Advisory vote on the 2014 Compensation Report
Compensation Framework
Voting at the AGM 2015
362
Advisory vote Our compensation model for employees other than GEB members
We view compensation as a means to align employees’ long-term interests with those of our clients, share- and debt-
holders. Throughout the firm, the effect that an employee’s role has on contributing to greater sustainable performance
for UBS is a key factor in determining compensation. Our Total Reward Principles directly influence how we structure
compensation. We strive to find the right balance of return for both our employees and our stakeholders. The elements
that generally make up an employee’s total reward typically consist of a base salary, a performance award and pension
contributions and benefits. The performance award may comprise a shorter-term immediate cash performance award
and a longer-term deferred performance award. This balanced mix of shorter-term and longer-term compensation
encourages appropriate risk-taking and behaviors that produce sustainable performance.
Total Reward Principles
Base salary
Pillar 3 | Our compensation framework is based on our Total Reward
Principles, particularly in terms of integrating risk control and
managing performance, as well as in specifying how we structure
our compensation and performance award pool funding. Our
Total Reward Principles reflect our focus on pay for performance,
sustainable profitability, sound governance and risk awareness,
and support the firm’s strategy by promoting and rewarding
behaviors that enhance the firm’s position and reputation. ▲
Pillar 3 | Employees’ base salaries reflect their skills, role, and experi-
ence, as well as local market practices. They are fixed and usually
paid monthly or semi-monthly. Since 2011, salary increases have
been limited. We offer our employees competitive base salaries,
although salary levels will vary greatly between functions and lo-
cations. With effect from March 2015, total base salaries were
increased by CHF 128 million, or 2.0%. Such increases will con-
tinue to be focused on those employees who were promoted,
those with scarce or in-demand skillsets, or those who delivered a
very strong performance or took on increased responsibilities.
Pillar 3 | Total Reward Principles
The four Total Reward Principles establish a framework for managing performance and integrating risk
control. They also specify how we structure compensation and provide necessary funding for our
performance award pool. These principles apply to all employees globally, but may vary in certain
locations due to local laws and regulations.
Attract and engage
a diverse, talented
workforce
Foster effective
individual performance
management
and communication
Total
Reward
Principles
Support
appropriate
and controlled
risk-taking
Align reward
with sustainable
performance
Funding based on
profitability
Allocation of per-
formance award based
on performance
At least 50% of performance
award deferred and at risk of
forfeiture for senior employees
363
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
As a firm, we focus on total compensation. For example, 2014
performance award pools take account of salary increases granted
earlier in the year. We will continue to review salaries and perfor-
mance awards in light of market developments, performance, af-
fordability and our commitment to deliver sustainable returns to
our shareholders.
In addition to a base salary, some regulated employees may
receive a role-based allowance as described in the UK Code Staff
section of this report. The introduction of this allowance repre-
sents a shift in the compensation mix between fixed and variable
compensation and is not an increase in total compensation. ▲
Pensions, benefits, and employee share purchase program
Pillar 3 | We offer certain benefits such as health insurance and re-
tirement benefits. While these benefits may vary depending on
the employee’s location, they are competitive within each of the
markets in which we operate.
While pension contributions and pension plans vary across
locations and countries in accordance with local requirements
and market practice, pension plan rules in any location are gen-
erally the same for all employees in that location, including man-
agement.
The Equity Plus Plan is our employee share purchase program.
It allows employees below the rank of Managing Director to con-
tribute up to 30% of their base salary and / or up to 35% of their
performance award (up to CHF / USD 20,000 annually) toward the
purchase of UBS shares. Eligible employees may purchase UBS
shares at market price and they receive one matching share for
every three shares purchased through the program. Shares pur-
chased under the Equity Plus Plan are generally blocked from sale
for a maximum of three years from the time of purchase. The
matching shares vest after three years, subject to continued em-
ployment with the firm. ▲
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Financial information” section of the Annual
Report 2014 for more information on the various major
post-employment benefit plans established in Switzerland
and other countries
Performance award
Pillar 3 | Most of our employees are considered for an annual discre-
tionary performance award. The level of the award depends on
the firm’s overall performance, the employee’s business division,
and the individual’s performance and reflects their overall contri-
butions. The award is at the complete discretion of the firm. To
link pay with performance, the key performance indicators used
to measure our progress in executing our strategy are taken into
account when determining the size of each divisional perfor-
mance award pool. They are also used as a basis for setting spe-
cific performance conditions for vesting of certain deferred com-
pensation plan grants.
Beyond the firm’s principles around client focus, excellence and
sustainable performance, on an individual level, behaviors such as
integrity, collaboration and challenge are part of the performance
management approach. As a result, we not only take the “what”
into account when assessing performance, but also “how” such
objectives were achieved, which are important to our long-term
success. ▲
Benchmarking
Pillar 3 | Because of the diversity of our businesses the companies we
use as benchmarks vary with, and are dependent on, the relevant
business divisions and locations, as well as the nature of the posi-
tions involved. For certain businesses or positions, we may take
into account other major international banks, additional large
Swiss private banks, private equity firms, hedge funds and non-
financial firms. Furthermore, we also benchmark employee com-
pensation internally for comparable roles within and across busi-
ness divisions and locations. ▲
Basic reward elements
Shorter-term
performance award
Longer-term performance award
Base salary
Immediate
performance award
in the form of cash
+
+
Notional shares
(EOP)
Notional
instruments
(DCCP)
+
Pension
contributions and
other benefits
+
=
Total reward
364
Advisory vote Deferral of performance awards
Other variable compensation components
Pillar 3 | If an employee’s total compensation exceeds CHF / USD
300,000 a significant part of their performance award will be de-
ferred for up to five years. Our goal is to focus our employees on
the longer-term profitability of the firm.
In practice, this means that employees with the highest levels
of compensation have a higher effective deferral rate. The defer-
ral increases at higher marginal rates in line with the value of the
performance award, with the lowest deferral rate set at 40% of
the performance award and the highest rate at 75%. In addition,
the portion paid out in immediate cash is capped at CHF / USD 1
million. Anything in excess of this cap is deferred as notional
shares under the Equity Ownership Plan (EOP). The effective de-
ferral rate therefore depends on the value of the performance
award and the value of the total compensation.
Of the deferred annual performance award, 60% is deferred in
UBS notional shares under the EOP and the remaining 40% is
deferred in notional instruments under the Deferred Contingent
Capital Plan (DCCP). Global Asset Management employees receive
75% of their deferred performance awards in notional funds
under the EOP and the remaining 25% under the DCCP. The
average deferral period of the deferred awards for employees
below GEB level for 2014 was 3.5 years. ▲
➔ Refer to the “Our deferred variable compensation plans” section
of this report for more information about the terms of our
deferred variable compensation plans, including the forfeiture
provisions to which they are subject, and the terms applicable to
Global Asset Management employees
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of the Annual
Report 2014 for more information on specific local plans with
deferral provisions that differ from those described here
Pillar 3 | To support hiring and retention, particularly at senior levels,
we may offer certain other compensation program components.
These include:
– Replacement payments to compensate employees for deferred
awards forfeited as a result of joining UBS. Such payments are
industry practice and are often necessary to attract senior can-
didates who generally have a significant portion of their awards
deferred at their current employer and where continued em-
ployment is required to avoid forfeiture.
– Retention payments made to key employees to induce them to
stay, particularly during critical periods for the firm.
– On a very limited basis, guarantees may be required to attract
individuals with certain skills and experience. These awards,
which are fixed incentives to which our standard deferral ap-
plies, are paid regardless of future events, but are limited to the
first performance year.
– Awards that may be granted to employees hired late in the year
to replace performance awards that they would have earned at
their previous employer, but have forfeited by joining UBS.
These awards are structured with the same level of deferral as
employees at similar level at UBS. In addition, in very excep-
tional cases, candidates may be offered sign-on payments to
increase the chances of them accepting an offer.
– Severance payments made to employees in redundancy cases
when they have been asked to leave as part of a reduction in
workforce. These are governed by location-specific severance
policies. We offer severance terms which comply with the ap-
plicable local laws (“legally obligated severance”). In certain
locations, we may provide severance packages that are nego-
tiated with our local social partners that go beyond these min-
imum legal requirements (“standard severance”). In addition,
Sign-on payments, replacement payments, severance payments and guarantees
CHF million, except where indicated
Total sign-on payments
of which: GEB members
of which: Key Risk Takers 1
Total replacement payments
of which: GEB members
of which: Key Risk Takers 1
Total guarantees
of which: GEB members
of which: Key Risk Takers 1
Total severance payments 2
of which: GEB members
of which: Key Risk Takers 1
Of which
expenses
recognized
in 2014 3
Of which
expenses to be
recognized in
2015 and later
Total 2013 4
Total 2014
20
0
4
81
0
27
47
0
18
176
0
3
13
0
2
8
0
1
15
0
4
171
0
1
7
0
2
72
0
25
31
0
14
5
0
2
18
0
9
67
0
30
34
0
15
138
0
2
Number of beneficiaries
2013 4
165
0
7
209
0
15
52
0
7
2,291
0
2
2014
162
0
5
275
0
17
54
0
6
1,667
0
2
1 Expenses for Key Risk Takers are full-year amounts for individuals in office on 31 December 2014. Key Risk Takers include employees with a total compensation exceeding CHF / USD 2.5 million (Highly-Paid Employees).
2 Severance payments include legally obligated and standard severance, as well as supplemental severance payments of CHF 14 million. 3 Expenses before post-vesting transfer restrictions. 4 2013 figures as reported
in our Annual Report 2013.
365
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
we may make severance payments that exceed legally obli-
gated or standard severance payments (“supplemental sever-
ance”) where we believe that they are aligned with market
practice and appropriate under the circumstances. ▲
Compensation for financial advisors in Wealth Manage-
ment Americas
Pillar 3 | In line with market practice for US brokerage businesses,
the compensation system for financial advisors in Wealth Man-
agement Americas is based on production payout and awards.
Production payout, paid monthly, is primarily based on revenue
generated. Advisors may also qualify for year-end awards, most
of which are deferred for between six and 10 years. The awards
are based on strategic performance measures which may include
production, length of service, NNM brought in, and / or produc-
tion related to advisory fees and financial planning. Production
payout rates and awards may be reduced if financial advisors
make repeated or significant transaction errors and / or demon-
strate negligence or carelessness or otherwise fail to comply with
the firm’s rules, standards, practices and policies and / or appli-
cable law. ▲
Key Risk Takers
Pillar 3 | Key Risk Takers are defined as those employees who can
materially set, commit or control significant amounts of the firm’s
resources and / or exert significant influence over its risk profile.
This includes employees who work in front-office roles, logistics
and control functions. Identifying Key Risk Takers is part of the
Risk Control framework and an important element in ensuring
we incentivize only appropriate risk-taking. We currently have
625 individuals classified as Key Risk Takers, including all 10 GEB
members. This population also includes employees with a total
compensation exceeding CHF / USD 2.5 million (Highly-Paid
Employees) if they have not already been identified as Key Risk
Takers during the performance year. This threshold has been con-
verted to one of total compensation from the previous CHF / USD
2 million performance award threshold. Compensation of GEB
members is disclosed separately in this report.
Key Risk Takers identified at any point in time in the perfor-
mance year are subject to a performance evaluation by the con-
trol functions. The vesting of their deferred awards is contingent
on meeting Group and / or divisional performance conditions. Like
all other employees, Key Risk Takers also are subject to forfeiture
or reduction of the deferred portion of their compensation if they
commit harmful acts.
The same compensation measures apply to all Group Manag-
ing Directors (GMDs), regardless of whether they are classified as
Key Risk Takers or not. GMDs receive part of their annual perfor-
mance award under the EOP and the DCCP, with the vesting of
their EOP awards contingent on the same performance conditions
to which Key Risk Takers are subject.
All Key Risk Takers are subject to the mandatory deferral of at
least 50% of their performance award regardless of whether or
not the UBS deferral threshold has been met. This is in order to
comply with regulatory requirements. ▲
Pillar 3 | Fixed and variable compensation for Key Risk Takers 1
Total for the year
ended 2014
Not deferred
Deferred 2
CHF million, except where indicated
Amount
%
Amount
Total compensation
Amount
Number of beneficiaries
Fixed compensation 4
Cash-based
Equity-based
Variable compensation
Immediate cash
Equity Ownership Plan (EOP)
Deferred Contingent Capital Plan (DCCP)
1,178
100
615
351
323
28
827
217
383
227
30
27
2
70
18
33
19
540
323
323
0
217
217
0
0
%
46
92
100
26
100
Amount
637
28
0
28
610
0
383
227
Total for the
year ended
2013 3
Amount
1,041
543
235
235
0
806
214
378
214
%
54
8
100
74
100
100
1 Includes employees with a total compensation exceeding CHF / USD 2.5 million (Highly-Paid Employees), excluding GEB members. 2 This is based on the specific plan vesting and reflects the total value at grant which
may differ from the accounting expenses. 3 2013 figures as reported in our Annual Report 2013. 4 Includes base salary and role-based allowances. ▲
366
Advisory vote UK Code Staff
In accordance with guidance issued by the UK Prudential Regula-
tion Authority (PRA) and Financial Conduct Authority (FCA), we
have identified a group of 416 employees, consisting of senior
management, risk takers, staff engaged in control functions and
any employee receiving total remuneration that takes them into
the same remuneration bracket as these groups and whose pro-
fessional activities have a material impact on the firm’s risk profile,
as so-called UK Code Staff. Compensation measures that apply to
UK Code Staff are generally similar to those applied to Key Risk
Takers. However, due to specific UK PRA / FCA requirements, 50%
of UK Code Staff performance awards that are paid out immedi-
ately are delivered in UBS shares, which are blocked for six months.
In addition, any notional shares granted to UK Code Staff under
the EOP for their performance in 2014 will be subject to an addi-
tional six-month blocking period upon vesting. Performance
awards granted to UK Code Staff from 2015 onwards are also
subject to clawback provisions for a period of up to seven years
after award. The clawback provisions stipulate that UBS can re-
quire the repayment of any discretionary performance award
(both the immediate and deferred element) if the employee con-
tributes substantially to the Group incurring significant financial
losses or to a significant downward restatement of the Group’s or
a business division’s results, or engages in misconduct and / or fails
to take expected actions which contributed to significant reputa-
tional harm to the Group.
In line with market practice, UK Code Staff may receive a role-
based allowance in addition to their base salary. This allowance
reflects the market value of a specific role and, unlike salary, is
only paid as long as the employee is within such a role. Impor-
tantly, the introduction of this allowance represents a shift in the
compensation mix between fixed and variable compensation and
not an increase in total compensation. With respect to 2014, the
allowance consisted of an immediate cash portion which was
paid in December 2014 along with, if applicable, a deferred UBS
notional share award. The deferred portion vests in equal portions
in years 2 and 3 respectively. Where required, other EU regulated
employees have similar structures to comply with local require-
ments.
Control functions and Group Internal Audit
Pillar 3 | To monitor risk effectively, our control functions, Risk Con-
trol (including Compliance), Finance and Legal, must be indepen-
dent. To support this, their compensation is determined indepen-
dently from the revenue producers that they oversee, supervise or
support. Their performance award pool is not based on the per-
formance of these businesses, but instead reflects the perfor-
mance of the firm as a whole. In addition, we consider other fac-
tors such as how well the function has performed, together with
our market positioning. Decisions regarding individual compensa-
tion for the senior managers of the control functions are made by
the function heads and approved by the Group CEO. Decisions
regarding individual compensation within Group Internal Audit
(GIA) are made by the Head of GIA and approved by the Chair-
man. Total compensation for the Head of GIA is approved by
the HRCC. ▲
367
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Our deferred variable compensation plans for 2014
To ensure our employees’ and stakeholders’ interests are aligned and that compensation is appropriately linked to
longer-term sustainable performance, all variable compensation plans require a significant part of performance awards
above a total compensation threshold to be deferred in UBS notional shares and UBS notional instruments for up to
five years. All these plans include forfeiture provisions and performance conditions.
Equity Ownership Plan
Pillar 3 | The Equity Ownership Plan (EOP) is a mandatory deferral
plan for all employees with total compensation greater than
CHF / USD 300,000. These employees receive at least 60% of their
deferred performance award under the EOP in notional shares
and are eligible to receive reinvested dividend equivalents. For
2014, over 5,000 employees received EOP awards. EOP awards
are granted annually.
The plan includes provisions that enable the firm to trigger
forfeiture of some, or all, of the unvested deferred portion if an
employee commits certain harmful acts or in most cases of termi-
nated employment.
EOP awards granted to Global Asset Management employees
have a different vesting schedule and deferral mix, as shown in
the table below, and are granted as cash-settled notional funds.
The vesting of an EOP award granted to GEB members, GMDs
and Key Risk Takers (including Highly-Paid Employees) depends on
both Group and divisional performance. Group performance is mea-
sured by the average adjusted Group return on tangible equity
(RoTE). Divisional performance is measured by the average adjusted
divisional return on attributed equity (RoAE). For Corporate Center
employees, it is measured by the average of the RoAE for all business
divisions excluding the Corporate Center (Continuing Businesses
RoAE). By linking the vesting of EOP awards with a return on equity
over a two to five-year time horizon, we focus our employees on
developing and managing the business in a way that delivers sus-
tainable returns. We believe that Group RoTE provides a more con-
sistent basis to measure performance than the Group’s return on
shareholders’ equity (RoE), which includes goodwill and intangibles.
At Group level, the performance condition threshold of RoTE is
set at 8%. This compares to a target RoTE of around 10% for 2015.
Overview of our deferred compensation plans
Beneficiaries
Deferral mix
Vesting schedule
Equity Ownership Plan
GEB members, Key Risk Takers and all employees with total
compensation greater than CHF / USD 300,000
GEB members: at least 62.5%
Global Asset Management employees: at least 75%
All other employees: at least 60%
Deferred Contingent Capital Plan
GEB members, Key Risk Takers and all
employees with total compensation greater
than CHF / USD 300,000
GEB members: up to 37.5%
Global Asset Management employees: up to 25%
All other employees: up to 40%
GEB members: vests in three installments in years 3, 4 and 5
Global Asset Management employees: vests in three installments in years 2, 3 and 5
All other employees: vests in equal installments in year 2 and 3
Vests in full in year 5
s
n
o
i
t
i
d
n
o
C
g
n
i
c
n
e
u
fl
n
i
t
u
o
y
a
p
Share price
Forfeiture clauses
Harmful acts
Performance conditions GEB members, GMDs and Key Risk Takers (including Highly-Paid Employees):
Number of UBS shares delivered at vesting depends on the achievement of both Group
and respective divisional performance conditions1
Depends on whether a trigger event or viability
event has occurred and, for GEB members, also on
profitability
Profitability as funding driver
Instrument
UBS notional shares 2 (eligible for dividend equivalents)
Notional instruments and interest
1 Includes Global Asset Management employees who are GMDs, Key Risk Takers (including Highly-Paid Employees). 2 Notional funds for Global Asset Management employees.
368
Advisory vote
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:67)(cid:80)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:115)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:67)(cid:84)(cid:75)(cid:85)(cid:81)(cid:80)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:39)(cid:49)(cid:50)(cid:2)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:85)(cid:74)(cid:81)(cid:78)(cid:70)(cid:85)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:7)
(cid:19)(cid:26)
(cid:19)(cid:22)
(cid:19)(cid:18)
(cid:24)
(cid:20)
(cid:32)(cid:19)(cid:23)(cid:7)
(cid:32)(cid:19)(cid:23)(cid:7)
(cid:96)(cid:19)(cid:18)(cid:7)
(cid:26)(cid:16)(cid:24)
(cid:26)
(cid:26)
(cid:26)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:18)(cid:19)(cid:23)
(cid:20)(cid:18)(cid:19)(cid:24)
(cid:20)(cid:18)(cid:19)(cid:25)
(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:52)(cid:81)(cid:54)(cid:39)
(cid:39)(cid:49)(cid:50)(cid:2)(cid:52)(cid:81)(cid:54)(cid:39)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:85)(cid:74)(cid:81)(cid:78)(cid:70)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:69)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:47)(cid:67)(cid:84)(cid:69)(cid:74)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:86)(cid:85)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:52)(cid:81)(cid:54)(cid:39)
If the average adjusted Group RoTE achieved is equal to or
above the 8% threshold, the EOP award will vest in full, subject to
the relevant business divisional threshold also being met. If the
Group RoTE is 0% or negative, the installment will be fully for-
feited for the entire firm regardless of any division’s particular per-
formance. If the average adjusted Group RoTE falls between 0%
and 8%, the award will vest on a linear basis between 0% and
100%, again subject to the relevant business divisional threshold
being met.
The purpose of the business divisional threshold is to reduce the
amount of the EOP award that vests for any business division that
does not meet its performance target. Therefore, if the business
divisional RoAE threshold (see table below) is met, no adjustment
is made to the EOP award. If, however, the RoAE falls below the
threshold but is above 0% for any business division, the award will
be partially forfeited. The extent of the forfeiture depends on how
much the actual RoAE falls below the threshold for that business
division, and can be up to 40%. If the actual RoAE for a business
division is 0% or negative, the installment will be fully forfeited for
that business division. The HRCC assesses the achievement of the
performance conditions. The example on the following page
shows how we determine the percentage vesting. ▲
Performance condition for EOP awards granted in February 2015
GEB
GMDs, Key Risk Takers (including Highly-Paid Employees)
Group RoTE threshold
Group RoTE threshold
Installment vesting after
Applicable performance period
3 years
4 years
5 years
2 years
3 years
2015, 2016 and 2017
2016, 2017 and 2018
2017, 2018 and 2019
2015 and 2016
2015, 2016 and 2017
(cid:20)(cid:22)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:26)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)(cid:18)
(cid:24)(cid:18)(cid:18)(cid:18)
(cid:18)
Business divisional RoAE thresholds (or, for Corporate Center employees, Continuing Businesses RoAE threshold)
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
≥ 8%
≥ 50%
≥ 25%
≥ 20%
≥ 25%
≥ 15%
≥ 20%
369
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Deferred Contingent Capital Plan (DCCP)
Pillar 3 | The DCCP is a mandatory deferral plan for all employees
with total compensation greater than CHF / USD 300,000. Such
employees receive 40% of their deferred performance award un-
der the DCCP, with the exception of Global Asset Management
employees, who receive 25% of their deferred performance
awards under the plan. For 2014, over 5,000 employees received
DCCP awards. DCCP awards are granted annually.
Employees are awarded notional additional tier 1 (AT1) instru-
ments, which can be settled either in the form of a cash payment
or a perpetual, marketable AT1 instrument, at the discretion of
the firm.
Awards vest in full after five years subject to there being no
trigger event. Awards granted under the DCCP forfeit if our
phase-in tier 1 capital ratio falls below 10% for GEB members and
7% for all other employees. In addition, awards are also forfeited
if a viability event occurs, that is, if FINMA provides a written no-
tice to UBS that the DCCP must be written down to prevent an
insolvency, bankruptcy or failure of UBS, or if UBS receives a com-
mitment of extraordinary support from the public sector that is
necessary to prevent such an event. For GEB members, an addi-
tional performance condition applies. If UBS does not achieve an
adjusted profit before tax for any year during the vesting period,
GEB members forfeit 20% of their award for each loss-making
year.
The plan includes provisions that enable the firm to trigger for-
feiture of some, or all, of the unvested deferred portion if an em-
ployee commits certain harmful acts or in most cases of termi-
nated employment.
Under the DCCP, employees may receive discretionary annual
interest payments. The notional interest rate for grants in 2015 is
7.125% for awards denominated in US dollars and 4% for awards
denominated in Swiss francs. These interest rates are based on
the current market rates for such AT1 instruments. Such interest
will be paid out annually subject to review and confirmation by
UBS. ▲
➔ Refer to “Performance awards granted for the 2014 performance
year,” “Performance award expenses in the 2014 performance
year” and “Total personnel expenses for 2014” in the “Supple-
mental information” section of this report for more information
➔ Refer to “Vesting of outstanding awards granted in prior years
impacted by performance conditions” and “Discontinued plans”
section of this report for more information on past awards
Pillar 3 | EOP performance conditions for GEB members, GMDs and Key Risk Takers (including Highly-Paid Employees)
Group performance
Divisional performance
Illustrative example (assuming constant share price)
% vesting
based on
Group RoTE
100% vesting at a
Group RoTE of ≥ 8%
Partial forfeiture determined on
a linear basis if Group RoTE
between 0% and 8%
Adjustment
based on
business
divisional
RoAE/
Continuing
Businesses
RoAE
0% forfeiture if RoAE is
at or above threshold
Partial forfeiture of up to
40% determined on
a linear basis if RoAE between
threshold and 0%
Assume an EOP award of CHF 100,000 granted to an Investment Bank employee due
to vest in 2018, and an actual average adjusted Group RoTE and Investment Bank RoAE
(averaged over the performance years 2015 to 2017) of 4% and 7.5%, respectively.
To determine the percentage of shares that vest
–50%
of 100K
(50)
– the award is reduced by 50% due to Group
performance (as a 4% Group RoTE is 50% of the
Group RoTE threshold) and
– the award is reduced by a further 20% due to the
Investment Bank’s divisional performance (the 7.5%
RoAE represents half of the 15% Investment Bank
RoAE threshold).
100
–20%
of 50K
(10)
50
40
Installment about
to vest
Adjustment
due to Group
performance
Vesting based
on Group
performance
Amount vesting
Adjustment
due to business
divisional
performance
▲
100% forfeiture at a
Group RoTE of ≤ 0%
100% forfeiture if
RoAE ≤ 0%
370
100
80
60
40
20
0
Advisory vote Supplemental information
Performance awards granted for the 2014
performance year
The Total variable compensation table shows the amount of vari-
able compensation awarded to employees for the performance
year 2014, together with the number of beneficiaries for each
type of award granted. We define variable compensation as the
discretionary, performance-based award pool for the given year.
In the case of deferred awards, the final amount paid to an em-
ployee depends on performance conditions and consideration of
relevant forfeiture provisions. The deferred share award amount
is based on the market value of these awards on the date of
grant.
The Deferred compensation table shows the current economic
value of unvested outstanding deferred variable compensation
awards subject to ex-post adjustments. For share-based plans,
the economic value is determined based on the closing share
price on 30 December 2014. For notional funds, it is determined
using the latest available market price for the underlying funds at
year-end 2014, and for deferred cash plans, it is determined
based on the outstanding amount of cash owed to award recipi-
ents. All awards made under our deferred variable compensation
plans listed in the Deferred compensation table are subject to
ex-post adjustments, whether implicitly, through exposure to
share price movements, or explicitly, for example, through forfei-
tures instigated by the firm. Accordingly, their value can change
over time. The amounts shown in the column relating to awards
for prior years already take into account ex-post implicit adjust-
ments that occurred as a result of share price movements
between the respective dates on which these awards were
granted and 30 December 2014.
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of the Annual
Report 2014 for more information
Pillar 3 | Total variable compensation 1
CHF million, except where indicated
Cash performance awards
Deferred Contingent Capital Plan
Deferred cash plans 3
UBS share plans
Equity Ownership Plan – notional funds
Total performance award pool
CHF million, except where indicated
Total variable compensation – other 4
Expenses
2014
1,822
155
0
215
24
2,216
2013
1,942
152
2
190
19
2,305
Expenses
2014
260
2013
152
Expenses
CHF million, except where indicated
Total WMA financial advisor compensation 6
2014
2,539
2013
2,334
Expenses deferred to
future periods
2014
0
312
0
459
36
807
2013
0
348
7
520
37
912
Expenses deferred to
future periods
2014
307
2013
340
Expenses deferred to
future periods
2014
754
2013
592
Adjustments 2
2014
(4)
0
0
44
0
40
2013
(24)
0
0
41
0
17
Number of beneficiaries
2013
46,593
5,286
23
4,931
370
46,620
2014
46,298
5,248
0
4,897
397
46,305
2013
1,918
500
9
751
56
3,234
Total
2014
1,818
467
0
718
60
3,063
Total
Adjustments
2014
(121) 5
2013
(101) 5
2014
446
2013
391
Adjustments 2
2014
14
2013
0
Total
2014
3,307
Number of beneficiaries
2013
7,137
2014
6,997
2013
2,926
1 The total “performance award” paid to employees for the performance years 2014 (CHF 3,063 million) and 2013 (CHF 3,234 million). Expenses under “Total variable compensation – other” and “Total WMA financial
advisor compensation” are not part of UBS’s performance award pool. 2 Adjustments relating to post-vesting transfer restrictions and other adjustments. 3 Deferred cash plans include a specific regional deferred
cash plan which is not part of the Group’s compensation delivery framework. 4 Replacement payments and retention plan payments including the 2012 Special Plan Award Program. 5 Included in expenses deferred
to future periods is an amount of CHF 121 million (prior year CHF 101 million) relating to future interest on the DCCP. As the amount recognized as performance award represents the present value of the award at the
date granted to the employee, this interest amount is adjusted out in the analysis. 6 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial
advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure and other variables. It also includes charges related to compensation commitments with financial advisors entered
into at the time of recruitment, which are subject to vesting requirements. ▲
371
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Performance award expenses in the 2014 performance year
The performance award expenses include all immediate expenses
related to 2014 compensation awards and expenses deferred to
2014 related to awards made in prior years. The chart “Amortiza-
tion of deferred compensation” shows the amount at the end of
2014 of unrecognized awards to be amortized in subsequent
years. This was CHF 1.6 billion for both 2014 and 2013.
Pillar 3 | The table below shows the value of actual ex-post explicit
and implicit adjustments to outstanding deferred compensation in
the financial year 2014. Ex-post adjustments occur after an award
has been granted. Ex-post explicit adjustments occur when we ad-
just compensation by forfeiting deferred awards. Ex-post implicit ad-
justments are unrelated to any action taken by the firm and occur as
a result of share price movements that impact the value of an award.
The total value of ex-post explicit adjustments made to UBS shares in
2014, based on the approximately 7 million shares forfeited during
2014, is a reduction of CHF 121 million. This includes partial forfei-
ture of the vesting installment of Performance Equity Plan 2011 of
60% due to performance conditions by end of 2013 not having
been fully achieved. The total value of ex-post explicit adjustments
made to UBS options and share-settled stock appreciation rights
(SARs) in 2014, based on the approximately 0.1 million options / SARs
forfeited during 2014, is a reduction in value of CHF 1 million. The
size of implicit adjustments is mainly due to an increase in the share
price. However, the share price as of year-end means that many of
the options previously granted remain out of the money. Hence, the
majority of outstanding option awards had no intrinsic value at the
end of 2014. ▲
Amortization of deferred compensation
CHF billion
0%
(2%)
0.8
0.7
0.7
1.6
0.1
1.6
Amortized
Forfeited
31.12.13
Unrecognized
awards to be
amortized
including awards
granted in
1Q14 for the
performance
year 20131
Expected
amortization
of prior-year
awards in 2015
Annual
awards
granted
including
awards
granted in
1Q15 for the
performance
year 2014
31.12.14
Unrecognized
awards to be
amortized
including awards
granted in
1Q15 for the
performance
year 20141,2
1 Related to performance awards and including special plan awards.
2 Estimate. The actual amount to be expensed in future periods may vary, for example due to forfeitures.
Pillar 3 | Deferred compensation 1, 2
CHF million, except where indicated
Deferred Contingent Capital Plan
Equity Ownership Plan
Equity Ownership Plan – notional funds
Discontinued deferred compensation plans 4
Total
Relating to awards
for 2014
467
718
60
0
1,245
Relating to awards for
prior years 3
957
2,758
438
260
4,413
Total
1,424
3,476
498
260
5,658
of which exposed to
ex-post adjustments
Total deferred compen-
sation at year-end 2013
100%
100%
100%
100%
965
3,795
503
336
5,599
1 This is based on specific plan vesting and reflects the economic value of the outstanding awards, which may differ from the accounting expenses. 2 Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of the Annual Report 2014 for more information. 3 This takes into account the ex-post implicit adjustments, given the share price movements since grant. 4 Cash Balance
Plan (CBP), Senior Executive Equity Ownership Plan (SEEOP), Performance Equity Plan (PEP), Incentive Performance Plan (IPP), Deferred Cash Plan (DCP). ▲
Pillar 3 | Ex-post explicit and implicit adjustments to deferred compensation in 2014 1
CHF million
UBS notional instruments (DCCP)
UBS shares (EOP, IPP, PEP, SEEOP) 2
UBS options (KESOP) and SARs (KESAP) 2
UBS notional funds (EOP) 3
Ex-post explicit adjustments 4
Ex-post implicit adjustments
to unvested awards 5
2014
31.12.14
2013
31.12.13
2014
31.12.14
2013
31.12.13
(42)
(121)
(1)
(3)
(27)
(234)
(1)
(20)
218
16
368
51
1 Compensation (performance awards and other variable compensation) relating to awards for previous performance years. 2 IPP, PEP, SEEOP, Key Employee Appreciation Rights Plan (KESAP) and Key Employee Stock
Option Plan (KESOP) are discontinued deferred compensation plans. 3 Awards granted under this plan are cash-settled and 100% susceptible to ex-post implicit adjustments. 4 Ex-post explicit adjustments are
calculated as units forfeited during the year, valued at the share price on 30 December 2014 (CHF 17.09) and on 30 December 2013 (CHF 16.92) for UBS shares and valued with the fair value at grant for UBS options.
For the notional funds awarded to Global Asset Management employees under the EOP, this represents the forfeiture credits recognized in 2014 and 2013. For DCCP the fair value at grant of the forfeited awards during
the year is reflected. 5 Ex-post implicit adjustments for UBS shares are calculated based on the difference between the weighted average grant date fair value and the share price at year end. The amount for notional
funds is calculated using the mark-to-market change during 2014 and 2013. ▲
372
2.0
1.5
1.0
0.5
0.0
Advisory vote Total personnel expenses for 2014
The table Personnel expenses shows our total personnel expenses
for 2014. As of 31 December 2014, there were 60,155 employ-
ees. It includes salaries, pension contributions and other person-
nel costs, social security contributions and variable compensation.
Variable compensation includes discretionary cash performance
awards paid in 2015 for the 2014 performance year, the amorti-
zation of unvested deferred awards granted in previous years and
the cost of deferred awards granted to employees who are eligi-
ble for retirement in the context of the compensation framework
at the date of grant.
The performance award pool reflects the value of discretionary
performance awards granted relating to the 2014 performance
year, including awards that are paid out immediately and those that
are deferred. To determine our variable compensation expenses, the
following adjustments are required in order to reconcile the perfor-
mance award pool to the accounting expenses recognized in the
Group’s financial statements prepared in accordance with IFRS:
– reduction for the unrecognized future amortization (including
accounting adjustments) of unvested deferred awards granted
in 2015 for the performance year 2014
– addition for the 2014 amortization of unvested deferred
awards granted in prior years
As a large part of compensation consists of deferred awards,
the amortization of unvested deferred awards granted in prior
years forms a significant part of the IFRS accounting expenses in
both 2013 and 2014.
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of the Annual
Report 2014 for more information
Pillar 3 | Personnel expenses
CHF million
Salaries 1
Cash performance awards
Deferred Contingent Capital Plan
Deferred cash plans
UBS share plans
UBS share option plans
Equity Ownership Plan – notional funds
Total variable compensation – performance awards 2
of which: guarantees for new hire
Variable compensation – other 2
of which: replacement payments 3
of which: forfeiture credits
of which: severance payments 4
of which: retention plan and other payments
Contractors
Social security
Pension and other post-employment benefit plans 5
Wealth Management Americas: financial advisor compensation 2, 6
Other personnel expenses
Total personnel expenses 7
Relating to
awards for 2014
Relating to awards
for prior years
Expenses
Total 2014
6,269
1,822
155
0
215
0
24
2,216
21
260
11
0
162
86
234
729
711
2,539
586
13,543
0
(108)
194
12
465
0
41
604
27
206
70
(70)
0
206
0
62
0
846
19
1,737
6,269
1,714
349
12
680
0
65
2,820
48
466
81
(70)
162
292
234
791
711
3,385
605
15,280
2013
6,268
1,912
248
55
692
0
79
2,986
76
288
78
(146)
114
242
190
792
887
3,140
631
15,182
2012
6,814
1,373
145
154
1,202
14
112
3,000
134
367
109
(174)
303
128
214
768
18
2,873
682
14,737
1 Includes role-based allowances. 2 Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information” section of the Annual Report 2014 for more information. 3 Replacement
payments are payments made to compensate employees for deferred awards forfeited as a result of joining UBS. This table includes the expenses recognized in the financial year (mainly the amortization of the award).
4 Includes legally obligated and standard severance payments. 5 2014 included credits of CHF 41 million related to changes to retiree benefit plans in the US. 2012 included a credit of CHF 730 million related to
changes to our Swiss pension plan and a credit of CHF 116 million related to changes to retiree benefit plans in the US. Refer to “Note 28 Pension and other post-employment benefit plans” of the “Financial informa-
tion” section of the Annual Report 2014 for more information. 6 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and sup-
plemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes charges related to compensation commitments with financial advisors entered into at
the time of recruitment which are subject to vesting requirements. 7 Includes net restructuring charges of CHF 327 million, CHF 156 million and CHF 358 million for the years ended 31 December 2014, 31 December
2013 and 31 December 2012, respectively. Refer to “Note 32 Changes in organization” in the “Financial information” section of the Annual Report 2014 for more information. ▲
373
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Vesting of outstanding awards granted in prior years impacted by performance conditions
The table below shows the extent to which the performance conditions of awards granted in prior years have been met and the per-
centage of the award which vests in 2015.
Vesting of awards with performance conditions
Incentive Performance Plan 2010
Performance conditions
Performance achieved
% of installment vesting
The number of performance shares which vest depends
on the achievement of the share price target measured
by reference to the UBS share price during the last three
months in 2014, adjusted for any dividends and other
distributions paid during the performance period
Based on the UBS share price during Q4 of 2014,
the HRCC has determined that the payout multiple is 1
100%
Equity Ownership Plan 2011 / 12 and Senior Executive Equity Ownership Plan 2010 / 11 and 2011 / 12
Performance conditions
Performance achieved
% of installment vesting
Adjusted operating profit before tax for the business divi-
sion or, for Corporate Center, adjusted Group operating
profit before tax
As the Group and the business divisions reported an ad-
justed operating profit for 2014, the profitability perfor-
mance condition has been met and the fourth installment
of the SEEOP 2010 / 2011 awards and the third installment
of EOP and SEEOP 2011 / 2012 awards vested in full
100%
Performance Equity Plan 2012
Performance conditions
Performance achieved
% of installment vesting
Cumulative economic profit and relative shareholder return
for the period 2012–14. The percentage applied to deter-
mine the number of UBS shares to be delivered at vesting
is calculated by multiplying the economic profit multiplier
(“EP multiplier”) with the total shareholder return multiplier
(“TSR multiplier”), rounded to a full percentage
Special Plan Award Program 2011/12 (SPAP)
For the period from 2012 to the end of 2014, the HRCC
has determined that the EP multiplier is 50% and the TSR
multiplier is 88%, which results in a multiplier of 44%
44%
Performance conditions
Performance achieved
% of installment vesting
Level of reduction in RWA achieved and the average
published return on RWA in the Investment Bank in 2012,
2013 and 2014
As the actual level of reduction in RWA and the average
published return on RWA in the Investment Bank exceeded
the targets, the awards will vest in full
100%
374
Advisory vote Discontinued deferred compensation plans
The table lists discontinued compensation plans. UBS has not granted any options since 2009. The strike price for stock options award-
ed under prior compensation plans has not been reset.
➔ Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information” section of our Annual Report 2014 for
more information
Plan
Cash Balance
Plan (CBP)
Performance
Equity Plan
(PEP)
Senior Execu-
tive Equity
Ownership
Plan (SEEOP)
Special Plan
Award
Program
(SPAP)
Deferred Cash
Plan (DCP)
Incentive
Performance
Plan (IPP)
Key Employee
Stock Appreci-
ation Rights
Plan (KESAP)
and Key
Employee
Stock Option
Plan (KESOP)
Senior Exe-
cutive Stock
Appreciation
Rights Plan
(SESAP) and
Senior Exe-
cutive Stock
Option Plan
(SESOP)
Years
granted
Eligible
employees
2010–2012
2010–2012
2010–2012
2012 only
2011 only
2010 only
2002–2009
2002–2009
GEB members
GEB members
GEB members
and GMDs
Selected Manag-
ing Directors and
GMDs in the
Investment Bank
Investment Bank
employees whose
total compen-
sation exceeded
CHF 1 million
GEB members
and other senior
employees
(approximately
900 employees)
Selected employ-
ees (approximate-
ly 17,000 em-
ployees between
2002 and 2009)
GEB members
and Group
Managing Board
Instrument
Cash
Performance
shares
Shares
Shares
Cash
Performance
shares
None
Dependent on
share price at
the end of the
five-year period
Perfor-
mance
conditions
CBP 2011:
dependent on the
return on equity
CBP 2010:
dependent on
UBS being
profitable
Dependent on
whether the busi-
ness division
makes a loss (the
amount forfeited
depends on the
extent of the loss
and generally
ranges from 10%
to 50% of the
award portion
due to vest)
Dependent on
the level of
reduction in
RWA achieved
and the average
published return
on risk-weighted
assets in the
Investment Bank
in 2012, 2013
and 2014
The number of
UBS shares
delivered can be
between zero
and twice the
number of perfor-
mance shares
granted, depend-
ing on whether
performance
targets relating to
economic profit
(EP) and relative
total shareholder
return (TSR) have
been achieved
Restric-
tions /
other
conditions
Subject to
continued
employment and
harmful act
provisions
Subject to
continued
employment and
harmful act
provisions
Subject to
continued
employment
and harmful act
provisions
Subject to
continued
employment and
harmful act
provisions
Subject to
continued
employment and
harmful act
provisions
Subject to
continued
employment and
harmful act
provisions
Vesting
period
Vests in equal
installments over
a two-year period
Vests in full three
years after grant
Vests in equal
installments over
a five-year period
Vests in full three
years after grant
Vests in equal
installments
over a three-year
period
Vests in full at the
end of five years.
Number of shares
that vest can be
between one and
three times the
number of perfor-
mance shares
initially granted
Share-settled
stock apprecia-
tion rights (SAR)
or stock options
with a strike price
not less than the
market value of a
UBS share on the
date of grant
Share-settled
stock apprecia-
tion rights (SAR)
or stock options
with a strike price
not less than the
market value of a
UBS share on the
date of grant
None
None
Subject to
continued
employment,
non-solicitation
of clients and
employees and
non-disclosure of
proprietary
information
Subject to
continued
employment,
non-solicitation
of clients and
employees and
non-disclosure
of proprietary
information
Vests in full three
years after grant.
SAR and options
expire 10 years
from the date of
grant
Vests in full three
years after grant.
SAR and options
expire 10 years
from the date of
grant
375
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
List of tables
Share and option ownership / entitlements of GEB members on 31 December 2014 / 2013
Total of all vested and unvested shares of GEB members
Number of shares of BoD members on 31 December 2014 / 2013
Total of all blocked and unblocked shares of BoD members
Vested and unvested options of GEB members on 31 December 2014 / 2013
Loans granted to GEB members on 31 December 2014 / 2013
Loans granted to BoD members on 31 December 2014 / 2013
Compensation paid to former BoD and GEB members
Report of the statutory auditor on the compensation report
Page
377
377
378
378
379
381
381
381
382
376
Advisory vote Audited | Share and option ownership / entitlements of GEB members on 31 December 2014 / 2013 1
Name, function
Sergio P. Ermotti,
Group Chief Executive Officer
Markus U. Diethelm,
Group General Counsel
Lukas Gähwiler,
President Retail & Corporate and President Switzerland
Ulrich Körner,
President Global Asset Management and President EMEA
Philip J. Lofts,
Group Chief Risk Officer
Robert J. McCann,
President Wealth Management Americas
and President Americas
Tom Naratil,
Group Chief Financial Officer and Group Chief Operating Officer
Andrea Orcel,
President Investment Bank
Chi-Won Yoon,
President Asia Pacific
Jürg Zeltner,
President Wealth Management
Total
on
31 December
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Number of
unvested
shares / at risk 2
670,935
453,460
528,973
542,417
522,769
504,800
713,051
688,923
611,479
601,553
983,028
892,872
523,751
422,516
915,399
1,209,775
492,093
502,762
675,211
624,415
6,636,689
6,443,493
Number of
vested shares
Total number
of shares
Potentially
conferred voting
rights in %
97,589
69,900
0
108,007
1,052
22,727
292,519
208,887
204,346
157,447
62,901
65,971
288,151
263,027
408,296
0
507,602
441,143
0
13,920
1,862,456
1,351,029
768,524
523,360
528,973
650,424
523,821
527,527
1,005,570
897,810
815,825
759,000
1,045,929
958,843
811,902
685,543
1,323,695
1,209,775
999,695
943,905
675,211
638,335
8,499,145
7,794,522
0.039
0.025
0.027
0.032
0.027
0.026
0.051
0.044
0.042
0.037
0.053
0.046
0.041
0.033
0.068
0.059
0.051
0.046
0.034
0.031
0.434
0.378
Number of
options 3
0
Potentially
conferred voting
rights in % 4
0.000
0
0
0
0
0
0
0
394,172
500,741
0
0
721,125
867,087
0
0
515,180
538,035
108,121
203,093
1,738,598
2,108,956
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.020
0.024
0.000
0.000
0.037
0.042
0.000
0.000
0.026
0.026
0.006
0.010
0.089
0.102
1 This table includes all vested and unvested shares and options of GEB members, including related parties. 2 Includes shares granted under variable compensation plans with forfeiture provisions. The actual number of shares
vesting in the future will be calculated under the terms of the plans. Refer to the “Deferred variable compensation plans” section in this report for more information on the plans. 3 Refer to “Note 29 Equity participation and
other compensation plans” in the “Financial information” section of the Annual Report 2014 for more information. 4 No conversion rights are outstanding. ▲
Audited | Total of all vested and unvested shares of GEB members 1, 2
Total
of which
vested
of which vesting
2015
2016
2017
2018
2019
Shares on 31 December 2014
8,499,145
1,862,456
2,112,409
1,148,988
1,538,703
1,263,098
573,491
Shares on 31 December 2013 3
8,708,791
1,619,974
1,652,867
2,373,539
1,263,412
1,052,595
746,404
1 Includes related parties. 2 Includes shares granted under variable compensation plans with forfeiture provisions. The actual number of shares vesting in the future will be calculated under the terms of the plans. Refer to the
“Deferred variable compensation plans” section in this report for more information on the plans. 3 Includes all vested and unvested shares of John A. Fraser who stepped down from the GEB on 31 December 2013. ▲
2014
2015
2016
2017
2018
377
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Audited | Number of shares of BoD members on 31 December 2014 / 2013 1
Name, function
Axel A. Weber, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Reto Francioni, member 2
Rainer-Marc Frey, former member
Ann F. Godbehere, member
Axel P. Lehmann, member
Helmut Panke, member
William G. Parrett, member
Isabelle Romy, member
Beatrice Weder di Mauro, member
Joseph Yam, member
Total
on 31 December
Number of shares held
Voting rights in %
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
333,333
233,333
181,246
150,412
185,181
151,184
11,859
0
–
209,044
139,653
113,562
217,373
185,970
182,009
162,244
100,019
99,914
44,217
24,452
45,424
22,496
66,863
48,679
1,507,177
1,401,290
0.017
0.011
0.009
0.007
0.009
0.007
0.001
0.000
–
0.010
0.007
0.006
0.011
0.009
0.009
0.008
0.005
0.005
0.002
0.001
0.002
0.001
0.003
0.002
0.077
0.068
1 This table includes blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2014 and 2013. 2 Reto Francioni was elected at the AGM on 2 May 2013. ▲
Audited | Total of all blocked and unblocked shares of BoD members 1
Shares on 31 December 2014
1,507,177
228,189
172,868
261,377
408,570
436,173
Shares on 31 December 2013
1 Includes related parties. ▲
1,401,290
201,098
204,792
216,451
324,012
454,937
2014
2015
2016
2017
Total
of which
unblocked
of which blocked until
2015
2016
2017
2018
378
Advisory vote Audited | Vested and unvested options of GEB members on 31 December 2014 / 2013 1
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Sergio P. Ermotti, Group Chief Executive Officer
Chi-Won Yoon, President Asia Pacific
2014
2013
0
0
Markus U. Diethelm, Group General Counsel
2014
2013
0
0
2014
515,180
Lukas Gähwiler, President Retail & Corporate and President Switzerland
2014
2013
0
0
Ulrich Körner, President Global Asset Management and President EMEA
2014
2013
0
0
2013
538,035
Philip J. Lofts, Group Chief Risk Officer
2014
394,172
117,090
2005
01.03.2008
28.02.2015
CHF 52.32
2013
500,741
117,227
2006
01.03.2009
28.02.2016
CHF 72.57
85,256
74,599
35,524
35,524
35,521
2007
01.03.2010
28.02.2017
CHF 73.67
2008
01.03.2011
28.02.2018
CHF 35.66
2004
01.03.2005
27.02.2014
CHF 44.32
2004
01.03.2006
27.02.2014
CHF 44.32
2004
01.03.2007
27.02.2014
CHF 44.32
117,090
2005
01.03.2008
28.02.2015
CHF 52.32
117,227
2006
01.03.2009
28.02.2016
CHF 72.57
85,256
74,599
2007
01.03.2010
28.02.2017
CHF 73.67
2008
01.03.2011
28.02.2018
CHF 35.66
Robert J. McCann, President Wealth Management Americas
and President Americas
2014
2013
0
0
Tom Naratil, Group Chief Financial Officer and Group Chief Operating Officer
2014
721,125
166,010
2005
01.03.2008
28.02.2015
USD 44.81
142,198
2006
01.03.2009
28.02.2016
CHF 72.57
131,277
2007
01.03.2010
28.02.2017
CHF 73.67
181,640
2008
01.03.2011
28.02.2018
CHF 35.66
100,000
2009
01.03.2012
27.02.2019
CHF 11.35
2013
867,087
145,962
2004
01.03.2007
27.02.2014
USD 38.13
166,010
2005
01.03.2008
28.02.2015
USD 44.81
142,198
2006
01.03.2009
28.02.2016
CHF 72.57
131,277
2007
01.03.2010
28.02.2017
CHF 73.67
181,640
2008
01.03.2011
28.02.2018
CHF 35.66
100,000
2009
01.03.2012
27.02.2019
CHF 11.35
Andrea Orcel, President Investment Bank
2014
2013
0
0
10,659
10,657
10,654
21,316
21,314
21,311
8,881
8,880
8,880
2005
01.03.2006
28.02.2015
CHF 47.58
2005
01.03.2007
28.02.2015
CHF 47.58
2005
01.03.2008
28.02.2015
CHF 47.58
2006
01.03.2007
28.02.2016
CHF 65.97
2006
01.03.2008
28.02.2016
CHF 65.97
2006
01.03.2009
28.02.2016
CHF 65.97
2007
01.03.2008
28.02.2017
CHF 67.00
2007
01.03.2009
28.02.2017
CHF 67.00
2007
01.03.2010
28.02.2017
CHF 67.00
42,628
2008
01.03.2011
28.02.2018
CHF 32.45
350,000
2009
01.03.2012
27.02.2019
CHF 11.35
6,200
4,262
6,198
6,195
10,659
10,657
10,654
21,316
21,314
21,311
8,881
8,880
8,880
2004
01.03.2005
27.02.2014
CHF 44.32
2004
27.02.2006
27.02.2014
CHF 44.32
2004
01.03.2006
27.02.2014
CHF 44.32
2004
01.03.2007
27.02.2014
CHF 44.32
2005
01.03.2006
28.02.2015
CHF 47.58
2005
01.03.2007
28.02.2015
CHF 47.58
2005
01.03.2008
28.02.2015
CHF 47.58
2006
01.03.2007
28.02.2016
CHF 65.97
2006
01.03.2008
28.02.2016
CHF 65.97
2006
01.03.2009
28.02.2016
CHF 65.97
2007
01.03.2008
28.02.2017
CHF 67.00
2007
01.03.2009
28.02.2017
CHF 67.00
2007
01.03.2010
28.02.2017
CHF 67.00
42,628
2008
01.03.2011
28.02.2018
CHF 32.45
350,000
2009
01.03.2012
27.02.2019
CHF 11.35
Jürg Zeltner, President Wealth Management
2014
108,121
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
2005
01.03.2006
28.02.2015
CHF 47.58
2005
01.03.2007
28.02.2015
CHF 47.58
2005
01.03.2008
28.02.2015
CHF 47.58
2005
04.03.2007
04.03.2015
CHF 47.89
2005
06.06.2007
06.06.2015
CHF 45.97
2005
09.09.2007
09.09.2015
CHF 50.47
2005
05.12.2007
05.12.2015
CHF 59.03
2006
01.03.2007
28.02.2016
CHF 65.97
2006
01.03.2008
28.02.2016
CHF 65.97
2006
01.03.2009
28.02.2016
CHF 65.97
2006
03.03.2008
03.03.2016
CHF 65.91
2006
09.06.2008
09.06.2016
CHF 61.84
2006
08.09.2008
08.09.2016
CHF 65.76
2006
08.12.2008
08.12.2016
CHF 67.63
2007
01.03.2008
28.02.2017
CHF 67.00
2007
01.03.2009
28.02.2017
CHF 67.00
2007
01.03.2010
28.02.2017
CHF 67.00
223
2007
02.03.2009
02.03.2017
CHF 67.08
42,628
2008
01.03.2011
28.02.2018
CHF 35.66
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information”
section of the Annual Report 2014 for more information.
379
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Vested and unvested options of GEB members on 31 December 2014 / 2013 1 (continued)
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Jürg Zeltner, President Wealth Management (continued)
2013
203,093
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
2004
01.03.2007
27.02.2014
CHF 44.32
2005
01.03.2006
28.02.2015
CHF 47.58
2005
01.03.2007
28.02.2015
CHF 47.58
2005
01.03.2008
28.02.2015
CHF 47.58
2005
04.03.2007
04.03.2015
CHF 47.89
2005
06.06.2007
06.06.2015
CHF 45.97
2005
09.09.2007
09.09.2015
CHF 50.47
2005
05.12.2007
05.12.2015
CHF 59.03
2006
01.03.2007
28.02.2016
CHF 65.97
2006
01.03.2008
28.02.2016
CHF 65.97
2006
01.03.2009
28.02.2016
CHF 65.97
2006
03.03.2008
03.03.2016
CHF 65.91
2006
09.06.2008
09.06.2016
CHF 61.84
2006
08.09.2008
08.09.2016
CHF 65.76
2006
08.12.2008
08.12.2016
CHF 67.63
2007
01.03.2008
28.02.2017
CHF 67.00
2007
01.03.2009
28.02.2017
CHF 67.00
2007
01.03.2010
28.02.2017
CHF 67.00
223
2007
02.03.2009
02.03.2017
CHF 67.08
42,628
90,000
2008
01.03.2011
28.02.2018
CHF 35.66
2009
01.03.2012
27.02.2019
CHF 11.35
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are
outstanding. 3 Refer to “Note 29 Equity participation and other compensation plans” in the “Financial
information” section of the Annual Report 2014 for more information. ▲
380
Advisory vote Audited | Loans granted to GEB members on 31 December 2014 / 2013 1, 2
CHF, except where indicated 3
Name, function
Ulrich Körner, President Global Asset Management and President EMEA (highest loan in 2014)
Ulrich Körner, President Global Asset Management and President EMEA (highest loan in 2013)
Aggregate of all GEB members
on 31 December
2014
2013
2014
2013
Loans 4
7,600,000
5,181,976
26,281,207
18,763,976
1 Loans are granted by UBS AG. 2 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 3 Local currencies are converted into CHF using the exchange rates
as detailed in “Note 36 Currency translation rates” in the “Financial information” section of the Annual Report 2014. 4 All loans granted are secured loans. ▲
Audited | Loans granted to BoD members on 31 December 2014 / 2013 1, 2
CHF, except where indicated 3
Aggregate of all BoD members
on 31 December
2014
2013
Loans 4, 5
1,100,000
1,520,000
1 Loans are granted by UBS AG. 2 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 3 Local currencies are converted into CHF using the exchange rates
as detailed in “Note 36 Currency translation rates” in the “Financial information” section of the Annual Report 2014. 4 All loans granted are secured loans. 5 CHF 1,100,000 for Reto Francioni in 2014 and CHF
1,520,000 for Reto Francioni in 2013. ▲
Audited | Compensation paid to former BoD and GEB members 1
CHF, except where indicated 2
Former BoD members
Aggregate of all former GEB members 3
Aggregate of all former BoD and GEB members
For the year
Compensation
Benefits
2014
2013
2014
2013
2014
2013
0
0
0
0
0
0
0
0
37,714
27,809
37,714
27,809
Total
0
0
37,714
27,809
37,714
27,809
1 Compensation or remuneration that is connected with the former members’ activity on the BoD or GEB or that is not at market conditions. 2 Local currencies are converted into CHF using the exchange rates as
detailed in “Note 36 Currency translation rates” in the “Financial information” section of the Annual Report 2014. 3 Includes one former GEB member in 2014 and 2013. ▲
381
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
382
Advisory vote Financial information Financial information
384
Table of contents388Introduction and accounting principles389UBS Group AG consolidated financial statements389Management’s report on internal control over financial reporting390Report of independent registered public accounting firm on internal control over financial reporting392Report of the statutory auditor and the independent registered public accounting firm on the consolidated financial statements394Income statement395Statement of comprehensive income397Balance sheet398Statement of changes in equity402UBS Group AG shares issued and treasury shares held403Statement of cash flows405Notes to the UBS Group AG consolidated financial statements4051 Summary of significant accounting policies4262 Segment reporting431Income statement notes4313 Net interest and trading income4324 Net fee and commission income4335 Other income4336 Personnel expenses4347 General and administrative expenses4348 Income taxes4389 Earnings per share (EPS) and shares outstanding439Balance sheet notes: assets 43910 Due from banks and loans (held at amortized cost)44011 Cash collateral on securities borrowed and lent, reverse repurchase and repurchase agreements, and derivative instruments44112 Allowances and provisions for credit losses44213 Trading portfolio44314 Derivative instruments and hedge accounting45115 Financial investments available-for-sale45216 Property and equipment45317 Goodwill and intangible assets45518 Other assets456Balance sheet notes: liabilities45619 Due to banks and customers45620 Financial liabilities designated at fair value45721 Debt issued held at amortized cost45822 Provisions and contingent liabilities46823 Other liabilities469Additional information46924 Fair value measurement49225 Restricted and transferred financial assets49526 Offsetting financial assets and financial liabilities49827 Financial assets and liabilities – additional information50228 Pension and other post-employment benefit plans51729 Equity participation and other compensation plans52730 Interests in subsidiaries and other entities53631 Business combinations53732 Changes in organization53933 Operating leases and finance leases54034 Related parties54335 Invested assets and net new money54436 Currency translation rates54537 Events after the reporting period54638 Swiss GAAP requirements
385
Financial information549UBS AG consolidated financial statements549Management’s report on internal control over financial reporting550Report of independent registered public accounting firm on internal control over financial reporting552Report of the statutory auditor and the independent registered public accounting firm on the consolidated financial statements554Income statement555Statement of comprehensive income557Balance sheet558Statement of changes in equity562UBS AG shares issued and treasury shares held563Statement of cash flows565Notes to the UBS AG consolidated financial statements5651 Summary of significant accounting policies5872 Segment reporting592Income statement notes5923 Net interest and trading income5934 Net fee and commission income5945 Other income5946 Personnel expenses5957 General and administrative expenses5958 Income taxes5999 Earnings per share (EPS) and shares outstanding600Balance sheet notes: assets60010 Due from banks and loans (held at amortized cost)60111 Cash collateral on securities borrowed and lent, reverse repurchase and repurchase agreements, and derivative instruments60212 Allowances and provisions for credit losses60313 Trading portfolio60414 Derivative instruments and hedge accounting61215 Financial investments available-for-sale61316 Property and equipment61417 Goodwill and intangible assets61718 Other assets618Balance sheet notes: liabilities61819 Due to banks and customers61820 Financial liabilities designated at fair value61921 Debt issued held at amortized cost62122 Provisions and contingent liabilities63223 Other liabilities633Additional information63324 Fair value measurement65625 Restricted and transferred financial assets65926 Offsetting financial assets and financial liabilities66227 Financial assets and liabilities – additional information66628 Pension and other post-employment benefit plans68129 Equity participation and other compensation plans69130 Interests in subsidiaries and other entities70031 Business combinations70132 Changes in organization70333 Operating leases and finance leases70434 Related parties70735 Invested assets and net new money70836 Currency translation rates70937 Events after the reporting period71038 Swiss GAAP requirements71239 Supplemental guarantor information required under SEC regulations Financial information
725
UBS Group AG standalone financial statements
745
UBS AG standalone financial statements
745
Financial review
748
749
750
751
751
751
754
754
754
755
755
756
757
757
758
758
759
759
759
760
760
761
763
Income statement
Balance sheet
Statement of appropriation of retained earnings and
proposed distribution of capital contribution reserve
Notes to the UBS AG standalone financial statements
1
Business activities, risk assessment, outsourcing and
personnel
2 Accounting policies
3 Net trading income
4 Sundry ordinary income and expenses
5 Extraordinary income and expenses
6 Other assets and liabilities
7 Pledged assets
8
Swiss pension plan and non-Swiss defined benefit
plans
9 Allowances and provisions
10 Statement of shareholders’ equity
11 Share capital and significant shareholders
12 Transactions with related parties
Off-balance sheet and other information
13 Commitments and contingent liabilities
14 Derivative instruments
15 Fiduciary transactions
16 Events after the reporting period
Report of the statutory auditor on the financial statements
Independent auditor’s report related to the issue of new
shares from conditional capital
Income statement
Balance sheet
Statement of appropriation of retained earnings and
proposed distribution of capital contribution reserve
Notes to the UBS Group AG standalone financial
statements
1 Corporate information
2 Accounting policies
Income statement notes
3 Other operating income
4 Personnel expenses
5 Other operating expenses
6
Financial expenses
Balance sheet notes
7
Liquid assets
8 Marketable securities
9 Other short-term receivables
10 Accrued income and prepaid expenses
11 Investments in subsidiaries
12 Financial assets
13 Prepaid assets
14 Current interest-bearing liabilities
15 Accrued expenses and deferred income
16 Other long-term liabilities
17 Share capital
18 Treasury shares
Additional information
19 Personnel
20 Assets pledged to secure own liabilities
21 Contingent liabilities
22 Significant shareholders
23 Share and option ownership of the members of the
Board of Directors and the Group Executive Board
24 Related parties
25 Events after the reporting period
Report of the statutory auditor on the financial statements
Independent auditor’s report related to the issue of new
shares from conditional capital
Independent auditor’s report related to a capital increase
725
726
727
728
728
728
731
731
731
731
731
732
732
732
732
732
733
733
733
733
734
734
734
734
735
735
735
735
735
736
738
739
740
742
743
386
765
UBS Group AG consolidated supplemental disclosures
required under SEC regulations
787
UBS AG consolidated supplemental disclosures
required under SEC regulations
765
A – Introduction
787
A – Introduction
766
767
769
770
771
771
772
772
773
775
777
778
778
779
780
781
782
783
784
785
B – Selected financial data
Key figures
Income statement data
Balance sheet data
C – Information on the company
Property, plant and equipment
D – Information required by industry guide 3
Selected statistical information
Average balances and interest rates
Analysis of changes in interest income and expense
Deposits
Short-term borrowings
Contractual maturities of investments in debt instruments
available-for-sale
Due from banks and loans (gross)
Due from banks and loan maturities (gross)
Impaired and non-performing loans
Cross-border outstandings
Summary of movements in allowances and provisions
for credit losses
Allocation of the allowances and provisions for
credit losses
Due from banks and loans by industry sector (gross)
788
789
791
792
792
793
793
794
794
795
797
799
800
800
801
802
803
804
805
806
807
B – Selected financial data
Key figures
Income statement data
Balance sheet data
Ratio of earnings to fixed charges
C – Information on the company
Property, plant and equipment
D – Information required by industry guide 3
Selected statistical information
Average balances and interest rates
Analysis of changes in interest income and expense
Deposits
Short-term borrowings
Contractual maturities of investments in debt instruments
available-for-sale
Due from banks and loans (gross)
Due from banks and loan maturities (gross)
Impaired and non-performing loans
Cross-border outstandings
Summary of movements in allowances and provisions
for credit losses
Allocation of the allowances and provisions for
credit losses
Due from banks and loans by industry sector (gross)
387
Financial information Financial information
388
Introduction and accounting principlesThe financial information section of UBS’s Annual Report 2014 consists of: –the audited consolidated financial statements of UBS Group AG for 2014 prepared in accordance with International Finan-cial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB); –the audited standalone financial statements of UBS Group AG for 2014 prepared in accordance with the principles of the Swiss Law on Accounting and Financial Reporting (32nd title of the Swiss Code of Obligations); –the audited consolidated financial statements of UBS AG for 2014 prepared in accordance with IFRS as issued by the IASB; –the audited standalone financial statements of UBS AG for 2014 and an associated review, prepared in order to meet Swiss regulatory requirements and in accordance with Swiss GAAP (FINMA Circular 2008/2 and the Banking Ordinance); –supplemental disclosures for UBS Group AG (consolidated) required under US Securities and Exchange Commission (SEC) regulations; –supplemental disclosures for UBS AG (consolidated) required under US SEC regulations; –supplemental disclosures for UBS Group AG (consolidated) re-quired under Basel III Pillar 3 regulations. ➔Refer to www.ubs.com/investorsThe significant accounting policies applied in the preparation of the UBS Group AG consolidated financial statements are de-scribed in Note 1 to those financial statements. Except where oth-erwise explicitly stated in these financial statements, all financial information is in Swiss francs (CHF) and presented on a consoli-dated basis under IFRS, and all references to UBS refer to UBS Group (consolidated) and not to UBS Group AG (standalone). All references to 2014, 2013 and 2012 refer to the fiscal years ended 31 December 2014, 2013 and 2012, respectively.The significant accounting policies applied in the preparation of the consolidated UBS AG financial statements are described in Note 1 to those consolidated financial statements. Except where otherwise explicitly stated in these financial statements, all finan-cial information is in Swiss francs (CHF) and presented on a con-solidated basis under IFRS, and all references to UBS AG refer to UBS AG (consolidated) and not to UBS AG (standalone). All refer-ences to 2014, 2013 and 2012 refer to the fiscal years ended 31 December 2014, 2013 and 2012, respectively. The financial statements of UBS Group AG and UBS AG have been audited by Ernst & Young Ltd.
UBS Group AG consolidated financial statements
Management’s report on internal control over financial
reporting
Management’s responsibility for internal control over financial
reporting
The Board of Directors and management of UBS Group AG (UBS)
are responsible for establishing and maintaining adequate internal
control over financial reporting. UBS’s internal control over financial
reporting is designed to provide reasonable assurance regarding
the preparation and fair presentation of published financial state-
ments in accordance with IFRS as issued by the IASB.
UBS’s internal control over financial reporting includes those
policies and procedures that:
– Pertain to the maintenance of records that, in reasonable de-
tail, accurately and fairly reflect transactions and dispositions
of assets;
– Provide reasonable assurance that transactions are recorded as
necessary to permit preparation and fair presentation of finan-
cial statements, and that receipts and expenditures of the com-
pany are being made only in accordance with authorizations of
UBS management; and
– Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the fi-
nancial statements.
Because of its inherent limitations, internal control over finan-
cial reporting may not prevent or detect misstatements. Also, pro-
jections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management’s assessment of internal control over financial
reporting as of 31 December 2014
UBS management has assessed the effectiveness of UBS’s internal
control over financial reporting as of 31 December 2014 based on
the criteria set forth by the Committee of Sponsoring Organiza-
tions of the Treadway Commission (COSO) in Internal Control
Integrated Framework (2013 Framework). Based on this assess-
ment, management believes that, as of 31 December 2014, UBS’s
internal control over financial reporting was effective.
The effectiveness of UBS’s internal control over financial re-
porting as of 31 December 2014 has been audited by Ernst &
Young Ltd, UBS’s independent registered public accounting firm,
as stated in their report appearing on pages 390 to 391, which
expresses an unqualified opinion on the effectiveness of UBS’s in-
ternal control over financial reporting as of 31 December 2014.
389
Financial information Financial information
UBS Group AG consolidated financial statements
390
391
Financial information Financial information
UBS Group AG consolidated financial statements
392
393
Financial information Financial information
UBS Group AG consolidated financial statements
Audited | Income statement
CHF million, except per share data
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss expense
Net fee and commission income
Net trading income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS Group AG shareholders
Earnings per share (CHF)
Basic
Diluted
Note
31.12.14
31.12.13
For the year ended
3
3
3
12
4
3
5
6
7
16
17
17
8
9
9
13,194
(6,639)
6,555
(78)
6,477
17,076
3,842
632
28,027
15,280
9,387
817
0
83
25,567
2,461
(1,180)
3,640
142
32
3,466
0.93
0.91
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
580
27,732
15,182
8,380
816
0
83
24,461
3,272
(110)
3,381
204
5
3,172
0.84
0.83
31.12.12
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
641
25,423
14,737
8,653
689
3,030
106
27,216
(1,794)
461
(2,255)
220
5
(2,480)
(0.66)
(0.66)
% change from
31.12.13
0
(10)
13
56
13
5
(25)
9
1
1
12
0
0
5
(25)
973
8
(30)
540
9
11
10
394
Statement of comprehensive income
CHF million
Comprehensive income attributable to UBS Group AG shareholders
Net profit / (loss)
Other comprehensive income
Other comprehensive income that may be reclassified to the income statement
Foreign currency translation
Foreign currency translation movements, before tax
Foreign exchange amounts reclassified to the income statement from equity
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation, net of tax
Financial investments available-for-sale
Net unrealized gains / (losses) on financial investments available-for-sale, before tax
Impairment charges reclassified to the income statement from equity
Realized gains reclassified to the income statement from equity
Realized losses reclassified to the income statement from equity
Income tax relating to net unrealized gains / (losses) on financial investments available-for-sale
Subtotal financial investments available-for-sale, net of tax
Cash flow hedges
Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax
Net realized (gains) / losses reclassified to the income statement from equity
Income tax relating to cash flow hedges
Subtotal cash flow hedges, net of tax
Total other comprehensive income that may be reclassified to the income statement, net of tax
Other comprehensive income that will not be reclassified to the income statement
Defined benefit plans
Gains / (losses) on defined benefit plans, before tax
Income tax relating to defined benefit plans
Subtotal defined benefit plans, net of tax
Property revaluation surplus
Gains on property revaluation, before tax
Net (gains) / losses reclassified to retained earnings
Income tax relating to gains on property revaluation
Subtotal changes in property revaluation surplus, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Total other comprehensive income
Total comprehensive income attributable to UBS Group AG shareholders
Table continues on the next page.
For the year ended
31.12.14
31.12.13
31.12.12
3,466
3,172
(2,480)
1,800
2
(7)
1,795
335
75
(243)
25
(51)
141
2,068
(1,185)
(195)
689
2,625
(1,410)
238
(1,172)
0
0
0
0
(1,172)
1,453
4,920
(440)
(36)
5
(471)
(57)
41
(265)
56
71
(154)
(652)
(1,261)
393
(1,520)
(2,145)
1,178
(239)
939
0
(6)
0
(6)
933
(1,211)
1,961
(362)
(58)
(91)
(511)
335
85
(433)
19
20
26
1,714
(1,235)
(95)
384
(102)
1,023
(413)
609
8
0
(2)
6
615
514
(1,966)
395
Financial information Financial information
UBS Group AG consolidated financial statements
Statement of comprehensive income (continued)
Table continued from previous page.
CHF million
Comprehensive income attributable to preferred noteholders
Net profit / (loss)
Other comprehensive income
Other comprehensive income that will not be reclassified to the income statement
Foreign currency translation movements, before tax
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Total comprehensive income attributable to preferred noteholders
Comprehensive income attributable to non-controlling interests
Net profit / (loss)
Other comprehensive income
Other comprehensive income that will not be reclassified to the income statement
Foreign currency translation movements, before tax
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation, net of tax
Gains / (losses) on defined benefit plans, before tax
Income tax relating to defined benefit plans
Subtotal defined benefit plans, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Other comprehensive income that may be reclassified to the income statement
Other comprehensive income that may be reclassified to the income statement, before tax
Income tax relating to other comprehensive income that may be reclassified to the income statement
Other comprehensive income that may be reclassified to the income statement, net of tax
Total other comprehensive income that may be reclassified to the income statement, net of tax
Total other comprehensive income
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
Net profit / (loss)
Other comprehensive income
of which: other comprehensive income that may be reclassified to the income statement
of which: other comprehensive income that will not be reclassified to the income statement
Total comprehensive income
For the year ended
31.12.14
31.12.13
31.12.12
142
80
0
80
80
221
32
80
0
80
(44)
8
(36)
44
5
(2)
3
3
47
79
204
355
0
355
355
559
5
(1)
0
(1)
0
0
0
(1)
0
0
0
0
(1)
4
220
(41)
0
(41)
(41)
179
5
15
0
15
0
0
0
15
0
0
0
0
15
20
3,640
1,580
2,628
(1,048)
5,220
3,381
(857)
(2,145)
1,288
2,524
(2,255)
487
(102)
589
(1,767)
396
Balance sheet
CHF million
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Provisions
Other liabilities
Total liabilities
Equity
Share capital
Share premium
Treasury shares
Equity classified as obligation to purchase own shares
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
Equity attributable to UBS Group AG shareholders
Equity attributable to preferred noteholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
Note
31.12.14
31.12.13
31.12.13
% change from
10
11
11
13
25
14
11
27
10
15
30
16
17
8
18
19
11
11
13
14
11
20
19
21
22
8, 23
104,073
13,334
24,063
68,414
138,156
56,018
256,978
30,979
4,951
315,757
57,159
927
6,854
6,785
11,060
22,988
1,062,478
10,492
9,180
11,818
27,958
254,101
42,372
75,297
410,207
91,207
4,366
71,112
1,008,110
372
32,590
(1,393)
(1)
22,134
(3,093)
50,608
0
3,760
54,368
80,879
13,874
27,496
91,563
122,848
42,449
254,084
26,548
7,364
286,959
59,525
842
6,006
6,293
8,845
20,228
1,013,355
12,862
9,491
13,811
26,609
248,079
44,507
69,901
390,825
81,586
2,971
62,777
963,419
384
33,952
(1,031)
(46)
20,608
(5,866)
48,002
1,893
41
49,936
1,062,478
1,013,355
29
(4)
(12)
(25)
12
32
1
17
(33)
10
(4)
10
14
8
25
14
5
(18)
(3)
(14)
5
2
(5)
8
5
12
47
13
5
(3)
(4)
35
(98)
7
(47)
5
(100)
9
5
397
Financial information Financial information
UBS Group AG consolidated financial statements
Statement of changes in equity
CHF million
Balance as of 1 January 2012
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
Equity classified
as obligation to
purchase own shares
(39)
Share
capital
383
0
Share
premium
34,614
Treasury
shares
(1,160)
(1,398)
1,486
(9)
4
126
(457)
(379) 2
(1)
2
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
foreign currency translation
Balance as of 31 December 2012
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
384
1
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
foreign currency translation
33,898
(1,071)
(37)
16,491
(3,715)
(6,954)
249
2,983
45,949
(846)
887
203
30
305
91
(564) 2
(11)
(9)
Balance as of 31 December 2013
384
33,952
(1,031)
(46)
20,608
(5,866)
(7,425)
95
1,463
48,002
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment of CHF 0.25 (2013: CHF 0.15, 2012: CHF 0.10) per share of CHF 0.10 par value out of capital contribution reserve
of UBS AG (standalone).
398
Other comprehensive
income recognized
of which:
Financial invest-
Retained
earnings
18,361
directly in equity,
Foreign currency
net of tax 1
(3,620)
translation
(6,443)
of which:
ments avail-
able-for-sale
223
Total equity
attributable to
UBS Group AG
shareholders
of which:
Cash flow
hedges
2,600
Preferred
Non-controlling
noteholders
3,150
interests
Total equity
46
48,540
0
(1,398)
1,486
(9)
4
126
(457)
(379)
2
0
0
(1)
(1,966)
(2,480)
(102)
609
0
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
1,961
3,172
(2,145)
939
0
(220)
179
220
(41)
3,109
(204)
(1,572)
0
559
204
355
1,893
51,737
0
(1,398)
1,486
(9)
4
126
(457)
(605)
2
0
(11)
(9)
(1,767)
(2,255)
(102)
49,100
609
(26)
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
3,381
(2,145)
939
355
49,936
(6)
(10)
(9)
20
5
15
42
(6)
4
5
(1)
41
(1,871)
(2,480)
609
6
4,111
3,172
939
(96)
(102)
(511)
(511)
26
26
384
384
(2,151)
(2,145)
(471)
(471)
(154)
(154)
(1,520)
(1,520)
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Statement of changes in equity
CHF million
Balance as of 1 January 2012
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Preferred notes
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
foreign currency translation
Balance as of 31 December 2012
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Preferred notes
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
foreign currency translation
Balance as of 31 December 2013
of UBS AG (standalone).
(9)
4
126
(457)
(379) 2
(1)
203
30
305
91
(564) 2
(11)
384
1
(846)
887
2
(9)
Equity classified
as obligation to
purchase own shares
(39)
Share
capital
383
0
Share
premium
34,614
Treasury
shares
(1,160)
(1,398)
1,486
Other comprehensive
income recognized
directly in equity,
net of tax 1
(3,620)
of which:
Foreign currency
translation
of which:
Financial invest-
ments avail-
able-for-sale
(6,443)
223
Retained
earnings
18,361
of which:
Cash flow
hedges
2,600
(1,871)
(2,480)
609
(96)
(102)
(511)
(511)
26
26
384
384
Total equity
attributable to
UBS Group AG
shareholders
48,540
0
(1,398)
1,486
(9)
4
126
(457)
(379)
2
0
(1)
0
(1,966)
(2,480)
(102)
609
0
33,898
(1,071)
(37)
16,491
(3,715)
(6,954)
249
2,983
45,949
6
4,111
3,172
939
(2,151)
(2,145)
(471)
(471)
(154)
(154)
(1,520)
(1,520)
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
1,961
3,172
(2,145)
939
0
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment of CHF 0.25 (2013: CHF 0.15, 2012: CHF 0.10) per share of CHF 0.10 par value out of capital contribution reserve
384
33,952
(1,031)
(46)
20,608
(5,866)
(7,425)
95
1,463
48,002
Preferred
noteholders
Non-controlling
interests
3,150
46
(220)
179
220
(41)
3,109
(204)
(1,572)
0
559
204
355
1,893
(6)
(10)
(9)
20
5
15
42
(6)
4
5
(1)
41
Total equity
51,737
0
(1,398)
1,486
(9)
4
126
(457)
(605)
2
0
(11)
(9)
(1,767)
(2,255)
(102)
609
(26)
49,100
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
3,381
(2,145)
939
355
49,936
399
Financial information Financial information
UBS Group AG consolidated financial statements
Statement of changes in equity (continued)
CHF million
Balance as of 31 December 2013
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
foreign currency translation
Changes to legal structure / reorganization: Effect of establishment of UBS Group AG
Changes to legal structure / reorganization: Increase in UBS Group AG’s ownership interest in UBS AG
Balance as of 31 December 2014
Share
premium
33,952
Treasury
shares
(1,031)
Equity classified
as obligation to
purchase own shares
(46)
Share
capital
384
0
(918)
519
24
3
619
3
(938) 2
45
(1)
(37)
24
372
(3,078)
2,006
32,590
37
(1,393)
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment of CHF 0.25 (2013: CHF 0.15, 2012: CHF 0.10) per share of CHF 0.10 par value out of capital contribution
reserve of UBS AG (standalone).
Other comprehensive
income recognized
of which:
Financial invest-
Retained
earnings
20,608
directly in equity,
Foreign currency
net of tax 1
(5,866)
translation
(7,425)
of which:
ments avail-
able-for-sale
95
of which:
Cash flow
hedges
1,463
Total equity
attributable to
UBS Group AG
shareholders
48,002
Preferred
Non-controlling
noteholders
1,893
interests
Total equity
41
49,936
(918)
519
24
619
(938)
45
0
3
3
0
0
0
4,920
3,466
2,625
(1,172)
0
(4,968)
3,299
50,608
(918)
519
24
619
(1,084)
45
0
3
3
1
1
0
5,220
3,640
2,628
(1,208)
160
0
0
54,368
(142)
1
221
142
80
(1,974)
0
(4)
1
79
32
3
(36)
80
6,942
(3,299)
3,760
2,295
3,466
(1,172)
(2,219)
1,449
22,134
2,625
2,625
1,795
1,795
366
(218)
(3,093)
593
(369)
(5,406)
141
141
(25)
16
228
689
689
(203)
135
2,084
400
Other comprehensive
income recognized
directly in equity,
net of tax 1
(5,866)
of which:
Foreign currency
translation
of which:
Financial invest-
ments avail-
able-for-sale
(7,425)
95
Retained
earnings
20,608
of which:
Cash flow
hedges
1,463
Total equity
attributable to
UBS Group AG
shareholders
Preferred
noteholders
Non-controlling
interests
48,002
1,893
41
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Statement of changes in equity (continued)
CHF million
Balance as of 31 December 2013
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Preferred notes
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
Share
premium
33,952
Treasury
shares
(1,031)
Equity classified
as obligation to
purchase own shares
(46)
Share
capital
384
0
(918)
519
24
619
3
3
(938) 2
45
(1)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
foreign currency translation
Changes to legal structure / reorganization: Effect of establishment of UBS Group AG
Changes to legal structure / reorganization: Increase in UBS Group AG’s ownership interest in UBS AG
Balance as of 31 December 2014
reserve of UBS AG (standalone).
(37)
24
372
(3,078)
2,006
32,590
37
(1,393)
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment of CHF 0.25 (2013: CHF 0.15, 2012: CHF 0.10) per share of CHF 0.10 par value out of capital contribution
2,295
3,466
(1,172)
(2,219)
1,449
22,134
2,625
2,625
1,795
1,795
366
(218)
(3,093)
593
(369)
(5,406)
141
141
(25)
16
228
689
689
(203)
135
2,084
0
(918)
519
24
3
619
3
(938)
45
0
0
0
4,920
3,466
2,625
(1,172)
0
(4,968)
3,299
50,608
Total equity
49,936
0
(918)
519
24
3
619
3
(142)
1
221
142
80
(1,974)
0
(4)
(1,084)
45
1
1
0
5,220
3,640
2,628
(1,208)
160
0
0
54,368
1
79
32
3
(36)
80
6,942
(3,299)
3,760
401
Financial information Financial information
UBS Group AG consolidated financial statements
UBS Group AG shares issued and treasury shares held 1
Number of shares
Shares issued
Balance at the beginning of the year
Issuance of shares
Balance at the end of the year
Treasury shares 2
Balance at the beginning of the year
Acquisitions
Dispositions
Balance at the end of the year
For the year ended
31.12.14
3,717,128,324
3,717,128,324
73,800,252
49,271,831
(35,200,346)
87,871,737
1 Comparative period information is not available as UBS Group AG was incorporated on 10 June 2014 as a wholly owned subsidiary of UBS AG with a share capital of CHF 100,000 divided into 1,000,000 shares.
2 Represents movements in UBS AG treasury shares up to 27 November 2014 and movements in UBS Group AG treasury shares starting with 28 November 2014. On 28 November 2014, all UBS AG treasury shares were
exchanged for UBS Group AG treasury shares. Refer to Note 32 for more information.
402
Conditional share capitalAs of 31 December 2014, 135,982,195 additional UBS Group AG shares could have been issued to fund UBS’s employee share option programs.Additional conditional capital up to a maximum number of 380,000,000 UBS Group AG shares was available as of 31 December 2014 for conversion rights / warrants granted in connection with the issuance of bonds or similar financial instruments.Authorized share capitalUBS Group AG’s Board of Directors is authorized until 26 Novem-ber 2016 to increase the share capital of UBS Group AG for the purpose of acquiring UBS AG shares. The maximum number of shares available as of 31 December 2014 to increase the share capital of UBS Group AG for this purpose amounted to 127,650,706 registered shares. Statement of cash flows
CHF million
Cash flow from / (used in) operating activities
Net profit / (loss)
Adjustments to reconcile net profit to cash flow from / (used in) operating activities
Non-cash items included in net profit and other adjustments:
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Credit loss expense / (recovery)
Share of net profits of associates
Deferred tax expense / (benefit)
Net loss / (gain) from investing activities
Net loss / (gain) from financing activities
Other net adjustments
Net (increase) / decrease in operating assets and liabilities:
Due from / to banks
Cash collateral on securities borrowed and reverse repurchase agreements
Cash collateral on securities lent and repurchase agreements
Trading portfolio, replacement values and financial assets designated at fair value
Cash collateral on derivative instruments
Loans / due to customers
Other assets, provisions and other liabilities
Income taxes paid, net of refunds
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets 1
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale 2
Net cash flow from / (used in) investing activities
For the year ended
31.12.14
31.12.13
31.12.12
3,640
3,381
(2,255)
817
0
83
78
(94)
(1,635)
(227)
2,135
(6,899)
(1,235)
32,262
(3,698)
(2,880)
(6,458)
(11,624)
4,734
(600)
8,400
(18)
70
(1,915)
350
4,108
2,596
816
0
83
50
(49)
(545)
(522)
3,988
5,148
(7,551)
43,754
(23,659)
43,944
(25,649)
12,087
(3,935)
(382)
50,959
(49)
136
(1,236)
639
5,966
5,457
689
3,030
106
118
(88)
294
(486)
3,717
6,088
(7,686)
102,436
(66,407)
9,369
4,399
15,869
(1,771)
(261)
67,160
(11)
41
(1,118)
202
(13,994)
(14,879)
1 Includes dividends received from associates. 2 Includes gross cash inflows from sales and maturities (CHF 140,438 million for the year ended 31 December 2014, CHF 153,887 million for the year ended 31 Decem-
ber 2013) and gross cash outflows from purchases of (CHF 136,330 million for the year ended 31 December 2014, CHF 147,921 million for the year ended 31 December 2013).
Table continues on the next page.
403
Financial information Financial information
UBS Group AG consolidated financial statements
Statement of cash flows (continued)
Table continued from previous page.
CHF million
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Capital issuance
Distributions paid on UBS shares
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Dividends paid and repayments of preferred notes
Net changes of non-controlling interests
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Due from banks 2
Money market paper 3
Total 4
Additional information
Net cash flow from / (used in) operating activities include:
Cash received as interest
Cash paid as interest
Cash received as dividends on equity investments, investment funds and associates 5
For the year ended
31.12.14
31.12.13
31.12.12
(2,921)
(694)
0
(938)
40,982
(34,210)
(110)
(3)
2,108
8,611
21,714
105,266
126,980
104,073
22,037
869
126,980
(4,290)
(341)
1
(564)
28,014
(68,954)
(1,415)
(6)
(47,555)
(2,702)
6,158
99,108
105,266 1
80,879
20,099
4,288
105,266
11,321
5,360
1,961
12,148
7,176
1,421
(37,967)
(1,159)
0
(379)
55,890
(54,259)
(221)
(16)
(38,110)
(673)
13,500
85,609
99,108
66,383
28,344
4,381
99,108
14,551
9,166
1,430
1 Cash and cash equivalents as of 31 December 2013 were restated from CHF 108,632 to CHF 105,266 related to the removal of exchange-traded derivative client cash balances from the balance sheet. Refer to Note 1b
for more information. 2 Includes positions recognized in the balance sheet under Due from banks (31 December 2014: CHF 11,772 million, 31 December 2013: CHF 11,117 million, 31 December 2012: CHF 15,951
million) and Cash collateral receivables on derivative instruments with bank counterparties (31 December 2014: CHF 10,265 million, 31 December 2013: CHF 8,982 million, 31 December 2012: CHF 12,393 million, re-
fer to Note 10). 3 Money market paper is included in the balance sheet under Trading portfolio assets (31 December 2014: CHF 835 million, 31 December 2013: CHF 1,716 million, 31 December 2012: CHF 2,192
million) and Financial investments available-for-sale (31 December 2014: CHF 34 million, 31 December 2013: CHF 2,571 million, 31 December 2012: CHF 2,190 million). 4 CHF 4,593 million, CHF 4,966 million and
CHF 10,109 million of cash and cash equivalents (mainly reflected in Due from banks) were restricted as of 31 December 2014, 31 December 2013 and 31 December 2012, respectively. Refer to Note 25 for more infor-
mation. 5 Includes dividends received from associates (2014: CHF 54 million, 2013: CHF 69 million, 2012: CHF 37 million) reported within cash flow from / (used in) investing activities.
404
Note 1 Summary of significant accounting policies
a) Significant accounting policies
405
Financial informationDuring 2014, UBS Group AG was established as the holding com-pany of the Group. Refer to Note 32 for more information on the establishment of UBS Group AG. Pillar 3 | The significant accounting policies applied in the preparation of the consolidated financial statements (the “Financial Statements”) of UBS Group AG and its subsidiaries (“UBS” or the “Group”) are described in this note. These policies have been applied consistently in all years pre-sented unless otherwise stated. ▲The consolidated financial statements of UBS Group AG were prepared as a continuation of the consolidated financial state-ments of UBS AG, applying the same accounting policies under International Financial Reporting Standards (IFRS). The compara-tive information reflects the consolidated financial statements of UBS AG, as previously published, except for certain voluntary changes in accounting policy and presentation that are unrelated to the establishment of UBS Group AG, as described in Note 1b.1) Basis of accountingUBS provides a broad range of financial services including: advi-sory services, underwriting, financing, market-making, asset man-agement and brokerage on a global level, and retail banking in Switzerland. The Group was formed on 29 June 1998 when Swiss Bank Corporation and Union Bank of Switzerland merged.The Financial Statements are prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB), and are presented in Swiss francs (CHF), the currency of Switzer-land where UBS Group AG is incorporated. On 5 March 2015, the Financial Statements were authorized for issue by the Board of Directors. The Financial Statements are prepared using uniform accounting policies for similar transactions and other events. In-tercompany transactions and balances have been eliminated.Disclosures incorporated in the “Risk, treasury and capital man-agement” section of this report, which form part of these Financial Statements, are marked as audited. These disclosures relate to re-quirements under IFRS 7 Financial Instruments: Disclosures and IAS 1 Presentation of Financial Statements and are not repeated in the “Financial information – consolidated financial statements” section.2) Use of estimatesPreparation of these Financial Statements under IFRS requires management to make estimates and assumptions that affect re-ported amounts of assets, liabilities, income and expenses and disclosure 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 such differences may be material to the Financial Statements. Revisions to estimates, based on regular reviews, are recognized in the pe-riod in which they occur.The following notes to the Financial Statements contain infor-mation about those areas of estimation uncertainty considered to require critical judgment and have the most significant effect on the amounts recognized in the Financial Statements: Note 8 In-come taxes, Note 12 Allowances and provisions for credit losses, Note 17 Goodwill and intangible assets, Note 22 Provisions and contingent liabilities, Note 24 Fair value measurement, Note 28 Pension and other post-employment benefit plans, Note 29 Eq-uity participation and other compensation plans and Note 30 In-terests in subsidiaries and other entities.3) Subsidiaries and structured entitiesPillar 3 | The Financial Statements comprise those of the parent com-pany (UBS Group AG) and its subsidiaries, including controlled structured entities (SEs), presented as a single economic entity. Equity attributable to non-controlling interests is presented on the consolidated balance sheet within Equity, separately from Equity attributable to UBS Group AG shareholders.UBS controls an entity when it has power over the relevant activities of the entity, exposure to variable returns and the ability to use its power to affect its returns.Where an entity is governed by voting rights, control is gener-ally indicated by a direct shareholding of more than one-half of the voting rights.In other cases, the assessment of control is more complex and requires greater use of judgment. Where UBS has an interest in an entity that absorbs variability, UBS considers whether it has power over the entity that allows it to affect the variability of its returns. Consideration is given to all facts and circumstances to determine whether the Group has power over another entity, that is, the current ability to direct the relevant activities of an entity when decisions about those activities need to be made. Factors such as the purpose and design of the entity, rights held through contrac-tual arrangements such as call rights, put rights or liquidation rights, as well as potential decision-making rights are all consid-ered in this assessment. Where the Group has power over the relevant activities, a further assessment is made to determine whether, through that power, it has the ability to affect its own returns – that is, assessing whether power is held in a principal or agent capacity. Consideration is given to (i) the scope of decision-making authority, (ii) rights held by other parties, including re-moval or other participating rights and (iii) exposure to variability, Notes to the UBS Group AG consolidated financial statements Financial information
Notes to the UBS Group AG consolidated financial statements
including remuneration, relative to total variability of the entity as
well as whether that exposure is different from other investors. If,
after review of these factors, UBS concludes that it can exercise its
power to affect its own returns, the entity is consolidated.
Subsidiaries, including SEs, are consolidated from the date
control is obtained and are deconsolidated from the date control
ceases. Control, or the lack thereof, is reassessed if facts and cir-
cumstances indicate that there is a change to one or more of the
elements needed to establish that control is present. ▲
➔ Refer to Note 30 for more information on subsidiaries and
structured entities
Structured entities (SEs)
SEs are entities that have been designed so that voting or similar
rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate only to administrative
tasks and the relevant activities are directed by means of contrac-
tual arrangements. Such entities generally have a narrow and
well-defined objective and include those historically referred to as
special purpose entities SPEs and some investment funds. UBS
assesses whether an entity is an SE by considering the nature of
the activities of the entity as well as the substance of voting or
similar rights afforded to other parties, including investors and
independent boards or directors. UBS considers rights such as the
ability to liquidate the entity or remove the decision maker to be
similar to voting rights when the holder has the substantive ability
to exercise such rights without cause. In the absence of such
rights or in cases where the existence of such rights cannot be
fully established, the entity is considered to be an SE.
The Group sponsors the formation of SEs and interacts with
non-sponsored SEs for a variety of reasons including allowing cli-
ents to obtain or be exposed to particular risk profiles, to provide
funding or to sell or purchase credit risk. Many SEs are established
as bankruptcy remote, meaning that only the assets in the SE are
available for the benefit of the SE’s investors and such investors
have no other recourse to UBS. UBS is deemed to be the sponsor
of an SE when it is involved in its creation, establishment and
promotion and facilitates its ongoing success through the transfer
of assets or the provision of explicit or implicit financial, opera-
tional or other support. Where the Group acts purely as an advi-
sor, administrator or placement agent for an SE created by a third-
party entity, it is not considered to be sponsored by UBS.
Pillar 3 | Each individual entity is assessed for consolidation in line
with the consolidation principles described above, considering the
nature and scope of UBS involvement. ▲ As the nature and extent
of UBS involvement is unique to each entity, there is no uniform
consolidation outcome by entity – certain entities within a class
are consolidated and others are not. When UBS does not consoli-
date an SE but has an interest in an SE or has sponsored an SE,
additional disclosures are provided in Note 30 on the nature of
these interests and sponsorship activities. Pillar 3 | The classes of SEs
UBS is involved with include the following:
– Securitization structured entities are established to issue securi-
ties to investors that are backed by assets held by the SE and
whereby (i) significant credit risk associated with the securi-
tized exposures has been transferred to third parties and (ii)
there is more than one risk position or tranche issued by the
securitization vehicle in line with the Basel III securitization
definition. All securitization entities are classified as SEs. ▲
– Client investment structured entities are established predomi-
nantly for clients to invest in specific assets or risk exposures
through purchasing notes issued by the SE, predominantly on a
fixed-term basis. The SE may source assets via a transfer from
UBS or through an external market transaction. In some cases,
UBS may enter into derivatives with the SE to either align the
cash flows of the entity with the investor’s intended investment
objective or to introduce other desired risk exposures. In certain
cases, UBS may have interests in a third-party sponsored SE to
hedge specific risks or participate in asset-backed financing.
– Investment fund structured entities have a collective investment
objective, are managed by an investment manager and are ei-
ther passively managed, such that any decision-making does
not have a substantive effect on variability, or are actively man-
aged and investors or their governing bodies do not have sub-
stantive voting or similar rights. UBS creates and sponsors a
large number of funds in which it may have an interest through
the receipt of variable management fees and / or a direct invest-
ment. In addition, UBS has interests in a number of funds cre-
ated and sponsored by third parties, including exchange-traded
funds and hedge funds, to hedge issued structured products.
Business combinations
Business combinations are accounted for using the acquisition
method. As of the acquisition date, UBS recognizes the identi-
fiable assets acquired and the liabilities assumed at their acquisi-
tion-date fair values. For each business combination, UBS mea-
sures the non-controlling interests in the acquiree (present owner-
ship interests providing entitlement to a proportionate share of
the net assets of the acquiree in the event of liquidation) either at
fair value or at their proportionate share of the acquiree’s identifi-
able net assets.
The cost of an acquisition is the aggregate of the assets trans-
ferred, the liabilities incurred to former owners of the acquiree
and the equity instruments issued, measured at acquisition-date
fair values. Acquisition-related costs are expensed as incurred.
Any contingent consideration that may be transferred by UBS is
recognized at fair value at the acquisition date. If the contingent
consideration is classified as an asset or liability, subsequent
changes in the fair value of the contingent consideration are
recognized in the income statement. If the contingent consider-
ation is classified as equity, it is not remeasured and its subsequent
settlement is accounted for within Equity.
Any excess of the aggregate of the consideration transferred
and the amount recognized for non-controlling interests over the
406
Note 1 Summary of significant accounting policies (continued) net identifiable assets acquired and liabilities assumed is consid-
ered goodwill and is recognized as a separate asset on the bal-
ance sheet, initially measured at cost. If the fair value of the net
assets of the subsidiary acquired exceeds the aggregate of the
consideration transferred and the amount recognized for non-
controlling interests, the difference is recognized in the income
statement on the acquisition date.
➔ Refer to Note 31 for more information
4) Associates and joint ventures
Investments in entities in which UBS has significant influence, but
not control, over the financial and operating policies of the entity
are classified as investments in associates and accounted for un-
der the equity method of accounting. Normally, significant influ-
ence is indicated when UBS owns between 20% and 50% of a
company’s voting rights. Investments in associates are initially rec-
ognized at cost, and the carrying amount is increased or de-
creased after the date of acquisition to recognize the Group’s
share of the investee’s net profit or loss (including net profit or loss
recognized directly in equity). Interests in joint ventures are also
accounted for under the equity method of accounting. A joint
venture is subject to a contractual agreement between UBS and
one or more third parties, which establishes joint control over the
relevant activities and provides rights to the net assets of the en-
tity. Interests in joint ventures are classified as Investments in as-
sociates.
If the reporting date of an associate or joint venture is different
than UBS’s reporting date, the most recently available financial
statements of the associate or joint venture are used to apply the
equity method. Adjustments are made for effects of significant
transactions or events that may occur between that date and the
UBS reporting date.
Investments in associates and interests in joint ventures are
classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through con-
tinuing use. Refer to item 29 for more information.
➔ Refer to Note 30 for more information on associates and joint
ventures
5) Recognition and derecognition of financial instruments
UBS recognizes financial instruments on its balance sheet when
the Group becomes a party to the contractual provisions of the
instruments. UBS also acts in a trustee or other fiduciary capacity,
which results in the holding or placing of assets on behalf of indi-
viduals, trusts, retirement benefit plans and other institutions. Un-
less the recognition criteria are satisfied, these assets and the re-
lated income are excluded from UBS’s Financial Statements, as
they are not assets of UBS.
Pillar 3 | Financial assets
UBS enters into certain transactions where it transfers financial
assets recognized on its balance sheet but retains either all or a
portion of the risks and rewards of the transferred financial assets.
If all or substantially all of the risks and rewards are retained, the
transferred financial assets are not derecognized from the balance
sheet. Transactions where transfers of financial assets result in
UBS retaining all or substantially all risks and rewards include se-
curities lending and repurchase transactions described under
items 13 and 14. They also include transactions where financial
assets are sold to a third party together with a total return swap
that results in UBS retaining all or substantially all risks and re-
wards of the transferred assets. These types of transactions are
accounted for as secured financing transactions.
In transactions where substantially all of the risks and rewards
of ownership of a financial asset are neither retained nor trans-
ferred, UBS derecognizes the financial asset if control over the
asset is surrendered. The rights and obligations retained following
the transfer are recognized separately as assets and liabilities, re-
spectively. In transfers where control over the financial asset is
retained, the Group continues to recognize the asset to the extent
of its continuing involvement, determined by the extent to which
it is exposed to changes in the value of the transferred asset fol-
lowing the transfer. Examples of such transactions include written
put options, acquired call options, or other instruments linked to
the performance of the transferred asset.
For the purposes of the Group’s disclosures of transferred fi-
nancial assets, a financial asset is typically considered to have
been transferred when the Group a) transfers the contractual
rights to receive the cash flows of the financial asset or b) retains
the contractual rights to receive the cash flows of that asset, but
assumes a contractual obligation to pay the cash flows to one or
more entities.
Where financial assets have been pledged as collateral or in
similar arrangements, they are considered to have been trans-
ferred if the counterparty has received the contractual right to the
cash flows of the pledged assets, as may be evidenced, for ex-
ample, by the counterparty’s right to sell or repledge the assets.
Where the counterparty to the pledged financial assets has not
received the contractual right to the cash flows, the assets are
considered pledged, but not transferred.
➔ Refer to Note 25b and 25c for more information on transferred
financial assets
Financial liabilities
UBS derecognizes a financial liability from its balance sheet
when it is extinguished, such as when the obligation specified in
the contract is discharged, cancelled or has expired. When an
existing financial liability is exchanged for a new one from the
same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original liabil-
ity and the recognition of a new liability with any difference in
the respective carrying amounts being recognized in the income
statement. ▲
407
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
6) Determination of fair value
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between mar-
ket participants at the measurement date.
➔ Refer to Note 24 for more information
7) Trading portfolio assets and liabilities
Non-derivative financial assets and liabilities are classified at ac-
quisition as held for trading and presented in the trading portfolio
if they are a) acquired or incurred principally for the purpose of
selling or repurchasing in the near term, or b) part of a portfolio
of identified financial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-
term profit-taking.
The trading portfolio includes non-derivative financial instru-
ments (including those with embedded derivatives) and commod-
ities. Financial instruments that are considered derivatives in their
entirety generally are presented on the balance sheet as Positive
replacement values or Negative replacement values. Refer to item
15 for more information. The trading portfolio includes recog-
nized assets and liabilities relating to proprietary, hedging and
client-related business.
Trading portfolio assets include debt instruments (including
those in the form of securities, money market paper and traded
corporate and bank loans), equity instruments, assets held under
unit-linked contracts and precious metals and other commodities
owned by the Group (long positions). Trading portfolio liabilities
include obligations to deliver financial instruments such as debt
and equity instruments which the Group has sold to third parties
but does not own (short positions).
Assets and liabilities in the trading portfolio are measured at
fair value. Gains and losses realized on disposal or redemption of
these assets and liabilities and unrealized gains and losses from
changes in the fair value of these assets and liabilities are reported
as Net trading income. Interest and dividend income and expense
on these assets and liabilities are included in Interest and dividend
income or Interest and dividend expense.
The Group uses settlement date accounting when recognizing
assets and liabilities in the trading portfolio. From the date a pur-
chase transaction is entered into (trade date) until settlement date,
UBS recognizes any unrealized profits and losses arising from re-
measuring the transaction to fair value in Net trading income. The
corresponding receivable or payable is presented on the balance
sheet as a Positive replacement value or Negative replacement
value, respectively. On settlement date, the resulting financial asset
is recognized on the balance sheet at the fair value of the consid-
eration given or received, plus or minus the change in fair value of
the contract since the trade date. From the trade date of a sales
transaction, unrealized profits and losses are no longer recognized
and, on settlement date, the asset is derecognized.
Trading portfolio assets transferred to external parties that do
not qualify for derecognition (refer to item 5 for more informa-
tion) and where the transferee has obtained the right to sell or
repledge the assets continue to be classified on the UBS balance
sheet as Trading portfolio assets but are identified as Assets
pledged as collateral which may be sold or repledged by counter-
parties. Such assets continue to be measured at fair value.
➔ Refer to Note 13 and 24 for more information on trading
portfolio assets and liabilities
8) Financial assets and financial liabilities designated at fair value
through profit or loss
A financial instrument may only be designated at fair value
through profit or loss upon initial recognition and this designation
cannot be changed subsequently. Financial assets and financial
liabilities designated at fair value are presented on separate lines
on the face of the balance sheet. The fair value option can be ap-
plied only if one of the following criteria is met:
– the financial instrument is a hybrid instrument which includes
a substantive embedded derivative;
– the financial instrument is part of a portfolio which is risk man-
aged on a fair value basis and reported to senior management
on that basis or
– the application of the fair value option eliminates or significantly
reduces an accounting mismatch that would otherwise arise.
UBS has used the fair value option to designate most of its is-
sued hybrid debt instruments as financial liabilities designated at
fair value through profit or loss, on the basis that such financial
instruments include embedded derivatives and / or are managed
on a fair value basis. Such hybrid debt instruments predominantly
include the following:
– Equity-linked bonds or notes: linked to a single stock, a basket
of stocks or an equity index;
– Credit-linked bonds or notes: linked to the performance (cou-
pon and / or redemption amount) of single names (such as a
company or a country) or a basket of reference entities and
– Rates-linked bonds or notes: linked to a reference interest rate,
interest rate spread or formula.
The fair value option is applied to certain loans and loan com-
mitments, otherwise accounted for at amortized cost, which are
hedged predominantly with credit derivatives. The application of
the fair value option to the loans and loan commitments reduces
an accounting mismatch, as the credit derivatives are accounted
for as derivative instruments at fair value through profit or loss.
Similarly, UBS has applied the fair value option to certain struc-
tured loans and reverse repurchase and securities borrowing
agreements which are part of portfolios managed on a fair value
basis.
The fair value option is applied to assets held to hedge de-
ferred cash-settled employee compensation awards, in order to
reduce an accounting mismatch that would otherwise arise due
to the liability being measured on a fair value basis.
408
Note 1 Summary of significant accounting policies (continued) Fair value changes related to financial instruments designated
at fair value through profit or loss are recognized in Net trading
income. Interest income and interest expense on financial assets
and liabilities designated at fair value through profit or loss are
recognized in Interest income on financial assets designated at
fair value or Interest expense on financial liabilities designated at
fair value, respectively.
UBS applies the same recognition and derecognition principles
to financial instruments designated at fair value as to financial
instruments in the trading portfolio. Refer to items 5 and 7 for
more information.
➔ Refer to Notes 3, 20, 24e and 27d for more information on
financial assets and liabilities designated at fair value
9) Financial investments available-for-sale
Financial investments available-for-sale are non-derivative finan-
cial assets that are not classified as held for trading, designated at
fair value through profit or loss, or loans and receivables. They are
recognized on a settlement date basis.
Financial investments available-for-sale include debt securities
held as part of the multi-currency portfolio of unencumbered,
high-quality, liquid assets, a majority of which are short-term,
managed centrally by Group Treasury, strategic equity invest-
ments, certain investments in real estate funds, certain equity in-
struments including private equity investments, and debt instru-
ments and non-performing loans acquired in the secondary
market.
Financial investments available-for-sale are recognized initially
at fair value less transaction costs and are measured subsequently
at fair value. Unrealized gains and losses are reported in Other
comprehensive income within Equity, net of applicable income
taxes, until such investments are sold, collected or otherwise dis-
posed of, or until any such investment is determined to be im-
paired. Unrealized gains before tax are presented separately from
unrealized losses before tax in Note 15.
For monetary instruments (such as debt securities), foreign ex-
change translation gains and losses determined by reference to
the instrument’s amortized cost basis are recognized in Net trad-
ing income. Foreign exchange translation gains and losses related
to other changes in fair value are recognized in Other comprehen-
sive income within Equity. Foreign exchange translation gains and
losses associated with non-monetary instruments (such as equity
securities) are part of the overall fair value change of the instru-
ments and are recognized in Other comprehensive income within
Equity.
Interest and dividend income on financial investments avail-
able-for-sale are included in Interest and dividend income from
financial investments available-for-sale. Interest income is deter-
mined by reference to the instrument’s amortized cost basis using
the effective interest rate (EIR).
On disposal of an investment, any related accumulated unreal-
ized gains or losses included in Equity are transferred to the in-
come statement and reported in Other income. Gains or losses on
disposal are determined using the average cost method.
At each balance sheet date, UBS assesses whether indicators of
impairment are present for an available-for-sale investment. An
available-for-sale investment is impaired when there is objective
evidence that, as a result of one or more events that occurred after
the initial recognition of the investment, the estimated future cash
flows from the investment have decreased. A significant or pro-
longed decline in the fair value of an available-for-sale equity instru-
ment below its original cost is considered objective evidence of an
impairment. In the event of a significant decline in fair value below
its original cost (20%) or a prolonged decline (six months), an im-
pairment is recorded unless facts and circumstances clearly indicate
that this information, on its own, is not evidence of an impairment.
For debt investments, objective evidence of impairment in-
cludes significant financial difficulty for the issuer or counterparty,
default or delinquency in interest or principal payments, or it be-
coming probable that the borrower will enter bankruptcy or fi-
nancial reorganization. If a financial investment available-for-sale
is determined to be impaired, the related cumulative net unreal-
ized loss previously recognized in Other comprehensive income
within Equity is reclassified to the income statement within Other
income. For equity instruments, any further loss is recognized di-
rectly in the income statement, whereas for debt instruments, any
further loss is recognized in the income statement only if there is
additional objective evidence of impairment. After the recognition
of an impairment on a financial investment available-for-sale, in-
creases in the fair value of equity instruments are reported in
Other comprehensive income within Equity and increases in the
fair value of debt instruments up to amortized cost in original cur-
rency are recognized in Other income, provided that the fair value
increase is related to an event occurring after the impairment loss
was recorded.
UBS applies the same recognition and derecognition principles
to financial assets available-for-sale as to financial instruments in
the trading portfolio (refer to items 5 and 7 for more information),
except that unrealized gains and losses between trade date and
settlement date are recognized in Other comprehensive income
within Equity rather than in the income statement.
➔ Refer to Note 15 and 24 for more information on financial
investments available-for-sale
10) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market, not classified as held-for-trading, not designated as at fair
value through profit and loss or available-for-sale, and are not as-
sets for which the Group may not recover substantially all of its
initial net investment, other than because of a credit deteriora-
tion. Financial assets classified as loans and receivables include:
– originated loans where funding is provided directly to the bor-
rower;
409
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
– participation in a loan from another lender and purchased loans;
– securities which were classified as loans and receivables at
acquisition date, such as auction rate securities in the Legacy
Portfolio;
Renegotiated loans
A renegotiated or restructured loan is a loan for which the terms
have been modified or for which additional collateral has been
requested that was not contemplated in the original contract.
– securities previously in the trading portfolio and reclassified to
loans and receivables (refer to Note 27c for more information).
Loans and receivables are recognized when UBS becomes a
party to the contractual provisions of the instrument, which is
when funding is advanced to borrowers. They are recorded ini-
tially at fair value, based on the amount provided to originate or
purchase the loan or receivable, together with any transaction
costs directly attributable to the acquisition. Subsequently, they
are measured at amortized cost using the EIR method, less allow-
ances for credit losses. Refer to item 11 for information on allow-
ances for credit losses and to Note 27a for an overview of the fi-
nancial assets classified as loans and receivables.
Interest on loans and receivables is included in Interest earned
on loans and advances and is recognized on an accrual basis. Up-
front fees and direct costs relating to loan origination, refinancing
or restructuring as well as to loan commitments are generally de-
ferred and amortized to Interest earned on loans and advances
over the life of the loan using the EIR method. For loan commit-
ments that are not expected to result in a loan being advanced, the
fees are recognized in Net fee and commission income over the
commitment period. For loan syndication fees where UBS does not
retain a portion of the syndicated loan, or where UBS does retain a
portion of the syndicated loan at the same effective yield for com-
parable risk as other participants, fees are credited to Net fee and
commission income when the services have been provided.
Presentation of receivables from central banks
Deposits with central banks which are available on demand are
presented on the balance sheet as Cash and balances with central
banks. All longer-dated receivables with central banks are pre-
sented under Due from banks.
Financial assets reclassified to loans and receivables
When a financial asset is reclassified from held for trading to loans
and receivables, the financial asset is reclassified at its fair value on
the date of reclassification. Any gain or loss recognized in the in-
come statement before reclassification is not reversed. The fair
value of a financial asset on the date of reclassification becomes
its cost basis going forward. In 2008 and 2009, UBS determined
that certain financial assets classified as held for trading were no
longer held for the purpose of selling or repurchasing in the near
term and that the Group had the intention and ability to hold
these assets for the foreseeable future, considered to be a period
of approximately twelve months from the reclassification. There-
fore, these assets were reclassified from held-for-trading to loans
and receivables.
➔ Refer to Note 27c for more information
Typical key features of terms and conditions granted through
renegotiation to avoid default include special interest rates, post-
ponement of interest or amortization payments, modification of
the schedule of repayments or amendment of loan maturity. There
is no change in the EIR following a renegotiation.
If a loan is renegotiated with preferential conditions (i.e.,
new / modified terms and conditions are agreed which do not
meet the normal market criteria for the quality of the obligor and
the type of loan), the position is still classified as non-performing
and is rated as being in counterparty default. It will remain so
until the loan is collected or written off and will be assessed for
impairment on an individual basis.
If a loan is renegotiated on a non-preferential basis (e.g., ad-
ditional collateral is provided by the client, or new terms and
conditions are agreed which meet the normal market criteria, for
the quality of the obligor and the type of loan), the loan will be
re-rated using the Group’s regular rating scale. In these circum-
stances, the loan is removed from impaired status and therefore
included in the collective assessment of loan loss allowances,
unless an indication of impairment exists, in which case the loan
is assessed for impairment on an individual basis. For the pur-
poses of measuring credit losses within the collective loan loss
assessment, these loans are not segregated from other loans
which have not been renegotiated. Management regularly
reviews all loans to ensure that all criteria according to the loan
agreement continue to be met and that future payments are
likely to occur.
A restructuring of a loan could lead to a fundamental change
in the terms and conditions of a loan, resulting in the original
loan being derecognized and a new loan being recognized.
If a loan is derecognized in these circumstances, the new loan
is measured at fair value at initial recognition. Any allowance
taken to date against the original loan is eliminated and is not at-
tributed to the new loan. Consequently, the new loan is assessed
for impairment on an individual basis. If the loan is not impaired,
the loan is included within the general collective loan assessment
for the purpose of measuring credit losses.
11) Allowances and provisions for credit losses
EDTF | An allowance or provision for credit losses is established if
there is objective evidence that the Group will be unable to col-
lect all amounts due (or the equivalent thereof) on a claim based
on the original contractual terms due to credit deterioration of
the issuer or counterparty. A claim means a loan or receivable
carried at amortized cost, or a commitment such as a letter of
credit, a guarantee, or another similar instrument. Objective evi-
dence of impairment includes significant financial difficulty for
the issuer or counterparty, default or delinquency in interest or
410
Note 1 Summary of significant accounting policies (continued) principal payments, or it becoming probable that the borrower
will enter bankruptcy or financial reorganization.
An allowance for credit losses is reported as a reduction of the
carrying value of a claim on the balance sheet. For an off-balance-
sheet item, such as a commitment, a provision for credit loss is
reported in Provisions. Changes to allowances and provisions for
credit losses are recognized as Credit loss expense / recovery.
Allowances and provisions for credit losses are evaluated at
both a counterparty-specific level and collectively based on the
following principles:
Counterparty-specific: A loan is considered impaired when
management determines that it is probable that the Group will not
be able to collect all amounts due (or the equivalent value thereof)
based on the original contractual terms. Individual credit expo-
sures are evaluated based on the borrower’s character, overall fi-
nancial condition and capacity, resources and payment record, the
prospects for support from any financially responsible guarantors
and, where applicable, the realizable value of any collateral. The
estimated recoverable amount is the present value, calculated us-
ing the claim’s original EIR, of expected future cash flows including
amounts that may result from restructuring or the liquidation of
collateral. If a loan has a variable interest rate, the discount rate
used for calculating the recoverable amount is the current EIR. Im-
pairment is measured and allowances for credit losses are estab-
lished based on the difference between the carrying amount and
the estimated recoverable amount. Upon impairment, the accrual
of interest income based on the original terms of the loan is dis-
continued. The increase of the present value of the impaired loan
due to the passage of time is reported as Interest income.
All impaired loans are reviewed and analyzed at least annually.
Any subsequent changes to the amounts and timing of the ex-
pected future cash flows compared with prior estimates result in
a change in the allowance for credit losses and are charged or
credited to Credit loss expense / recovery. An allowance for im-
pairment is reversed only when the credit quality has improved to
such an extent that there is reasonable assurance of timely collec-
tion of principal and interest in accordance with the original con-
tractual terms of the claim, or the equivalent value thereof. A
write-off is made when all or part of a claim is deemed uncollect-
ible or forgiven. Write-offs reduce the principal amount of a claim
and are charged against previously established allowances for
credit losses or, if no allowance has been established previously,
directly to Credit loss expense / recovery. Recoveries, in part or in
full, of amounts previously written off are credited to Credit loss
expense / recovery.
A loan is classified as non-performing when the payment of
interest, principal or fees is overdue by more than 90 days, when
insolvency proceedings have commenced, or when obligations
have been restructured on preferential terms. Loans are evaluated
individually for impairment when amounts have been overdue by
more than 90 days, or if other objective evidence indicates that a
loan may be impaired.
Collectively: All loans for which no impairment is identified at
a counterparty-specific level are grouped on the basis of the
Group’s internal credit grading system that considers credit risk
characteristics such as asset type, industry, geographical location,
collateral type, past-due status and other relevant factors, to col-
lectively assess whether impairment exists within a portfolio. Fu-
ture cash flows for a group of financial assets that are collectively
evaluated for impairment are estimated on the basis of historical
loss experience for assets with credit risk characteristics similar to
those in the group. Historical loss experience is adjusted on the
basis of current observable data to reflect the effects of current
conditions of the group of financial assets on which the historical
loss experience is based and to remove the effects of conditions
in the historical period that do not exist currently in the portfolio.
Estimates of changes in future cash flows for the group of finan-
cial assets reflect, and are directionally consistent with, changes
in related observable data from year to year. The methodology
and assumptions used for estimating future cash flows for the
group of financial assets are reviewed regularly to reduce any dif-
ferences between loss estimated and actual loss experience. Al-
lowances from collective assessment of impairment are recog-
nized as Credit loss expense / recovery and result in an offset to
the aggregated loan position. As the allowance cannot be allo-
cated to individual loans, the loans are not considered to be im-
paired and interest is accrued on each loan according to its con-
tractual terms. If objective evidence becomes available that
indicates that an individual financial asset is impaired, it is re-
moved from the group of financial assets assessed for impair-
ment on a collective basis and is assessed separately as a counter-
party-specific claim. ▲
Reclassified securities and similar acquired securities carried at
amortized cost: Estimated cash flows associated with financial as-
sets reclassified from the held for trading category to loans and
receivables in accordance with the requirements in item 10 and
other similar assets acquired subsequently are revised periodically.
Adverse revisions in cash flow estimates related to credit events
are recognized in the income statement as Credit loss expense.
For reclassified securities, increases in estimated future cash re-
ceipts, as a result of increased recoverability over those expected
at the time of reclassification, are recognized as an adjustment to
the EIR on the loan from the date of change (refer to Note 27c for
more information).
➔ Refer to Note 12 for more information on allowances and
provisions for credit losses
12) Securitization structures set up by UBS
Pillar 3 | UBS securitizes certain financial assets, generally selling
Trading portfolio assets to SEs which issue securities to inves-
tors. UBS applies the policies set out in item 3 in determining
whether the respective SE must be consolidated and those set
out in item 5 in determining whether derecognition of trans-
ferred financial assets is appropriate. The following statements
411
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
mainly apply to transfers of financial assets which qualify for
derecognition.
Gains or losses related to the sale of Trading portfolio assets
involving a securitization are recognized when the derecognition
criteria are satisfied with the gain or loss being classified in Net
trading income.
Interests in the securitized financial assets may be retained in
the form of senior or subordinated tranches, interest-only strips or
other residual interests (retained interests). Retained interests are
primarily recorded in Trading portfolio assets and are carried at
fair value. Synthetic securitization structures typically involve de-
rivative financial instruments for which the principles set out in
item 15 apply.
UBS acts as structurer and placement agent in various mort-
gage-backed securities (MBS) and other asset-backed securities
(ABS) securitizations. In such capacity, UBS may purchase collat-
eral on its own behalf or on behalf of clients during the period
prior to securitization. UBS then typically sells the collateral into
designated trusts upon closing of the securitization. In other secu-
ritizations, UBS may only provide financing to a designated trust
in order to fund the purchase of collateral by the trust prior to
securitization. UBS underwrites the offerings to investors, earning
fees for its placement and structuring services. Consistent with
the valuation of similar inventory, fair value of retained tranches is
initially and subsequently determined using market price quota-
tions where available or internal pricing models that utilize vari-
ables such as yield curves, prepayment speeds, default rates, loss
severity, interest rate volatilities and spreads. Where possible, as-
sumptions based on observable transactions are used to deter-
mine the fair value of retained interests, but for some interests
substantially no observable information is available. ▲
➔ Refer to Note 30c for more information on the Group’s involve-
ment with securitization vehicles
13) Securities borrowing and lending
Securities borrowing and securities lending transactions are gen-
erally entered into on a collateralized basis. In such transactions,
UBS typically borrows or lends equity and debt securities in ex-
change for securities or cash collateral. Additionally, UBS borrows
securities from its clients’ custody accounts in exchange for a fee.
The transactions are normally conducted under standard agree-
ments employed by financial market participants and are under-
taken with counterparties subject to UBS’s normal credit risk con-
trol processes. UBS monitors on a daily basis the market value of
the securities received or delivered and requests or provides addi-
tional collateral or returns or recalls surplus collateral in accor-
dance with the underlying agreements.
Cash collateral received is recognized with a corresponding ob-
ligation to return it (Cash collateral on securities lent) and cash
collateral delivered is derecognized and a corresponding receiv-
able reflecting UBS’s right to receive it back is recorded (Cash col-
lateral on securities borrowed). The securities which have been
transferred are not recognized on, or derecognized from, the bal-
ance sheet unless the risks and rewards of ownership are also
transferred. Refer to item 5 for more information. UBS-owned
securities transferred to a borrower that is granted the right to sell
or repledge those transferred securities are presented on the bal-
ance sheet as Trading portfolio assets, of which: assets pledged as
collateral which may be sold or repledged by counterparties. Se-
curities received in a borrowing transaction are disclosed as off-
balance-sheet items if UBS has the right to resell or repledge
them, with additional disclosure provided for securities that UBS
has actually resold or repledged. The sale of securities which is
settled by delivering securities received in a borrowing transaction
generally triggers the recognition of a trading liability (short sale).
Where securities are either received or delivered in lieu of cash
(securities for securities transactions), neither the securities re-
ceived or delivered nor the obligation to return or right to receive
the securities are recognized on the balance sheet, as the derecog-
nition criteria are not met. Refer to item 5 for more information.
Interest receivable or payable for financing transactions is rec-
ognized in the income statement on an accrual basis and is re-
corded as Interest income or Interest expense.
➔ Refer to Notes 11, 25 and 26 for more information on securities
borrowing and lending
14) Repurchase and reverse repurchase transactions
Securities purchased under agreements to resell (Reverse repur-
chase agreements) and securities sold under agreements to re-
purchase (Repurchase agreements) are treated as collateralized
financing transactions. Nearly all reverse repurchase and repur-
chase agreements involve debt instruments, such as bonds,
notes or money market paper. The transactions are normally
conducted under standard agreements employed by financial
market participants and are undertaken with counterparties
subject to UBS’s normal credit risk control processes. UBS moni-
tors on a daily basis the market value of the securities received
or delivered and requests or provides additional collateral or re-
turns or recalls surplus collateral in accordance with the underly-
ing agreements.
In a reverse repurchase agreement, the cash delivered is
derecognized and a corresponding receivable, including ac-
crued interest, is recorded in the balance sheet line Reverse re-
purchase agreements, representing UBS’s right to receive the
cash back. Similarly, in a repurchase agreement, the cash re-
ceived is recognized and a corresponding obligation, including
accrued interest, is recorded in the balance sheet line Repur-
chase agreements. Securities received under reverse repurchase
agreements and securities delivered under repurchase agree-
ments are not recognized on or derecognized from the balance
sheet, unless the risks and rewards of ownership are transferred.
UBS-owned securities transferred to a recipient who is granted
the right to resell or repledge them are presented on the bal-
ance sheet as Trading portfolio assets, of which: assets pledged
412
Note 1 Summary of significant accounting policies (continued) as collateral which may be sold or repledged by counterparties.
Securities received in reverse repurchase agreements are dis-
closed as off-balance-sheet items if UBS has the right to resell or
repledge them, with additional disclosure provided for securi-
ties that UBS has actually resold or repledged (refer to Note 25d
for more information). Additionally, the sale of securities which
is settled by delivering securities received in reverse repurchase
transactions generally triggers the recognition of a trading lia-
bility (short sale).
Interest earned on reverse repurchase agreements and interest
incurred on repurchase agreements is recognized as interest in-
come or interest expense over the life of each agreement.
The Group generally offsets reverse repurchase agreements
and repurchase agreements with the same counterparty, maturity,
currency and Central Securities Depository (CSD) in accordance
with the relevant accounting requirements. Refer to item 35 for
more information.
➔ Refer to Notes 11, 25 and 26 for more information on repurchase
and reverse repurchase transactions
15) Derivative instruments and hedge accounting
Derivatives are initially recognized at fair value on the date the
derivative contract is entered into and are remeasured subse-
quently to fair value. The method of recognizing fair value gains
or losses depends on whether derivatives are held for trading, or
are designated and effective as hedging instruments. If desig-
nated as hedging instruments, the method of recognizing gains
or losses depends on the nature of the risk being hedged as de-
scribed within this item.
Derivative instruments are generally reported on the balance
sheet as Positive replacement values or Negative replacement val-
ues. However, exchange-traded derivatives which are economi-
cally settled on a daily basis and certain OTC derivatives which
qualify for IFRS netting and are in substance net settled on a daily
basis are classified as Cash collateral receivables on derivative in-
struments or Cash collateral payables on derivative instruments.
Products that receive this treatment include futures contracts,
100% daily margined exchange-traded options and interest rate
swaps transacted with the London Clearing House. Changes in
the fair values of derivatives are recorded in Net trading income,
unless the derivatives are designated and effective as hedging in-
struments in certain types of hedge accounting relationships.
➔ Refer to Note 14 for more information on derivative instruments
and hedge accounting
Hedge accounting
The Group uses derivative instruments as part of its risk manage-
ment activities to manage exposures particularly to interest rate
and foreign currency risks, including exposures arising from fore-
cast transactions. If derivative and non-derivative instruments
meet certain criteria specified below, they may be designated as
hedging instruments in hedges of the change in fair value of rec-
ognized assets or liabilities (fair value hedges), hedges of the vari-
ability in future cash flows attributable to a recognized asset or
liability or highly probable forecast transactions (cash flow hedges)
or hedges of a net investment in a foreign operation (net invest-
ment hedges).
At the time a financial instrument is designated in a hedge re-
lationship, the Group formally documents the relationship be-
tween the hedging instrument(s) and hedged item(s), including
the risk management objectives and strategy in undertaking the
hedge transaction and the methods that will be used to assess the
effectiveness of the hedging relationship. Accordingly, the Group
assesses, both at the inception of the hedge and on an ongoing
basis, whether the hedging instruments, primarily derivatives,
have been “highly effective” in offsetting changes in the fair value
or cash flows associated with the designated risk of the hedged
items. A hedge is considered highly effective if the following crite-
ria are met: (i) at inception of the hedge and throughout its life,
the hedge is expected to be highly effective in achieving offsetting
changes in fair value or cash flows attributable to the hedged risk
and (ii) actual results of the hedge are within a range of 80% to
125%. In the case of hedging forecast transactions, the trans-
action must have a high probability of occurring and must present
an exposure to variations in cash flows that could ultimately affect
the reported net profit or loss. The Group discontinues hedge ac-
counting voluntarily, or when the Group determines that a hedg-
ing instrument is not, or has ceased to be, highly effective as a
hedge, when the derivative expires or is sold, terminated or exer-
cised, when the hedged item matures, is sold or repaid or when
forecast transactions are no longer deemed highly probable.
Hedge ineffectiveness represents the amount by which the
changes in the fair value of the hedging instrument differ from
changes in the fair value of the hedged item attributable to the
hedged risk, or the amount by which changes in the present value
of future cash flows of the hedging instrument exceed changes in
the present value of (expected) future cash flows of the hedged
item. Such ineffectiveness is recorded in current period earnings
in Net trading income. Interest income and expense on derivatives
designated as hedging instruments in effective hedge relation-
ships is included in Net interest income.
Fair value hedges
For qualifying fair value hedges, the change in the fair value of the
hedging instrument is recognized in the income statement along
with the change in the fair value of the hedged item that is at-
tributable to the hedged risk. In fair value hedges of interest rate
risk, the fair value change of the hedged item attributable to the
hedged risk is reflected in the carrying value of the hedged item.
If the hedge accounting relationship is terminated for reasons
other than the derecognition of the hedged item, the difference
between the carrying value of the hedged item at that point and
the value at which it would have been carried had the hedge
never existed (the unamortized fair value adjustment) is amortized
413
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
to the income statement over the remaining term to maturity of
the hedged item.
For a portfolio hedge of interest rate risk, the equivalent
change in fair value is reflected within Other assets or Other
liabilities. If the hedge relationship is terminated for reasons
other than the derecognition of the hedged item, the amount
included in Other assets or Other liabilities is amortized to the
income statement over the remaining term to maturity of the
hedged items.
Cash flow hedges
Fair value gains or losses associated with the effective portion of
derivatives designated as cash flow hedges for cash flow repricing
risk are recognized initially in Other comprehensive income within
Equity. When the hedged forecast cash flows affect profit or loss,
the associated gains or losses on the hedging derivatives are re-
classified from Equity to the income statement.
If a cash flow hedge for forecasted transactions is deemed to be
no longer effective, or if the hedge relationship is terminated, the
cumulative gains or losses on the hedging derivatives pre viously
reported in Equity remain there until the committed or forecasted
transactions occur and affect profit or loss. If the forecasted trans-
actions are no longer expected to occur, the deferred gains or
losses are reclassified immediately to the income statement.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted
for similarly to cash flow hedges. Gains or losses on the hedging
instrument relating to the effective portion of the hedge are
recognized directly in Equity (and presented in the statement of
changes in equity and statement of comprehensive income un-
der Foreign currency translation), while any gains or losses relat-
ing to the ineffective and / or undesignated portion (for exam-
ple, the interest element of a forward contract) are recognized
in the income statement. Upon disposal or partial disposal of
the foreign operation or its liquidation, the cumulative value of
any such gains or losses associated with the entity, and recog-
nized directly in Equity, is reclassified to the income statement.
Economic hedges that do not qualify for hedge accounting
Derivative instruments that are transacted as economic hedges but
do not qualify for hedge accounting are treated in the same way
as derivative instruments used for trading purposes (i.e., realized
and unrealized gains and losses are recognized in Net trading in-
come), except for the forward points on certain short duration
foreign exchange contracts, which are reported in Net interest
income.
➔ Refer to Note 14 for more information on economic hedges
Embedded derivatives
Derivatives may be embedded in other financial instruments (host
contracts). For example, they could be represented by the conver-
414
sion feature embedded in a convertible bond. Such combinations
are known as hybrid instruments and arise predominantly from
the issuance of certain structured debt instruments. An embed-
ded derivative is generally required to be separated from the host
contract and accounted for as a standalone derivative instrument
at fair value through profit or loss if: (i) the host contract is not
carried at fair value with changes in fair value reported in the in-
come statement, (ii) the economic characteristics and risks of the
embedded derivative are not closely related to the economic char-
acteristics and risks of the host contract and (iii) the terms of the
embedded derivative would meet the definition of a standalone
derivative were they contained in a separate contract. Bifurcated
embedded derivatives are presented on the same balance sheet
line as the host contract, and are shown in Note 27a in the Held
for trading category, reflecting the measurement and recognition
principles applied.
Typically, UBS applies the fair value option to hybrid instru-
ments (refer to item 8 for more information), in which case bifur-
cation of an embedded derivative component is not required.
16) Loan commitments
Loan commitments are defined amounts (unutilized credit lines or
undrawn portions of credit lines) against which clients can borrow
money under defined terms and conditions.
Loan commitments that can be cancelled at any time by UBS at
its discretion, according to their general terms and conditions, are
not recognized on the balance sheet and are not included in the
off-balance-sheet disclosures. Upon a loan drawdown by the coun-
terparty, the amount of the loan is accounted for in accordance
with Loans and receivables. Refer to item 10 for more information.
Irrevocable loan commitments (where UBS has no right to
withdraw the loan commitment once communicated to the ben-
eficiary, or which are revocable only due to automatic cancellation
upon deterioration in a borrower’s creditworthiness) are classified
into the following categories:
– derivative loan commitments, being loan commitments that
can be settled net in cash or by delivering or issuing another
financial instrument, or loan commitments for which there is
evidence of selling loans resulting from similar loan commit-
ments before or shortly after origination;
– loan commitments designated at fair value through profit and
loss (refer to item 8 for more information) and
– all other loan commitments. These are not recorded in the bal-
ance sheet, but a provision is recognized if it is probable that a
loss has been incurred and a reliable estimate of the amount of
the obligation can be made. Other loan commitments include
irrevocable forward starting reverse repurchase and irrevocable
securities borrowing agreements. Any change in the liability
relating to these other loan commitments is recorded in the
income statement in Credit loss expense / recovery. Refer to
items 11 and 27 for more information.
Note 1 Summary of significant accounting policies (continued) 17) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer
to make specified payments to reimburse the holder for an in-
curred loss because a specified debtor fails to make payments
when due in accordance with the terms of a specified debt instru-
ment. UBS issues such financial guarantees to banks, financial
institutions and other parties on behalf of clients to secure loans,
overdrafts and other banking facilities.
Certain written financial guarantees that are managed on a
fair value basis are designated at fair value through profit or loss.
Refer to item 8 for more information. Financial guarantees that
are not managed on a fair value basis are initially recognized in
the financial statements at fair value. Subsequent to initial recog-
nition, these financial guarantees are measured at the higher of
the amount initially recognized less cumulative amortization, and
to the extent a payment under the guarantee has become prob-
able, the present value of the expected payment. Any change in
the liability relating to probable expected payments resulting from
guarantees is recorded in the income statement in Credit loss ex-
pense / recovery.
18) Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash
equivalents comprise balances with an original maturity of three
months or less including cash, money market paper and balances
with central and other banks.
19) Physical commodities
Physical commodities (precious metals, base metals and other
commodities) held by UBS as a result of its broker-trader activities
are accounted for at fair value less costs to sell and recognized
within Trading portfolio assets. Changes in fair value less costs to
sell are recorded in Net trading income.
20) Property and equipment
Property and equipment includes own-used properties, invest-
ment properties, leasehold improvements, information technol-
ogy hardware, externally purchased and internally generated
software and communication and other similar equipment. With
the exception of investment properties, Property and equipment
is carried at cost (which includes capitalized interest from associ-
ated borrowings, where applicable), less accumulated deprecia-
tion and impairment losses, and is reviewed periodically for im-
pairment.
➔ Refer to Note 16 for more information on property and
equipment
Classification of own-used property
Own-used property is defined as property held by the Group for
use in the supply of services or for administrative purposes,
whereas investment property is defined as property held to earn
rental income and / or for capital appreciation. Where a property
of the Group includes an own-used portion and an investment
portion which can be sold separately, they are separately ac-
counted for as own-used property and investment property. If the
portions cannot be sold separately, the whole property is classi-
fied as own-used unless the portion used by the Group is minor.
The classification of property is reviewed on a regular basis. When
the use of a property changes from own-used to investment prop-
erty, the property is remeasured to fair value and reclassified as
investment property. Any gain arising on remeasurement is recog-
nized in the income statement. to the extent that it reverses a
previous impairment loss on the specific property, with any re-
maining gain recognized in Other comprehensive income within
Equity and presented in the revaluation reserve within Equity. Any
loss is recognized immediately in the income statement. When an
investment property is reclassified as own-used property, its fair
value at the date of reclassification becomes its cost basis for sub-
sequent measurement purposes.
Investment property
Investment property is carried at fair value with changes in fair
value recognized in the income statement in Other income in the
period of change.
Leasehold improvements
Leasehold improvements are investments made to customize
buildings and offices occupied under operating lease contracts to
make them suitable for their intended purpose. The present value
of estimated reinstatement costs required to bring a leased prop-
erty back into its original condition at the end of the lease is capi-
talized as part of total leasehold improvements with a correspond-
ing liability recognized to reflect the obligation incurred.
Reinstatement costs are recognized in the income statement
through depreciation of the capitalized leasehold improvements
over their estimated useful lives and the liability is relieved as cash
payments are applied.
Property held for sale
Where UBS has decided to sell non-current assets such as prop-
erty or equipment and the sale of these assets is highly probable
to occur within 12 months, these assets are classified as non-cur-
rent assets held for sale and are reclassified to Other assets. Upon
classification as held for sale, they are no longer depreciated and
are carried at the lower of book value or fair value less cost to sell.
Software
Software development costs are recognized only when the costs
can be measured reliably and it is probable that future economic
benefits will arise.
Estimated useful life of property and equipment
Property and equipment is depreciated on a straight-line basis
over its estimated useful life. Depreciation of property and equip-
415
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
ment begins when it is available for use, that is, when it is in the
location and condition necessary for it to be capable of operating
in the manner intended by management.
Estimated useful life of property and equipment
Properties, excluding land
Leasehold improvements
Other machines and equipment
IT hardware and communication
equipment
Software
Not exceeding 67 years
Residual lease term
Not exceeding 10 years
Not exceeding 5 years
Not exceeding 10 years
21) Goodwill and intangible assets
Goodwill represents the excess of the cost of an acquisition over the
fair value of the Group’s share of net identifiable assets of the ac-
quired entity at the date of acquisition. Goodwill is not amortized. It
is tested annually for impairment and, additionally, when an indica-
tion of impairment exists at the end of each reporting period. For
goodwill impairment testing purposes, UBS considers the segments
reported in Note 2a as separate cash-generating units, since this is
the level at which the performance of investments is reviewed and
assessed by management. The recoverable amount of a segment is
determined on the basis of its value-in-use.
Intangible assets are comprised of separately identifiable intan-
gible items arising from business combinations and certain pur-
chased trademarks and similar items. Intangible assets are recog-
nized at cost. The cost of an intangible asset acquired in a business
combination is its fair value at the date of acquisition. Intangible
assets with a definite useful life are amortized using the straight-
line method over their estimated useful economic life, generally not
exceeding 20 years. Intangible assets with an indefinite useful life
are not amortized. In nearly all cases, identified intangible assets
have a definite useful life. At each balance sheet date, intangible
assets are reviewed for indications of impairment. If such indica-
tions exist, the intangible assets are analyzed to assess whether
their carrying amount is fully recoverable. An impairment loss is
recognized if the carrying amount exceeds the recoverable amount.
Intangible assets are classified into two categories: (i) infra-
structure and (ii) customer relationships, contractual rights and
other. Infrastructure consists of a branch network intangible asset
recognized in connection with the acquisition of PaineWebber
Group, Inc. Client relationships, contractual rights and other in-
cludes mainly intangible assets for client relationships, non-com-
pete agreements, favorable contracts, trademarks and trade
names acquired in business combinations.
➔ Refer to Note 17 for more information on goodwill and
intangible assets
22) Income taxes
Income tax payable on profits is recognized as an expense based
on the applicable tax laws in each jurisdiction in the period in
which profits arise. The tax effects of income tax losses available
for carry forward are recognized as a deferred tax asset if it is prob-
able that future taxable profit (based on profit forecast assump-
tions) will be available against which those losses can be utilized.
Deferred tax assets are recognized for temporary differences
that will result in deductible amounts in future periods, but only
to the extent that it is probable that sufficient taxable profits will
be available against which these differences can be utilized. De-
ferred tax liabilities are recognized for temporary differences be-
tween the carrying amounts of assets and liabilities in the balance
sheet and their amounts as measured for tax purposes, which will
result in taxable amounts in future periods. Deferred tax assets
and liabilities are measured at the tax rates that are expected to
apply in the period in which the asset will be realized or the liabil-
ity will be settled based on enacted rates.
Tax assets and liabilities of the same type (current or deferred)
are offset when they arise from the same tax reporting group, they
relate to the same tax authority, the legal right to offset exists, and
they are intended to be settled net or realized simultaneously.
Current and deferred taxes are recognized as income tax ben-
efit or expense in the income statement except for current and
deferred taxes recognized (i) upon the acquisition of a subsidiary,
(ii) for unrealized gains or losses on financial investments avail-
able-for-sale, for changes in fair value of derivative instruments
designated as cash flow hedges, for remeasurements of defined
benefit plans, and for certain foreign currency translations of for-
eign operations, (iii) for certain tax benefits on deferred compen-
sation awards and (iv) for gains and losses on the sale of treasury
shares. Deferred taxes recognized in a business combination
(point (i)) are considered when determining goodwill. Amounts
relating to points (ii), (iii) and (iv) are recognized in Other compre-
hensive income within Equity.
➔ Refer to Note 8 for more information on income taxes
23) Debt issued
Debt issued is carried at amortized cost. In cases where, as part of
the Group’s risk management activity, fair value hedge accounting
is applied to fixed-rate debt instruments carried at amortized cost,
their carrying amount is adjusted for changes in fair value related
to the hedged exposure. Refer to item 15 for more information on
hedge accounting. In most cases, structured notes issued are des-
ignated at fair value through profit or loss using the fair value
option, on the basis that they are managed on a fair value basis,
that the structured notes contain an embedded derivative, or
both. Refer to item 8 for more information on the fair value op-
tion. The fair value option is not applied to certain structured
notes that contain embedded derivatives that reference foreign
exchange rates and / or precious metal prices. For these instru-
ments, the embedded derivative component is measured on a fair
value basis and the related underlying debt host component is
measured on an amortized cost basis, with both components pre-
sented together within Debt issued.
416
Note 1 Summary of significant accounting policies (continued)
Debt issued and subsequently repurchased in relation to mar-
ket-making or other activities is treated as redeemed. A gain or
loss on redemption (depending on whether the repurchase price
of the bond is lower or higher than its carrying value) is recorded
in Other income. A subsequent sale of own bonds in the market
is treated as a reissuance of debt. Interest expense on debt instru-
ments measured at amortized cost is included in Interest on debt
issued.
➔ Refer to Note 21 for more information on debt issued
24) Pension and other post-employment benefit plans
UBS sponsors a number of post-employment benefit plans for its
employees worldwide, which include defined benefit and defined
contribution pension plans, and other post-employment benefits
such as medical and life insurance benefits that are payable after
the completion of employment. The major defined benefit pen-
sion plans are located in Switzerland, the UK, the US and Ger-
many.
➔ Refer to Note 28 for more information on pension and other
post-employment benefit plans
Defined benefit pension plans
Defined benefit pension plans specify an amount of benefit that
an employee will receive, which is usually dependent on one or
more factors such as age, years of service and compensation. The
defined benefit liability recognized in the balance sheet is the
present value of the defined benefit obligation less the fair value
of the plan assets at the balance sheet date. If the fair value of the
plan assets is higher than the present value of the defined benefit
obligation, the measurement of the resulting defined benefit as-
set is limited to the present value of economic benefits available
in the form of refunds from the plan or reductions in future con-
tributions to the plan. UBS applies the projected unit credit
method to determine the present value of its defined benefit ob-
ligations, the related current service cost and, where applicable,
past service cost. These amounts, which take into account the
specific features of each plan, including risk sharing between the
employee and employer, are calculated periodically by indepen-
dent qualified actuaries.
Defined contribution plans
A defined contribution plan is a pension plan under which UBS pays
fixed contributions into a separate entity from which post-employ-
ment and other benefits are paid. UBS has no legal or constructive
obligation to pay further contributions if the plan does not hold
sufficient assets to pay employees the benefits relating to employee
service in the current and prior periods. UBS’s contributions are ex-
pensed when the employees have rendered services in exchange for
such contributions. This is generally in the year of contribution. Pre-
paid contributions are recognized as an asset to the extent that a
cash refund or a reduction in future payments is available.
Other post-retirement benefits
UBS also provides post-retirement medical and life insurance ben-
efits to certain retirees in the US and the UK. The expected costs
of these benefits are recognized over the period of employment
using the same accounting methodology used for defined benefit
pension plans.
25) Equity participation and other compensation plans
Equity participation plans
UBS has established several equity participation plans in the form
of share plans, option plans and share-settled stock appreciation
right (SAR) plans. UBS’s equity participation plans include manda-
tory, discretionary and voluntary plans. UBS recognizes the fair
value of share, option and SAR awards, determined at the date of
grant, as compensation expense, over the period during which
the employee is required to provide services in order to earn the
award.
If the employee is not required to provide future services, such
as for awards granted to employees who are retirement eligible,
including those employees who meet full career retirement crite-
ria, compensation expense is recognized on or prior to the grant
date. Such awards may remain forfeitable until the legal vesting
date if certain non-vesting conditions are not met. Forfeiture
events resulting from breach of a non-vesting condition do not
result in a reversal of compensation expense.
If future service is required, compensation expense is recog-
nized over that future period. For awards that are delivered in
tranches, each tranche is considered a separate award and amor-
tized separately. Plans may contain provisions that shorten the
required service period due to achievement of retirement eligibil-
ity or upon termination due to redundancy. In such instances,
compensation expense is recognized over the period from grant
date to the retirement eligibility or redundancy date. Forfeiture of
these awards that occurs during the service period results in a re-
versal of compensation expense.
Awards settled in UBS shares or options are classified as equity
settled. The fair value of an equity-settled award is determined at
the date of grant and is not subsequently remeasured, unless its
terms are modified such that the fair value immediately after
modification exceeds the fair value immediately prior to modifica-
tion. Any increase in fair value resulting from a modification is
recognized as compensation expense, either over the remaining
service period or, for vested awards, immediately.
Cash-settled awards are classified as liabilities and are remea-
sured to fair value at each balance sheet date as long as the award
is outstanding. Changes in fair value are reflected in compensa-
tion expense and, on a cumulative basis, no compensation ex-
pense is recognized for awards that expire worthless or remain
unexercised.
➔ Refer to Note 29 for more information on equity participation
plans
417
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Other compensation plans
UBS has established other fixed and variable deferred compensa-
tion plans, the values of which are not linked to UBS’s own equity.
Deferred cash compensation plans are either mandatory or discre-
tionary plans and include awards based on a notional cash
amount, where ultimate payout is fixed or may vary based on
achievement of performance conditions or the value of specified
underlying assets. Compensation expense is recognized over the
period that the employee is required to provide services to earn
the award. If the employee is not required to provide future ser-
vices, such as for awards granted to employees who are retire-
ment eligible, including those employees who meet full career
retirement criteria, compensation expense is recognized on or
prior to the grant date. The amount recognized during the service
period is based on an estimate of the amount expected to be paid
out under the plan, such that cumulative expense recognized ulti-
mately equals the cash distributed to employees. For awards in
the form of alternative investment vehicles or similar structures,
which provide employees with a payout based on the value of
specified underlying assets, the initial value is based on the fair
value of the underlying assets (e.g., money market funds, UBS
and non-UBS mutual funds and other UBS-sponsored funds).
These awards are remeasured at each reporting date based on the
fair value of the underlying assets until the award is distributed.
Changes in value are recognized proportionately to the elapsed
service period. Forfeiture of these awards results in the reversal of
compensation expense.
➔ Refer to Note 29 for more information on other compensation
plans
26) Amounts due under unit-linked investment contracts
Financial liabilities from unit-linked investment contracts are pre-
sented as Other liabilities on the balance sheet. These contracts
allow investors to invest in a pool of assets through issued invest-
ment units. The unit holders receive all rewards and bear all risks
associated with the reference asset pool. The financial liability
represents the amounts due to unit holders and is equal to the
fair value of the reference asset pool. Assets held under unit-
linked investment contracts are presented as Trading portfolio
assets.
➔ Refer to Notes 13 and 23 for more information on unit-linked
investment contracts
27) Provisions
Provisions are liabilities of uncertain timing or amount, and are
recognized when UBS has a present obligation as a result of a past
event, it is probable that an outflow of resources will be required
to settle the obligation, and a reliable estimate of the amount of
the obligation can be made.
The majority of UBS’s provisions relate to litigation, regulatory
and similar matters, restructuring, employee benefits, real estate
and loan commitments and guarantees. Provisions that are similar
in nature are aggregated to form a class, while the remaining
provisions, including those of less significant amounts, are pre-
sented under Other provisions. Provisions are presented sepa-
rately on the balance sheet and, when they are no longer consid-
ered uncertain in timing or amount, are reclassified to Other
liabilities – Other.
The Group recognizes provisions for litigation, regulatory and
similar matters when, in the opinion of management after seek-
ing 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.
Restructuring provisions are recognized when a detailed and
formal restructuring plan has been approved and a valid expecta-
tion has been raised that the restructuring will be carried out, ei-
ther through commencement of the plan or announcements to
affected employees.
Provisions are recognized for lease contracts if the unavoidable
costs of a contract exceed the benefits expected to be received
under it (onerous lease contracts). For example, this may occur
when a significant portion of leased property is expected to be
vacant for an extended period.
Provisions for employee benefits are recognized mainly in re-
spect of service anniversaries and sabbatical leave.
Provisions are recognized at the best estimate of the consider-
ation required to settle the present obligation at the balance sheet
date. Such estimates are based on all available information and
are revised over time as more information becomes available. If
the effect of the time value of money is material, provisions are
discounted and measured at the present value of the expenditure
expected to settle or discharge the obligation, using a rate that
reflects the current market assessments of the time value of
money and the risks specific to the obligation.
A provision is not recognized when UBS has a present obliga-
tion that has arisen from past events but it is not probable that an
outflow of resources will be required to settle it, or a sufficiently
reliable estimate of the amount of the obligation cannot be made.
Instead, a contingent liability is disclosed, unless the likelihood of
an outflow of resources is remote. Contingent liabilities are also
disclosed for possible obligations that arise from past events
whose existence will be confirmed only by uncertain future events
not wholly within the control of UBS.
➔ Refer to Note 22 for more information on provisions
28) Equity, treasury shares and contracts on UBS Group AG shares
Non-controlling interests and preferred noteholders
Net profit and Equity are presented including non-controlling in-
terests and preferred noteholders. Net profit is split into Net profit
attributable to UBS Group AG shareholders, Net profit attribut-
able to non-controlling interests and Net profit attributable to
preferred noteholders. Equity is split into Equity attributable to
418
Note 1 Summary of significant accounting policies (continued) Group AG shareholders, Equity attributable to non-controlling in-
terests and Equity attributable to preferred noteholders.
no contractual obligation to deliver cash, and, therefore, were
classified as equity instruments.
UBS Group AG shares held (treasury shares)
UBS Group AG shares held by the Group are presented in Equity
as Treasury shares at their acquisition cost, which includes trans-
action costs. Treasury shares are deducted from Equity until they
are cancelled or reissued. The difference between the proceeds
from sales of treasury shares and their weighted average cost (net
of tax, if any) is reported as Share premium.
Net cash settlement contracts
Contracts on UBS Group AG shares that require net cash settle-
ment, or provide the counterparty or UBS with a settlement op-
tion which includes a choice of settling net in cash, are classified
as held for trading, with changes in fair value reported in the in-
come statement as Net trading income.
Contracts with mandatory gross physical settlement
UBS issues contracts with mandatory gross physical settlement in
UBS Group AG shares where a fixed amount of shares is ex-
changed against a fixed amount of cash or another financial
asset.
Written put options and forward share purchase contracts with
gross physical settlement, including contracts where gross physi-
cal settlement is a settlement alternative, result in the recognition
of a financial liability booked against Equity. The financial liability
is subsequently accreted, using the EIR method, over the life of
the contract to the nominal purchase obligation with the amount
recognized in Interest expense. Upon settlement of the contract,
the liability is derecognized against the consideration paid, and
the amount of equity originally recognized as a liability is reclassi-
fied within Equity to Treasury shares. The premium received for
writing such put options is recognized directly in Share premium.
All other contracts with mandatory gross physical settlement in
UBS Group AG shares are presented in Equity as Share premium
and accounted for at cost, which is added to or deducted from
Equity as appropriate. Upon settlement of such contracts, the dif-
ference between the proceeds received and their cost (net of tax,
if any) is reported as Share premium.
Preferred notes issued to non-consolidated preferred securities
entities
On 1 January 2013, UBS deconsolidated certain entities that is-
sued preferred securities, which resulted in UBS recognizing the
subordinated notes (that is, the preferred notes) issued to these
entities rather than the preferred securities issued by them.
UBS AG has fully and unconditionally guaranteed all contractual
payments on the preferred securities. UBS’s obligations under
these guarantees are subordinated to the full prior payment of
the deposit liabilities of UBS and all other liabilities of UBS. All but
one of the preferred notes, which is classified as a liability, contain
Prior to the share-for-share exchange, the preferred notes clas-
sified as equity instruments were presented as Equity attributable
to preferred noteholders on the consolidated balance sheet and
statement of changes in equity of UBS AG. Distributions on these
preferred notes were presented as Net profit attributable to pre-
ferred noteholders in the consolidated income statement and
statement of comprehensive income. Following the share-for-
share exchange, these preferred notes are presented as Equity at-
tributable to non-controlling interests on the consolidated bal-
ance sheet and statement of changes in equity of UBS Group AG.
Future distributions on these preferred notes will be presented as
Net profit attributable to non-controlling interests in the consoli-
dated income statement and statement of comprehensive in-
come.
For the preferred note classified as liability, interest is accrued
through the income statement and presented within Net interest
income.
29) Non-current assets held for sale
UBS classifies individual non-current assets and disposal groups as
held for sale if such assets or disposal groups are available for im-
mediate sale in their present condition subject to terms that are
usual and customary for sales of such assets or disposal groups
and their sale is considered highly probable. For a sale to be highly
probable, management must be committed to a plan to sell such
assets and must be actively looking for a buyer. Furthermore, the
assets must be actively marketed at a reasonable sales price in
relation to their fair value and the sale must be expected to be
completed within one year. The assets held for sale and disposal
groups are measured at the lower of their carrying amount and
fair value less costs to sell and are presented in Other assets and
Other liabilities. Non-current assets and liabilities of subsidiaries
are classified as held for sale if their carrying amount will be recov-
ered principally through a sale transaction rather than through
continuing use.
➔ Refer to Note 18 for more information on non-current assets
held for sale
30) Leasing
UBS enters into lease contracts, or contracts that include lease
components, predominantly of premises and equipment, and pri-
marily as lessee. Leases that transfer substantially all the risks and
rewards incidental to the ownership of assets, but not necessarily
legal title, are classified as finance leases. All other leases are clas-
sified as operating leases.
Assets leased pursuant to finance leases are recognized on the
balance sheet as Property and equipment and are depreciated
over the lesser of the useful life of the asset or the lease term,
with corresponding amounts payable included in Due to
banks / customers. Finance charges payable are recognized in Net
419
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
interest income over the period of the lease based on the interest
rate implicit in the lease on the basis of a constant yield.
Lease contracts classified as operating leases where UBS is the
lessee are disclosed in Note 33. These contracts include non-can-
cellable long-term leases of office buildings in most UBS locations.
Operating lease rentals payable are recognized as an expense on
a straight-line basis over the lease term, which commences with
control of the physical use of the property. Lease incentives are
treated as a reduction of rental expense and are recognized on a
consistent basis over the lease term.
Where UBS acts as lessor under a finance lease, a receivable is
recognized in Loans at an amount equal to the present value of
the aggregate of the minimum lease payments plus any unguar-
anteed residual value which UBS expects to recover at the end of
the lease term. Initial direct costs are also included in the initial
measurement of the lease receivable. Lease payments received
during the lease term are allocated to repayment of the outstand-
ing receivable and interest income to reflect a constant periodic
rate of return on UBS’s net investment using the interest rate im-
plicit in the lease. UBS reviews the estimated unguaranteed re-
sidual value annually and if the estimated residual value to be real-
ized is less than the amount assumed at lease inception, a loss is
recognized for the expected shortfall.
Certain arrangements do not take the legal form of a lease but
convey a right to use an asset in return for a payment or series of
payments. For such arrangements, UBS determines at the incep-
tion of the arrangement whether the fulfillment of the arrange-
ment is dependent on the use of a specific asset or assets and, if
so, the arrangement is accounted for as a lease.
➔ Refer to Note 33 for more information on operating leases and
finance leases
31) Fee income
UBS earns fee income from a diverse range of services it provides
to its clients. Fee income can be divided into two broad catego-
ries: fees earned from services that are provided over a certain
period of time (for example, investment fund fees, portfolio man-
agement and advisory fees) and fees earned from providing trans-
action-type services (for example, underwriting fees, corporate
finance fees and brokerage fees). Fees earned from services that
are provided over a certain period of time are recognized ratably
over the service period, with the exception of performance-linked
fees or fee components with specific performance criteria. Such
fees are recognized when the performance criteria are fulfilled
and when collectability is reasonably assured. Fees earned from
providing transaction-type services are recognized when the ser-
vice has been completed. Generally, fees are presented in the in-
come statement in line with the balance sheet classification of the
underlying instruments.
Loan commitment fees on lending arrangements, where there
is an initial expectation that the facility will be drawn down, are
deferred until the loan is drawn down and are then recognized as
an adjustment to the effective yield over the life of the loan. If the
commitment expires and the loan is not drawn down, the fees are
recognized as revenue when the commitment expires. Where the
initial expectation that the facility will be drawn down is remote,
the loan commitment fees are recognized on a straight-line basis
over the commitment period. If, subsequently, the commitment is
actually exercised, the unamortized component of the loan com-
mitment fees are amortized as an adjustment to the effective yield
over the life of the loan.
➔ Refer to Note 4 for more information on net fee and commission
income
32) Foreign currency translation
Transactions denominated in foreign currency are translated into
the functional currency of the reporting unit at the spot exchange
rate on the date of the transaction. At the balance sheet date, all
monetary assets and liabilities denominated in foreign currency are
translated to the functional currency using the closing exchange
rate. Non-monetary items measured at historical cost are trans-
lated at the exchange rate on the date of the transaction. Foreign
currency translation differences on financial investments available-
for-sale are recorded directly in Equity until the asset is sold or be-
comes impaired, with the exception of translation differences on
the amortized cost of monetary financial investments available-
for-sale which are reported in Net trading income, along with all
other foreign currency translation differences on monetary assets
and liabilities.
Upon consolidation, assets and liabilities of foreign operations
are translated into Swiss francs (CHF), UBS’s presentation cur-
rency, at the closing exchange rate on the balance sheet date, and
income and expense items are translated at the average rate for
the period. The resulting foreign currency translation differences
attributable to UBS Group AG shareholders are recognized di-
rectly in Foreign currency translation within Equity which forms
part of Total equity attributable to UBS Group AG shareholders,
whereas the foreign currency translation differences attributable
to non-controlling interests are shown within Equity attributable
to non-controlling interests.
When a foreign operation is disposed or partially disposed of, the
cumulative amount in Foreign currency translation within Equity re-
lated to that foreign operation is reclassified to the income state-
ment as part of the gain or loss on disposal. When UBS disposes of
a portion of its interest in a subsidiary that includes a foreign opera-
tion but retains control, the related portion of the cumulative cur-
rency translation balance is reclassified to Equity attributable to non-
controlling interests. When UBS disposes of a portion of its
investment in an associate or joint venture that includes a foreign
operation while retaining significant influence or joint control, the
related portion of the cumulative currency translation balance is re-
classified to the income statement.
➔ Refer to Note 36 for more information on currency translation
rates
420
Note 1 Summary of significant accounting policies (continued) 33) Earnings per share (EPS)
Basic EPS are calculated by dividing the net profit or loss for the
period attributable to ordinary shareholders by the weighted aver-
age number of ordinary shares outstanding during the period.
Diluted EPS are calculated using the same method as for basic
EPS and adjusting the net profit or loss for the period attributable
to ordinary shareholders and the weighted average number of
ordinary shares outstanding to reflect the potential dilution that
could occur if options, warrants, convertible debt securities or
other contracts to issue ordinary shares were converted or exer-
cised into ordinary shares.
➔ Refer to Note 9 for more information on EPS
34) Segment reporting
UBS‘s businesses are organized globally into five business divi-
sions: Wealth Management, Wealth Management Americas, Re-
tail & Corporate, Global Asset Management and the Investment
Bank, supported by the Corporate Center. The five business divi-
sions qualify as reportable segments for the purpose of segment
reporting and, together with the Corporate Center and its com-
ponents, reflect the management structure of the Group. Addi-
tionally, the non-core activities and positions formerly in the In-
vestment Bank are managed and reported in the Corporate
Center. Together with the Legacy Portfolio, these non-core activi-
ties and positions are reported as a separate reportable segment
within the Corporate Center as Non-core and Legacy Portfolio.
Financial information about the five business divisions and the
Corporate Center (with its components) is presented separately in
internal management reports to the Group Executive Board,
which is considered the “chief operating decision maker” within
the context of IFRS 8 Operating Segments.
UBS’s internal accounting policies, which include management
accounting policies and service level agreements, determine the
revenues and expenses directly attributable to each reportable
segment. Internal charges and transfer pricing adjustments are
reflected in operating results of the reportable segments. Transac-
tions between the reportable segments are carried out at inter-
nally agreed rates or at arm’s length and are also reflected in the
operating results of the reportable segments. Revenue-sharing
agreements are used to allocate external client revenues to re-
portable segments where several reportable segments are in-
volved in the value-creation chain. Commissions are credited to
the reportable segments based on the corresponding client rela-
tionship. Net interest income is generally allocated to the report-
able segments based on their balance sheet positions. Interest
income earned from managing UBS’s consolidated equity is allo-
cated to the reportable segments based on average attributed
equity. Own credit gains and losses on financial liabilities desig-
nated at fair value are excluded from the measurement of perfor-
mance of the business divisions, are considered reconciling differ-
ences to UBS Group results and are reported collectively under
Corporate Center – Core Functions.
Assets and liabilities of the reportable segments are funded
through and invested with Group Treasury within Corporate Cen-
ter – Core Functions, and the net interest margin is reflected in
the results of each reportable segment. Total intersegment reve-
nues for the Group are immaterial as the majority of the revenues
are allocated across the segments by means of revenue-sharing
agreements.
Effective from 2014, each year, as part of the annual business
planning cycle, Corporate Center – Core Functions agrees with
the business divisions and Corporate Center – Noncore and Leg-
acy Portfolio cost allocations for services at fixed amounts or at
variable amounts based on fixed formulas, depending on capital
and service consumption levels, as well as the nature of the ser-
vices performed. Because actual costs incurred may differ from
those expected, however, Corporate Center – Core Functions may
recognize significant under or over-allocations depending on vari-
ous factors. Each year these cost allocations will be reset, taking
account of the prior years’ experience and plans for the forthcom-
ing period. Until December 2013, the operating expenses of Cor-
porate Center – Core Functions were allocated to the reportable
segments based on internally determined allocation bases. These
allocations were adjusted on a periodic basis and differences may
have arisen between actual costs incurred and amounts re-
charged.
Segment balance sheet assets are based on a third-party view
and do not include intercompany balances. This view is in line
with internal reporting to management. Certain assets managed
centrally by Corporate Center – Core Functions (including prop-
erty and equipment and certain financial assets) are allocated to
the segments on a basis different to which the corresponding
costs and / or revenues are allocated. Specifically, certain assets are
reported in Corporate Center – Core Functions, whereas the cor-
responding costs and / or revenues are entirely or partially allo-
cated to the segments based on various internally determined al-
locations. Similarly, certain assets are reported in the business
divisions, whereas the corresponding costs and / or revenues are
entirely or partially allocated to Corporate Center – Core Func-
tions.
For the purpose of segment reporting under IFRS 8, the non-
current assets consist of investments in associates and joint ven-
tures, goodwill, other intangible assets and property and equip-
ment.
➔ Refer to Note 2 for more information on segment reporting
35) Netting
UBS nets financial assets and liabilities on its balance sheet if it has
the unconditional and legally enforceable right to set-off the rec-
ognized amounts, both in the normal course of business and in
the event of default, bankruptcy or insolvency of the entity and all
of the counterparties, and intends either to settle on a net basis,
or to realize the asset and settle the liability simultaneously. Net-
ted positions include, for example, over-the-counter interest rate
421
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
swaps transacted with the London Clearing House, netted by cur-
rency and across maturity dates, repurchase and reverse repur-
chase transactions entered into with both the London Clearing
House and the Fixed Income Clearing Corporation, netted by
counterparty, currency, central securities depository and maturity,
as well as transactions with various other counterparties, ex-
changes and clearing houses.
In assessing whether the Group intends to either settle on a
net basis, or to realize the asset and settle the liability simultane-
ously, emphasis is placed on the effectiveness of operational set-
tlement mechanics in eliminating substantially all credit and li-
quidity exposure between the counterparties. This condition
precludes offsetting on the balance sheet for substantial amounts
of the Group’s financial assets and liabilities, even though they
may be subject to enforceable netting arrangements. For deriva-
tive contracts, balance sheet offsetting is generally only permitted
in circumstances in which a market settlement mechanism exists
via an exchange or clearing house which effectively accomplishes
net settlement through a daily cash margining process. For repur-
chase arrangements and securities financings, balance sheet off-
setting may be permitted only to the extent that the settlement
mechanism eliminates or results in insignificant credit and liquidity
risk, and processes the receivables and payables in a single settle-
ment process or cycle.
➔ Refer to Note 1b and Note 26 for more information on offsetting
financial assets and financial liabilities
b) Changes in accounting policies, comparability and other adjustments
Effective in 2014
Offsetting Financial Assets and Financial Liabilities (Amendments
to IAS 32, Financial Instruments: Presentation)
On 1 January 2014, the Group adopted Offsetting Financial As-
sets and Financial Liabilities (Amendments to IAS 32, Financial
Instruments: Presentation). The amended IAS 32 restricts offset-
ting on the balance sheet to only those arrangements in which a
right of set-off exists that is unconditional and legally enforceable,
in the normal course of business and in the event of the default,
bankruptcy or insolvency of the Group and its relevant counter-
parties and for which the Group intends to either settle on a net
basis, or to realize the asset and settle the liability simultaneously.
The amendments also provide incremental guidance for deter-
mining when gross settlement systems, such as a delivery versus
payment (DVP) process used to settle repurchase agreements, re-
sult in the functional equivalent of net settlement.
Under the revised rules, the Group is no longer able to offset
certain derivative arrangements, mainly credit derivative contracts
and equity / index contracts, due to a combination of product and
counterparty-specific considerations. The comparative balance
sheet as of 31 December 2013 was restated with the effect pre-
sented in the table below. A balance sheet as of the beginning of
2013 has not been presented because the change in policy was
not deemed to have a material impact on the financial state-
ments. There was no impact on total equity, net profit or earnings
per share. In addition, there was no impact on the Group’s Basel III
capital.
➔ Refer to Note 26 for more information
Removing exchange-traded derivative client cash balances from
the Group’s balance sheet
UBS collects cash and securities collateral, in the form of initial and
variation margin, from its clients and remits them to central coun-
Amendments to IAS 32 and Removing ETD client cash balances: Effect on the balance sheet
CHF million
Total assets
of which: Due from banks
of which: Positive replacement values
of which: Cash collateral receivables on derivative instruments
Total liabilities
of which: Negative replacement values
of which: Cash collateral payables on derivative instruments
Total equity
Total liabilities and equity
422
Balance as of
31 December 2013
previously reported
Change in reported
figures due
to amendments
Change in reported
figures due
to removing ETD
Restated balance
as of
to IAS 32
client cash balances
31 December 2013
1,009,860
17,170
245,835
28,007
959,925
239,953
49,138
49,936
1,009,860
8,513
0
8,249
264
8,513
8,125
388
0
8,513
(5,019)
(3,296)
0
(1,723)
(5,019)
0
(5,019)
0
(5,019)
1,013,355
13,874
254,084
26,548
963,419
248,079
44,507
49,936
1,013,355
Note 1 Summary of significant accounting policies (continued) terparties (CCPs), brokers and deposit banks through its exchange-
traded derivative (ETD) clearing and execution services. In 2014,
the Group changed its accounting policy with respect to recogniz-
ing cash initial margin collected and remitted (together, client cash
balances) to more closely align with evolving market practices.
Specifically, if through contractual agreement, regulation or
practice (i) the Group is not permitted to reinvest client cash bal-
ances; (ii) interest paid by the CCP, broker or deposit bank on cash
deposits forms part of the client cash balances with deductions
being made solely as compensation for clearing and execution
services provided; (iii) the Group does not guarantee and is not
liable to the client for the performance of the CCP, broker or de-
posit bank; and (iv) the client cash balances are legally isolated
from the Group’s estate, UBS concluded that it does not obtain
benefits from or control client cash balances. Therefore, those
amounts are not deemed to represent assets and corresponding
liabilities of UBS Group AG and are no longer reflected within
Cash collateral payables on derivative instruments for the amounts
due to clients, Cash collateral receivables on derivative instru-
ments for amounts posted to CCPs and Due from Banks for any
amounts that are deposited at third party deposit banks. As a re-
sult, Cash collateral receivables on derivatives decreased by CHF
1.2 billion, Due from Banks decreased by CHF 3.0 billion and Cash
collateral payables on derivatives decreased by CHF 4.2 billion as
of 31 December 2014.
The comparative balance sheet as of 31 December 2013 was
restated with the effect presented in the table on the previous
page. A balance sheet as of the beginning of 2013 has not been
presented because the change in policy was not deemed to have
a material impact on the financial statements. There was no im-
pact on total equity, net profit, earnings per share or on the
Group’s Basel III capital.
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments to IAS 39, Financial Instruments: Recognition and
Measurement)
On 1 January 2014, the Group adopted Novation of Derivatives
and Continuation of Hedge Accounting (Amendments to IAS 39,
Financial Instruments: Recognition and Measurement) which pro-
vides relief from discontinuing hedge accounting when a deriva-
tive designated as a hedging instrument is novated to effect clear-
ing with a central counterparty as a result of laws and regulations,
provided certain criteria are met. Adoption of the amendments
had no impact on the Financial Statements.
IFRIC Interpretation 21, Levies
In 2014, the Group adopted IFRIC Interpretation 21, Levies. IFRIC
21 sets out the accounting for an obligation to pay a government
levy that is not within the scope of IAS 12, Income Taxes. The in-
terpretation specifies that liabilities for levies should not be recog-
nized prior to the occurrence of a specified triggering event, even
when an entity has no realistic ability to avoid the triggering
event. Adoption of the interpretation did not have a material im-
pact on the Financial Statements.
Fair value measurements – funding valuation adjustments
In 2014, the Group incorporated funding valuation adjustments
(FVA) into its fair value measurements. This resulted in a net loss
of CHF 267 million when the change was adopted on 30 Septem-
ber 2014, of which CHF 252 million was attributable to Corporate
Center – Non-core and Legacy Portfolio, CHF 12 million to the
Investment Bank and CHF 3 million to Retail & Corporate. FVA
reflect the costs and benefits of funding associated with uncol-
lateralized and partially collateralized derivative receivables and
derivative payables and are also applied to collateralized derivative
assets in cases where the collateral cannot be sold or repledged.
FVA were implemented in response to growing evidence that
market participants incorporate FVA in the fair value measure-
ment of uncollateralized and partially collateralized derivatives
and was implemented on a prospective basis as a change in ac-
counting estimate.
➔ Refer to Note 24d for more information
Refinement to the allocation of operating costs for
internal services
To further enhance cost discipline and strengthen efforts to re-
duce its underlying cost base, the Group has refined in 2014 the
way that operating costs for internal services are allocated from
Corporate Center – Core Functions to the business divisions and
Corporate Center – Non-core and Legacy Portfolio.
➔ Refer to Note 1a item 34 for more information
Changes in presentation
Presentation of Defined Benefit Plans
In 2014, to align with market practice, the disclosure of defined
benefit plan remeasurements in the balance sheet and statement
of changes in equity was amended to present the year-to-date and
life-to-date movements directly within Retained earnings, rather
than as a separate component of other comprehensive income.
The comparative balance sheet and statement of changes in equity
as of 31 December 2013 were restated to reflect this presentational
change. Cumulative net income recognized directly in equity, net of
tax as presented within the balance sheet and statement of changes
in equity was renamed to Other comprehensive income recognized
directly in equity, net of tax. In addition, further lines were added to
the statement of changes in equity to separately disclose Net
profit / (loss), Other comprehensive income that may be reclassified
to the income statement and Other comprehensive income that
will not be reclassified to the income statement.
Segment reporting by geographic location
In 2014, the Group revised the basis on which it attributes Total
operating income to geographical locations in order to provide
423
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
more relevant information. Total operating income is now attrib-
uted to the region consistent with how the business is managed
and performance is evaluated, with income primarily attributed to
the domicile of the client. Historically, total operating income was
primarily attributed to the location of the entity in which the
transactions and assets were recorded. Prior period information
was restated to reflect this change.
➔ Refer to Note 2b for more information
Net fee and commission income
In 2014, the Group revised its presentation of certain line items
within Net fee and commission income in order to provide more
relevant information. Prior period information was adjusted ac-
cordingly.
➔ Refer to Note 4 for more information
Other income
In 2014, the Group introduced several new reporting lines in or-
der to enhance transparency on the composition of Other within
Other income. Prior period information was adjusted accordingly.
➔ Refer to Note 5 for more information
c) International Financial Reporting Standards and Interpretations to be adopted in 2015 and later and other adjustments
IFRS 9, Financial instruments
In November 2009, the IASB issued IFRS 9, Financial Instruments,
which includes revised guidance on the classification and mea-
surement of financial assets. In October 2010, the IASB updated
IFRS 9 to include guidance on financial liabilities and derecognition
of financial instruments. The publication of IFRS 9 represented the
completion of the first part of a multi-stage project to replace IAS
39, Financial Instruments: Recognition and Measurement.
The standard required all financial assets, except equity instru-
ments, to be classified at fair value through profit or loss or amor-
tized cost on the basis of the entity’s business model for managing
the financial assets and the contractual cash flow characteristics of
the financial asset. If a financial asset meets the criteria to be mea-
sured at amortized cost, it can be designated at fair value through
profit or loss under the fair value option if doing so would signifi-
cantly reduce or eliminate an accounting mismatch. Equity instru-
ments that are not held for trading may be accounted for at fair
value through other comprehensive income (OCI).
The accounting guidance for financial liabilities is unchanged
with one exception: any gain or loss arising out of a financial lia-
bility designated at fair value through profit or loss that is attribut-
able to changes in the credit risk of that liability (own credit) is
presented in OCI and not recognized in the income statement.
There is no subsequent recycling of realized gains or losses from
OCI to the income statement.
In November 2013, the IASB issued IFRS 9, Financial Instru-
ments (Hedge accounting and amendments to IFRS 9, IFRS 7 and
IAS 39). This standard contains guidance on hedge accounting
that will replace the existing requirements of IAS 39, introducing
substantial changes to hedge effectiveness and eligibility require-
ments as well as new disclosures. The amendments also remove
the previous mandatory effective date of 1 January 2015 for all of
the IFRS 9 requirements. The standard further permits entities to
early adopt the own credit presentation changes prospectively,
without having to apply any of the other requirements of IFRS 9.
In July 2014, the IASB published a final version of IFRS 9, Finan-
cial Instruments. IFRS 9 now fully reflects the classification and
measurement, impairment and hedge accounting phases of the
IASB’s project to replace IAS 39, Financial Instruments: Recognition
and Measurement. The final standard incorporates significant
modifications to the previous version (as issued in 2010), including
new classification and measurement requirements for financial as-
sets; notably the introduction of a new fair value through OCI clas-
sification, the addition of a single forward-looking expected credit
loss impairment model, replacing the incurred loss model of IAS
39, and the incorporation of a reformed approach to hedge ac-
counting (as discussed above). The final standard includes the
guidance for financial liabilities, as previously issued. There is no
subsequent recycling of realized gains or losses on own credit from
OCI to profit or loss. The mandatory effective date of the new
standard will be 1 January 2018, with earlier adoption permitted.
UBS is currently assessing the impact of the new requirements
on the Financial Statements.
IFRS 15, Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts
with Customers, which establishes principles for revenue recogni-
tion that apply to all contracts with customers. The standard re-
quires an entity to recognize revenue as goods or services are
transferred to the customer in an amount that reflects the consid-
eration to which the entity expects to be entitled in exchange for
those goods or services. It also establishes a cohesive set of disclo-
sure requirements regarding information about the nature,
amount, timing and uncertainty of revenue and cash flows from
contracts with customers. The standard is effective for UBS re-
porting periods beginning on 1 January 2017, with early adoption
permitted. Entities can choose to apply the standard retrospec-
tively or use a modified approach in the year of adoption. UBS is
currently assessing the impact of the new standard on the Finan-
cial Statements.
424
Note 1 Summary of significant accounting policies (continued) Amendments to IFRS 11, Joint Arrangements, IAS 16, Property,
Plant and Equipment and IAS 38, Intangible Assets
In May 2014, the IASB issued amendments to IFRS 11, Joint Ar-
rangements, IAS 16, Property, Plant and Equipment and IAS 38,
Intangible Assets. The amendments will have no material impact
on the Group’s Financial Statements. UBS’s joint arrangements are
immaterial, both individually and in aggregate (refer to Note 30),
and UBS does not use revenue-based depreciation methodolo-
gies, which the amendments to IAS 16 and IAS 38 will prohibit.
Annual Improvements to IFRSs 2010 – 2012 Cycle and
Annual Improvements to IFRSs 2011 – 2013 Cycle
In December 2013, the IASB issued Annual Improvements to IFRSs
2010 – 2012 Cycle and Annual Improvements to IFRSs 2011 –
2013 Cycle that resulted in 12 amendments to nine IFRSs. Gener-
ally, the amendments are effective for UBS on 1 January 2015,
with early adoption permitted. UBS expects that the adoption of
these amendments will not have a material impact on the Finan-
cial Statements.
Narrow-scope amendments to IAS 19, Employee Benefits
In December 2013, the IASB issued Defined Benefit Plans: Em-
ployee Contributions (Amendments to IAS 19, Employee Bene-
fits). The amendments offer an alternative, simplified treatment
for considering contributions from employees or third parties in
the calculation of the defined benefit obligation if the amount of
employee or third-party contributions is independent of the num-
ber of years of service. Under the alternative treatment, an entity
may recognize such contributions as a reduction in service cost in
the period in which the related service is rendered, instead of at-
tributing the contributions to the periods of service. This is appli-
cable for the Swiss pension plan, whereby UBS currently attributes
employee contributions to the periods of service in accordance
with the plan’s benefit formula. The amendments to IAS 19 are
applicable retrospectively, for UBS on 1 January 2015. UBS does
not apply the alternative treatment introduced by this amend-
ment to IAS 19.
Annual Improvements to IFRSs 2012 – 2014 Cycle
In September 2014, the IASB issued Annual Improvements to
IFRSs 2012 – 2014 Cycle that resulted in amendments to four
IFRSs. Generally, the amendments are effective for UBS on 1 Janu-
ary 2016, with early adoption permitted. UBS is currently assess-
ing the impact of the amendments on the Financial Statements.
Amendments to IAS 1, Presentation of Financial Statements
In December 2014, the IASB issued amendments to IAS 1 to fur-
ther encourage companies to apply professional judgment in de-
termining what information to disclose in their financial state-
ments and in determining where and in what order information is
presented in the financial disclosures. The amendments have a
mandatory effective date of 1 January 2016 for the Group, with
earlier adoption permitted. UBS expects that the adoption of
these amendments will not have a material impact on the Finan-
cial Statements.
425
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
The operational structure of the Group is comprised of the Corpo-
rate Center and five business divisions: Wealth Management,
Wealth Management Americas, Retail & Corporate, Global Asset
Management and the Investment Bank.
Wealth Management
Wealth Management provides comprehensive financial services to
wealthy private clients around the world – except those served by
Wealth Management Americas. UBS is a global firm with global
capabilities, and Wealth Management clients benefit from the full
spectrum of UBS’s global resources, ranging from investment
management solutions to wealth planning and corporate finance
advice, as well as a wide range of specific offerings. Its guided
architecture model gives clients access to a wide range of prod-
ucts from third-party providers that complement UBS’s own prod-
ucts.
Wealth Management Americas
Wealth Management Americas is one of the leading wealth man-
agers in the Americas in terms of financial advisor productivity
and invested assets. It provides advice-based solutions and bank-
ing services through financial advisors who deliver a fully inte-
grated set of products and services specifically designed to ad-
dress the needs of ultra high net worth and high net worth
individuals and families. It includes the domestic US and Canadian
business as well as international business booked in the US.
Retail & Corporate
Retail & Corporate provides comprehensive financial products and
services to its retail, corporate and institutional clients in Switzer-
land, maintaining a leading position in these client segments and
embedding its offering in a multi-channel approach. The retail
and corporate business constitutes a central building block of
UBS’s universal bank delivery model in Switzerland, supporting
other business divisions by referring clients to them and assisting
retail clients to build their wealth to a level at which they can be
transferred to Wealth Management. Furthermore, it leverages the
cross-selling potential of products and services provided by its as-
set-gathering and investment banking businesses. In addition,
Retail & Corporate manages a substantial part of UBS’s Swiss in-
frastructure and Swiss banking products platform, which are both
leveraged across the Group.
Global Asset Management
Global Asset Management is a large-scale asset manager with
well diversified businesses across regions and client segments. It
serves third-party institutional and wholesale clients, as well as
clients of UBS’s wealth management businesses with a broad
range of investment capabilities and styles across all major tradi-
tional and alternative asset classes. Complementing the invest-
ment offering, the fund services unit provides fund administration
services for UBS and third-party funds.
Investment Bank
The Investment Bank provides corporate, institutional and wealth
management clients with expert advice, innovative solutions, ex-
ecution and comprehensive access to the world’s capital markets.
The Investment Bank offers advisory services and access to inter-
national capital markets, and provide comprehensive cross-asset
research, along with access to equities, foreign exchange, pre-
cious metals and selected rates and credit markets, through its
business units, Corporate Client Solutions and Investor Client Ser-
vices. The Investment Bank is an active participant in capital mar-
kets flow activities, including sales, trading and market-making
across a range of securities.
Corporate Center
Corporate Center is comprised of Core Functions and Non-core
and Legacy Portfolio. Core Functions include Group-wide control
functions such as finance (including treasury services such as
liquidity, funding, balance sheet and capital management), risk
control (including compliance) and legal. In addition, Core Func-
tions provide all logistics and support services, including opera-
tions, information technology, human resources, regulatory rela-
tions and strategic initiatives, communications and branding,
corporate services, physical security, information security as well
as outsourcing, nearshoring and offshoring. Non-core and Legacy
Portfolio is comprised of the non-core businesses and legacy posi-
tions that were part of the Investment Bank prior to its restruc-
turing.
As of 1 January 2015, Corporate Center – Core Functions was
reorganized into two new components, Corporate Center –
Services and Corporate Center – Group Asset and Liability
Management (Group ALM).
426
Note 2a Segment reporting Note 2a Segment reporting (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS
CHF million
For the year ended 31 December 2014
Net interest income
Non-interest income
Income 1, 2
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets 3
Total operating expenses 4
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
2,165
5,736
7,902
(1)
7,901
3,369
1,937
58
205
5
5,574
2,326
983
6,001
6,984
15
6,998
4,802
1,109
10
129
48
6,099
900
2,184
1,653
3,836
(95)
3,741
1,363
859
(126)
139
0
2,235
1,506
(11)
1,912
1,902
0
1,902
887
516
(20)
43
9
1,435
467
1,482
6,862
8,343
2
8,346
4,065
4,037
3
272
15
8,392
(47)
127,588
56,026
143,711
15,207
292,347
Additions to non-current assets
7
6
9
2
7
Core
Functions
Non-core
and Legacy
Portfolio
(347)
308
(39)
0
(39)
423
245
13
2
6
688
(728)
98
(921)
(823)
2
(821)
371
684
62
27
0
1,144
(1,965)
6,555
21,550
28,105
(78)
28,027
15,280
9,387
0
817
83
25,567
2,461
(1,180)
3,640
257,773
1,677
169,826
1,062,478
0
1,708
1 Impairments of financial investments available-for-sale for the year ended 31 December 2014 were as follows: Wealth Management CHF 3 million, Global Asset Management CHF 1 million, Investment Bank
CHF 49 million, Corporate Center – Non-core and Legacy Portfolio CHF 23 million. 2 Refer to Note 24 for more information on own credit in Corporate Center – Core Functions. 3 Refer to Note 17 for more informa-
tion. 4 Refer to Note 32 for information on restructuring charges.
427
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 2a Segment reporting 1 (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS
CHF million
For the year ended 31 December 2013
Net interest income
Non-interest income
Income 3, 4
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets 5
Total operating expenses 6
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
Additions to non-current assets
2,061
5,512
7,573
(10)
7,563
3,371
1,650
97
190
8
5,316
2,247
936
5,629
6,565
(27)
6,538
4,574
924
13
121
49
5,680
858
2,144
1,630
3,774
(18)
3,756
1,442
875
(162)
143
0
2,298
1,458
(20)
1,954
1,935
0
1,935
873
448
(17)
47
8
1,359
576
886
7,712
8,599
2
8,601
3,984
2,040
3
260
14
6,300
2,300
Core
Functions
Non-core
and Legacy
Portfolio
(405) 2
(602) 2
(1,007)
0
(1,007)
424
422
1
0
0
847
(1,854)
183 2
161 2
344
3
347
515
2,022
65
55
3
2,660
(2,312)
5,786
21,997
27,782
(50)
27,732
15,182
8,380
0
816
83
24,461
3,272
(110)
3,381
109,758
45,491
141,369
14,223
239,971
5
1
17
1
81
247,407
1,236
215,135
1,013,355
0
1,341
1 Figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of new account-
ing standards or changes in accounting policies. Refer to Note 1b for more information. 2 In 2014, net interest income and non-interest income figures for the year ended 31 December 2013 were corrected. Net inter-
est income in Corporate Center – Core Functions was decreased by CHF 374 million with a corresponding increase in non-interest income. In addition, net interest income in Corporate Center – Non-core and Legacy
Portfolio was increased by CHF 374 million with a corresponding decrease in non-interest income. 3 Impairments of financial investments available-for-sale for the year ended 31 December 2013 were as follows: Wealth
Management CHF 10 million, Global Asset Management CHF 3 million, Investment Bank CHF 20 million, Corporate Center – Non-core and Legacy Portfolio CHF 8 million. 4 Refer to Note 24 for more information on
own credit in Corporate Center – Core Functions. 5 Refer to Note 17 for more information. 6 Refer to Note 32 for information on restructuring charges.
428
Note 2a Segment reporting 1 (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS
CHF million
For the year ended 31 December 2012
Net interest income
Non-interest income
Income 3, 4
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Impairment of goodwill 6
Amortization and impairment of intangible assets 6
Total operating expenses 7
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
1,951
5,089
7,040
1
7,041
2,865
1,360
243
159
0
7
4,634
2,407
792
5,099
5,891
(14)
5,877
4,252
893
(15)
100
0
51
5,281
597
2,186
1,569
3,756
(27)
3,728
1,287
857
(370)
128
0
0
1,901
1,827
(21)
1,904
1,883
0
1,883
885
395
(10)
37
0
8
1,314
569
834
6,310
7,144
0
7,144
4,539
2,312
(202)
214
0
13
6,877
267
104,620
43,948
145,320
12,916
261,511
Additions to non-current assets
4
1
45
12
62
Core
Functions
Non-core
and Legacy
Portfolio
(229) 2
(1,461) 2
(1,689)
0
(1,689)
282
1,696 5
21
9
0
0
465 2
1,051 2
1,516
(78)
1,439
628
1,141
335
41
3,030
28
2,008
(3,698)
5,202
(3,764)
5,978
19,563
25,541
(118)
25,423
14,737
8,653
0
689
3,030
106
27,216
(1,794)
461
(2,255)
262,857
1,032
428,625
1,259,797
0
1,158
1 Figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of new accounting
standards or changes in accounting policies. Refer to Note 1b for more information. 2 In 2014, net interest income and non-interest income figures for the year ended 31 December 2012 were corrected. Net interest in-
come in Corporate Center – Core Functions was decreased by CHF 276 million with a corresponding increase in non-interest income. In addition, net interest income in Corporate Center – Non-core and Legacy Portfolio was
increased by CHF 276 million with a corresponding decrease in non-interest income. 3 Impairments of financial investments available-for-sale for the year ended 31 December 2012 were as follows: Global Asset Manage-
ment CHF 4 million, Investment Bank CHF 12 million, Corporate Center – Core Functions CHF 2 million, Corporate Center – Non-core and Legacy Portfolio CHF 67 million. 4 Refer to Note 24 for more information on own
credit in Corporate Center – Core Functions. 5 Includes charges of approximately CHF 1.4 billion arising from fines and disgorgement resulting from regulatory investigations concerning LIBOR and other benchmark
rates. 6 Refer to Note 17 for more information. 7 Refer to Note 32 for information on restructuring charges.
429
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
The operating regions shown in the table below, i.e., Americas,
Asia Pacific, Europe, Middle East and Africa, and Switzerland, cor-
respond to the management structure of the Group from a re-
gional perspective. The allocation of operating income to these
regions reflects, and is consistent with, the basis on which the
business is managed and performance evaluated. These alloca-
tions involve assumptions and judgments which management
considers to be reasonable. The main principles of the allocation
methodology are that client revenues are attributed to the domi-
cile of the client, with global clients being split into relevant coun-
tries and trading and portfolio management revenues attributed
to the country where the risk is managed. This revenue attribution
is consistent with the mandate of the country and regional Presi-
dents. Certain revenues, such as those related to the Corporate
Center – Non-core and Legacy Portfolio, are managed at a Group
level. These revenues are included in the Global line.
The geographic analysis of non-current assets is based on the
location of the entity in which the assets are recorded.
➔ Refer to Note 1b for more information on changes to segment
reporting by geographic location
Total operating income
Total non-current assets
CHF billion
Share %
CHF billion
Share %
10.7
10.1
4.6
6.8
6.8
(0.9)
28.0
38
36
16
24
24
(3)
100
7.0
6.6
0.4
1.5
5.6
0.0
14.6
48
45
3
10
38
0
100
Total operating income
Total non-current assets
CHF billion
Share %
CHF billion
Share %
10.2
9.6
4.5
6.6
6.8
(0.4)
27.7
37
35
16
24
25
(1)
100
6.1
5.6
0.4
1.5
5.3
0.0
13.1
46
43
3
11
40
0
100
Total operating income
Total non-current assets
CHF billion
Share %
CHF billion
Share %
9.5
8.9
3.5
6.4
6.9
(0.8)
25.4
37
35
14
25
27
(3)
100
6.2
5.8
0.4
1.5
5.3
0.0
13.3
46
43
3
11
40
0
100
For the year ended 31 December 2014
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
Switzerland
Global
Total
For the year ended 31 December 2013
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
Switzerland
Global
Total
For the year ended 31 December 2012
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
Switzerland
Global
Total
430
Note 2b Segment reporting by geographic location Note 3 Net interest and trading income
CHF million
Net interest and trading income
Net interest income
Net trading income
Total net interest and trading income
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
of which: Corporate Client Solutions 1
of which: Investor Client Services 1
Corporate Center
of which: Core Functions
of which: own credit on financial liabilities designated at fair value 2
of which: Non-core and Legacy Portfolio
Total net interest and trading income
Net interest income
Interest income
Interest earned on loans and advances 3
Interest earned on securities borrowed and reverse repurchase agreements
Interest and dividend income from trading portfolio
Interest income on financial assets designated at fair value
Interest and dividend income from financial investments available-for-sale
Total
Interest expense
Interest on amounts due to banks and customers
Interest on securities lent and repurchase agreements
Interest expense from trading portfolio 4
Interest on financial liabilities designated at fair value
Interest on debt issued
Total
Net interest income
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
6,555
3,842
10,397
2,845
1,352
2,536
0
4,554
1,047
3,507
(891)
(28)
292
(864)
10,397
8,722
752
3,196
208
315
13,194
708
827
1,804
919
2,382
6,639
6,555
5,786
5,130
10,915
2,868
1,323
2,485
9
5,015
1,142
3,873
(784)
(1,045)
(283)
261
10,915
8,686
852
2,913
364
322
13,137
893
829
1,846
1,197
2,586
7,351
5,786
5,978
3,526
9,504
2,728
1,265
2,467
9
3,574
706
2,868
(540)
(1,992)
(2,202)
1,452
9,504
9,323
1,413
4,482
369
381
15,968
1,433
1,208
2,442
1,744
3,163
9,990
5,978
13
(25)
(5)
(1)
2
2
(100)
(9)
(8)
(9)
14
(97)
(5)
0
(12)
10
(43)
(2)
0
(21)
0
(2)
(23)
(8)
(10)
13
1 In 2014, comparative period figures were corrected. As a result, net interest and trading income for Investment Bank Corporate Client Solutions increased by CHF 107 million and CHF 131 million for 2013 and 2012,
respectively, with an equal and offsetting decrease for Investment Bank Investor Client Services. 2 Refer to Note 24 for more information on own credit. 3 Includes interest income on impaired loans and advances of
CHF 15 million for 2014, CHF 15 million for 2013 and CHF 16 million for 2012. 4 Includes expense related to dividend payment obligations on trading liabilities.
431
Financial informationIncome statement notes Financial information
Notes to the UBS Group AG consolidated financial statements
Note 3 Net interest and trading income (continued)
CHF million
Net trading income
Investment Bank Corporate Client Solutions 1
Investment Bank Investor Client Services 1
Other business divisions and Corporate Center
Net trading income
of which: net gains / (losses) from financial assets designated at fair value
of which: net gains / (losses) from financial liabilities designated at fair value 2, 3
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
293
2,780
770
3,842
(89)
(2,380)
422
3,707
1,002
5,130
99
389
2,351
786
3,526
420
(2,056)
(6,493)
(31)
(25)
(23)
(25)
16
1 In 2014, comparative period figures were corrected. As a result, net trading income for Investment Bank Corporate Client Solutions decreased by CHF 123 million for 2013, with an equal and offsetting increase for
Investment Bank Investor Client Services. 2 Refer to Note 24 for more information on own credit. 3 Excludes fair value changes of hedges related to financial liabilities designated at fair value and foreign currency
effects arising from translating foreign currency transactions into the respective functional currency, both of which are reported within net trading income.
Net trading income in 2013 included a gain of CHF 431 million from the valuation of the option to acquire the SNB StabFund’s equity,
reflected in the line Other business divisions and Corporate Center, compared with a gain of CHF 526 million in 2012. The option was
exercised in 2013.
Note 4 Net fee and commission income
CHF million
Underwriting fees
of which: equity underwriting fees
of which: debt underwriting fees
M& A and corporate finance fees
Brokerage fees
Investment fund fees
Portfolio management and advisory fees
Other
Total fee and commission income
Brokerage fees paid
Other
Total fee and commission expense
Net fee and commission income
of which: net brokerage fees
For the year ended
31.12.14
1,470
31.12.13
1,374
31.12.12
1,539
947
522
731
3,918
3,717
7,343
1,760
18,940
818
1,045
1,863
17,076
3,100
850
524
613
4,035
3,803
6,625
1,725
18,176
839
1,050
1,889
16,287
3,196
807
732
679
3,836
3,626
5,895
1,698
17,273
871
1,006
1,876
15,396
2,965
% change from
31.12.13
7
11
0
19
(3)
(2)
11
2
4
(3)
0
(1)
5
(3)
432
Note 5 Other income
CHF million
Associates and subsidiaries
Net gains / (losses) from disposals of subsidiaries 1
Net gains / (losses) from disposals of investments in associates
Share of net profits of associates
Total
Financial investments available-for-sale
Net gains / (losses) from disposals
Impairment charges
Total
Net income from properties (excluding net gains / losses from disposals) 2
Net gains / (losses) from investment properties at fair value 3
Net gains / (losses) from disposals of properties held for sale
Net gains / (losses) from disposals of loans and receivables
Other
Total other income
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
56
69
94
219
219
(76)
143
30
2
44
39
155
632
111
0
49
160
209
(41)
168
35
(16)
291
53
(111)
580
(7)
0
88
81
393
(85)
308
35
4
128
(11)
97
641
(50)
92
37
5
85
(15)
(14)
(85)
(26)
9
1 Includes foreign exchange gains / losses reclassified from other comprehensive income related to disposed or dormant subsidiaries. 2 Includes net rent received from third parties and net operating expenses.
3 Includes unrealized and realized gains / losses from investment properties at fair value and foreclosed assets.
Note 6 Personnel expenses
CHF million
Salaries 1
Variable compensation – performance awards 2
of which: guarantees for new hires
Variable compensation – other 2
of which: replacement payments 3
of which: forfeiture credits
of which: severance payments 4
of which: retention plan and other payments
Contractors
Social security
Pension and other post-employment benefit plans 5
Wealth Management Americas: Financial advisor compensation 2, 6
Other personnel expenses
Total personnel expenses 7
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
6,269
2,820
48
466
81
(70)
162
292
234
791
711
3,385
605
15,280
6,268
2,986
76
288
78
(146)
114
242
190
792
887
3,140
631
15,182
6,814
3,000
134
367
109
(174)
303
128
214
768
18
2,873
682
14,737
0
(6)
(37)
62
4
(52)
42
21
23
0
(20)
8
(4)
1
1 Includes role-based allowances. 2 Refer to Note 29 for more information. 3 Replacement payments are payments made to compensate employees for deferred awards forfeited as a result of joining UBS. 4 Includes
legally obligated and standard severance payments. 5 2014 included credits of CHF 41 million related to changes to retiree benefit plans in the US. 2012 included a credit of CHF 730 million related to changes to the
Swiss pension plan and a credit of CHF 116 million related to changes to retiree medical and life insurance benefit plans in the US. Refer to Note 28 for more information. 6 Financial advisor compensation consists of
grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other vari-
ables. It also includes charges related to compensation commitments with financial advisors entered into at the time of recruitment which are subject to vesting requirements. 7 Included net restructuring charges of
CHF 327 million, CHF 156 million and CHF 358 million for the years ended 31 December 2014, 31 December 2013 and 31 December 2012, respectively. Refer to Note 32 for more information.
433
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 7 General and administrative expenses
CHF million
Occupancy
Rent and maintenance of IT and other equipment
Communication and market data services
Administration
Marketing and public relations
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Provisions for litigation, regulatory and similar matters 1, 2
Other 3
Total general and administrative expenses 4
For the year ended
31.12.14
1,005
31.12.13
1,044
31.12.12
1,074
479
608
610
468
458
1,306
1,603
2,594
256
9,387
458
609
638
478
451
1,032
1,340
1,701
628
8,380
473
632
636
528
450
908
1,357
2,549
47
8,653
% change from
31.12.13
(4)
5
0
(4)
(2)
2
27
20
52
(59)
12
1 Reflects the net increase / release of provisions for litigation, regulatory and similar matters recognized in the income statement. In addition, it includes recoveries from third parties of CHF 10 million, CHF 15 million
and CHF 12 million for the years ended 31 December 2014, 31 December 2013 and 31 December 2012, respectively. A portion (CHF 58 million release) of the net increase / release recognized in the income statement
for provisions for certain litigation, regulatory and similar matters for 2014 as presented in Note 22a was recorded as other income rather than as general and administrative expenses. 2 Refer to Note 22 for more
information. 3 2014 included a net charge of CHF 120 million related to certain disputed receivables. 2013 included a charge of CHF 110 million related to the Swiss-UK tax agreement and an impairment charge of
CHF 87 million related to certain disputed receivables. 4 Included net restructuring charges of CHF 319 million, CHF 548 million and CHF 0 million for the years ended 31 December 2014, 31 December 2013 and
31 December 2012, respectively. Refer to Note 32 for more information.
Note 8 Income taxes
CHF million
Tax expense / (benefit)
Swiss
Current
Deferred
Foreign
Current
Deferred
Total income tax expense / (benefit)
Income tax expense / (benefit)
The Swiss current tax expense of CHF 46 million relates to taxable
profits, against which no losses were available to offset, mainly
earned by Swiss subsidiaries. The Swiss deferred tax expense of
CHF 1,348 million mainly reflects the net decrease of deferred tax
assets previously recognized in relation to tax losses carried
forward.
For the year ended
31.12.14
31.12.13
31.12.12
46
1,348
409
(2,983)
(1,180)
93
455
342
(1,000)
(110)
95
23
72
271
461
The foreign current tax expense of CHF 409 million relates to
taxable profits earned by non-Swiss subsidiaries and branches,
against which no losses were available to offset. The foreign net
deferred tax benefit of CHF 2,983 million primarily reflects an
increase of deferred tax assets relating to the US.
The components of operating profit before tax, and the differ-
ences between income tax expense reflected in the financial
statements and the amounts calculated at the Swiss tax rate, are
listed in the table on the following page.
434
Note 8 Income taxes (continued)
CHF million
Operating profit / (loss) before tax
of which: Swiss
of which: Foreign
Income tax at Swiss tax rate of 21%
Increase / (decrease) resulting from:
Foreign tax rates differing from Swiss tax rate
Tax effects of losses not recognized
Previously unrecognized tax losses now utilized
Non-taxable and lower taxed income
Non-deductible expenses and additional taxable income
Adjustments related to prior years – current tax
Adjustments related to prior years – deferred tax
Change in deferred tax valuation allowances
Adjustments to deferred tax balances arising from changes in tax rates
Other items
Income tax expense / (benefit)
For the year ended
31.12.14
31.12.13
31.12.12
2,461
1,173
1,288
517
70
325
(285)
(384)
1,069
5
(9)
(2,373)
(183)
69
(1,180)
3,272
3,323
(51)
687
(305)
58
(419)
(624)
1,245
(32)
6
(859)
107
28
(110)
(1,794)
4,040
(5,834)
(377)
(680)
184
(1,342)
(417)
2,205
(216)
1
1,071
7
25
461
The following is an explanation of the items included as differ-
ences between the expected tax expense at the Swiss tax rate
applied to Group operating profit before tax and the actual in-
come tax benefit:
Foreign tax rates differing from Swiss tax rate
To the extent that Group profits or losses arise outside Switzer-
land, the applicable local tax rate may differ from the Swiss tax
rate. This item reflects, for such profits or losses, an adjustment
from the tax expense / benefit that would arise at the Swiss tax
rate and the tax expense / benefit that would arise at the applica-
ble local tax rate. A tax expense arises in the year in relation to
entities, which have profits and also local tax rates in excess of the
Swiss tax rate.
Tax effects of losses not recognized
This item relates to tax losses of entities arising in the year, which
are not recognized as deferred tax assets. Consequently, no tax
benefit arises in relation to those losses. Therefore, the tax benefit
calculated by applying the local tax rate to those losses as de-
scribed above is reversed.
Previously unrecognized tax losses now utilized
This item relates to taxable profits of the year, which are offset by
tax losses of previous years, for which no deferred tax assets were
previously recorded. Consequently, no current tax or deferred tax
expense arises in relation to those taxable profits. Therefore, the
tax expense calculated by applying the local rate on those profits
is reversed.
Non-taxable and lower taxed income
This item relates to profits for the year, which are either perma-
nently not taxable or are taxable, but at a lower rate of tax than
the local tax rate. It also includes any permanent deductions made
for tax purposes, which are not reflected in the accounts, thereby
effectively ensuring that profits covered by the deduction are not
taxable.
Non-deductible expenses and additional taxable income
This item mainly relates to income for the year, which is imputed
for tax purposes for an entity, but is not included in its operating
profit. In addition, it includes expenses for the year, which are
permanently non-deductible.
Adjustments related to prior years – current tax
This item relates to adjustments to current tax expenses for prior
years, for example, if the tax payable for a year agreed with the
tax authorities is expected to differ from the amount previously
reflected in the accounts.
Adjustments related to prior years – deferred tax
This item relates to adjustments to deferred tax positions recog-
nized in prior years, for example, if a tax loss for a year is fully
recognized and the amount of the tax loss agreed with the tax
authorities is expected to differ from the amount previously rec-
ognized as deferred tax assets in the accounts.
435
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Change in deferred tax valuation allowances
This item includes revaluations of deferred tax assets previously
recognized resulting from reassessments of expected future tax-
able profits. It also includes changes in temporary differences in
the year, for which deferred tax is not recognized. The amount in
the year mainly relates to the upward revaluation of deferred tax
assets referred to above.
Adjustments to deferred tax balances arising from
changes in tax rates
This item relates to re-measurements of deferred tax assets and
liabilities recognized due to changes in tax rates. These have the
effect of changing the future tax saving that is expected from tax
losses or deductible tax differences and therefore the amount of
deferred tax assets recognized or, alternatively, changing the tax
cost of additional taxable income from taxable temporary differ-
ences and therefore the deferred tax liability.
Other items
Other items include other differences between profit or losses at
the local tax rate and the actual local tax expense or benefit,
including increases in provisions for uncertain positions in relation
to the current year, interest accruals for such provisions in relation
to prior years and other items.
CHF million
Deferred tax assets 1
Tax loss carry-forwards
Temporary differences
of which: related to compensation and benefits
of which: related to trading assets
of which: other
Total deferred tax assets
Deferred tax liabilities
Goodwill and intangible assets
Financial investments
Investments in associates and other
Total deferred tax liabilities
1 Less deferred tax liabilities as applicable
436
Tax in equity
Certain tax expenses and benefits were recognized directly in
equity. These included an expense of CHF 196 million for cash flow
hedges (2013: benefit of CHF 393 million), an expense of CHF 52
million for financial investments available-for-sale (2013: benefit of
CHF 71 million), an expense of CHF 7 million for foreign currency
translation gains and losses (2013: benefit of CHF 5 million) and a
benefit of CHF 246 million for defined benefit pension plans (2013:
expense of CHF 239 million) recognized in other comprehensive
income. In addition, they included a benefit of CHF 3 million
recognized in share premium (2013: benefit of CHF 91 million).
These figures include the portion of tax expenses and benefits
which are attributable to non-controlling interests. In addition,
there were net foreign currency translation movements related to
the effects of exchange rate changes on tax assets and liabilities
denominated in currencies other than Swiss francs.
Deferred tax assets and liabilities
The Group has deferred tax assets related to tax loss carry-for-
wards and other items as shown in the table below. Deferred tax
assets of CHF 1,378 million (CHF 4,484 million as of 31 December
2013) are recognized by entities within the UBS Group, which
incurred losses in either the current or preceding year.
The valuation allowance reflects deferred tax assets which are
not recognized because it is not considered probable that future
taxable profits will be available to utilize the related tax loss carry-
forwards and deductible temporary differences.
31.12.14
Valuation
allowance Recognized
(22,271)
(1,264)
(317)
(61)
(886)
7,456
3,605
1,107
1,398
1,100
Gross
29,727
4,869
1,424
1,459
1,986
31.12.13
Valuation
allowance
(22,534)
(1,272)
(415)
(84)
(773)
Recognized
6,267
2,577
875
747
956
Gross
28,801
3,850
1,290
831
1,729
34,596
(23,535)
11,060
32,651
(23,807)
8,845
32
13
35
80
37
0
21
59
Note 8 Income taxes (continued) The net increase in recognized deferred tax assets during 2014
was affected by UBS’s reassessment of its approach for taking
forecasted future profit into account for these purposes. Based on
the performance of its businesses, UBS has extended the forecast
period for taxable profits to six years from five. In addition, UBS
considers other factors in evaluating the recoverability of its
deferred tax assets, including the remaining tax loss carry-forward
period, and its confidence level in assessing the probability of tax-
able profit beyond the current outlook period.
As of 31 December 2014, tax loss carry-forwards totaling CHF
68,869 million (31 December 2013: CHF 69,962 million), which
are not recognized as deferred tax assets, were available to be
offset against future taxable profits. These tax losses expire as
outlined in the table below.
Unrecognized tax loss carry-forwards
CHF million
Within 1 year
From 2 to 5 years
From 6 to 10 years
From 11 to 20 years
No expiry
Total
31.12.14
31.12.13
9,341
43
613
39,899
18,973
68,869
0
10,683
189
40,579
18,512
69,962
In general, Swiss tax losses can be carried forward for seven years,
US federal tax losses for 20 years and UK and Jersey tax losses for
an unlimited period. The Group provides for deferred income tax
on undistributed earnings of subsidiaries except to the extent that
those earnings are indefinitely invested. As of 31 December 2014,
no such earnings were considered indefinitely invested.
437
Financial informationNote 8 Income taxes (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Note 9 Earnings per share (EPS) and shares outstanding
Basic earnings (CHF million)
Net profit / (loss) attributable to UBS Group AG shareholders
Diluted earnings (CHF million)
Net profit / (loss) attributable to UBS Group AG shareholders
Less: (profit) / loss on UBS Group AG equity derivative contracts
Net profit / (loss) attributable to UBS Group AG shareholders for diluted EPS
Weighted average shares outstanding
Weighted average shares outstanding for basic EPS
Effect of dilutive potential shares resulting from notional shares,
in-the-money options and warrants outstanding
Weighted average shares outstanding for diluted EPS
Earnings per share (CHF)
Basic
Diluted
Shares outstanding1
Shares issued
Treasury shares
Shares outstanding
Exchangeable shares
Shares outstanding for EPS
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
3,466
3,172
(2,480)
3,466
0
3,466
3,172
0
3,172
(2,480)
(1)
(2,481)
3,720,188,713
3,763,076,788
3,754,112,403
85,325,322
81,111,217
126,261
3,805,514,035
3,844,188,005
3,754,238,664
0.93
0.91
0.84
0.83
(0.66)
(0.66)
3,717,128,324
3,842,002,069
3,835,250,233
87,871,737
73,800,252
87,879,601
3,629,256,587
3,768,201,817
3,747,370,632
0
246,042
418,526
3,629,256,587
3,768,447,859
3,747,789,158
9
9
9
(1)
5
(1)
11
10
(3)
19
(4)
(100)
(4)
1 As UBS Group AG is considered to be the continuation of UBS AG, UBS AG share information is presented for the comparative periods as of 31 December 2013 and 31 December 2012. Refer to Note 32 for more
information.
The table below outlines the potential shares which could dilute basic earnings per share in the future, but were not dilutive for the
periods presented.
Number of shares
Potentially dilutive instruments
Employee share-based compensation awards
Other equity derivative contracts
SNB warrants 2
Total
31.12.14
31.12.13
31.12.12
31.12.13
% change from
94,335,120
117,623,624
233,256,208
6,728,173
16,517,384
0
0
101,063,293
134,141,008
15,386,605
100,000,000
348,642,813
(20)
(59)
(25)
2 These warrants related to the SNB transaction. The SNB provided a loan to a fund owned and controlled by the SNB (the SNB StabFund), to which UBS transferred certain illiquid securities and other positions in 2008
and 2009. As part of this arrangement, UBS granted warrants on shares to the SNB, which would have been exercisable if the SNB incurred a loss on its loan to the SNB StabFund. In 2013, these warrants were termi-
nated following the full repayment of the loan.
438
Note 10 Due from banks and loans (held at amortized cost)
CHF million
By type of exposure
Due from banks, gross
of which: due from central banks
Allowance for credit losses
Other allowances
Due from banks, net
Loans, gross
Residential mortgages
Commercial mortgages
Lombard loans
Other loans 1
Finance lease receivables2
Securities 3
Subtotal
Allowance for credit losses
Other allowances
Loans, net
Total due from banks and loans, net 4
31.12.14
31.12.13
13,347
648
(13)
0
13,936
2,407
(15)
(47)
13,334
13,874
142,380
22,368
108,230
38,925
1,101
3,448
316,452
(695)
0
315,757
329,091
137,370
22,716
86,820
34,893
1,053
4,813
287,665
(671)
(35)
286,959
300,832
1 Includes corporate loans. 2 In 2014, changes in the presentation of this Note were made. Finance lease receivables are now presented as a separate line item. Previously, these were included in the line item Other loans.
Prior period information was adjusted accordingly. Refer to Note 33b for more information. 3 Includes securities reclassified from held-for-trading. Refer to Note 1a item 10 and Note 27 for more information.
4 Refer to “Maximum exposure to credit risk” in the “Risk management and control” section of this report for information on collateral and credit enhancements.
439
Financial informationBalance sheet notes: assets Financial information
Notes to the UBS Group AG consolidated financial statements
EDTF | Note 11 Cash collateral on securities borrowed and lent, reverse repurchase and repurchase agreements,
and derivative instruments
The Group enters into collateralized reverse repurchase and repur-
chase agreements, securities borrowing and securities lending
transactions and derivative transactions that may result in credit
exposure in the event that the counterparty to the transaction is
unable to fulfill its contractual obligations. The Group manages
credit risk associated with these activities by monitoring counter-
party credit exposure and collateral values on a daily basis and
requiring additional collateral to be deposited with or returned to
the Group when deemed necessary.
➔ Refer to Note 26 for more information
31.12.14
31.12.13
Cash collateral
on securities
borrowed
Reverse
repurchase
agreements
Cash collateral
receivables
on derivative
instruments
Cash collateral
on securities
borrowed
Reverse
repurchase
agreements
Cash collateral
receivables
on derivative
instruments
10,517
13,546
24,063
13,746
54,668
68,414
10,265
20,713
30,979
10,495
17,001
27,496
34,729
56,834
91,563
8,982
17,566
26,548
31.12.14
Cash collateral
on securities
lent
Repurchase
agreements
Cash collateral
payables
on derivative
instruments
Cash collateral
on securities
lent
7,041
2,138
9,180
5,174
6,644
11,818
20,895
21,477
42,372
8,805
686
9,491
31.12.13
Repurchase
agreements
3,953
9,858
13,811
Cash collateral
payables
on derivative
instruments
26,166
18,341
44,507
▲
Balance sheet assets
CHF million
By counterparty
Banks
Customers
Total
Balance sheet liabilities
CHF million
By counterparty
Banks
Customers
Total
440
EDTF | Note 12 Allowances and provisions for credit losses
CHF million
By movement
Balance at the beginning of the year
Write-offs / usage of provisions
Recoveries
Increase / (decrease) recognized in the income statement 2
Reclassifications
Foreign currency translation
Other
Balance at the end of the year
Specific
allowances
Collective
allowances
Total
allowances
669
(151)
29
138
(10)
18
11
704
20
(1)
0
(11)
0
0
0
8
688
(153)
29
127
(10)
19
11
711
Provisions 1
61
(1)
0
(49)
10
3
0
23
Total 31.12.14
Total 31.12.13
750
(154)
29
78
0
21
11
735
794
(128)
45
50
0
(9)
(3)
750
1 Represents provisions for loan commitments and guarantees. Refer to Note 22 for more information. Refer to the “Financial and operating performance” section of this report for the maximum irrevocable amount of
loan commitments and guarantees. 2 Excludes an impairment charge of CHF 166 million related to certain disputed receivables. Including this, total impairment charges related to financial instruments were CHF 244
million in 2014.
By balance sheet line
Due from banks
Loans
Cash collateral on securities borrowed
Provisions 1
Balance at the end of the year
1 Represents provisions for loan commitments and guarantees. ▲
Specific
allowances
Collective
allowances
Total
allowances
Provisions
Total 31.12.14
Total 31.12.13
13
687
4
704
0
8
0
8
13
695
4
711
13
695
4
23
735
15
671
2
61
750
23
23
441
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 13 Trading portfolio
CHF million
Trading portfolio assets by issuer type 1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Australia
of which: United Kingdom
of which: Germany
of which: South Korea
of which: Italy
Banks
Corporates and other
Total debt instruments
Equity instruments
Financial assets for unit-linked investment contracts
Financial assets held for trading
Precious metals and other physical commodities
Total trading portfolio assets
Trading portfolio liabilities by issuer type 1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Australia
of which: United Kingdom
of which: Germany
of which: South Korea
of which: Italy
Banks
Corporates and other
Total debt instruments
Equity instruments
Total trading portfolio liabilities
1 Refer to Note 24e for more information on product type and fair value hierarchy categorization.
442
31.12.14
31.12.13
16,625
16,073
293
3,816
2,307
2,103
1,280
1,080
1,041
4,342
24,252
45,219
69,763
17,410
132,392
5,764
138,156
8,716
232
2,987
1,087
631
335
43
569
743
2,591
12,050
15,908
27,958
352
3,657
1,312
424
1,192
1,482
1,603
5,039
25,407
46,519
51,881
15,849
114,249
8,599
122,848
8,222
173
2,508
573
516
308
15
1,140
823
2,453
11,498
15,111
26,609
EDTF | Pillar 3 | Derivatives: overview
A derivative is a financial instrument, the value of which is derived
from the value of one or more variables (underlyings). Underlyings
may be indices, exchanges or interest rates, or the value of shares,
commodities, bonds or other financial instruments. A derivative
commonly requires little or no initial net investment by either
counterparty to the trade.
The majority of derivative contracts are negotiated with re-
spect to notional amounts, tenor, price and settlement mecha-
nisms, as is customary with other financial instruments.
Over-the-counter (OTC) derivative contracts are usually traded
under a standardized International Swaps and Derivatives Associ-
ation (ISDA) master agreement between UBS and its counterpar-
ties. Terms are negotiated directly with counterparties and the
contracts will have industry-standard settlement mechanisms pre-
scribed by ISDA. The industry continues to promote the use of
central counterparties (CCP) to clear OTC trades. The trend to-
ward CCP clearing and settlement will generally facilitate the re-
duction of systemic credit exposures.
Other derivative contracts are standardized in terms of their
amounts and settlement dates, and are bought and sold on orga-
nized exchanges. These are commonly referred to as exchange-
traded derivatives (ETD) contracts. Exchanges offer the benefits of
pricing transparency, standardized daily settlement of changes in
value, and consequently reduced credit risk.
For presentation purposes, the Group is subject to the IFRS net-
ting provisions for derivative contracts. Derivative instruments are
measured at fair value and generally classified as Positive replace-
ment values and Negative replacement values on the face of the
balance sheet. However, ETD derivatives which are economically
settled on a daily basis and certain OTC derivatives which qualify
for IFRS netting and are in substance net settled on a daily basis are
classified as Cash collateral receivables on derivative instruments or
Cash collateral payables on derivative instruments. Changes in the
replacement values of derivatives are recorded in Net trading in-
come, unless the derivatives are designated and effective as hedg-
ing instruments in certain types of hedge accounting relationships.
➔ Refer to Note 1a item 15 for more information
Valuation principles and techniques applied in the measure-
ment of derivative instruments are discussed in Note 24. Positive
replacement values represent the estimated amount the Group
would receive if the derivative contract were sold on the balance
sheet date. Negative replacement values indicate the estimated
amount the Group would pay to transfer its obligations in respect
of the underlying contract, were it required or entitled to do so on
the balance sheet date.
Derivatives embedded in other financial instruments are not
included in the table “Derivative instruments” within this Note.
Bifurcated embedded derivatives are presented on the same
balance sheet line as the host contract. In cases where UBS applies
the fair value option to hybrid instruments, bifurcation of an
embedded derivative component is not required and as such, this
component is also not included in the table “Derivative instru-
ments.”
➔ Refer to Notes 20 and 24 for more information ▲▲
EDTF | Pillar 3 | Types of derivative instruments
The Group uses the following derivative financial instruments for
both trading and hedging purposes. Through the use of the prod-
ucts listed below, the Group is engaged in extensive high-volume
market-making and client facilitation trading referred to as the
flow business. Measurement techniques applied to determine the
fair value of each product type are described in Note 24.
The main types of derivative instruments used by the Group are:
– Swaps: Swaps are transactions in which two parties exchange
cash flows on a specified notional amount for a predetermined
period. Cross-currency swaps involve the exchange of interest
payments based on two different currency notional amounts
and reference interest rates and generally also entail exchange
of notional amounts at the start or end of the contract. Most
cross-currency swaps are traded in the OTC market.
– Forwards and futures: Forwards and futures are contractual
obligations to buy or sell financial instruments or commodities
on a future date at a specified price. Forward contracts are
tailor-made agreements that are transacted between counter-
parties in the OTC market, whereas futures are standardized
contracts transacted on regulated exchanges.
– Options and warrants: Options and warrants are contractual
agreements under which, typically, the seller (writer) grants the
purchaser the right, but not the obligation, either to buy (call
option), or to sell (put option) at, or before, a set date, a spec-
ified quantity of a financial instrument or commodity at a pre-
determined price. The purchaser pays a premium to the seller
for this right. Options involving more complex payment struc-
tures are also transacted. Options may be traded in the OTC
market, or on a regulated exchange, and may be traded in the
form of a security (warrant).
The main products and underlyings used by the Group are:
– Interest rate contracts: Interest rate products include interest
rate swaps, forward rate agreements, swaptions and caps and
floors.
– Credit derivative contracts: Credit default swaps (CDS) are the
most common form of a credit derivative, under which the
party buying protection makes one or more payments to the
party selling protection in exchange for an undertaking by the
seller to make a payment to the buyer following the occur-
443
Financial informationNote 14 Derivative instruments and hedge accounting Financial information
Notes to the UBS Group AG consolidated financial statements
rence of a contractually defined credit event with respect to a
specified third-party credit entity. Settlement following a credit
event may be a net cash amount, or cash in return for physical
delivery of one or more obligations of the credit entity, and is
made regardless of whether the protection buyer has actually
suffered a loss. After a credit event and settlement, the con-
tract is generally terminated. More information on credit de-
rivatives is included in a separate section on the following
pages. Total return swaps (TRS) are structured with one party
making payments based on a set rate, either fixed or variable,
plus any negative changes in fair value of an underlying asset,
and the other party making payments based on the return of
the asset, which includes both income it generates and any
positive changes in its fair value.
– Foreign exchange contracts: Foreign exchange contracts in-
clude spot, forward and cross-currency swaps and options and
warrants. Forward purchase and sale currency contracts are
typically executed to meet client needs and for trading and
hedging purposes.
– Equity / index contracts: The Group uses equity derivatives
linked to single names, indices and baskets of single names
and indices. The indices used may be based on a standard mar-
ket index, or may be defined by UBS. The product types traded
include vanilla listed derivatives, both options and futures, total
return swaps, forwards and exotic OTC contracts.
– Commodities contracts: The Group has an established com-
modity derivatives trading business, which includes the com-
modity index and structured commodities business. The index
and structured business are client facilitation businesses trad-
ing exchange-traded funds, OTC swaps and options on com-
modity indices and individual underlying commodities. The
underlying indices cover third-party and UBS owned indices
such as the UBS Bloomberg Constant Maturity Commodity In-
dex and the Bloomberg Commodity Indices. All of the trading
is cash-settled with no physical delivery of the underlying. The
Group also has an established precious metals business in both
flow and non-vanilla OTC products incorporating both physical
and non-physical trading. The flow business is investor led and
products include ETD, vanilla OTC and certain non-vanilla OTC.
The vanilla OTC are in forwards, swaps and options. ▲▲
EDTF | Pillar 3 | Risks of derivative instruments
Derivative instruments are transacted in many trading portfolios,
which generally include several types of instruments, not just de-
rivatives. The market risk of derivatives is predominantly managed
and controlled as an integral part of the market risk of these port-
folios. The Group’s approach to market risk is described in the
audited portions of Market risk in the “Risk management and
control” section of this report.
Derivative instruments are transacted with many different
counterparties, most of whom are also counterparties for other
types of business. The credit risk of derivatives is managed and
controlled in the context of the Group’s overall credit exposure to
each counterparty. The Group’s approach to credit risk is described
in the audited portions of Credit risk in the “Risk management
and control” section of this report. It should be noted that, al-
though the positive replacement values shown on the balance
sheet can be an important component of the Group’s credit expo-
sure, the positive replacement values for a counterparty are rarely
an adequate reflection of the Group’s credit exposure in its deriva-
tives business with that counterparty. This is, for example, because
on one hand, replacement values can increase over time (poten-
tial future exposure), while on the other hand, exposure may be
mitigated by entering into master netting agreements and bilat-
eral collateral arrangements. Both the exposure measures used
internally by the Group to control credit risk and the capital re-
quirements imposed by regulators reflect these additional factors.
The replacement values presented on UBS’s balance sheet in-
clude netting in accordance with IFRS requirements (refer to
Note 1a item 35), which is generally more restrictive than netting
in accordance with Swiss federal banking law. Swiss federal bank-
ing law netting is generally based on close-out netting arrange-
ments that are enforceable in case of insolvency.
➔ Refer to Note 26 for more information on the values of positive
and negative replacement values after consideration of netting
potential allowed under enforceable netting arrangements ▲▲
444
Note 14 Derivative instruments and hedge accounting (continued) EDTF | Pillar 3 | Derivative instruments 1
CHF billion
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts 6
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
Total
Credit derivative contracts
Over-the-counter (OTC) contracts
Credit default swaps
Total return swaps
Options and warrants
Total
Foreign exchange contracts
Over-the-counter (OTC) contracts
Forward contracts
Interest and currency swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
Total
Table continues on the next page.
31.12.14
31.12.13
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
0.1
49.0
0.2
55.9
2,622.8
0.2
123.7
91.8 1,323.4
83.7 1,233.4 10,244.3
105.3
2,427.5
31.7
799.8
33.9
790.3
0.0
25.2
928.8
0.2
92.8
25.3
107.1
1,944.2
2,297.7 13,779.6
900.3
0.0
15.7
0.0
0.1
0.0
0.1
446.0
134.7
4.9
0.0
0.1
0.2
0.1
0.0
492.0
287.5
1.8
123.7 2,187.9
117.9 2,084.5 13,447.7
130.7
3,480.1
118.4
3,306.9 16,503.3
11.1
238.1
11.3
245.8
0.4
0.0
3.8
6.5
0.4
0.0
5.1
1.6
11.5
248.4
11.7
252.4
20.6
817.6
19.2
741.4
62.2 1,626.3
62.3 1,554.0
15.6
667.3
16.0
601.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
22.9
641.1
21.3
630.9
0.2
0.0
3.1
3.6
0.2
0.0
3.1
0.1
23.1
647.8
21.5
634.0
12.4
54.2
9.3
661.2
1,924.0
494.0
13.4
57.4
9.4
667.9
1,858.1
455.5
4.9
0.0
0.0
0.1
0.0
14.8
0.0
3.7
0.0
0.1
5.4
0.0
0.1
6.1
98.4 3,116.2
97.6 2,900.5
14.8
76.0
3,084.4
80.3
2,987.6
0.1
58.5
71.7
109.4
0.1
3.4
6.4
4.8
4.9
0.1
70.0
115.4
124.2
0.0
4.7
8.9
4.8
4.8
0.0
0.0
0.0
27.9
10.1
0.0
45.9
74.7
110.8
0.0
3.2
7.7
5.6
4.0
0.0
59.2
103.1
112.4
0.0
4.6
9.3
6.5
4.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
7.2
0.0
7.2
0.0
0.0
0.0
25.7
7.2
19.5
239.6
23.3
309.6
38.0
20.6
231.4
24.4
274.7
32.9
445
Financial informationNote 14 Derivative instruments and hedge accounting (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Derivative instruments 1 (continued)
Table continued from previous page.
CHF billion
Commodity contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Forward contracts
Options
Agency transactions 7
Total
Unsettled purchases of non-derivative financial investments 8
Unsettled sales of non-derivative financial investments 8
Total derivative instruments, based on IFRS netting9
31.12.14
31.12.13
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
0.3
0.9
0.9
0.0
0.0
1.4
3.6
0.1
0.2
4.6
13.8
12.5
6.5
0.8
38.1
11.4
16.1
0.3
0.5
0.7
0.1
0.1
1.4
3.2
0.2
0.1
4.4
7.9
9.8
5.3
3.7
31.1
12.9
9.1
0.0
0.0
0.0
7.3
0.0
0.1
7.3
0.0
0.0
0.6
0.9
1.0
0.0
0.0
0.9
3.5
0.1
0.1
4.5
14.9
12.9
9.7
0.6
42.7
19.6
12.7
0.4
0.9
0.9
0.1
0.1
0.9
3.2
0.1
0.2
3.5
11.2
9.4
8.2
2.3
34.6
8.9
15.2
0.0
0.0
0.0
11.1
0.0
0.2
11.3
0.0
0.0
257.0 5,857.8
254.1 5,600.2 13,507.9
254.1
7,518.8
248.1
7,261.9 16,554.7
1 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are excluded from this table. As of 31 December 2014, these derivatives amounted to a PRV of CHF 0.3 bil-
lion (related notional values of CHF 6.5 billion) and an NRV of CHF 0.3 billion (related notional values of CHF 7.8 billion). As of 31 December 2013, these derivatives amounted to a PRV of CHF 0.2 billion (related notional
values of CHF 6.7 billion) and an NRV of CHF 0.4 billion (related notional values of CHF 12.8 billion). 2 PRV: Positive replacement value. 3 In cases where replacement values are presented on a net basis on the bal-
ance sheet, the respective notional values of the netted replacement values are still presented on a gross basis. 4 NRV: Negative replacement value. 5 Other notional values relate to derivatives which are cleared
through either a central clearing counterparty or an exchange. 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 were not material for the periods presented. 6 Negative replacement values as of 31 December 2014 include CHF 0.0 billion related to deriva-
tive loan commitments (31 December 2013: CHF 0.0 billion). No notional amounts related to these replacement values are included in the table. The maximum irrevocable amount related to these commitments was
CHF 4.5 billion as of 31 December 2014 (31 December 2013: CHF 7.1 billion). 7 Notional values of exchange-traded agency transactions and OTC cleared transactions entered into on behalf of clients are not disclosed
due to their significantly different risk profile. 8 Changes in the fair value of purchased and sold non-derivative financial investments between trade date and settlement date are recognized as replacement val-
ues. 9 Refer to Note 26 for more information on netting arrangements. ▲ ▲
EDTF | The notional amount of a derivative is generally the quantity
of the underlying instrument on which the derivative contract is
based and is the reference against which changes in the value of
the derivative are measured. Notional values, in themselves, are
generally not a direct indication of the values which are exchanged
between parties, and are therefore not a direct measure of risk or
financial exposure, but are viewed as an indication of the scale of
the different types of derivatives entered into by the Group.
The maturity profile of OTC interest rate contracts held as of
31 December 2014, based on notional values, was: approximately
45% (31 December 2013: 38%) mature within one year, 34%
(31 December 2013: 38%) within one to five years and 22%
(31 December 2013: 24%) after five years. Notional values of in-
terest rate contracts cleared with a clearing house that qualify for
IFRS balance sheet netting are presented under other notional
values and are categorized into maturity buckets on the basis of
contractual maturities of the cleared underlying derivative con-
tracts. ▲
EDTF | Derivatives transacted for trading purposes
Most of the Group’s derivative transactions relate to sales and
trading activities. Sales activities include the structuring and mar-
keting of derivative products to customers to enable them to take,
transfer, modify, or reduce current or expected risks. Trading ac-
tivities include market-making to directly support the facilitation
and execution of client activity. Market-making involves quoting
bid and offer prices to other market participants with the inten-
tion of generating revenues based on spread and volume.
Credit derivatives
UBS is an active dealer in the fixed income market, including CDS
and related products, with respect to a large number of issuers’
securities. The primary purpose of these activities is for the benefit
of UBS’s clients through market-making activities and for the on-
going hedging of trading book exposures.
446
Note 14 Derivative instruments and hedge accounting (continued) Market-making activity, which is done within the Investment
Bank, consists of buying and selling single-name CDS, index CDS,
loan CDS and related referenced cash instruments to facilitate cli-
ent trading activity. UBS also actively utilizes CDS to economically
hedge specific counterparty credit risks in its accrual loan portfolio
and off-balance sheet loan portfolio (including loan commit-
ments) with the aim of reducing concentrations in individual
names, sectors or specific portfolios.
In addition, UBS actively utilizes CDS to economically hedge
specific counterparty credit risks in its OTC derivative portfolios
including financial instruments which are designated at fair value
through profit or loss.
During 2012, UBS announced an Investment Bank strategy
change which resulted in a focus on certain types of client facilita-
tion business and resulted in reduced market-making activity. As a
result, CDS have increasingly been used for economic hedging
purposes. In 2013, large portfolios of credit derivatives including
structured credit products were transferred to and are now man-
aged and reported in Corporate Center – Non Core. The majority
of these positions have now been unwound through trade nova-
tions to other counterparties.
The tables below provide further details on credit protection
bought and sold, including replacement and notional value infor-
mation by instrument type and counterparty type. The value of
protection bought and sold is not, in isolation, a measure of UBS’s
credit risk. Counterparty relationships are viewed in terms of the
total outstanding credit risk, which relates to other instruments in
addition to CDS, and in connection with collateral arrangements
in place. On a notional value basis, credit protection bought and
sold as of 31 December 2014 matures in a range of approximately
27% (31 December 2013: 22%) within one year, approximately
64% (31 December 2013: 72%) within one to five years and ap-
proximately 8% (31 December 2013: 6%) after five years.
EDTF | Credit derivatives by type of instrument
CHF billion
Single-name credit default swaps
Multi-name index linked credit default swaps
Multi-name other credit default swaps
Total rate of return swaps
Options and warrants
Total 31 December 2014
of which: credit derivatives related to economic hedges
of which: credit derivatives related to market-making
CHF billion
Single-name credit default swaps
Multi-name index linked credit default swaps
Multi-name other credit default swaps
Total rate of return swaps
Options and warrants
Total 31 December 2013
of which: credit derivatives related to economic hedges
of which: credit derivatives related to market-making
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
5.9
0.4
0.1
0.1
0.0
6.5
3.2
3.3
4.0
0.9
0.3
0.3
0.0
5.4
5.0
0.4
173.3
72.8
4.8
5.4
6.5
262.8
245.5
17.3
3.0
1.7
0.0
0.3
0.0
5.0
4.6
0.5
5.6
0.5
0.1
0.2
0.0
6.3
3.0
3.3
148.8
80.7
3.4
3.5
1.6
238.0
220.5
17.4
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
6.6
1.0
0.4
0.2
0.0
8.1
7.8
0.3
12.0
1.9
0.4
0.1
0.0
14.3
14.1
0.3
487.9
146.8
9.4
5.4
3.6
653.1
644.3
8.7
10.4
4.4
0.1
0.0
0.0
15.0
14.7
0.3
4.6
2.3
0.2
0.1
0.0
7.2
6.9
0.3
450.6
171.9
5.3
0.8
0.1
628.8
620.6
8.2
▲
447
Financial informationNote 14 Derivative instruments and hedge accounting (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
EDTF | Credit derivatives by counterparty
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2014
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2013
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
1.4
4.0
0.2
0.9
6.5
0.5
2.9
1.1
0.9
5.4
32.8
156.4
53.2
20.4
262.8
0.3
2.6
1.3
0.8
5.0
1.1
4.4
0.3
0.5
6.3
23.5
144.3
56.7
13.5
238.0
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
1.6
4.7
0.5
1.4
8.1
2.9
8.9
1.8
0.7
14.3
146.9
377.0
101.2
27.9
653.1
3.0
9.0
2.3
0.6
15.0
1.5
4.6
0.7
0.3
7.2
138.0
370.7
102.2
17.8
628.8
▲
UBS’s credit derivatives are usually traded as OTC contracts. Since
2009, in line with the broader derivatives industry, a number of
initiatives have been launched in both the US and Europe to estab-
lish CCP solutions for OTC CDS contracts with the aim of reducing
counterparty risk. UBS, along with other dealer members, has con-
tinued to participate in these initiatives during 2014. ▲
spectively, in UBS’s long-term credit ratings, and a corresponding
reduction in short-term ratings. In evaluating UBS’s liquidity re-
quirements, UBS considers additional collateral or termination
payments that would be required in the event of a reduction in
UBS’s long-term credit ratings, and a corresponding reduction in
short-term ratings. ▲▲
EDTF | Pillar 3 | UBS’s CDS trades are documented using industry
standard forms of documentation or equivalent terms docu-
mented in a bespoke (i.e., tailored) agreement. The agreements
that govern CDS generally do not contain recourse provisions that
would enable UBS to recover from third parties any amounts paid
out by UBS (i.e., this is the case where a credit event occurs and
UBS is required to make payment under a CDS).
The types of credit events that would require UBS to perform
under a CDS contract are subject to agreement between the par-
ties at the time of the transaction. However, nearly all transactions
are traded using credit events that are applicable under certain
market conventions based on the type of reference entity to
which the transaction relates. Applicable credit events by market
conventions include bankruptcy, failure to pay, restructuring, obli-
gation acceleration and repudiation / moratorium.
Contingent collateral features of derivative liabilities
Certain derivative payables contain contingent collateral or termi-
nation features triggered upon a downgrade of the published
credit rating of the Group in the normal course of business. Based
on UBS’s credit ratings as of 31 December 2014, additional col-
lateral or termination payments pursuant to bilateral agreements
with certain counterparties of approximately CHF 1.0 billion, CHF
2.8 billion and CHF 2.9 billion would have been required in the
event of a one-notch, two-notch and three-notch reduction, re-
EDTF | Derivatives transacted for hedging purposes
Derivatives used for structural hedging
The Group enters into derivative transactions for the purposes of
hedging risks inherent in assets, liabilities and forecast transac-
tions. The accounting treatment of hedge transactions varies ac-
cording to the nature of the instrument hedged and whether the
hedge qualifies as such for accounting purposes.
Derivative transactions that qualify and are designated as
hedges for accounting purposes are described under the corre-
sponding headings in this note (fair value hedges, cash flow
hedges and hedges of net investments in foreign operations). The
Group’s accounting policies for derivatives designated and ac-
counted for as hedging instruments are explained in Note 1a item
15, under which terms used in the following sections are ex-
plained.
The Group has also entered into various hedging strategies uti-
lizing derivatives for which hedge accounting has not been ap-
plied. These include interest rate swaps and other interest rate de-
rivatives (e.g., futures) for day-to-day economic interest rate risk
management purposes. In addition, the Group has used equity
futures, options and, to a lesser extent, swaps for economic hedg-
ing in a variety of equity trading strategies to offset underlying
equity and equity volatility exposure. The Group has also entered
448
Note 14 Derivative instruments and hedge accounting (continued) into CDS that provide economic hedges for credit risk exposures
(refer to the credit derivatives section). Fair value changes of deriva-
tives that are part of economic relationships, but do not qualify for
hedge accounting treatment, are reported in Net trading income,
except for the forward points on certain short duration foreign
exchange contracts which are reported in Net interest income.
Fair value hedges: interest rate risk related to debt issued
The Group’s fair value hedges principally consist of interest rate
swaps that are used to protect against changes in the fair value of
fixed-rate instruments (e.g., non-structured fixed-rate bonds, cov-
ered bonds and subordinated debt) due to movements in market
interest rates. The fair values of outstanding interest rate deriva-
tives designated as fair value hedges were assets of CHF 2,236
million and liabilities of CHF 37 million as of 31 December 2014
and assets of CHF 1,588 million and liabilities of CHF 140 million
as of 31 December 2013.
EDTF | Fair value hedges of interest rate risk
CHF million
Gains / (losses) on hedging instruments
Gains / (losses) on hedged items attributable to the hedged risk
Net gains / (losses) representing ineffective portions of fair value hedges
For the year ended
31.12.14
31.12.13
31.12.12
1,113
(1,111)
2
(1,123)
1,116
(7)
537
(581)
(44)
▲
Fair value hedges: portfolio interest rate risk related to loans
The Group also applies fair value hedge accounting to mortgage
loan portfolio interest rate risk. The change in fair value of the
hedged items is recorded separately from the hedged item and is
included within Other assets on the balance sheet. The fair values
of outstanding interest rate derivatives designated for these
hedges as of 31 December 2014 were liabilities of CHF 256 mil-
lion (31 December 2013: assets of CHF 176 million and liabilities
of CHF 716 million). The reduction in fair value of outstanding
derivatives during 2014 was partly related to the hedge de-desig-
nation of certain interest rate derivatives.
EDTF | Fair value hedge of portfolio of interest rate risk
CHF million
Gains / (losses) on hedging instruments
Gains / (losses) on hedged items attributable to the hedged risk
Net gains / (losses) representing ineffective portions of fair value hedges
For the year ended
31.12.14
31.12.13
31.12.12
(694)
676
(18)
636
(625)
11
139
(159)
(20)
▲
Cash flow hedges of forecasted transactions
The Group is exposed to variability in future interest cash flows on
non-trading financial assets, and liabilities that bear interest at
variable rates or are expected to be refinanced or reinvested in the
future. The amounts and timing of future cash flows, representing
both principal and interest flows, are projected based on contrac-
tual terms and other relevant factors including estimates of pre-
payments and defaults. The aggregate principal balances and
interest cash flows across all portfolios over time form the basis
for identifying the non-trading interest rate risk of the Group,
which is hedged with interest rate swaps, the maximum maturity
of which is 14 years. The table on the following page shows fore-
casted principal balances on which expected interest cash flows
arise as of 31 December 2014. Amounts shown represent, by
time bucket, average assets and liabilities subject to forecasted
cash flows designated as hedged items in cash flow hedge
accounting relationships.
As of 31 December 2014, the fair values of outstanding deriva-
tives designated as cash flow hedges of forecasted transactions
were CHF 4,521 million assets and CHF 1,262 million liabilities
(31 December 2013: CHF 4,770 million assets and CHF 2,275 mil-
lion liabilities).
In 2014, a gain of CHF 87 million was recognized in Net trading
income due to hedge ineffectiveness, compared with a loss of CHF
80 million in 2013 and a gain of CHF 158 million in 2012.
At the end of 2014 and 2013, a gain of CHF 265 million and a
loss of CHF 18 million associated with terminated interest rate
swaps were deferred in OCI, respectively. They will be removed
from OCI when the previously hedged forecasted cash flows af-
fect net profit or loss, or when the forecasted cash flows are no
longer expected to occur. Amounts reclassified from OCI to Net
interest income relating to de-designated swaps were a net gain
CHF 51 million in 2014, a net gain of CHF 1 million in 2013 and a
net gain of CHF 4 million in 2012.
449
Financial informationNote 14 Derivative instruments and hedge accounting (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
EDTF | Principal balances subject to cash flow forecasts
CHF billion
Assets
Liabilities
Net balance
< 1 year
1–3 years
3–5 years
5–10 years
over 10 years
66
9
57
113
19
94
37
3
34
33
2
32
1
0
1
▲
Hedges of net investments in foreign operations
The Group applies hedge accounting for certain net investments in
foreign operations. As of 31 December 2014, the positive replace-
ment values and negative replacement values of FX derivatives
(mainly FX swaps) designated as hedging instruments in net in-
vestment hedge accounting relationships were CHF 158 million
and CHF 305 million, respectively (31 December 2013: positive
replacement values of CHF 104 million and negative replacement
values of CHF 102 million). As of 31 December 2014, the underly-
ing hedged structural exposures in several currencies amounted to
CHF 8.0 billion (31 December 2013: CHF 7.2 billion).
Hedges of structural FX exposures in currencies other than the
US dollar may be comprised of two jointly designated derivatives
as the foreign currency risk may be hedged against the US dollar
first and then converted into Swiss francs, the presentation cur-
rency of the Group, as part of a separate FX derivative transaction.
The aggregated notional amount of designated hedging deriva-
tives as of 31 December 2014 was CHF 14.7 billion in total (31 De-
cember 2013: CHF 13.8 billion) including CHF 7.8 billion notional
values related to US dollar versus Swiss franc swaps and CHF 6.9
billion notional values related to derivatives hedging foreign cur-
rencies (other than the US dollar) versus the US dollar. The effective
portion of gains and losses of these FX swaps is transferred directly
to OCI to offset foreign currency translation (FCT) gains and losses
on the net investments in foreign branches and subsidiaries. As
such, these FX swaps hedge the structural FX exposure resulting in
the accumulation of FCT on the level of individual foreign branches
and subsidiaries and hence on the total FCT OCI of the Group.
UBS designates certain non-derivative foreign currency finan-
cial assets and liabilities of foreign branches or subsidiaries as
hedging instruments in net investment hedge accounting ar-
rangements. The FX translation difference recorded in FCT OCI of
the non-derivative hedging instrument of one foreign entity off-
sets the structural FX exposure of another foreign entity. There-
fore, the aggregated FCT OCI of the Group is unchanged from
this hedge designation. As of 31 December 2014, the nominal
amount of non-derivative financial assets and liabilities desig-
nated as hedging instruments in such net investment hedges was
CHF 14.3 billion and CHF 14.3 billion, respectively (31 December
2013: CHF 15.5 billion non-derivative financial assets and CHF
15.5 billion non-derivative financial liabilities).
No material ineffectiveness of hedges of net investments in
foreign operations was recognized in the income statement in
2014, 2013 and 2012.
Undiscounted cash flows
The table below provides undiscounted cash flows of all derivative
instruments designated in hedge accounting relationships. Inter-
est rate swap cash flows include cash inflows and cash outflows
of all interest rate swaps designated in hedge accounting relation-
ships, which are either assets or liabilities of UBS as of 31 Decem-
ber 2014. The table includes derivatives traded on an exchange or
through a clearing house where the change in fair value is settled
each day, either in fact or in substance, through cash payment of
variation margin. ▲
EDTF | Derivatives designated in hedge accounting relationships (undiscounted cash flows)
CHF billion
Interest rate swaps 1
Cash inflows
Cash outflows
FX swaps / forwards
Cash inflows
Cash outflows
On demand
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
0
0
0
0
0
0
7
7
1
0
6
6
2
1
0
0
8
5
0
0
1
1
0
0
Net cash flows
1 The table includes gross cash inflows and cash outflows of all interest rate swaps designated in hedge accounting relationships, which are either assets or liabilities of UBS as of 31 December 2014. ▲
0
0
0
1
1
3
Total
12
7
13
14
5
450
Note 14 Derivative instruments and hedge accounting (continued) Note 15 Financial investments available-for-sale
CHF million
Financial investments available-for-sale by issuer type 1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Germany
of which: France
of which: United Kingdom
of which: Japan
Banks
Corporates and other
Total debt instruments
Equity instruments
Total financial investments available-for-sale
Unrealized gains – before tax
Unrealized (losses) – before tax
Net unrealized gains / (losses) – before tax
Net unrealized gains / (losses) – after tax
1 Refer to Note 24e for more information on product type and fair value hierarchy categorization.
31.12.14
31.12.13
45,334
43
17,219
10,145
5,351
2,348
1
8,490
2,670
56,494
664
57,159
430
(64)
365
238
50,761
44
17,876
6,733
5,601
8,089
4,865
4,983
3,132
58,876
649
59,525
372
(196)
175
95
451
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 16 Property and equipment
At historical cost less accumulated depreciation
Own-used
properties
Leasehold
improvements
IT hardware
and
communication
Internally
generated
software1
Purchased
software
Other
machines and
equipment
Projects
in progress
31.12.14
31.12.13
CHF million
Historical cost
Balance at the beginning of the year
Additions
Disposals / write-offs 2
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
7,970
38
(115)
(166)
29
7,756
2,677
2,205
1,259
21
(92)
281
173
270
(221)
4
119
8
(25)
260
24
3,060
2,377
1,525
Balance at the beginning of the year
4,485
1,894
1,841
Depreciation
Impairment 3
Disposals / write-offs 2
Reclassifications
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year 4, 5
186
2
(114)
(208)
15
4,365
3,391
179
8
(86)
(8)
134
2,120
940
215
1
(184)
0
102
1,976
402
965
130
7
(25)
0
11
1,089
436
459
58
(18)
3
35
536
408
30
0
(18)
1
31
452
85
769
38
(46)
44
42
847
547
58
1
(46)
(2)
34
592
255
799
1,257
0
(786)
72
16,136
1,690
(518)
(359) 7
493
16,428
1,244
(871)
(488)
(178)
1,341
17,442
16,136
0
0
0
0
0
0
10,140
10,524
799
19
(474)
(217) 7
326
734
81
(756)
(319)
(124)
0
1,341 6
10,593
6,849
10,140
5,996
1 In 2014, changes in the presentation of this Note were made. Internally generated software is now presented as a separate column. Previously, this was presented together with Purchased software. 2 Includes write-
offs of fully depreciated assets. 3 Impairment charges recorded in 2014 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired assets: CHF 58 mil-
lion Leasehold improvements, CHF 5 million Internally generated software). 4 As of 31 December 2014, contractual commitments to purchase property in the future amounted to approximately CHF 0.4 billion. 5 In-
cludes CHF 104 million related to leased assets, mainly IT hardware and communication. 6 Includes CHF 1,045 million related to Internally generated software, CHF 172 million related to Own-used properties and CHF
119 million related to Leasehold improvements. 7 Reflects reclassifications to Properties held-for-sale (CHF 143 million on a net basis) reported within Other assets.
31.12.14
31.12.13
10
0
0
1
(7)
1
5
99
7
0
(16)
(81)
0
10
Investment properties at fair value
CHF million
Balance at the beginning of the year
Additions
Sales
Revaluations
Reclassifications
Foreign currency translation
Balance at the end of the year
452
Note 17 Goodwill and intangible assets
Introduction
UBS performs an impairment test on its goodwill assets on an an-
nual basis, or when indicators of impairment exist. UBS considers
the segments, as reported in Note 2, as separate cash-generating
units (CGU). The impairment test is performed for each segment
to which goodwill is allocated by comparing the recoverable
amount, based on its value-in-use, to the carrying amount of the
respective segment. An impairment charge is recognized if the
carrying amount exceeds the recoverable amount. As of 31 De-
cember 2014, total goodwill recognized on the balance sheet was
CHF 6.4 billion, of which CHF 1.4 billion, CHF 3.5 billion and CHF
1.5 billion was carried by Wealth Management, Wealth Manage-
ment Americas and Global Asset Management, respectively.
Based on the impairment testing methodology described below,
UBS concluded that the goodwill balances as of 31 December
2014 allocated to these segments remain recoverable and thus
were not impaired.
Methodology for goodwill impairment testing
The recoverable amounts are determined using a discounted cash
flow model, which has been adapted to use inputs that consider
features of the banking business and its regulatory environment.
The recoverable amount of a segment is the sum of the dis-
counted earnings attributable to shareholders from the first five
forecasted years and the terminal value. The terminal value, which
covers all periods beyond the fifth year, is calculated on the basis
of the forecast of fifth-year profit, the discount rate and the long-
term growth rate and is adjusted for the effect of the capital as-
sumed to be needed to support the perpetual growth implied by
the long-term growth rate. The carrying amount for each seg-
ment is determined by reference to the Group’s equity attribution
framework. Within this framework, which is described in the
“Capital management” section of this report, the Board of Direc-
tors (BoD) attributes equity to the businesses after considering
their risk exposure, risk-weighted assets and leverage ratio de-
nominator usage, goodwill and intangible assets. The total
amount of equity attributed to the business divisions can differ
from the Group’s actual equity during a given period. The frame-
work is primarily used for purposes of measuring the performance
of the businesses and includes certain management assumptions.
Attributed equity equals the capital that a segment requires to
conduct its business and is considered an appropriate starting
point from which to determine the carrying value of the seg-
ments. The attributed equity methodology is aligned with the
business planning process, the inputs from which are used in cal-
culating the recoverable amounts of the respective CGU.
➔ Refer to the “Capital management” section of this report for
more information on the equity attribution framework
Assumptions
Valuation parameters used within the Group’s impairment test
model are linked to external market information, where applica-
ble. The model used to determine the recoverable amount is most
sensitive to changes in the forecast earnings available to share-
holders in years one to five, to changes in the discount rates, and
to changes in the long-term growth rate. The applied long-term
growth rate is based on long-term economic growth rates for dif-
ferent regions worldwide. Earnings available to shareholders are
estimated based on forecast results, which are part of the busi-
ness plan approved by the BoD.
The discount rates are determined by applying a capital-asset-
pricing-model-based approach, as well as considering quantita-
tive and qualitative inputs from both internal and external ana-
lysts and the view of management. Based on this approach, the
discount rate for the Investment Bank was decreased by one per-
centage point compared with last year. For the other CGU, the
respective discount rates were unchanged.
Key assumptions used to determine the recoverable amounts
of each segment are tested for sensitivity by applying a reasonably
possible change to those assumptions. Forecast earnings available
to shareholders were changed by 10%, the discount rates were
changed by 1.0 percentage point and the long-term growth rates
were changed by 0.5 percentage point. Under all scenarios, the
recoverable amounts for each segment exceeded the respective
carrying amount, such that the reasonably possible changes in key
assumptions would not result in impairment.
If the estimated earnings and other assumptions in future peri-
ods deviate from the current outlook, the value of goodwill may
become impaired in the future, giving rise to losses in the income
statement. Recognition of any impairment of goodwill would re-
duce IFRS equity attributable to UBS Group AG shareholders and
net profit. It would not impact cash flows and, as goodwill is re-
quired to be deducted from capital under the Basel capital frame-
work, no impact would be expected on the Group total capital
ratios.
453
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 17 Goodwill and intangible assets (continued)
Discount and growth rates
In %
Wealth Management
Wealth Management Americas
Investment Bank
Global Asset Management
CHF million
Historical cost
Balance at the beginning of the year
Additions
Disposals
Foreign currency translation
Balance at the end of the year
Accumulated amortization and impairment
Balance at the beginning of the year
Amortization
Impairment 1
Disposals
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year
Discount rates
Growth rates
31.12.14
31.12.13
31.12.14
31.12.13
9.0
9.0
11.0
9.0
9.0
9.0
12.0
9.0
1.7
2.4
2.4
2.4
1.7
2.4
2.4
2.4
Goodwill
Total
Infrastructure
Intangible assets
Customer
relationships,
contractual
rights and other
5,842
526
6,368
0
0
6,368
678
78
756
447
35
54
536
219
763
17
(1)
54
833
543
45
2
0
45
635
198
Total
31.12.14
31.12.13
1,441
17
(1)
131
1,589
990
80
2
0
99
1,171
417
7,283
17
(1)
657
7,957
990
80
2
0
99
1,171
6,785
7,417
79
(35)
(179)
7,283
956
79
3
(28)
(21)
990
6,293
1 Impairment charges recorded in 2014 and 2013 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired assets: CHF 3 million for 2014 and
CHF 5 million for 2013).
The table below presents the disclosure of goodwill and intangible assets by segment for the year ended 31 December 2014.
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Global Asset
Management
CHF million
Goodwill
Balance at the beginning of the year
1,281
3,131
44
1,386
Corporate Center
Total
Core Functions
Non-core and
Legacy Portfolio
Additions
Disposals
Impairment
Foreign currency translation
Balance at the end of the year
Intangible assets
Balance at the beginning of the year
Additions / transfers
Disposals
Amortization
Impairment
Foreign currency translation
Balance at the end of the year
454
77
1,359
50
(4)
(1)
(1)
45
359
3,490
267
(48)
27
246
0
44
90
3
0
(15)
6
84
90
1,476
25
(8)
(1)
1
17
15
17
(6)
25
3
(3)
0
5,842
0
0
0
526
6,368
451
17
0
(80)
(2)
33
417
Note 17 Goodwill and intangible assets (continued)
The estimated, aggregated amortization expenses for intangible assets are as follows.
CHF million
Estimated, aggregated amortization expenses for:
2015
2016
2017
2018
2019
2020 and thereafter
Not amortized due to indefinite useful life
Total
Note 18 Other assets
CHF million
Prime brokerage receivables 1
Recruitment loans to financial advisors
Other loans to financial advisors
Bail deposit 2
Accrued interest income
Accrued income – other
Prepaid expenses
Net defined benefit pension and post-employment assets 3
Settlement and clearing accounts
VAT and other tax receivables
Properties and other non-current assets held for sale
Other
Total other assets
Intangible assets
94
81
61
54
45
62
20
417
31.12.13
11,175
2,733
358
0
433
931
985
952
466
410
119
1,665
20,228
31.12.14
12,534
2,909
372
1,323
453
1,009
1,027
0
617
272
236
2,236
22,988
1 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading across multiple asset classes. 2 Refer to item 1 in Note 22b for more infor-
mation. 3 Refer to Note 28 for more information.
455
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 19 Due to banks and customers
CHF million
Due to banks
Due to customers: demand deposits
Due to customers: time deposits
Due to customers: fiduciary deposits
Due to customers: retail savings / deposits
Total due to customers
Total due to banks and customers
Note 20 Financial liabilities designated at fair value
CHF million
Non-structured fixed-rate bonds
Structured debt instruments issued:
Equity-linked
Credit-linked
Rates-linked 1
Other
Structured over-the-counter debt instruments:
Equity-linked
Other
Repurchase agreements
Loan commitments and guarantees 2
Total
of which: own credit on financial liabilities designated at fair value
31.12.14
10,492
186,745
52,269
14,766
156,427
410,207
420,699
31.12.13
12,862
178,972
47,326
21,459
143,068
390,825
403,686
31.12.14
4,488
31.12.13
3,664
37,725
4,645
19,380
2,138
2,508
3,154
1,167
93
75,297
302
32,835
6,279
14,488
2,698
3,478
4,839
1,572
49
69,901
577
1 Also includes non-structured rates-linked debt instruments issued. 2 Loan commitments recognized as “Financial liabilities designated at fair value” until drawn and recognized as loans. See Note 1a item 8 for ad-
ditional information.
As of 31 December 2014, the contractual redemption amount at
maturity of Financial liabilities designated at fair value through
profit or loss was CHF 0.7 billion lower than the carrying value. As
of 31 December 2013, the contractual redemption amount at
maturity of such liabilities was CHF 0.3 billion higher than the car-
rying value.
As of 31 December 2014 and 2013, the Group had CHF
75,297 million and CHF 69,901 million, respectively, of financial
liabilities designated at fair value, comprised of both Swiss franc
and non-Swiss franc-denominated fixed-rate and floating-rate
debt.
The table on the following page shows the contractual matu-
rity of the carrying value of financial liabilities designated at fair
value, split between fixed-rate and floating-rate instruments
based on the contractual terms and ignoring any early redemp-
tion features. Interest rate ranges for future interest payments
related to these financial liabilities designated at fair value have
not been included in the table below as a majority of these liabili-
ties are structured products, and therefore the future interest pay-
ments are highly dependent upon the embedded derivative and
prevailing market conditions at the time each interest payment is
made.
➔ Refer to Note 27b for maturity information on an undiscounted
cash flow basis
456
Balance sheet notes: liabilities Note 20 Financial liabilities designated at fair value (continued)
Contractual maturity of carrying value
CHF million, except where indicated
2015
2016
2017
2018
2019
2020–2024
Thereafter
Total
31.12.14
Total
31.12.13
UBS AG
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Other subsidiaries
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Total
2,893
27,755
30,648
115
400
515
903
6,131
7,034
30
217
248
2,155
5,018
7,173
69
599
668
693
2,350
3,043
137
183
320
526
4,339
4,864
26
215
241
1,868
3,340
5,208
234
448
682
31,163
7,281
7,841
3,362
5,105
5,890
3,854
9,711
13,565
862
227
1,090
14,654
12,891
58,643
71,535
1,473
2,289
3,762
15,431
49,760
65,191
1,468
3,242
4,710
75,297
69,901
Note 21 Debt issued held at amortized cost
CHF million
Certificates of deposit
Commercial paper
Other short-term debt
Short-term debt
Non-structured fixed-rate bonds
Covered bonds
Subordinated debt
of which: Swiss SRB Basel III low-trigger loss-absorbing capital
of which: Swiss SRB Basel III phase-out additional tier 1 capital
of which: Swiss SRB Basel III phase-out tier 2 capital
Debt issued through the central bond institutions of the Swiss regional or cantonal banks
Medium-term notes
Other long-term debt
Long-term debt
Total debt issued held at amortized cost 1
31.12.14
16,591
31.12.13
15,811
4,841
5,931
27,363
24,582
13,614
16,123
10,464
1,197
4,462
8,029
602
893
63,844
91,207
2,961
8,862
27,633
17,417
14,341
11,040
4,710
1,221
5,107
8,293
779
2,083
53,953
81,586
1 Net of bifurcated embedded derivatives with a net negative fair value of CHF 25 million as of 31 December 2014 (31 December 2013: net negative fair value of CHF 160 million).
The Group uses interest rate and foreign exchange derivatives to
manage the risks inherent in certain debt instruments held at am-
ortized cost. In certain cases, the Group applies hedge accounting
for interest rate risk as discussed in Note 1a item 15 and Note 14.
As a result of applying hedge accounting, the carrying value of
debt issued increased by CHF 1,703 million and by CHF 1,119 mil-
lion as of 31 December 2014 and 2013, respectively, reflecting
changes in fair value due to interest rate movements.
Subordinated debt are unsecured obligations of the Group that
are subordinated in right of payment to all other present and future
indebtedness and also to certain other obligations of the Group. As
of 31 December 2014 and 2013, the Group had CHF 16,123 mil-
lion and CHF 11,040 million, respectively, of subordinated debt,
which included CHF 10,464 million and CHF 4,710 million of Swiss
SRB Basel III low-trigger loss-absorbing capital as of 31 December
2014 and 2013, respectively. All of the subordinated debt out-
standing as of 31 December 2014 pay a fixed rate of interest.
As of 31 December 2014 and 2013, the Group had CHF
75,084 million and CHF 70,546 million, respectively, of non-sub-
ordinated debt issued held at amortized cost, comprised of both
Swiss franc and non-Swiss franc-denominated fixed-rate and
floating-rate debt.
457
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 21 Debt issued held at amortized cost (continued)
The table below shows the contractual maturity of the carrying
value of debt issued, split between fixed-rate and floating-rate
based on the contractual terms and ignoring any early redemp-
tion features. The Group uses interest rate swaps to hedge the
majority of fixed-rate debt issued, which changes their repricing
characteristics into those similar to floating-rate debt.
➔ Refer to Note 27b for maturity information on an undiscounted
cash flow basis
Contractual maturity dates of carrying value
CHF million, except where indicated
2015
2016
2017
2018
2019
2020–2024
Thereafter
UBS AG
Non-subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subtotal
Other subsidiaries
Non-subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subtotal
Total
22,013
0–3.9
6,378
930
2.4–7.4
0
29,321
3,688
0
0
3,688
33,010
5,457
0–6.4
1,950
1,340
3.1–5.9
0
8,748
600
0–8.3
0
600
9,348
9,049
0–5.9
212
683
4.1–7.4
0
9,944
172
0–8.0
0
172
6,109
0.4–6.6
0
0
0
4,965
0.5–4.0
1,045
0
0
10,307
0–4.9
0
8,483
4.8–7.6
0
6,109
6,011
18,790
0
1
1
0
0
0
0
0
0
1,426
0–2.8
1,710
4,687
4.3–8.8
0
7,823
0
0
0
10,117
6,110
6,011
18,790
7,823
Total
31.12.14
Total
31.12.13
59,327
59,381
11,296
7,988
16,123
10,805
0
86,746
235
78,409
4,460
3,175
1
4,462
91,207
1
3,177
81,586
Note 22 Provisions and contingent liabilities
a) Provisions
CHF million
Balance at the beginning of the year
Additions from acquired companies
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
Provisions used in conformity with designated purpose
Capitalized reinstatement costs
Reclassifications
Foreign currency translation / unwind of discount
Balance at the end of the year
Litigation,
regulatory
and similar
matters 2
1,622
Operational
risks 1
45
0
32
(4)
(26)
0
0
2
50
0
2,941
(395)
(1,286)
0
(2)
172
3,053
Loan com-
mitments
and
guarantees
Restruc-
turing
Real
estate
Employee
benefits
658
0
272
(44)
(302)
(2)
0
65
647 3
61
0
1
(50)
(1)
0
10
3
23
157
0
3
(4)
(20)
2
0
14
153 4
222
0
14
(24)
(5)
0
0
8
215 5
Other
205
Total
31.12.14
Total
31.12.13
2,971
2,536
0
43
(7)
(19)
0
0
2
224
0
3,308
(528)
(1,659)
0
8
266
4,366
8
2,599
(238)
(1,855)
5
21
(104)
2,971
1 Comprises provisions for losses resulting from security risks and transaction processing risks. 2 Comprises provisions for losses resulting from legal, liability and compliance risks. 3 Includes personnel related
restructuring provisions of CHF 116 million as of 31 December 2014 (31 December 2013: CHF 104 million) and provisions for onerous lease contracts of CHF 530 million as of 31 December 2014 (31 December 2013:
CHF 554 million). 4 Includes reinstatement costs for leasehold improvements of CHF 98 million as of 31 December 2014 (31 December 2013: CHF 95 million) and provisions for onerous lease contracts of CHF 55 mil-
lion as of 31 December 2014 (31 December 2013: CHF 62 million). 5 Includes provisions for sabbatical and anniversary awards as well as provisions for severance which are not part of restructuring provisions.
Restructuring provisions primarily relate to onerous lease con-
tracts and severance amounts. The utilization of onerous lease
provisions is driven by the maturities of the underlying lease con-
tracts, which cover a period of up to 12 years. Severance-related
provisions are utilized within a short time period, usually within six
months, but potential changes in amount may be triggered when
natural staff attrition reduces the number of people affected by a
restructuring and therefore the estimated costs.
Information on provisions and contingent liabilities in respect
of litigation, regulatory and similar matters, as a class, is included
in Note 22b. There are no material contingent liabilities associated
with the other classes of provisions.
458
Note 22 Provisions and contingent liabilities (continued)
EDTF | 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 dis-
putes and legal proceedings, including litigation, arbitration, and
regulatory and criminal investigations.
Such matters are subject to many uncertainties and the out-
come is 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 in-
herent in all such matters affect the amount and timing of any
potential outflows for both matters with respect to which provi-
sions 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 con-
structive obligation as a result of past events, it is probable that an
outflow of resources will be required, and the amount can be reli-
ably estimated. If any of those conditions is not met, such matters
result in contingent liabilities. If the amount of an obligation can-
not be reliably estimated, a liability exists that is not recognized
even if an outflow of resources is probable. Accordingly, no provi-
sion is established even if the potential outflow of resources with
respect to select matters could be significant.
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 sig-
nificance due to potential financial, reputational and other ef-
fects. 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 out-
flow, we do not disclose that amount. In some cases we are sub-
ject 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 estab-
lished a provision, in which case the matter is treated as a contin-
gent liability under the applicable accounting standard 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 Note 22a above. It is
not practicable to provide an aggregate estimate of liability for
our litigation, regulatory and similar matters as a class of contin-
gent liabilities. Doing so would require us to provide speculative
legal assessments as to claims and proceedings that involve
unique fact patterns or novel legal theories, which 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. Al-
though we therefore cannot provide a numerical estimate of the
future losses that could arise from the class of litigation, regula-
tory and similar matters, we believe that the aggregate amount of
possible future losses from this class that are more than remote
substantially exceeds the level of current provisions. Litigation,
regulatory and similar matters may also result in non-monetary
penalties and consequences. Among other things, the non-prose-
cution agreement (NPA) described in paragraph 7 of this note,
which we entered into with the US Department of Justice, Crimi-
nal Division, Fraud Section (DOJ) in connection with our submis-
sions of benchmark interest rates, including among others the
British Bankers’ Association London Interbank Offered Rate
(LIBOR), may be terminated by the DOJ if we commit any US crime
or otherwise fail to comply with the NPA, and the DOJ may obtain
a criminal conviction of UBS in relation to the matters covered by
the NPA. See paragraph 7 of this note for a description of the
NPA. A guilty plea to, or conviction of, a crime (including as a re-
sult of termination of the NPA) could have material consequences
for UBS. 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 par-
ticipation 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 deter-
mining our 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.
459
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
EDTF | Provisions for litigation, regulatory and similar matters by segment 1
CHF million
Balance at the beginning of the year
Additions from acquired companies
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
Provisions used in conformity with designated purpose
Reclassifications
Foreign currency translation / unwind of discount
Balance at the end of the year
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
Retail &
Corporate
Global
Asset Man-
agement
Investment
Bank
Corporate
Center –
Core
Functions
Corporate
Center –
Non-core
and Legacy
Portfolio
165
0
409
(15)
(374)
0
3
188
56
0
196
(27)
(36)
0
20
209
82
0
59
0
(49)
0
0
92
3
0
55
0
(5)
0
1
53
22
0
1,861
(5)
(649)
(4)
33
488
0
17
(201)
0
0
8
1,258
312
808
0
344
(147)
(173)
2
107
941
Total
31.12.14
Total
31.12.13
1,622
1,432
0
2,941
(395)
8
1,788
(93)
(1,286)
(1,417)
(2)
172
3,053
(6)
(89)
1,622
1 Provisions, if any, for the matters described in (a) item 4 of this Note 22b are recorded in Wealth Management, (b) item 6 of this Note 22b are recorded in Wealth Management Americas, (c) items 10 and 11 of this
Note 22b are recorded in the Investment Bank, (d) items 3 and 9 of this Note 22b are recorded in Corporate Center – Core Functions and (e) items 2 and 5 of this Note 22b are recorded in Corporate Center – Non-core
and Legacy Portfolio. Provisions, if any, for the matters described in items 1 and 8 of this Note 22b are allocated between Wealth Management and Retail & Corporate, and provisions for the matter described in item 7
of this Note 22b are allocated between the Investment Bank and Corporate Center – Core Functions. ▲
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 em-
ployees located in their respective jurisdictions relating to the
cross-border wealth management services provided by UBS and
other financial institutions. It is possible that implementation of
automatic tax information exchange and other measures relating
to cross-border provision of financial services could give rise to
further inquiries in the future.
As a result of investigations in France, in May and June 2013,
respectively, UBS (France) S.A. and UBS AG were put under formal
examination (“mise en examen”) for complicity in having illicitly so-
licited clients on French territory, and were declared witness with
legal assistance (“témoin assisté”) regarding the laundering of pro-
ceeds of tax fraud and of banking and financial solicitation by unau-
thorized persons. In July 2014, UBS AG was placed under formal
examination with respect to the potential charges of laundering of
proceeds of tax fraud, for which it had been previously declared wit-
ness with legal assistance, and the investigating judges ordered UBS
to provide bail (“caution”) of EUR 1.1 billion. UBS appealed the de-
termination of the bail amount, but both the appeal court (“Cour
d’Appel”) and the French Supreme Court (“Cour de Cassation”) up-
held the bail amount and rejected the appeal in full in late 2014.
UBS intends to challenge the judicial process in the European Court
of Human Rights. UBS (France) S.A. and UBS AG are summoned to
appear in March 2015. In addition, the investigating judges have
issued arrest warrants against three Swiss-based former employees
of UBS who did not appear when summoned by the investigating
judge. Separately, in June 2013, the French banking supervisory au-
thority’s disciplinary commission reprimanded UBS (France) S.A. for
having had insufficiencies in its control and compliance framework
around its cross-border activities and “know your customer” obliga-
tions. It imposed a penalty of EUR 10 million, which was paid.
In January 2015, we received inquiries from the US Attorney’s
Office for the Eastern District of New York and from the US Secu-
rities and Exchange Commission (SEC), which are investigating
potential sales to US persons of bearer bonds and other unregis-
tered securities in possible violation of the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) and the registration require-
ments of the US securities laws. We are cooperating with the
authorities in these investigations.
Our balance sheet at 31 December 2014 reflected provisions with
respect to matters described in this item 1 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 provi-
sions, the future outflow of resources in respect of such matters can-
not be determined with certainty based on currently available infor-
mation, and accordingly may ultimately prove to be substantially
greater (or may be less) than the provision that we have recognized.
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 pur-
chaser and seller of US residential mortgages. A subsidiary of UBS,
UBS Real Estate Securities Inc. (UBS RESI), acquired pools of resi-
dential mortgage loans from originators and (through an affiliate)
deposited them into securitization trusts. In this manner, from
2004 through 2007, UBS RESI sponsored approximately USD 80
billion in RMBS, based on the original principal balances of the
securities issued.
UBS RESI also sold pools of loans acquired from originators to
third-party purchasers. These whole loan sales during the period
2004 through 2007 totaled approximately USD 19 billion in origi-
nal principal balance.
We were not a significant originator of US residential loans.
A subsidiary of UBS originated approximately USD 1.5 billion in
US residential mortgage loans during the period in which it was ac-
tive from 2006 to 2008, and securitized less than half of these loans.
460
Note 22 Provisions and contingent liabilities (continued)
RMBS-related lawsuits concerning disclosures: UBS is named as
a defendant relating to its role as underwriter and issuer of RMBS
in a large number of lawsuits related to approximately USD 10 bil-
lion in original face amount of RMBS underwritten or issued by
UBS. Of the USD 10 billion in original face amount of RMBS that
remains at issue in these cases, approximately USD 3 billion was
issued in offerings in which a UBS subsidiary transferred underly-
ing loans (the majority of which were purchased from third-party
originators) into a securitization trust and made representations
and warranties about those loans (UBS-sponsored RMBS). The re-
maining USD 7 billion of RMBS to which these cases relate was
issued by third parties in securitizations in which UBS acted as
underwriter (third-party RMBS).
In connection with certain of these lawsuits, UBS has indemni-
fication rights against surviving third-party issuers or originators
for losses or liabilities incurred by UBS, but UBS cannot predict the
extent to which it will succeed in enforcing those rights. A class
action in which UBS was named as a defendant was settled by a
third-party issuer and received final approval by the district court
in 2013. The settlement reduced the original face amount of
third-party RMBS at issue in the cases pending against UBS by ap-
proximately USD 24 billion. The third-party issuer will fund the
settlement at no cost to UBS. In January 2014, certain objectors to
the settlement filed a notice of appeal from the district court’s
approval of the settlement.
UBS is also named as a defendant in several cases asserting
fraud and other claims brought by entities that purchased collat-
eralized debt obligations that had RMBS exposure and that were
arranged or sold by UBS.
UBS is a defendant in two lawsuits brought by the National
Credit Union Administration (NCUA), as conservator for certain
failed credit unions, asserting misstatements and omissions in the
offering documents for RMBS purchased by the credit unions.
Both lawsuits were filed in US District Courts, one in the District of
Kansas and the other in the Southern District of New York (South-
ern District of New York). The Kansas court partially granted UBS’s
motion to dismiss in 2013 and held that the NCUA’s claims for ten
of the 22 RMBS certificates on which it had sued were time-
barred. As a result, the original principal balance at issue in that
case was reduced from USD 1.15 billion to approximately USD
413 million. The original principal balance at issue in the Southern
District of New York case is approximately USD 402 million. In
March 2015, the US Court of Appeals for the Tenth Circuit issued
a ruling in a similar case filed by the NCUA against Barclays Capi-
tal, Inc. and others that substantially endorsed the Kansas Court’s
reasoning in dismissing certain of the NCUA’s claims as time-
barred. However, the Tenth Circuit nevertheless held that the
NCUA’s claims against Barclays could proceed because Barclays
had contractually agreed not to assert certain statute of limita-
tions defenses against the NCUA. UBS is evaluating the Tenth
Circuit’s ruling and assessing the potential impact of the decision
on the NCUA’s dismissed claims against UBS.
Loan repurchase demands related to sales of mortgages and
RMBS: When UBS acted as an RMBS sponsor or mortgage seller,
we generally made certain representations relating to the charac-
teristics of the underlying loans. In the event of a material breach
of these representations, we were in certain circumstances con-
tractually obligated to repurchase the loans to which they related
or to indemnify certain parties against losses. UBS has received
demands to repurchase US residential mortgage loans as to which
UBS made certain representations at the time the loans were
transferred to the securitization trust. We have been notified by
certain institutional purchasers of mortgage loans and RMBS of
their contention that possible breaches of representations may en-
title the purchasers to require that UBS repurchase the loans or to
other relief. The table “Loan repurchase demands by year received
– original principal balance of loans” summarizes repurchase de-
mands received by UBS and UBS’s repurchase activity from 2006
through 5 March 2015. In the table, repurchase demands charac-
terized as Demands resolved in litigation and Demands rescinded
by counterparty are considered to be finally resolved. Repurchase
demands in all other categories are not finally resolved.
Loan repurchase demands by year received – original principal balance of loans 1
USD million
Resolved demands
Actual or agreed loan repurchases / make whole payments by UBS
Demands rescinded by counterparty
Demands resolved in litigation
Demands expected to be resolved by third parties
Demands resolved or expected to be resolved through enforcement
of indemnification rights against third-party originators
Demands in dispute
Demands in litigation
Demands in review by UBS
Demands rebutted by UBS but not yet rescinded by counterparty
Total
1 Loans submitted by multiple counterparties are counted only once.
2006–2008
2009
2010
2011
2012
2013
2014
5 March
Total
2015, through
12
110
1
1
104
21
19
303
237
77
2
45
107
99
72
346
2
368
732
2
1
1,084
1,041
18
1,404
1
205
122
519
618
260
332
0
13
773
21
403
2,118
3
801
4,133
461
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
Payments that UBS has made to date to resolve repurchase
demands equate to approximately 62% of the original principal
balance of the related loans. Most of the payments that UBS has
made to date have related to so-called “Option ARM” loans; se-
verity rates may vary for other types of loans with different char-
acteristics. Losses upon repurchase would typically reflect the es-
timated value of the loans in question at the time of repurchase,
as well as, in some cases, partial repayment by the borrowers or
advances by servicers prior to repurchase.
In most instances in which we would be required to repurchase
loans due to misrepresentations, we would be able to assert de-
mands against third-party loan originators who provided repre-
sentations when selling the related loans to UBS. However, many
of these third parties are insolvent or no longer exist. We estimate
that, of the total original principal balance of loans sold or securi-
tized by UBS from 2004 through 2007, less than 50% was pur-
chased from surviving third-party originators. In connection with
approximately 60% of the loans (by original principal balance) for
which UBS has made payment or agreed to make payment in re-
sponse to demands received in 2010, UBS has asserted indemnity
or repurchase demands against originators. Since 2011, UBS has
advised certain surviving originators of repurchase demands made
against UBS for which UBS would be entitled to indemnity, and
has asserted that such demands should be resolved directly by the
originator and the party making the demand.
We cannot reliably estimate the level of future repurchase de-
mands, and do not know whether our rebuttals of such demands
will be a good predictor of future rates of rebuttal. We also can-
not reliably estimate the timing of any such demands.
Lawsuits related to contractual representations and warranties
concerning mortgages and RMBS: In 2012, certain RMBS trusts
filed an action (Trustee Suit) in the Southern District of New York
seeking to enforce UBS RESI’s obligation to repurchase loans in
the collateral pools for three RMBS securitizations (Transactions)
with an original principal balance of approximately USD 2 billion
for which Assured Guaranty Municipal Corp. (Assured Guaranty),
a financial guaranty insurance company, had previously de-
manded repurchase. In January 2015, the court rejected plaintiffs’
efforts to seek damages for all loans purportedly in breach of rep-
resentations and warranties in any of the three Transactions and
limited plaintiffs to pursuing claims based solely on alleged
breaches of loans identified in the complaint or other breaches
that plaintiffs can establish were independently discovered by
UBS. On 25 February 2015, the court denied plaintiffs’ motion
seeking reconsideration of its ruling. With respect to the loans
subject to the Trustee Suit that were originated by institutions still
in existence, UBS intends to enforce its indemnity rights against
those institutions. Related litigation brought by Assured Guaranty
was resolved in 2013.
In 2012, the Federal Housing Finance Agency, on behalf of
Freddie Mac, filed a notice and summons in New York Supreme
Court initiating suit against UBS RESI for breach of contract and
declaratory relief arising from alleged breaches of represen-
tations and warranties in connection with certain mortgage
loans and UBS RESI’s alleged failure to repurchase such mortgage
loans. The lawsuit seeks, among other relief, specific perfor-
mance of UBS RESI’s alleged loan repurchase obligations for at
least USD 94 million in original principal balance of loans for
which Freddie Mac had previously demanded repurchase; no
damages are specified. In 2013, the Court dismissed the com-
plaint for lack of standing, on the basis that only the RMBS
trustee could assert the claims in the complaint, and the com-
plaint was unclear as to whether the trustee was the plaintiff and
had proper authority to bring suit. The trustee subsequently filed
an amended complaint, which UBS moved to dismiss. The
motion remains pending.
In 2013, Residential Funding Company LLC (RFC) filed a com-
plaint in New York Supreme Court against UBS RESI asserting
claims for breach of contract and indemnification in connection
with loans purchased from UBS RESI with an original principal bal-
ance of at least USD 460 million that were securitized by an RFC
affiliate. This is the first case filed against UBS seeking damages
allegedly arising from the securitization of whole loans purchased
from UBS. Damages are unspecified.
We also have tolling agreements with certain institutional pur-
chasers of RMBS concerning their potential claims related to sub-
stantial purchases of UBS-sponsored or third-party RMBS.
As reflected in the table “Provision for claims related to sales of
residential mortgage-backed securities and mortgages,” our bal-
ance sheet at 31 December 2014 reflected a provision of USD 849
million with respect to matters described in this item 2. As in the
case of other matters for which we have established provisions, the
Provision for claims related to sales of residential mortgage-backed securities and mortgages
USD million
Balance at the beginning of the year
Increase in provision recognized in the income statement
Release of provision recognized in the income statement
Provision used in conformity with designated purpose
Balance at the end of the year
462
31.12.14
817
239
(120)
(87)
849
31.12.13
668
1,359
(1)
(1,208)
817
Note 22 Provisions and contingent liabilities (continued)
future outflow of resources in respect of this matter cannot be de-
termined 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.
Mortgage-related regulatory matters: In August 2014, UBS re-
ceived a subpoena from the US Attorney’s Office for the Eastern
District of New York issued pursuant to the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (FIRREA), which
seeks documents and information related to UBS’s RMBS business
from 2005 through 2007. UBS has also been responding to a
subpoena from the New York State Attorney General (NYAG) re-
lating to its RMBS business. In addition, UBS has also been re-
sponding to inquiries from both the Special Inspector General for
the Troubled Asset Relief Program (SIGTARP) (who is working in
conjunction with the US Attorney’s Office for Connecticut and the
DOJ) and the SEC relating to trading practices in connection with
purchases and sales of mortgage-backed securities in the second-
ary market from 2009 through the present. We are cooperating
with the authorities in these matters. Numerous other banks re-
portedly are responding to similar inquiries from these authorities.
3. Claims related to UBS disclosure
In 2012, a consolidated complaint was filed in a putative securi-
ties fraud class action pending in federal court in Manhattan
against UBS AG and certain of its current and former officers re-
lating to the unauthorized trading incident that occurred in the
Investment Bank and was announced in September 2011. The
lawsuit was filed on behalf of parties who purchased publicly
traded UBS securities on any US exchange, or where title passed
within the US, during the period 17 November 2009 through
15 September 2011. In 2013, the district court granted UBS’s mo-
tion to dismiss the complaint in its entirety, from which plaintiffs
filed an appeal. In 2015, the appellate court affirmed the district
court’s dismissal of the action.
4. Madoff
In relation to the Bernard L. Madoff Investment Securities LLC
(BMIS) investment fraud, UBS AG, UBS (Luxembourg) SA and cer-
tain other UBS subsidiaries have been subject to inquiries by a
number of regulators, including the Swiss Financial Market Super-
visory Authority (FINMA) and the Luxembourg Commission de Sur-
veillance du Secteur Financier (CSSF). Those inquiries concerned
two third-party funds established under Luxembourg law, substan-
tially 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 now face severe losses, and the
Luxembourg funds are in liquidation. The last reported net asset
value of the two Luxembourg funds before revelation of the
Madoff scheme was approximately USD 1.7 billion in the aggre-
gate, although that figure likely includes fictitious profit reported
by BMIS. The documentation establishing both funds identifies
UBS entities in various roles including custodian, administrator,
manager, distributor and promoter, and indicates that UBS em-
ployees serve as board members. UBS (Luxembourg) SA and cer-
tain other UBS subsidiaries are responding to inquiries by Luxem-
bourg investigating authorities, without however being named as
parties in those investigations. In 2009 and 2010, the liquidators
of the two Luxembourg funds filed claims on behalf of the funds
against UBS entities, non-UBS entities and certain individuals in-
cluding current and former UBS employees. The amounts claimed
are approximately EUR 890 million and EUR 305 million, respec-
tively. The liquidators have filed supplementary claims for amounts
that the funds may possibly be held liable to pay the BMIS Trustee.
These amounts claimed by the liquidator are approximately EUR
564 million and EUR 370 million, respectively. In addition, a large
number of alleged beneficiaries have filed claims against UBS enti-
ties (and non-UBS entities) for purported losses relating to the
Madoff scheme. The majority of these cases are pending in Luxem-
bourg, where appeals were filed by the claimants against the 2010
decisions of the court in which the claims in a number of test cases
were held to be inadmissible. In the US, the BMIS Trustee filed
claims in 2010 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 billion. Following a motion by UBS, in 2011,
the US District Court for the Southern District of New York dis-
missed all of the BMIS Trustee’s claims other than claims for recov-
ery of fraudulent conveyances and preference payments that were
allegedly transferred to UBS on the ground that the BMIS Trustee
lacks standing to bring such claims. In 2013, the Second Circuit
affirmed the District Court’s decision and, in June 2014, the US
Supreme Court denied the BMIS Trustee’s petition seeking review
of the Second Circuit ruling. In December 2014, several claims,
including a purported class action, were filed in the US by BMIS
customers against UBS entities, asserting claims similar to the ones
made by the BMIS Trustee, seeking unspecified damages. In Ger-
many, certain clients of UBS are exposed to Madoff-managed posi-
tions through third-party funds and funds administered by UBS
entities in Germany. A small number of claims have been filed with
respect to such funds. In January 2015, a court of appeal reversed
a lower court decision in favor of UBS in one such case and or-
dered UBS to pay EUR 49 million, plus interest. UBS has filed an
application for leave to appeal the decision.
5. Kommunale Wasserwerke Leipzig GmbH (KWL)
In 2006, KWL entered into a single-tranche collateralized debt ob-
ligation/credit default swap (STCDO / CDS) transaction with UBS,
with latter legs being intermediated in 2006 and 2007 by Landes-
bank Baden-Württemberg (LBBW) and Depfa Bank plc (Depfa).
KWL retained UBS Global Asset Management to act as portfolio
manager under the STCDO / CDS. UBS and the intermediating
banks terminated the STCDO / CDS following non-payment by
KWL under the STCDOs. UBS claimed payment of approximately
USD 319.8 million, plus interest, from KWL, Depfa and LBBW.
463
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
In 2010, UBS (UBS AG, UBS Limited and UBS Global AM) issued
proceedings in the English High Court against KWL, Depfa and
LBBW seeking declarations and / or to enforce the terms of the
STCDO / CDS contracts, and each of KWL, Depfa and LBBW filed
counterclaims. Judgment was given in November 2014, following
a three-month trial. The Court ruled that UBS cannot enforce the
STCDO / CDS entered into with KWL, LBBW or Depfa, which have
been rescinded, granted the fraudulent misrepresentation claims
of LBBW and Depfa against UBS, and ruled that UBS Global Asset
Management breached its duty in the management of the under-
lying portfolios. The Court dismissed KWL’s monetary counterclaim
against UBS. The majority of the premiums paid to KWL and the
fees paid to LBBW and Depfa under the transactions have been
returned to UBS and UBS has returned monies received under the
transaction from Depfa. UBS has been ordered to pay part of the
other parties’ costs in the proceedings. The Court of Appeal has
denied UBS’s application for permission to appeal the judgment on
written submission. UBS has requested an oral hearing to recon-
sider the refusal of its application.
In separate proceedings brought by KWL against LBBW in
Leipzig, Germany, the court ruled in LBBW’s favor in June 2013
and upheld the validity of the STCDO as between LBBW and KWL.
KWL has appealed against that ruling and, in December 2014, the
appeal court stayed the appeal proceedings following the judg-
ment and UBS’s request for permission to appeal in the proceed-
ings in England. KWL and LBBW have been given permission by
the English trial judge to make applications to recover their costs
in the German proceedings as damages from UBS in the English
proceedings after the German proceedings conclude.
In 2011 and 2013, the former managing director of KWL and
two financial advisers were convicted in Germany on criminal
charges related to certain KWL transactions, including swap trans-
actions with UBS. All three have lodged appeals.
Since 2011, the SEC has been conducting an investigation fo-
cused on, among other things, the suitability of the KWL transac-
tion, and information provided by UBS to KWL. UBS has provided
documents and testimony to the SEC and is continuing to cooper-
ate with the SEC.
Our balance sheet at 31 December 2014 reflected provisions
with respect to matters described in this item 5 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 es-
tablished provisions, the future outflow of resources in respect of
such matters cannot be determined with certainty based on cur-
rently available information, and accordingly may ultimately prove
to be substantially greater (or may be less) than the provision that
we have recognized.
6. Puerto Rico
Declines since August 2013 in the market prices of Puerto Rico
municipal bonds and of closed-end funds (the funds) that are
sole-managed and co-managed by UBS Trust Co. of Puerto Rico
464
and distributed by UBS Financial Services Inc. of Puerto Rico (UBS
PR) have led to multiple regulatory inquiries, as well as customer
complaints and arbitrations with aggregate claimed damages ex-
ceeding USD 1.1 billion. The claims are filed by clients in Puerto
Rico who own the funds or Puerto Rico municipal bonds and/or
who used their UBS account assets as collateral for UBS non-pur-
pose loans; customer complaint and arbitration allegations in-
clude fraud, misrepresentation and unsuitability of the funds and
of the loans. A shareholder derivative action also was filed in Feb-
ruary 2014 against various UBS entities and current and certain
former directors of the funds, alleging hundreds of millions in
losses in the funds. In May 2014, a federal class action complaint
was filed against various UBS entities, certain members of UBS PR
senior management, and the co-manager of certain of the funds
seeking damages for investor losses in the funds during the pe-
riod from May 2008 through May 2014.
An internal review also disclosed that certain clients, many of
whom acted at the recommendation of one financial advisor, in-
vested proceeds of non-purpose loans in closed-end fund securi-
ties in contravention of their loan agreements.
In October 2014 UBS reached a settlement with the Office of
the Commissioner of Financial Institutions for the Commonwealth
of Puerto Rico (OCFI) in connection with OCFI’s examination of
UBS’s operations from January 2006 through September 2013.
Pursuant to the settlement, UBS contributed USD 3.5 million to an
investor education fund, offered USD 1.68 million in restitution to
certain investors and, among other things, committed to under-
take an additional review of certain client accounts to determine
if additional restitution would be appropriate.
In 2011, a purported derivative action was filed on behalf of
the Employee Retirement System of the Commonwealth of Puerto
Rico (System) against over 40 defendants, including UBS PR and
other consultants and underwriters, trustees of the System, and
the President and Board of the Government Development Bank of
Puerto Rico. The plaintiffs alleged that defendants violated their
purported fiduciary duties and contractual obligations in connec-
tion with the issuance and underwriting of approximately USD 3
billion of bonds by the System in 2008 and sought damages of
over USD 800 million. UBS is named in connection with its under-
writing and consulting services. In 2013, the case was dismissed
by the Puerto Rico Court of First Instance on the grounds that
plaintiffs did not have standing to bring the claim. That dismissal
was subsequently overturned by the Puerto Rico Court of Ap-
peals. UBS’s petitions for appeal and reconsideration have been
denied by the Supreme Court of Puerto Rico.
Also, in 2013, an SEC Administrative Law Judge dismissed a
case brought by the SEC against two UBS executives, finding no
violations. The charges had stemmed from the SEC’s investigation
of UBS’s sale of closed-end funds in 2008 and 2009, which UBS
settled in 2012. Beginning in 2012 two federal class action com-
plaints, which were subsequently consolidated, were filed against
various UBS entities, certain of the funds, and certain members of
Note 22 Provisions and contingent liabilities (continued)
UBS PR senior management, seeking damages for investor losses in
the funds during the period from January 2008 through May 2012
based on allegations similar to those in the SEC action. Plaintiffs in
that action and the federal class action filed in May 2014 described
above are now seeking to have those two actions consolidated.
Our balance sheet at 31 December 2014 reflected provisions
with respect to matters described in this item 6 in amounts that
UBS believes to be appropriate under the applicable accounting
standard. As in the case of other matters for which we have es-
tablished provisions, the future outflow of resources in respect of
such matters cannot be determined with certainty based on cur-
rently available information, and accordingly may ultimately prove
to be substantially greater (or may be less) than the provisions that
we have recognized.
7. Foreign exchange, LIBOR, and benchmark rates
Foreign exchange-related regulatory matters: Following an initial
media report in 2013 of widespread irregularities in the foreign
exchange markets, UBS immediately commenced an internal re-
view of its foreign exchange business, which includes our precious
metals and related structured products businesses. Since then,
various authorities have commenced investigations concerning
possible manipulation of foreign exchange markets, including
FINMA, the Swiss Competition Commission (WEKO), the DOJ, the
US Commodity Futures Trading Commission (CFTC), the Federal
Reserve Board, the UK Financial Conduct Authority (FCA) (to
which certain responsibilities of the UK Financial Services Author-
ity (FSA) have passed), the UK Serious Fraud Office (SFO), the Aus-
tralian Securities and Investments Commission (ASIC) and the
Hong Kong Monetary Authority (HKMA). WEKO stated in March
2014 that it had reason to believe that certain banks may have
colluded to manipulate foreign exchange rates. A number of au-
thorities also reportedly are investigating potential manipulation
of precious metals prices. UBS and other financial institutions
have received requests from various authorities relating to their
foreign exchange businesses, and UBS is cooperating with the au-
thorities. UBS has taken and will take appropriate action with re-
spect to certain personnel as a result of its ongoing review.
In November 2014, UBS reached settlements with the FCA and
the CFTC in connection with their foreign exchange investigations,
and FINMA issued an order concluding its formal proceedings with
respect to UBS relating to its foreign exchange and precious metals
businesses. UBS has paid a total of approximately CHF 774 million
to these authorities, including GBP 234 million in fines to the FCA,
USD 290 million in fines to the CFTC, and CHF 134 million to
FINMA representing confiscation of costs avoided and profits. The
conduct described in the settlements and the FINMA order in-
cludes certain UBS personnel: engaging in efforts, alone or in co-
operation/collusion with traders at other banks, to manipulate FX
benchmark rates involving multiple currencies, attempts to trigger
client stop-loss orders for the benefit of the bank, and inappropri-
ate sharing of confidential client information. We have ongoing
obligations to cooperate with these authorities and to undertake
certain remediation, including actions to improve processes and
controls and requirements imposed by FINMA to apply compensa-
tion restrictions for certain employees and to automate at least
95% of our global foreign exchange and precious metals trading
by 31 December 2016. Investigations by numerous authorities, in-
cluding the DOJ, the Federal Reserve Board and the CFTC, remain
ongoing notwithstanding these resolutions.
In December 2014, the HKMA announced the conclusion of its
investigation into foreign exchange trading operations of banks in
Hong Kong. The HKMA found no evidence of collusion among
the banks or of manipulation of foreign exchange benchmark
rates in Hong Kong. The HKMA also found that banks had inter-
nal control deficiencies with respect to their foreign exchange
trading operations.
Some other investigating authorities have initiated discussions
of possible terms of a resolution of their investigations. Resolu-
tions may include findings that UBS engaged in attempted or ac-
tual misconduct and failed to have controls in relation to its for-
eign exchange business that were adequate to prevent
misconduct. Authorities may impose material monetary penalties,
require remedial action plans or impose other non-monetary pen-
alties. In connection with discussions of a possible resolution of
investigations relating to our foreign exchange business with the
Antitrust and Criminal Divisions of the DOJ, UBS and the DOJ
have extended the term of the NPA by one year to 18 December
2015. No agreement has been reached on the form of a resolu-
tion with the Antitrust or Criminal Divisions of the DOJ. It is pos-
sible that other investigating authorities may seek to commence
discussions of potential resolutions in the near future. We are not
able to predict whether any such discussion will result in a resolu-
tion of these matters, whether any resolution will be on terms
similar to those described above, or the monetary, remedial and
other terms on which any such resolution may be achieved.
Foreign exchange-related civil litigation: Putative class actions
have been filed since November 2013 in US federal courts against
UBS and other banks. These actions are on behalf of putative
classes of persons who engaged in foreign currency transactions
with any of the defendant banks. They allege collusion by the
defendants and assert claims under the antitrust laws and for un-
just enrichment. In March 2015, UBS entered into a settlement
agreement to resolve those actions. The settlement, which is sub-
ject to court approval, requires among other things that UBS pay
USD 135 million and provide cooperation to the settlement class.
In January 2015, UBS was added to an ongoing putative class
action against other banks in federal court in New York on behalf
of a putative class of persons that transacted in physical silver or a
silver financial instrument priced, benchmarked, and / or settled to
the London silver fix at any time from January 1, 1999 to an un-
specified date. The complaint asserts claims under the antitrust
laws and the Commodity Exchange Act and for unjust enrich-
ment. In February 2015, a putative class action was filed in federal
465
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
court in New York against UBS and other banks on behalf of a
putative class of persons who entered into any standardized FX
futures contracts and options on FX futures contracts on an ex-
change since January 1, 2008. The complaint asserts claims under
the Commodity Exchange Act and the antitrust laws.
LIBOR and other benchmark-related regulatory matters: Nu-
merous government agencies, including the SEC, the CFTC, the
DOJ, the FCA, the SFO, the Monetary Authority of Singapore
(MAS), the HKMA, FINMA, the various state attorneys general in
the US, and competition authorities in various jurisdictions have
conducted or are continuing to conduct investigations regarding
submissions with respect to LIBOR and other benchmark rates,
including HIBOR (Hong Kong Interbank Offered Rate) and ISDAFIX,
a benchmark rate used for various interest rate derivatives and
other financial instruments. These investigations focus on whether
there were improper attempts by UBS (among others), either act-
ing on our own or together with others, to manipulate LIBOR and
other benchmark rates at certain times.
In 2012, UBS reached settlements with the FSA, the CFTC and
the Criminal Division of the DOJ in connection with their investi-
gations of benchmark interest rates. At the same time FINMA is-
sued an order concluding its formal proceedings with respect to
UBS relating to benchmark interest rates. UBS has paid a total of
approximately CHF 1.4 billion in fines and disgorgement – includ-
ing GBP 160 million in fines to the FSA, USD 700 million in fines
to the CFTC, USD 500 million in fines to the DOJ, and CHF 59
million in disgorgement to FINMA. UBS Securities Japan Co. Ltd.
(UBSSJ) entered into a plea agreement with the DOJ under which
it entered a plea to one count of wire fraud relating to the ma-
nipulation of certain benchmark interest rates, including Yen
LIBOR. UBS entered into an NPA with the DOJ, which (along with
the plea agreement) covered conduct beyond the scope of the
conditional leniency / immunity grants described below, required
UBS to pay the USD 500 million fine to DOJ after the sentencing
of UBSSJ, and provided that any criminal penalties imposed on
UBSSJ at sentencing be deducted from the USD 500 million fine.
The conduct described in the various settlements and the FINMA
order includes certain UBS personnel: engaging in efforts to ma-
nipulate submissions for certain benchmark rates to benefit trad-
ing positions; colluding with employees at other banks and cash
brokers to influence certain benchmark rates to benefit their
trading positions; and giving inappropriate directions to UBS sub-
mitters that were in part motivated by a desire to avoid unfair
and negative market and media perceptions during the financial
crisis. The benchmark interest rates encompassed by one or more
of these resolutions include Yen LIBOR, GBP LIBOR, CHF LIBOR,
Euro LIBOR, USD LIBOR, EURIBOR (Euro Interbank Offered Rate)
and Euroyen TIBOR (Tokyo Interbank Offered Rate). We have on-
going obligations to cooperate with authorities with which we
have reached resolutions and to undertake certain remediation
with respect to benchmark interest rate submissions. In addition,
under the NPA, we have agreed, among other things, that for
466
two years from 18 December 2012 UBS would not commit any
US crime, and we would advise DOJ of any potentially criminal
conduct by UBS or any of its employees relating to violations of
US laws concerning fraud or securities and commodities markets.
As noted above, the term of the NPA has been extended by one
year to 18 December 2015. Any failure to comply with these
obligations could result in termination of the NPA and potential
criminal prosecution in relation to the matters covered by the
NPA. The MAS, HKMA, ASIC and the Japan Financial Services
Agency have all resolved investigations of UBS (and in some cases
other banks). The orders or undertakings in connection with
these investigations generally require UBS to take remedial
actions to improve its processes and controls, impose monetary
penalties or other measures. Investigations by the CFTC, ASIC
and other governmental authorities remain ongoing notwith-
standing these resolutions. In October 2014, UBS reached a
settlement with the European Commission (EC) regarding its in-
vestigation of bid-ask spreads in connection with Swiss franc
interest rate derivatives and has paid a EUR 12.7 million fine,
which was reduced to this level based in part on UBS’s coopera-
tion with the EC.
UBS has been granted conditional leniency or conditional im-
munity from authorities in certain jurisdictions, including the Anti-
trust Division of the DOJ, WEKO and the EC, in connection with
potential antitrust or competition law violations related to submis-
sions for Yen LIBOR and Euroyen TIBOR. WEKO has also granted
UBS conditional immunity in connection with potential competition
law violations related to submissions for Swiss franc LIBOR and cer-
tain transactions related to Swiss franc LIBOR. The Canadian Com-
petition Bureau (Bureau) had granted UBS conditional immunity in
connection with potential competition law violations related to
submissions for Yen LIBOR, but in January 2014, the Bureau discon-
tinued its investigation into Yen LIBOR for lack of sufficient evi-
dence to justify prosecution under applicable laws. As a result of
these conditional grants, we will not be subject to prosecutions,
fines or other sanctions for antitrust or competition law violations
in the jurisdictions where we have conditional immunity or leniency
in connection with the matters covered by the conditional grants,
subject to our continuing cooperation. However, the conditional
leniency and conditional immunity grants we have received do not
bar government agencies from asserting other claims and imposing
sanctions against us, as evidenced by the settlements and ongoing
investigations referred to above. In addition, as a result of the con-
ditional leniency agreement with the DOJ, we are eligible for a limit
on liability to actual rather than treble damages were damages to
be awarded in any civil antitrust action under US law based on
conduct covered by the agreement and for relief from potential
joint and several liability in connection with such civil antitrust
action, subject to our satisfying the DOJ and the court presiding
over the civil litigation of our cooperation. The conditional leniency
and conditional immunity grants do not otherwise affect the ability
of private parties to assert civil claims against us.
Note 22 Provisions and contingent liabilities (continued)
LIBOR and other benchmark-related civil litigation: A number
of putative class actions and other actions are pending in, or ex-
pected to be transferred to, 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
linked directly or indirectly to US dollar LIBOR, Yen LIBOR, Eu-
royen TIBOR, EURIBOR and US Dollar ISDAFIX. Also pending are
actions asserting losses related to various products whose inter-
est rate was linked to US dollar LIBOR, including adjustable rate
mortgages, preferred and debt securities, bonds pledged as col-
lateral, loans, depository accounts, investments and other inter-
est-bearing instruments. All of the complaints allege manipula-
tion, through various means, of various benchmark interest rates,
including LIBOR, Euroyen TIBOR, EURIBOR or US Dollar ISDAFIX
rates and seek unspecified compensatory and other damages,
including treble and punitive damages, under varying legal theo-
ries that include violations of the CEA, the federal racketeering
statute, federal and state antitrust and securities laws and other
state laws. In February 2015, a putative class action was filed in
federal court in New York against UBS and other financial institu-
tions on behalf of parties who entered into interest rate deriva-
tives linked to Swiss franc (CHF) LIBOR. Plaintiffs allege that de-
fendants conspired to manipulate CHF LIBOR and the prices of
CHF LIBOR-based derivatives from 1 January 2005 through
31 December 2009 in violation of US antitrust laws and the CEA,
among other theories, and seek unspecified compensatory dam-
ages, including treble damages. In 2013, a federal court in New
York dismissed the federal antitrust and racketeering claims of
certain US dollar LIBOR plaintiffs and a portion of their claims
brought under the CEA and state common law. The court has
granted certain plaintiffs permission to assert claims for unjust
enrichment and breach of contract against UBS and other defen-
dants, and limited the CEA claims to contracts purchased be-
tween 15 April 2009 and May 2010. Certain plaintiffs have also
appealed the dismissal of their antitrust claims. UBS and other
defendants in other lawsuits including the one related to Euroyen
TIBOR have filed motions to dismiss. In March 2014, the court in
the Euroyen TIBOR lawsuit dismissed the plaintiff’s federal anti-
trust and state unfair enrichment claims, and dismissed a portion
of the plaintiff’s CEA claims. Discovery is currently stayed.
Since September 2014, putative class actions have been filed in
federal court in New York and New Jersey against UBS and other
financial institutions, among others, on behalf of parties who en-
tered into interest rate derivative transactions linked to ISDAFIX.
The complaints, which have since been consolidated into an
amended complaint, allege that the defendants conspired to ma-
nipulate ISDAFIX rates from 1 January 2006 through January
2014, in violation of US antitrust laws and the CEA, among other
theories, and seeks unspecified compensatory damages, includ-
ing treble damages.
With respect to additional matters and jurisdictions not en-
compassed by the settlements and order referred to above, our
balance sheet at 31 December 2014 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 re-
spect 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 provi-
sion that we have recognized.
8. Swiss retrocessions
The Swiss Supreme Court ruled in 2012, in a test case against
UBS, that distribution fees paid to a bank 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 bank, absent a
valid waiver.
FINMA has issued a supervisory note to all Swiss banks in re-
sponse to the Supreme Court decision. The note sets forth the mea-
sures Swiss banks are to adopt, which include informing all affected
clients about the Supreme Court decision and directing them to an
internal bank contact for further details. UBS has met the FINMA
requirements and has notified all potentially affected clients.
The Supreme Court decision has resulted, and may continue to
result, in a number of client requests for UBS to disclose and po-
tentially surrender retrocessions. Client requests are assessed on a
case-by-case basis. Considerations taken into account when as-
sessing these cases include, among others, the existence of a dis-
cretionary mandate and whether or not the client documentation
contained a valid waiver with respect to distribution fees.
Our balance sheet at 31 December 2014 reflected a provision
with respect to matters described in this item 8 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 provi-
sion that we have recognized.
9. Banco UBS Pactual tax indemnity
Pursuant to the 2009 sale of Banco UBS Pactual S.A. (Pactual) by
UBS to BTG Investments, LP (BTG), BTG has submitted contractual
indemnification claims that UBS estimates amount to approxi-
mately BRL 2.3 billion, including interest and penalties, which is net
of liabilities retained by BTG. The claims pertain principally to sev-
eral tax assessments issued by the Brazilian tax authorities against
Pactual relating to the period from December 2006 through March
2009, when UBS owned Pactual. The majority of these assessments
relate to the deductibility of goodwill amortization in connection
with UBS’s 2006 acquisition of Pactual and payments made to Pac-
467
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
tual employees through various profit sharing plans. These assess-
ments are being challenged in administrative proceedings. In May
2014, UBS was notified that the administrative court had rendered
a decision in favor of the taxpayer, Pactual, in connection with a
profit-sharing plan assessment relating to an affiliate company.
That decision became final in October 2014. In August 2014, UBS
was notified that the administrative court had rendered a decision
that was largely in favor of the tax authority with respect to the
goodwill amortization assessment. We are awaiting a written deci-
sion from the administrative court for this matter, at which time an
appeal will be taken. In 2013 and 2014, approximately BRL 163
million in tax claims relating to the period for which UBS has indem-
nification obligations were submitted for settlement through am-
nesty programs announced by the Brazilian government.
10. Matters relating to the CDS market
In 2013, the EC issued a Statement of Objections against thirteen
credit default swap (CDS) dealers including UBS, as well as data
service provider Markit and the International Swaps and Derivatives
Association (ISDA). The Statement of Objections broadly alleges
that the dealers infringed European Union antitrust rules by collud-
ing to prevent exchanges from entering the credit derivatives mar-
ket between 2006 and 2009. We submitted our response to the
Statement of Objections in January 2014 and presented our posi-
tion in an oral hearing in May 2014. Since mid-2009, the Antitrust
Division of the DOJ has also been investigating whether multiple
dealers, including UBS, conspired with each other and with Markit
to restrain competition in the markets for CDS trading, clearing and
other services. In January and April 2014, putative class action
plaintiffs filed consolidated amended complaints in the Southern
District of New York against twelve dealers, including UBS, as well
as Markit and ISDA, alleging violations of the US Sherman Antitrust
Act and common law. Plaintiffs allege that the defendants unlaw-
fully conspired to restrain competition in and / or monopolize the
market for CDS trading in the US in order to protect the dealers’
profits from trading CDS in the over-the-counter market. Plaintiffs
assert claims on behalf of all purchasers and sellers of CDS that
transacted directly with any of the dealer defendants since 1 Janu-
ary 2008, and seek unspecified trebled compensatory damages
and other relief. In September 2014, the court granted in part and
denied in part defendants’ motions to dismiss the complaint.
11. Equities trading systems and practices
UBS is responding to inquiries concerning the operation of UBS’s
alternative trading system (ATS) (also referred to as a dark pool) and
its securities order routing and execution practices from various
authorities, including the SEC, the NYAG and the Financial Industry
Regulatory Authority, who reportedly are pursuing similar investiga-
tions industry-wide. In January 2015, the SEC announced the reso-
lution of its investigation concerning the operation of UBS’s ATS
between 2008 and 2012, which focused on certain order types and
disclosure practices that were discontinued two years ago. Under
the SEC settlement order, which charges UBS with, among other
things, violations of Section 17(a)(2) of the Securities Act of 1933
and Rule 612 of Regulation NMS (known as the sub-penny rule),
UBS has paid a total of USD 14.5 million, which includes a fine of
USD 12 million and disgorgement of USD 2.4 million. UBS is coop-
erating in the ongoing regulatory matters, including by the SEC. ▲
Note 23 Other liabilities
CHF million
Prime brokerage payables 1
Amounts due under unit-linked investment contracts
Compensation-related liabilities
of which: accrued expenses 2
of which: deferred contingent capital plans 2
of which: other deferred compensation plans 2
of which: net defined benefit pension and post-employment liabilities 3
Third-party interest in consolidated investment funds
Settlement and clearing accounts
Current and deferred tax liabilities 4
VAT and other tax payables
Deferred income
Accrued interest expenses
Other accrued expenses
Other
Total other liabilities
31.12.14
38,633
17,643
6,732
2,633
794
1,931
1,374
648
1,054
643
422
259
1,327
2,473
1,279
71,112
31.12.13
32,543
16,155
5,598
2,480
402
1,668
1,048
953
946
667
570
264
1,199
2,465
1,417
62,777
1 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading across multiple asset classes. This balance is mainly comprised of client securities
financing and deposit liabilities. 2 In 2014, changes in the presentation of this Note were made. The liabilities related to the deferred contingent capital plans, which were previously presented within the Accrued expenses
and Deferred compensation plans reporting lines, are now presented separately. Prior periods have been restated for this change. 3 Refer to Note 28 for more information. 4 Deferred tax liabilities were CHF 80 million
and CHF 59 million as of 31 December 2014 and 31 December 2013, respectively. Refer to Note 8 for more information.
468
Note 24 Fair value measurement
This note provides fair value measurement information for both fi-
nancial and non-financial instruments and is structured as follows:
a) Valuation principles
b) Valuation governance
c) Valuation techniques
d) Valuation adjustments
e) Fair value measurements and classification within the
f) Transfers between Level 1 and Level 2 in the fair value
hierarchy
g) Movements of Level 3 instruments
h) Valuation of assets and liabilities classified as Level 3
i) Sensitivity of fair value measurements to changes in
unobservable input assumptions
j) Financial instruments not measured at fair value
fair value hierarchy
Pillar 3 | a) Valuation principles
Fair value is defined as the price that would be received for the
sale of an asset or paid to transfer a liability in an orderly transac-
tion between market participants in the principal market (or most
advantageous market, in the absence of a principal market) as of
the measurement date. In measuring fair value, the Group utilizes
various valuation approaches and applies a hierarchy for prices
and inputs that maximizes the use of observable market data, if
available.
All financial and non-financial assets and liabilities measured or
disclosed at fair value are categorized into one of three fair value
hierarchy levels. In certain cases, the inputs used to measure fair
value may fall within different levels of the fair value hierarchy. For
disclosure purposes, the level in the hierarchy within which the
instrument is classified in its entirety is based on the lowest level
input that is significant to the position’s fair value measurement:
– Level 1 – quoted prices (unadjusted) in active markets for iden-
tical assets and liabilities;
– Level 2 – valuation techniques for which all significant inputs
are, or are based on, observable market data or
– Level 3 – valuation techniques for which significant inputs are
not based on observable market data.
If available, fair values are determined using quoted prices in
active markets for identical assets or liabilities. An active market is
one in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing data on an
ongoing basis. Assets and liabilities that are quoted and traded in
an active market are valued at the currently quoted price multi-
plied by the number of units of the instrument held.
Where the market for a financial instrument or non-financial
asset or liability is not active, fair value is established using a valu-
ation technique, including pricing models. Valuation techniques
involve the use of estimates, the extent of which depends on the
complexity of the instrument and the availability of market-based
data. Valuation adjustments may be made to allow for additional
factors including model, liquidity and credit risks, which are not
explicitly captured within the valuation technique, but which
would nevertheless be considered by market participants when
forming a price. The limitations inherent in a particular valuation
technique are considered in the determination of an asset or lia-
bility’s classification within the fair value hierarchy.
Many cash instruments and over-the-counter (OTC) derivative
contracts have bid and offer prices that can be observed in the
marketplace. Bid prices reflect the highest price that a party is will-
ing to pay for an asset. Offer prices represent the lowest price that
a party is willing to accept for an asset. In general, long positions
are measured at a bid price and short positions at an offer price,
reflecting the prices at which the instruments could be transferred
under normal market conditions. Offsetting positions in the same
financial instrument are marked at the mid-price within the bid-
offer spread.
Generally, the unit of account for a financial instrument is the
individual instrument, and UBS applies valuation adjustments at
an individual instrument level, consistent with that unit of ac-
count. However, if certain conditions are met, UBS may estimate
the fair value of a portfolio of financial assets and liabilities with
substantially similar and offsetting risk exposures on the basis of
the net open risks.
For transactions where the valuation technique used to mea-
sure fair value requires significant inputs that are not based on
observable market data, the financial instrument is initially recog-
nized at the transaction price. This initial recognition amount may
differ from the fair value obtained using the valuation technique.
Any such difference is deferred and not recognized in the income
statement and referred to as deferred day-1 profit or loss.
➔ Refer to Note 24d for more information ▲
469
Financial informationAdditional information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
Pillar 3 | b) Valuation governance
UBS’s fair value measurement and model governance framework
includes numerous controls and other procedural safeguards that
are intended to maximize the quality of fair value measurements
reported in the financial statements. New products and valuation
techniques must be reviewed and approved by key stakeholders
from risk and finance control functions. Responsibility for the on-
going measurement of financial and non-financial instruments at
fair value resides with the business divisions, but is validated by
risk and finance control functions, which are independent of the
business divisions. In carrying out their valuation responsibilities,
the businesses are required to consider the availability and quality
of external market data and to provide justification and rationale
for their fair value estimates.
Independent price verification is performed by the finance
function to evaluate the business divisions’ pricing input assump-
tions and modeling approaches. By benchmarking the business
divisions’ fair value estimates with observable market prices and
other independent sources, the degree of valuation uncertainty
embedded in these measurements is assessed and managed as
required in the governance framework. Fair value measurement
models are assessed for their ability to value specific products in
the principal market of the product itself, as well as the principal
market for the main valuation input parameters to the model.
An independent model review group evaluates UBS’s valuation
models on a regular basis, or when established triggers occur, and
approves them for valuation of specific products. As a result of the
valuation controls employed, valuation adjustments may be made
to the business divisions’ estimates of fair value to align with inde-
pendent market data and the relevant accounting standard.
➔ Refer to Note 24d for more information ▲
Pillar 3 | c) Valuation techniques
Valuation techniques are used to value positions for which a mar-
ket price is not available from market sources. This includes cer-
tain less liquid debt and equity instruments, certain exchange-
traded derivatives and all derivatives transacted in the OTC
market. UBS uses widely recognized valuation techniques for de-
termining the fair value of financial and non-financial instruments
that are not actively traded and quoted. The most frequently ap-
plied valuation techniques include discounted value of expected
cash flows, relative value and option pricing methodologies.
Discounted value of expected cash flows is a valuation tech-
nique that measures fair value using estimated expected future
cash flows from assets or liabilities and then discounts these cash
flows using a discount rate or discount margin that reflects the
credit and / or funding spreads required by the market for instru-
ments with similar risk and liquidity profiles to produce a present
value. When using such valuation techniques, expected future
cash flows are estimated using an observed or implied market
price for the future cash flows or by using industry standard cash
flow projection models. The discount factors within the calcula-
tion are generated using industry standard yield curve modeling
techniques and models.
Relative value models measure fair value based on the market
prices of equivalent or comparable assets or liabilities, making ad-
justments for differences between the characteristics of the ob-
served instrument and the instrument being valued.
Option pricing models incorporate assumptions regarding the
behavior of future price movements of an underlying referenced
asset or assets to generate a probability-weighted future expected
payoff for the option. The resulting probability-weighted expected
payoff is then discounted using discount factors generated from
industry standard yield curve modeling techniques and models.
The option pricing model may be implemented using a closed-
form analytical formula or other mathematical techniques (e.g.,
binomial tree or Monte Carlo simulation).
Where available, valuation techniques use market-observable
assumptions and inputs. If such data is not available, inputs may
be derived by reference to similar assets in active markets, from
recent prices for comparable transactions or from other observ-
able market data. When measuring fair value, UBS selects the
non-market-observable inputs to be used in its valuation tech-
niques, based on a combination of historical experience, deriva-
tion of input levels based on similar products with observable
price levels and knowledge of current market conditions and valu-
ation approaches.
For more complex instruments and instruments not traded in
an active market, fair values may be estimated using a combina-
tion of observed transaction prices, consensus pricing services and
relevant quotes. Consideration is given to the nature of the quotes
(e.g., indicative or firm) and the relationship of recently evidenced
market activity to the prices provided by consensus pricing ser-
vices. UBS also uses internally developed models, which are typi-
cally based on valuation methods and techniques recognized as
standard within the industry.
Assumptions and inputs used in valuation techniques include
benchmark interest rate curves, credit and funding spreads used in
estimating discount rates, bond and equity prices, equity index
prices, foreign exchange rates, levels of market volatility and corre-
lation. Refer to Notes 24e and 24h for more information. The dis-
count curves used by the Group incorporate the funding and credit
characteristics of the instruments to which they are applied. ▲
470
Note 24 Fair value measurement (continued)
Pillar 3 | d) Valuation adjustments
The output of a valuation technique is always an estimate or ap-
proximation of a fair value that cannot be measured with com-
plete certainty. As a result, valuations are adjusted, where appro-
priate, to reflect close-out costs, credit exposure, model-driven
valuation uncertainty, funding costs and benefits, trading restric-
tions and other factors, when such factors would be considered
by market participants in estimating fair value. Valuation adjust-
ments are an important component of fair value for assets and
liabilities that are measured using valuation techniques. Such ad-
justments are applied to reflect uncertainties within the fair value
measurement process, to adjust for an identified model simplifica-
tion or to incorporate an aspect of fair value that requires an over-
all portfolio assessment rather than an evaluation based on an
individual instrument level characteristic.
The major classes of valuation adjustments are discussed in fur-
Day-1 reserves
For new transactions where the valuation technique used to mea-
sure fair value requires significant inputs that are not based on
observable market data, the financial instrument is initially recog-
nized at the transaction price. The transaction price may differ
from the fair value obtained using a valuation technique, and any
such difference is deferred and not recognized in the income
statement. These day-1 profit or loss reserves are reflected, where
appropriate, as valuation adjustments.
The table below provides the changes in deferred day-1
profit or loss reserves during the respective period. Amounts
deferred are released and gains or losses are recorded in Net
trading income when pricing of equivalent products or the
underlying parameters become observable or when the trans-
action is closed out.
ther detail below.
Deferred day-1 profit or loss
CHF million
Balance at the beginning of the year
Profit / (loss) deferred on new transactions
(Profit) / loss recognized in the income statement
Foreign currency translation
Balance at the end of the year
For the year ended
31.12.14
31.12.13
31.12.12
486
344
(384)
35
480
474
694
(653)
(29)
486
433
424
(367)
(16)
474
Credit valuation adjustments
In order to measure the fair value of OTC derivative instruments,
including funded derivative instruments which are classified as
Financial assets designated at fair value, credit valuation adjust-
ments (CVA) are necessary to reflect the credit risk of the coun-
terparty inherent in these instruments. This amount represents
the estimated fair value of protection required to hedge the
counterparty credit risk of such instruments. The CVA is deter-
mined for each counterparty, considering all exposures to that
counterparty, and is dependent on the expected future value of
exposures, default probabilities and recovery rates, applicable
collateral or netting arrangements, break clauses and other con-
tractual factors.
Funding valuation adjustments
Funding valuation adjustments (FVA) reflect the costs and benefits
of funding associated with uncollateralized and partially collater-
alized derivative receivables and payables and are calculated as
the valuation impact from moving the discounting of the uncol-
lateralized derivative cash flows from LIBOR to a funds transfer
price (FTP) curve using the existing CVA infrastructure and frame-
work. FVA are also applied to collateralized derivative assets in
cases where the collateral cannot be sold or repledged.
FVA were incorporated into the Group’s fair value measure-
ments in 2014, resulting in a net loss of CHF 267 million when the
change was adopted on 30 September 2014, of which CHF 124
million resulted from the life-to-date FVA loss attributable to both
derivative assets and liabilities with the remainder primarily re-
lated to the partial reversal of life-to-date debit valuation adjust-
ment (DVA) gains on derivative liabilities to remove the overlap
existing between FVA and DVA (DVA previously incorporated the
full UBS credit spread including a funding component which is
now captured in FVA).
Implementation of FVA had no impact on the fair value hierar-
chy classification of the associated derivatives given the FVA did
not have a significant effect on valuations.
➔ Refer to Note 1b for more information
Debit valuation adjustments
DVA are estimated to incorporate own credit in the valuation of
derivatives, effectively consistent with the CVA infrastructure and
framework. DVA is determined for each counterparty, considering
all exposures with that counterparty and taking into account col-
lateral netting agreements, expected future mark-to-market move-
ments and UBS’s credit default spreads. Upon the implementation
of FVA, DVA were reversed to the extent DVA overlapped with FVA.
471
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
Other valuation adjustments
Instruments that are measured as part of a portfolio of combined
long and short positions are valued at mid-market levels to ensure
consistent valuation of the long and short component risks. A bid-
offer valuation adjustment is then made to the overall net long or
short exposure to move the fair value to bid or offer as appropri-
ate, reflecting current levels of market liquidity. The bid-offer
spreads used in the calculation of this valuation adjustment are
obtained from market transactions and other relevant sources
and are updated periodically.
Uncertainties associated with the use of model-based valua-
tions are incorporated into the measurement of fair value through
the use of model reserves. These reserves reflect the amounts
that the Group estimates should be deducted from valuations
produced directly by models to incorporate uncertainties in the
relevant modeling assumptions, in the model and market inputs
used, or in the calibration of the model output to adjust for
known model deficiencies. In arriving at these estimates, the
Group considers a range of market practices, including how it
believes market participants would assess these uncertainties.
Model reserves are reassessed periodically in light of data from
market transactions, consensus pricing services and other rele-
vant sources.
In 2014, the Group enhanced its quantitative valuation adjust-
ments disclosures. In the table below, Other valuation adjust-
ments were added to align with market practices and increase
transparency.
Valuation adjustments on financial instruments
Life-to-date gain / (loss), CHF billion
Credit valuation adjustments 1
Funding valuation adjustments
Debit valuation adjustments
Other valuation adjustments
of which: bid-offer
of which: model uncertainty
1 Amounts do not include reserves against defaulted counterparties.
As of
31.12.14
31.12.13
(0.5)
(0.1)
0.0
(0.9)
(0.5)
(0.4)
(0.5)
0.3
(1.1)
(0.6)
(0.5)
Own credit adjustments on financial liabilities designated
at fair value
In addition to considering the valuation of the derivative risk com-
ponent, the valuation of fair value option liabilities also requires
consideration of the funded component and specifically the own
credit component of fair value. Own credit risk is reflected if this
component would be considered for valuation purposes by mar-
ket participants. Consequently, own credit risk is not reflected for
those contracts that are fully collateralized and for other contracts
for which it is established market practice not to include an own
credit component. The own credit component is estimated using
a funds transfer price (FTP) curve to derive a single, market-based
level of discounting for uncollateralized funded instruments. UBS
senior debt curve spreads are discounted in order to arrive at the
FTP curve, with the discount primarily reflecting the differences
between the spreads in the senior unsecured debt market for UBS
debt and the levels at which UBS medium-term notes are cur-
rently issued. The FTP curve is generally a Level 2 pricing input.
However, certain long-dated exposures that are beyond the ten-
ors that are actively traded are classified as Level 3.
The effects of own credit adjustments related to financial liabil-
ities designated at fair value (predominantly issued structured
products) as of 31 December 2014 and 2013, respectively, are
summarized in the table below.
Year-to-date amounts represent the change during the year,
and life-to-date amounts reflect the cumulative change since ini-
tial recognition. The change in own credit for the period consists
of changes in fair value that are attributable to the change in
UBS’s credit spreads as well as the effect of changes in fair values
attributable to factors other than credit spreads, such as redemp-
tions, effects from time decay and changes in interest and other
market rates. ▲
Own credit adjustments on financial liabilities designated at fair value
CHF million
Gain / (loss) for the year ended
Life-to-date gain / (loss)
472
As of or for the year ended
31.12.14
31.12.13
31.12.12
292
(302)
(283)
(577)
(2,202)
(292)
Note 24 Fair value measurement (continued)
e) Fair value measurements and classification within the fair value hierarchy
The classification in the fair value hierarchy of the Group’s finan-
cial and non-financial assets and liabilities measured at fair value
is summarized in the table below. The narrative that follows de-
scribes the significant valuation inputs and assumptions for each
class of assets and liabilities measured at fair value, the valuation
techniques, where applicable, used in measuring their fair value,
and the factors determining their classification within the fair
value hierarchy.
Determination of fair values from quoted market prices or valuation techniques 1
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.14
31.12.135
Assets measured at fair value on a recurring basis
Financial assets held for trading 2
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Loans
Investment fund units
Asset-backed securities
Equity instruments
Financial assets for unit-linked investment contracts
Positive replacement values
of which:
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Commodity contracts
Financial assets designated at fair value
of which:
Loans (including structured loans)
Structured reverse repurchase and securities
borrowing agreements
Other
Financial investments available-for-sale
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Investment fund units
Asset-backed securities
Equity instruments
Non-financial assets
Precious metals and other physical commodities
Assets measured at fair value on a non-recurring basis
Other assets 3
Total assets measured at fair value
101.7
8.8
0.6
0.0
6.7
0.0
68.8
16.8
1.0
0.0
0.0
0.7
0.0
0.0
0.1
0.0
0.0
0.1
32.7
30.3
2.2
0.0
0.0
0.2
5.8
27.2
4.7
11.0
2.2
6.4
1.5
0.8
0.6
251.6
123.4
9.8
97.0
17.7
3.6
1.3
0.8
0.1
0.5
23.9
2.8
16.9
0.1
4.0
0.1
0.0
3.5
0.0
1.4
1.1
0.3
0.6
0.1
0.1
4.4
0.2
1.7
0.6
1.9
0.0
3.5
1.0
2.4
0.1
0.6
0.0
0.0
0.2
0.0
0.4
0.0
132.4
79.9
13.6
12.9
3.2
13.4
2.1
69.8
17.4
257.0
123.7
11.5
98.4
19.5
3.6
5.0
1.7
2.5
0.7
57.2
33.1
19.1
0.3
4.0
0.7
5.8
7.9
1.1
0.0
4.8
0.0
50.7
15.4
0.7
0.0
0.0
0.5
0.0 4
0.0
0.1
0.0
0.0
0.1
39.7
38.0
1.6
0.0
0.0
0.1
8.6
30.1
5.1
13.3
2.0
6.0
2.3
1.0
0.4
247.9
130.4
20.1
74.6
19.3 4
3.5
2.9
1.4
1.1
0.5
19.0
1.2
13.6
0.0
4.0
0.1
0.0
4.3
0.0
1.7
1.0
0.3
1.0
0.2
0.1
5.5
0.3
3.0
0.9
1.2
0.0
4.4
1.1
3.1
0.2
0.8
0.0
0.1
0.2
0.0
0.4
0.0
114.2
13.1
16.0
3.0
11.1
3.3
51.9
15.8
254.1
130.7
23.1
76.0
20.6
3.5
7.4
2.5
4.2
0.7
59.5
39.2
15.3
0.3
4.0
0.6
8.6
0.0
141.4
0.1
304.0
0.2
12.2
0.2
457.5
0.0
129.1
0.1
299.9
0.1
15.0
0.1
444.0
473
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques 1 (continued)
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.14
31.12.13 5
Liabilities measured at fair value on a recurring basis
Trading portfolio liabilities
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Investment fund units
Asset-backed securities
Equity instruments
Negative replacement values
of which:
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Commodity contracts
Financial liabilities designated at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt instruments
Structured repurchase agreements
Loan commitments and guarantees
Other liabilities – amounts due under unit-linked
investment contracts
Total liabilities measured at fair value
23.9
7.0
0.1
1.1
0.0
15.7
1.1
0.0
0.0
0.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.9
1.2
2.4
0.1
0.0
0.1
248.1
117.3
10.0
96.6
20.9
3.2
63.4
2.3
56.6
4.1
0.3
0.1
0.0
25.0
17.6
333.0
0.1
0.0
0.1
0.0
0.0
0.0
5.0
0.6
1.7
0.3
2.4
0.0
11.9
2.2
7.3
1.5
0.9
0.0
0.0
17.0
28.0
22.5
8.2
2.6
1.2
0.0
15.9
254.1
117.9
11.7
97.6
23.3
3.2
75.3
4.5
63.9
5.7
1.2
0.1
6.9
0.3
0.4
0.0
15.0
0.8
0.0
0.0
0.5
0.0 4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.9
0.5
3.2
0.1
0.0
0.2
242.9
118.0
19.5
79.3
22.9 4
3.2
57.8
2.4
48.4
6.5
0.4
0.0
17.6
375.0
0.0
23.3
16.2
320.7
0.2
0.0
0.2
0.0
0.0
0.0
4.4
0.4
2.0
0.5
1.5
0.0
12.1
1.2
7.9
1.8
1.2
0.0
0.0
16.8
26.6
7.3
3.6
0.5
0.0
15.1
248.1
118.4
21.5
80.3
24.4
3.2
69.9
3.7
56.3
8.3
1.6
0.0
16.2
360.7
1 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are excluded from this table. As of 31 December 2014, net bifurcated embedded derivative liabilities held at
fair value, totaling CHF 0.0 billion (of which CHF 0.3 billion were net Level 2 assets and CHF 0.3 billion net Level 2 liabilities) were recognized on the balance sheet within Debt issued. As of 31 December 2013, net
bifurcated embedded derivative liabilities held at fair value, totaling CHF 0.2 billion (of which CHF 0.2 billion were net Level 2 assets and CHF 0.4 billion net Level 2 liabilities) were recognized on the balance sheet within
Debt issued. 2 Financial assets held for trading do not include precious metals and commodities. 3 Other assets primarily consist of assets held for sale, which are measured at the lower of their net carrying amount
or fair value less costs to sell. 4 In 2014, the Group has reclassified listed equity option contracts, with all now classified in Level 2. The prior period fair value hierarchy was restated for this change, reducing Level 1
Equity / index contracts in both PRV and NRV by approximately CHF 2 billion, with corresponding increases to Level 2. 5 In 2014, certain figures for 31 December 2013 were restated upon the adoption of the amend-
ments to IAS 32. Both PRV and NRV for Level 2 Interest rate contracts, Credit derivative contracts and Equity / index contracts were increased by approximately CHF 1 billion, CHF 5 billion and CHF 3 billion, respectively.
Refer to Note 1b for more information on the adoption of the amendments to IAS 32.
474
Note 24 Fair value measurement (continued)
Financial assets and liabilities held for trading, financial
assets designated at fair value and financial investments
available-for-sale
Government bills and bonds
Government bills and bonds include fixed-rate, floating-rate and
inflation-linked bills and bonds issued by sovereign governments,
as well as interest and principal strips based on these bonds. Such
instruments are generally traded in active markets and prices can
be obtained directly from these markets, resulting in classification
as Level 1, while the majority of the remaining positions are clas-
sified as Level 2. Instruments that cannot be priced directly using
active market data are valued using discounted cash flow valua-
tion techniques that incorporate market data for similar govern-
ment instruments converted into yield curves. These yield curves
are used to project future index levels, and to discount expected
future cash flows. The main inputs to valuation techniques for
these instruments are bond prices and inputs to estimate the fu-
ture index levels for floating or inflation index-linked instruments.
Instruments classified as Level 3 are limited and are generally clas-
sified as such due to the requirement to extrapolate yield curve
inputs outside the range of active market trading.
Corporate and municipal bonds
Corporate bonds include senior, junior and subordinated debt is-
sued by corporate entities. Municipal bonds are issued by state
and local governments. While most instruments are standard
fixed or floating-rate securities, some may have more complex
coupon or embedded option features. Corporate and municipal
bonds are generally valued using prices obtained directly from the
market. In cases where no directly comparable price is available,
instruments may be valued using yields derived from other securi-
ties by the same issuer or benchmarked against similar securities,
adjusted for seniority, maturity and liquidity. Instruments that can-
not be priced directly using active market data are valued using
discounted cash flow valuation techniques incorporating the
credit spread of the issuer, which may be derived from other issu-
ances or CDS data for the issuer, estimated with reference to
other equivalent issuer price observations or from credit modeling
techniques. Corporate bonds are typically classified as Level 2 be-
cause, although market data is readily available, there is often in-
sufficient third-party trading transaction data to justify an active
market and corresponding Level 1 classification. Municipal bonds
are generally classified as Level 1 or Level 2 depending on the
depth of trading activity behind price sources. Level 3 instruments
have no suitable price available for the security held or by refer-
ence to other securities issued by the same issuer. Therefore, these
instruments are measured based on price levels for similar issuers
adjusted for relative tenor and issuer quality.
Convertible bonds are generally valued using prices obtained
directly from market sources. In cases where no directly compa-
rable price is available, issuances may be priced using a convert-
ible bond model, which values the embedded equity option and
debt components and discounts these amounts using a curve that
incorporates the credit spread of the issuer. Although market data
is readily available, convertible bonds are typically classified as
Level 2 because there is insufficient third-party trading transaction
data to justify a Level 1 classification.
Pillar 3 | Traded loans and loans designated at fair value
Traded loans and loans designated at fair value are valued di-
rectly using market prices that reflect recent transactions or
quoted dealer prices where available. For illiquid loans where no
market price data is available, alternative valuation techniques
are used, which include relative value benchmarking using pric-
ing derived from debt instruments in comparable entities or dif-
ferent products in the same entity. The corporate lending port-
folio is valued using either directly observed market prices
typically from consensus providers or by using a credit default
swap valuation technique, which requires inputs for credit
spreads, credit recovery rates and interest rates. The market for
these instruments is not actively traded and even though price
data is available it may not be directly observable, and therefore
corporate loans typically do not meet Level 1 classification. In-
struments with suitably deep and liquid price data available will
be classified as Level 2, while any positions requiring the use of
valuation techniques or for which the price sources have insuf-
ficient trading depth are classified as Level 3. Recently originated
commercial real estate loans which are classified as Level 3 are
measured using a securitization approach based on rating
agency guidelines. Future profit and loss from the securitization
is not recognized, but overall spread moves are captured in the
loan valuation.
Included within loans are various contingent lending trans-
actions for which valuations are dependent on actuarial mortality
levels and actuarial life insurance policy lapse rates. Mortality and
lapse rate assumptions are based on external actuarial estima-
tions for large homogeneous pools, and contingencies are de-
rived from a range relative to the actuarially expected amount. In
addition, the pricing technique uses volatility of mortality as an
input. ▲
Investment fund units
Investment fund units are predominantly exchange-traded, with
readily available quoted prices in liquid markets. Where market
prices are not available, fair value may be measured using net as-
set values (NAV), taking into account any restrictions imposed
upon redemption. Listed units are classified as Level 1, provided
there is sufficient trading to justify active market classification,
while other positions are classified as Level 2. Positions where
NAV is not available or which are not redeemable at the measure-
ment date or in the near future are classified as Level 3.
475
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
Asset-backed securities
Pillar 3 | Residential mortgage-backed securities (RMBS), commer-
cial mortgage-backed securities (CMBS), other asset-backed
securities (ABS) and collateralized debt obligations (CDO)
RMBS, CMBS, ABS and CDO are instruments generally issued
through the process of securitization of underlying interest-bear-
ing assets. The underlying collateral for RMBS is residential mort-
gages, for CMBS, commercial mortgages, for ABS, other assets
such as credit card, car or student loans and leases and for CDO,
other securitized positions of RMBS, CMBS or ABS. The market
for these securities is not active, and therefore a variety of valua-
tion techniques are used to measure fair value. For more liquid
securities, trade data or quoted prices may be obtained periodi-
cally for the instrument held, and the valuation process will use
this trade and price data, updated for movements in market levels
between the time of trading and the time of valuation. Less liquid
instruments are measured using discounted expected cash flows
incorporating price data for instruments or indices with similar
risk profiles. Expected cash flow estimation involves the modeling
of the expected collateral cash flows using input assumptions de-
rived from proprietary models, fundamental analysis and / or mar-
ket research based on management’s quantitative and qualitative
assessment of current and future economic conditions. The ex-
pected collateral cash flows estimated are then converted into the
securities’ projected performance under such conditions based on
the credit enhancement and subordination terms of the securiti-
zation. Expected cash flow schedules are discounted using a rate
or discount margin that reflects the discount levels required by the
market for instruments with similar risk and liquidity profiles. In-
puts to discounted expected cash flow techniques include asset
prepayment rates, discount margin or discount yields, asset de-
fault rates and asset loss on default severity, which may in turn be
estimated using more fundamental loan and economic drivers
such as, but not limited to, loan-to-value data, house price ap-
preciation, foreclosure costs, rental income levels, void periods
and employment rates. RMBS, CMBS and ABS are generally clas-
sified as Level 2. However, if significant inputs are unobservable,
or if market or fundamental data is not available for instruments
or collateral with a sufficiently similar risk profile to the positions
held, they are classified as Level 3.
Equity instruments
The majority of equity securities are actively traded on public stock
exchanges where quoted prices are readily and regularly available,
resulting in their classification as Level 1. Units held in hedge
funds are also classified as equity instruments. Fair value for these
units is measured based on their published NAV, taking into ac-
count any restrictions imposed upon the redemption. These units
are classified as Level 2, except for positions where published NAV
is not available or which are not redeemable at the measurement
date or in the near future, which are classified as Level 3.
476
Unlisted equity holdings, including private equity positions, are
initially marked at their transaction price and are periodically re-
valued to the extent reliable evidence of price movements be-
comes available or the position is deemed to be impaired. ▲
Financial assets underlying unit-linked investments
Unit-linked investment contracts allow investors to invest in a
pool of assets through issued investment units. The unit holders
are exposed to all risks and rewards associated with the reference
asset pool. Assets held under unit-linked investment contracts are
presented as Trading portfolio assets. The majority of assets are
listed on exchanges and are classified as Level 1 if actively traded,
or Level 2 if trading is not active. However, instruments for which
prices are not readily available are classified as Level 3.
Structured repurchase agreements and structured reverse
repurchase agreements
Structured repurchase agreements and structured reverse repur-
chase agreements designated at fair value are measured using
discounted expected cash flow techniques. The discount rate ap-
plied is based on funding curves that are specific to the collateral
eligibility terms for the contract in question. Collateral terms for
these positions are not standard and therefore funding spread
levels used for valuation purposes cannot be observed in the mar-
ket. As a result, these positions are mostly classified as Level 3.
Replacement values
Collateralized and uncollateralized instruments
The curves used for discounting expected cash flows in the valua-
tion of collateralized derivatives reflect the funding terms associ-
ated with the relevant collateral arrangement for the instrument
being valued. These collateral arrangements differ across counter-
parties with respect to the eligible currency and interest terms of
the collateral. The majority of collateralized derivatives are mea-
sured using a discount curve that is based on funding rates de-
rived from overnight interest in the cheapest eligible currency for
the respective counterparty collateral agreement.
Uncollateralized and partially collateralized derivatives are dis-
counted using the LIBOR (or equivalent) curve for the currency of
the instrument. As described in Note 24d, the fair value of uncol-
lateralized and partially collateralized derivatives is then adjusted
by CVA, DVA and FVA as applicable, to reflect an estimation of
the impact of counterparty credit risk, UBS’s own credit risk and
funding costs and benefits.
Interest rate contracts
Interest rate swap contracts include interest rate swaps, basis
swaps, cross-currency swaps, inflation swaps and interest rate for-
wards, often referred to as forward-rate agreements (FRA). These
products are valued by estimating future interest cash flows and
discounting those cash flows using a rate that reflects the appro-
Note 24 Fair value measurement (continued)
priate funding rate for the position being measured. The yield
curves used to estimate future index levels and discount rates are
generated using market standard yield curve models using inter-
est rates associated with current market activity. The key inputs to
the models are interest rate swap rates, FRA rates, short-term in-
terest rate futures prices, basis swap spreads and inflation swap
rates. In most cases, the standard market contracts that form the
inputs for yield curve models are traded in active and observable
markets, resulting in the majority of these financial instruments
being classified as Level 2.
Interest rate option contracts include caps and floors, swap-
tions, swaps with complex payoff profiles and other more com-
plex interest rate options. These contracts are valued using various
market standard option models, using inputs that include interest
rate yield curves, inflation curves, volatilities and correlations. The
volatility and correlation inputs within the models are implied
from market data based on market observed prices for standard
option instruments trading within the market. Option models
used to value more exotic products have a number of model pa-
rameter inputs that require calibration to enable the exotic model
to price standard option instruments to the price levels observed
in the market. Although these inputs cannot be directly observed,
they are generally treated as Level 2, as the calibration process
enables the model output to be validated to active market levels.
Models calibrated in this way are then used to revalue the portfo-
lio of both standard options as well as more exotic products. In
most cases, there are active and observable markets for the stan-
dard market instruments that form the inputs for yield curve mod-
els as well as the financial instruments from which volatility and
correlation inputs are derived, resulting in the majority of these
products being classified as Level 2. Within interest rate option
contracts, exotic options for which appropriate volatility or corre-
lation input levels cannot be implied from observable market data
are classified as Level 3. These options are valued using volatility
and correlation levels derived from non-market sources.
Interest rate swap and option contracts are classified as Level 3
when the maturity of the contract exceeds the term for which
standard market quotes are observable for a significant input pa-
rameter. Such positions are valued by extrapolation from the last
observable point using standard assumptions or by reference to
another observable comparable input parameter to represent a
suitable proxy for that portion of the term.
Balance guaranteed swaps (BGS) are interest rate or currency
swaps that have a notional schedule based on a securitization
vehicle, requiring the valuation to incorporate an adjustment for
the unknown future variability of the notional schedule. Inputs to
value BGS are those used to value the standard market risk on the
swap and those used to estimate the notional schedule of the
underlying securitization pool (i.e., prepayment, default and inter-
est rates). BGS are classified as Level 3, as the correlation between
unscheduled notional changes and the underlying market risk of
the BGS does not have an active market and cannot be observed.
Credit derivative contracts
Credit derivative contracts based on a single credit name include
credit default swaps (CDS) based on corporate and sovereign
single names, CDS on loans and certain total return swaps (TRS).
These contracts are valued by estimating future default probabili-
ties using industry standard models based on market credit
spreads, upfront pricing points and implied recovery rates. These
default and recovery assumptions are used to generate future ex-
pected cash flows that are then discounted using market standard
discounted cash flow models and a discount rate that reflects the
appropriate funding rate for that portion of the portfolio. TRS and
certain single-name CDS contracts for which a derivative-based
credit spread is not directly available are valued using a credit
spread derived from the price of the cash bond that is referenced
in the credit derivative, adjusted for any funding differences be-
tween the cash and synthetic product. Loan CDS for which a
credit spread cannot be observed directly may be valued, where
possible, using the corporate debt curve for the entity, adjusted
for differences between loan and debt default definitions and re-
covery rate assumptions. Inputs to the valuation models used to
value single-name and loan CDS include single-name credit
spreads and upfront pricing points, recovery rates and funding
curves. In addition, corporate bond prices are used as inputs to
the valuation model for TRS and certain single-name or loan CDS
as described. Many single-name credit default swaps are classified
as Level 2 because the credit spreads and recovery rates used to
value these contracts are actively traded and observable market
data is available. Where the underlying reference name is not ac-
tively traded, these contracts are classified as Level 3.
Credit derivative contracts based on a portfolio of credit names
include credit default swaps on a credit index, credit default swaps
based on a bespoke portfolio or first to default swaps (FTD). The
valuation of these contracts is similar to that described above for
single-name CDS and includes an estimation of future default
probabilities using industry standard models based on market
credit spreads, upfront pricing points and implied recovery rates.
These default and recovery assumptions are used to generate fu-
ture expected cash flows that are then discounted using market
standard discounted cash flow models based on an estimation of
the funding rate for that portion of the portfolio. Tranche prod-
ucts and FTD are valued using industry standard models that, in
addition to default and recovery assumptions as above, incorpo-
rate implied correlations to be applied to the credits within the
portfolio in order to apportion the expected credit loss at a port-
folio level across the different tranches or names within the over-
all structure. These correlation assumptions are derived from
prices of actively traded index tranches or other FTD baskets. In-
puts to the valuation models used for all portfolio credit default
swaps include single-name or index credit spreads and upfront
pricing points, recovery rates and funding curves. In addition,
models used for tranche and FTD products have implied credit
correlations as inputs. Credit derivative contracts based on a port-
477
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
folio of credit names are classified as Level 2 when credit spreads
and recovery rates are determined from actively traded observable
market data, and when the correlation data used to value be-
spoke and index tranches is based on actively traded index tranche
instruments. This correlation data undergoes a mapping process
that takes into account both the relative tranche attachment / de-
tachment points in the overall capital structure of the portfolio
and portfolio composition. Where the mapping process requires
extrapolation beyond the range of available and active market
data, the position is classified as Level 3. This relates to a small
number of index and all bespoke tranche contracts. FTD are clas-
sified as Level 3, as the correlations between specific names in the
FTD portfolio are not actively traded. Also classified as Level 3 are
several older credit index positions, referred to as off-the-run indi-
ces, due to the lack of any active market for the index credit
spread.
Credit derivative contracts on securitized products have an un-
derlying reference asset that is a securitized product (RMBS,
CMBS, ABS or CDO) and include credit default swaps and certain
TRS. These credit default swaps (typically referred to as pay-as-
you-go (PAYG) CDS) and TRS are valued using a similar valuation
technique to the underlying security (by reference to equivalent
securities trading in the market, or through cash flow estimation
and discounted cash flow techniques as described in the Asset-
backed securities section above), with an adjustment made to re-
flect the funding differences between cash and synthetic form.
Inputs to the PAYG CDS and TRS are those used to value the un-
derlying security (prepayment rates, default rates, loss severity,
discount margin / rate and other inputs) and those used to capture
the funding basis differential between cash and synthetic form.
The classification of PAYG CDS and these TRS follow the charac-
teristics of the underlying security and are therefore distributed
across Level 2 and Level 3.
Foreign exchange (FX) contracts
Open spot FX contracts are valued using the FX spot rate observed
in the market. Forward FX contracts are valued using the FX spot
rate adjusted for forward pricing points observed from standard
market-based sources. As the markets for both FX spot and FX
forward pricing points are both actively traded and observable, FX
contracts are generally classified as Level 2.
OTC FX option contracts include standard call and put options,
options with multiple exercise dates, path-dependent options, op-
tions with averaging features, options with discontinuous pay-off
characteristics and options on a number of underlying FX rates.
OTC FX option contracts are valued using market standard option
valuation models. The models used for shorter-dated options (i.e.,
maturities of five years or less) tend to be different than those
used for longer-dated options because the models needed for
longer-dated OTC FX contracts require additional consideration of
interest rate and FX rate interdependency. Inputs to the option
478
valuation models include spot FX rates, FX forward points, FX
volatilities, interest rate yield curves, interest rate volatilities and
correlations. The inputs for volatility and correlation are implied
through the calibration of observed prices for standard option
contracts trading within the market.
As inputs are derived mostly from standard market contracts
traded in active and observable markets, a significant proportion
of OTC FX option contracts are classified as Level 2. OTC FX op-
tion contracts classified as Level 3 include long-dated FX exotic
option contracts for which there is no active market from which
to derive volatility or correlation inputs. The inputs used to value
these OTC FX option contracts are calculated using consensus
pricing services without an underlying principal market, historical
asset prices or by extrapolation.
Cross-currency balance guaranteed swaps are classified as for-
eign exchange contracts. Details of the fair value classification can
be found under the interest rate contracts section above.
Equity / index contracts
Equity / index contracts include equity forward contracts and eq-
uity option contracts. Equity forward contracts have a single stock
or index underlying and are valued using market standard models.
The key inputs to the models are stock prices, estimated dividend
rates and equity funding rates (which are implied from prices of
forward contracts observed in the market). Estimated cash flows
are then discounted using market standard discounted cash flow
models using a rate that reflects the appropriate funding rate for
that portion of the portfolio. As inputs are derived mostly from
standard market contracts traded in active and observable mar-
kets, a significant proportion of equity forward contracts are clas-
sified as Level 2. Positions classified as Level 3 have no market
data available for the instrument maturity and are valued by some
form of extrapolation of available data, use of historical dividend
data, or use of data for a related equity.
Equity option contracts include market standard single or
basket stock or index call and put options as well as equity op-
tion contracts with more complex features including option con-
tracts with multiple or continuous exercise dates, option con-
tracts for which the payoff is based on the relative or average
performance of components of a basket, option contracts with
discontinuous payoff profiles, path-dependent options and op-
tion contracts with a payoff calculated directly upon equity fea-
tures other than price (i.e., dividend rates, volatility or correla-
tion). Equity option contracts are valued using market standard
models that estimate the equity forward level as described above
for equity forward contracts and incorporate inputs for stock
volatility and for correlation between stocks within a basket. The
probability-weighted expected option payoff generated is then
discounted using market standard discounted cash flow models
using a rate that reflects the appropriate funding rate for that
portion of the portfolio. Positions for which inputs are derived
Note 24 Fair value measurement (continued)
from standard market contracts traded in active and observable
markets are classified as Level 2. Level 3 positions are those for
which volatility, forward or correlation inputs are not observable
and are therefore valued using extrapolation of available data,
historical dividend, correlation or volatility data or the equivalent
data for a related equity.
Commodity derivative contracts
Commodity derivative contracts include forward, swap and op-
tion contracts on individual commodities and on commodity indi-
ces. Commodity forward and swap contracts are measured using
market standard models that use market forward levels on stan-
dard instruments. Commodity option contracts are measured us-
ing market standard option models that estimate the commodity
forward level as described above for commodity forward and
swap contracts, incorporating inputs for the volatility of the un-
derlying index or commodity. The option model produces a prob-
ability-weighted expected option payoff that is then discounted
using market standard discounted cash flow models using a rate
that reflects the appropriate funding rate for that portion of the
portfolio. For commodity options on baskets of commodities or
bespoke commodity indices, the valuation technique also incor-
porates inputs for the correlation between different commodities
or commodity indices. Individual commodity contracts are typi-
cally classified as Level 2 because active forward and volatility
market data is available.
Financial liabilities designated at fair value
Structured and OTC debt instruments issued
Structured debt instruments issued are comprised of medium-
term notes (MTN), which are held at fair value under the fair value
option. These MTN are tailored specifically to the holder’s risk or
investment appetite with structured coupons or payoffs. The risk
management and the valuation approaches for these MTN are
closely aligned to the equivalent derivatives business and the un-
derlying risk, and the valuation techniques used for this compo-
nent are the same as the relevant valuation techniques described
above. For example, equity-linked notes should be referenced to
equity / index contracts in the replacement value section and
credit-linked notes should be referenced to credit derivative con-
tacts.
Other liabilities – amounts due under unit-linked contracts
Unit-linked investment contracts allow investors to invest in a pool
of assets through issued investment units. The unit holders receive
all rewards and bear all risks associated with the reference asset
pool. The financial liability represents the amounts due to unit
holders and is equal to the fair value of the reference asset pool.
The fair values of investment contract liabilities are determined by
reference to the fair value of the corresponding assets. The liabili-
ties themselves are not actively traded, but are mainly referenced
to instruments that are and are therefore classified as Level 2.
f) Transfers between Level 1 and Level 2 in the fair value hierarchy
The amounts disclosed reflect transfers between Level 1 and
Level 2 for instruments which were held for the entire reporting
period.
Assets totaling approximately CHF 0.6 billion, which were
mainly comprised of financial investments available-for-sale, were
transferred from Level 2 to Level 1 during 2014, generally due to
increased levels of trading activity observed within the market.
Transfers of financial liabilities from Level 2 to Level 1 during 2014
were not significant.
Assets totaling approximately CHF 0.4 billion, which were
mainly comprised of financial investments available-for-sale and
financial assets held for trading, and liabilities totaling approxi-
mately CHF 0.2 billion were transferred from Level 1 to Level 2
during 2014, generally due to diminished levels of trading activity
observed within the market.
479
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
g) Movements of Level 3 instruments
Significant changes in Level 3 instruments
The table on the following pages presents additional information
about Level 3 assets and liabilities measured at fair value on a re-
curring basis. Level 3 assets and liabilities may be hedged with
instruments classified as Level 1 or Level 2 in the fair value hierar-
chy and, as a result, realized and unrealized gains and losses in-
cluded in the table may not include the effect of related hedging
activity. Further, the realized and unrealized gains and losses pre-
sented within the table are not limited solely to those arising from
Level 3 inputs, as valuations are generally derived from both ob-
servable and unobservable parameters.
Assets and liabilities transferred into or out of Level 3 are pre-
sented as if those assets or liabilities had been transferred at the
beginning of the year.
As of 31 December 2014, financial instruments measured with
valuation techniques using significant non-market-observable in-
puts (Level 3) were mainly comprised of:
– structured reverse repurchase and securities borrowing agree-
ments;
– credit derivative contracts;
– equity / index contracts;
– non-structured fixed-rate bonds and
– structured debt instruments issued (equity- and credit-linked).
Financial assets held for trading
Financial assets held for trading decreased to CHF 3.5 billion from
CHF 4.3 billion during the year. Issuances of CHF 5.2 billion and
purchases of CHF 1.4 billion, mainly comprised of loans and cor-
porate bonds, were more than offset by sales of CHF 6.5 billion,
primarily comprised of loans and corporate bonds, and net losses
included in comprehensive income totaling CHF 1.6 billion. Trans-
fers into Level 3 during the year amounted to CHF 1.0 billion and
were mainly comprised of mortgage-backed securities and cor-
porate bonds due to decreased observability of the respective
credit spread inputs. Transfers out of Level 3 amounted to CHF 0.5
billion and were primarily comprised of asset-backed securities
and corporate bonds, reflecting increased observability of the
respective credit spread inputs.
Financial assets designated at fair value
Financial assets designated at fair value decreased to CHF 3.5 bil-
lion from CHF 4.4 billion during the year, mainly reflecting net
losses of CHF 0.8 billion included in comprehensive income and
transfers out of Level 3 totaling CHF 0.3 billion. Issuances amount-
ing to CHF 1.3 billion were mostly offset by settlements totaling
CHF 1.2 billion.
Significant movements in Level 3 instruments during the year
ended 31 December 2014 were as described below.
Financial investments available-for-sale
Financial investments available-for-sale decreased to CHF 0.6 bil-
lion from CHF 0.8 billion during the year, mainly reflecting sales of
480
Note 24 Fair value measurement (continued)
CHF 0.2 billion, which were mostly offset by purchases totaling
CHF 0.1 billion.
Positive replacement values
Positive replacement values decreased to CHF 4.4 billion from
CHF 5.5 billion during the year. Settlements of CHF 5.1 billion
were partly offset by issuances totaling CHF 2.6 billion and net
gains included in comprehensive income totaling CHF 1.1 billion,
all of which were primarily related to credit derivative contracts
and equity / index contracts. Transfers into Level 3 amounted to
CHF 1.1 billion and were mainly comprised of credit derivative
contracts and interest rate contracts, primarily resulting from
changes in the correlation between the portfolios held and the
representative market portfolio used to independently verify mar-
ket data. Transfers out of Level 3 amounted to CHF 0.5 billion and
were mainly comprised of credit derivative contracts and eq-
uity / index contracts, primarily resulting from both changes in the
availability of the respective observable inputs for credit spreads,
as well as changes in the correlation between the portfolios held
and the representative market portfolio used to independently
verify market data.
Negative replacement values
Negative replacement values increased to CHF 5.0 billion from
CHF 4.4 billion during the year. Settlements and issuances
amounted to CHF 3.7 billion and CHF 2.5 billion, respectively,
and were primarily comprised of credit derivative contracts and
equity / index contracts. Transfers into and out of Level 3
amounted to CHF 1.4 billion and CHF 0.5 billion, respectively,
and were also mainly comprised of credit derivative contracts and
equity / index contracts, resulting from both changes in the avail-
ability of the respective observable inputs for credit spreads, as
well as changes in the correlation between the portfolios held
and the representative market portfolio used to independently
verify market data.
Financial liabilities designated at fair value
Financial liabilities designated at fair value decreased to CHF 11.9
billion from CHF 12.1 billion during the year. Issuances of CHF 7.4
billion, primarily comprised of equity-linked structured debt in-
struments issued, non-structured fixed-rate bonds and structured
over-the-counter debt instruments, as well as net losses of CHF
0.5 billion included in comprehensive income, were mostly offset
by settlements of CHF 7.4 billion, mainly comprised of equity-
linked structured debt instruments issued, structured over-the-
counter debt instruments and non-structured fixed-rate bonds.
Transfers into and out of Level 3 amounted to CHF 2.0 billion and
CHF 3.2 billion, respectively. Transfers into Level 3 were primarily
comprised of equity and credit-linked structured debt instruments
issued and non-structured fixed-rate bonds and mainly resulted
from a reduction in observable equity volatility inputs and respec-
tive credit spreads which affected the embedded options in these
structures. Transfers out of Level 3 were mainly comprised of eq-
uity- and rates-linked structured debt instruments issued and non-
structured fixed-rate bonds and mainly resulted from changes in
the availability of observable credit spread and equity volatility
inputs and changes in rates correlation used to determine the fair
value of the embedded options in these structures.
481
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
CHF billion
Financial assets held
for trading 1
of which:
Corporate bonds and municipal
bonds, including bonds issued
by financial institutions
Loans
Asset-backed securities
Other
Financial assets designated
at fair value
of which:
Loans (including structured loans)
Structured reverse repurchase and
securities borrowing agreements
Other
Financial investments
available-for-sale
Positive replacement values
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
Financial liabilities designated
at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt
instruments
Structured repurchase agreements
1.4
3.3
0.2
0.7
8.1
3.6
1.2
2.9
0.4
(0.6)
(0.6)
0.8
0.0
2.1
0.0
0.0
0.0
(0.8)
(0.5)
(0.8)
(0.2)
0.4
(0.2)
(0.6)
0.0
0.4
(0.3)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.3
1.5
1.3
0.4
(0.8)
(0.1)
0.5
(0.1)
(0.3)
(0.1)
0.4
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.2
1.3
0.0
(0.8)
(2.4)
(0.1)
0.1
(0.2)
0.0
0.0
0.0
(0.1)
2.2
(4.7)
0.0
0.0
0.0
0.0
0.0
0.0
(0.1)
0.0
1.9
0.0
0.0
0.3
(3.8)
(0.4)
(0.1)
(0.4)
0.1
0.2
0.0
0.1
3.8
2.4
0.6
0.4
0.4
(0.2)
0.0
0.0
0.0
(0.1)
0.0
(0.1)
0.0
(2.7)
(0.3)
(0.2)
(0.1)
(2.3)
(0.1)
(0.1)
(0.2)
0.0
0.0
0.0
0.0
0.0
1.4
(4.6)
3.0
(1.0)
(0.4)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.4
0.0
0.7
0.3
(3.3)
(0.5)
(0.7)
(0.1)
2.7
0.0
0.1
0.2
(0.3)
0.0
(0.5)
(0.2)
0.0
(0.3)
0.0
(0.1)
Negative replacement values
6.5
(0.5)
(0.1)
0.0
1 Includes assets pledged as collateral which may be sold or repledged by counterparties. 2 Total Level 3 assets as of 31 December 2014 were CHF 12.2 billion (31 December 2013: CHF 15.0 billion). Total Level
3 liabilities as of 31 December 2014 were CHF 17.0 billion (31 December 2013: CHF 16.8 billion).
482
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Other
com-
prehen-
sive
income
Balance
as of
31 Decem-
ber 2012
Net
trading
income
Pur-
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
fers
out of
Level 3
Foreign
currency
trans-
lation
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Other
com-
prehen-
sive
income
Balance
as of
31 Decem-
ber 2013
Net
trading
income
Pur-
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
fers
out of
Level 3
Foreign
currency
trans-
lation
Balance
as of
31 Decem-
ber 2014 2
5.7
(2.4)
(1.3)
0.0
0.0
0.0
2.1
(6.8)
5.0
0.0
2.2
(1.2)
(0.2)
4.3
(1.6)
(0.9)
0.0
0.0
0.0
1.4
(6.5)
5.2
0.0
1.0
(0.5)
0.1
3.5
1.6
2.0
1.5
0.6
0.0
(2.1)
(0.1)
(0.2)
0.0
(1.2)
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.7
0.2
0.3
(0.8)
(4.9)
(0.7)
(0.4)
0.0
5.0
0.0
0.0
0.0
0.0
0.0
0.0
0.3
0.6
0.6
0.6
(0.2)
(0.2)
(0.5)
(0.2)
0.0
0.0
(0.2)
0.0
4.9
0.2
1.5
0.0
0.0
0.0
0.0
0.0
2.6
(3.3)
0.2
(0.2)
(0.1)
4.4
(0.8)
(0.3)
0.0
1.3
(1.2)
0.0
(0.3)
0.2
1.7
1.0
1.0
0.6
1.1
3.1
0.2
0.8
5.5
3.0
0.9
1.2
0.3
4.4
2.0
0.5
1.5
0.5
12.1
1.2
7.9
1.8
1.2
(0.1)
(1.4)
0.0
(0.1)
(0.3)
(0.5)
0.0
0.0
1.1
0.3
0.1
0.6
0.0
0.7
0.1
0.0
0.4
0.2
0.5
0.3
0.9
(0.4)
(0.3)
(0.1)
(0.8)
0.0
0.0
(0.2)
0.0
0.0
0.0
0.0
(0.8)
0.1
0.5
0.1
(0.6)
(1.2)
0.0
0.4
0.3
1.3
0.2
0.4
(0.1)
0.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.2
0.1
0.2
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.2)
(1.2)
(4.1)
(0.7)
(0.5)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.2
0.0
0.0
0.6
0.7
0.0
0.0
2.6
1.1
0.1
1.3
0.2
2.5
1.0
0.0
1.5
0.0
1.9
3.7
1.4
0.5
0.0
0.0
0.0
0.0
(0.2)
(1.0)
0.0
0.0
(5.1)
(3.2)
(0.2)
(1.3)
(0.4)
(3.7)
(2.4)
0.0
(1.2)
(0.1)
(1.4)
(4.2)
(1.5)
(0.4)
0.2
0.2
0.5
0.1
0.0
0.0
0.0
0.0
1.1
0.5
0.0
0.3
0.3
1.4
1.0
0.0
0.3
0.1
0.4
1.2
0.4
0.0
0.0
0.0
(0.5)
(0.2)
(0.5)
0.2
(0.2)
(0.1)
(0.3)
0.0
(0.3)
0.0
0.0
(0.2)
(0.1)
(0.2)
(0.1)
(0.2)
(0.1)
(0.1)
0.0
(0.4)
(2.6)
(0.2)
0.0
0.1
0.1
0.0
0.0
0.0
0.1
0.0
0.1
(0.3)
0.0
0.0
0.3
0.0
0.0
(0.1)
0.1
0.4
0.0
0.0
1.4
1.1
0.6
0.5
3.5
1.0
2.4
0.1
0.6
4.4
1.7
0.6
1.9
0.3
5.0
1.7
0.3
2.4
0.6
2.2
7.3
1.5
0.9
14.7
(0.4)
1.0
0.0
0.0
0.0
0.0
0.0
6.4
(9.4)
2.9
(1.7)
(0.2)
0.0
0.0
0.0
0.0
7.4
(7.4)
2.0
(3.2)
0.5
11.9
0.8
10.0
2.2
1.7
(0.1)
1.2
(0.4)
(1.0)
(0.1)
0.6
(0.3)
0.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.1
3.2
1.0
1.1
(0.8)
(6.7)
(1.3)
(0.6)
0.5
1.9
0.5
0.0
(0.1)
(1.4)
(0.1)
0.0
0.0
(0.1)
(0.1)
0.0
Movements of Level 3 instruments
CHF billion
Financial assets held
for trading 1
of which:
Corporate bonds and municipal
bonds, including bonds issued
by financial institutions
Loans
Other
Asset-backed securities
Financial assets designated
at fair value
of which:
Loans (including structured loans)
Structured reverse repurchase and
securities borrowing agreements
Other
Financial investments
available-for-sale
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
Financial liabilities designated
at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt
instruments
Structured repurchase agreements
Positive replacement values
(0.8)
(0.5)
0.0
(0.1)
2.2
(4.7)
(2.7)
(0.3)
0.0
0.0
0.1
(0.2)
0.0
0.0
(0.1)
0.0
Negative replacement values
6.5
(0.5)
(0.1)
0.0
0.0
0.0
0.0
1.4
(4.6)
3.0
(1.0)
(0.4)
1.6
2.0
1.5
0.6
1.4
3.3
0.2
0.7
8.1
3.6
1.2
2.9
0.4
3.3
1.5
1.3
0.4
0.8
10.0
2.2
1.7
0.0
(2.1)
(0.1)
(0.2)
0.0
(1.2)
(0.1)
0.0
(0.6)
(0.6)
0.8
0.0
2.1
0.0
(0.8)
(0.2)
0.4
(0.2)
(0.8)
(0.1)
0.5
(0.1)
(0.1)
1.2
(0.4)
(1.0)
(0.6)
0.0
0.4
(0.3)
(0.3)
(0.1)
0.4
(0.1)
(0.1)
0.6
(0.3)
0.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.7
0.2
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.8)
(4.9)
(0.7)
(0.4)
0.0
0.0
0.0
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.0
0.0
0.0
1.2
1.3
0.0
1.9
0.0
0.0
0.3
0.4
0.0
0.7
0.3
1.1
3.2
1.0
1.1
0.0
0.0
0.0
0.0
(0.8)
(2.4)
(0.1)
(3.8)
(0.4)
(0.1)
(0.4)
(3.3)
(0.5)
(0.7)
(0.1)
(0.8)
(6.7)
(1.3)
(0.6)
0.3
0.6
0.6
0.6
0.1
0.2
0.0
0.1
3.8
2.4
0.6
0.4
0.4
2.7
0.0
0.1
0.2
0.5
1.9
0.5
0.0
(0.2)
(0.2)
(0.5)
(0.2)
0.0
0.0
(0.2)
0.0
(0.2)
0.0
0.0
0.0
(0.1)
0.0
(0.2)
(0.1)
(2.3)
(0.1)
(0.3)
0.0
(0.5)
(0.2)
(0.1)
(1.4)
(0.1)
0.0
(0.1)
(0.2)
0.0
0.0
0.0
(0.3)
0.0
(0.1)
0.0
(0.1)
(0.1)
0.0
14.7
(0.4)
1.0
0.0
0.0
0.0
0.0
0.0
6.4
(9.4)
2.9
(1.7)
(0.2)
1 Includes assets pledged as collateral which may be sold or repledged by counterparties. 2 Total Level 3 assets as of 31 December 2014 were CHF 12.2 billion (31 December 2013: CHF 15.0 billion). Total Level
3 liabilities as of 31 December 2014 were CHF 17.0 billion (31 December 2013: CHF 16.8 billion).
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
Balance
as of
Net
the end of
31 Decem-
trading
the report-
and other
ber 2012
income
ing period
income
Net
interest
income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Other
com-
prehen-
sive
Pur-
income
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
Foreign
fers
currency
out of
Level 3
trans-
lation
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Other
com-
prehen-
sive
income
Balance
as of
31 Decem-
ber 2013
Net
trading
income
Pur-
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
fers
out of
Level 3
Foreign
currency
trans-
lation
Balance
as of
31 Decem-
ber 2014 2
5.7
(2.4)
(1.3)
0.0
0.0
0.0
2.1
(6.8)
5.0
0.0
2.2
(1.2)
(0.2)
4.3
(1.6)
(0.9)
0.0
0.0
0.0
1.4
(6.5)
5.2
0.0
1.0
(0.5)
0.1
3.5
4.9
0.2
1.5
0.0
0.0
0.0
0.0
0.0
2.6
(3.3)
0.2
(0.2)
(0.1)
4.4
(0.8)
(0.3)
0.0
1.7
1.0
1.0
0.6
(0.1)
(1.4)
0.0
(0.1)
(0.1)
(0.8)
0.0
0.0
0.0
0.0
0.0
0.0
1.1
3.1
0.2
0.8
5.5
3.0
0.9
1.2
0.3
4.4
2.0
0.5
1.5
0.5
12.1
1.2
7.9
1.8
1.2
(0.3)
(0.5)
0.0
0.0
1.1
0.3
0.1
0.6
0.0
0.7
0.1
0.0
0.4
0.2
0.5
0.3
0.9
(0.4)
(0.3)
(0.2)
0.0
0.0
0.0
0.0
(0.8)
0.1
0.5
0.1
(0.6)
(1.2)
0.0
0.4
0.3
1.3
0.2
0.4
(0.1)
0.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.2
0.1
0.2
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(1.2)
(4.1)
(0.7)
(0.5)
0.0
0.0
0.0
0.0
(0.2)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.2
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.2
0.5
0.1
(0.2)
(0.1)
(0.3)
0.0
0.1
0.1
0.0
0.0
1.3
(1.2)
0.0
(0.3)
0.2
0.6
0.7
0.0
0.0
2.6
1.1
0.1
1.3
0.2
2.5
1.0
0.0
1.5
0.0
(0.2)
(1.0)
0.0
0.0
(5.1)
(3.2)
(0.2)
(1.3)
(0.4)
(3.7)
(2.4)
0.0
(1.2)
(0.1)
0.0
0.0
0.0
0.0
1.1
0.5
0.0
0.3
0.3
1.4
1.0
0.0
0.3
0.1
(0.3)
0.0
0.0
0.0
0.1
0.0
0.0
0.0
(0.5)
(0.2)
(0.2)
(0.1)
(0.2)
(0.1)
0.1
(0.3)
0.0
0.0
(0.5)
0.2
(0.2)
(0.1)
(0.1)
0.0
0.3
0.0
0.0
(0.1)
1.4
1.1
0.6
0.5
3.5
1.0
2.4
0.1
0.6
4.4
1.7
0.6
1.9
0.3
5.0
1.7
0.3
2.4
0.6
0.0
0.0
0.0
0.0
7.4
(7.4)
2.0
(3.2)
0.5
11.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.9
3.7
1.4
0.5
(1.4)
(4.2)
(1.5)
(0.4)
0.4
1.2
0.4
0.0
(0.4)
(2.6)
(0.2)
0.0
0.1
0.4
0.0
0.0
2.2
7.3
1.5
0.9
483
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
h) Valuation of assets and liabilities classified as Level 3
The table on the following pages presents the Group’s assets and
liabilities recognized at fair value and classified as Level 3, to-
gether with the valuation techniques used to measure fair value,
the significant inputs used in the valuation technique that are
considered unobservable and a range of values for those unob-
servable inputs.
The range of values represents the highest and lowest level
input used in the valuation techniques. Therefore, the range does
not reflect the level of uncertainty regarding a particular input,
but rather the different underlying characteristics of the relevant
assets and liabilities. The ranges will therefore vary from period to
period and parameter to parameter based on characteristics of
the instruments held at each balance sheet date. Further, the
ranges of unobservable inputs may differ across other financial
institutions due to the diversity of the products in each firm’s in-
ventory.
Significant unobservable inputs in Level 3 positions
This section discusses the significant unobservable inputs identi-
fied in the table on the following pages and assesses the potential
effect that a change in each unobservable input in isolation may
have on a fair value measurement, including information to facili-
tate an understanding of factors that give rise to the input ranges
shown. Relationships between observable and unobservable in-
puts have not been included in the summary below.
Pillar 3 | Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities
CHF billion
31.12.14
31.12.13
31.12.14
31.12.13
Valuation technique(s)
Fair value
Assets
Liabilities
Significant
unobservable input(s) 1
Range of inputs
31.12.14
31.12.13
low
high
low
high
unit 1
Financial assets held for
trading / Trading portfolio
liabilities, Financial
assets / liabilities desig-
nated at fair value and
Financial investments
available-for-sale
Corporate bonds and munici-
pal bonds, including bonds
issued by financial institutions
Traded loans, loans desig-
nated at fair value and loan
commitments
Investment fund units 2
Asset-backed securities
Equity instruments 2
Structured (reverse)
repurchase agreements
Financial assets for unit-linked
investment contracts 2
Structured debt instruments
and non-structured fixed-rate
bonds 4
484
1.4
1.8
0.1
2.2
2.2
0.0
0.5
0.6
0.5
2.4
0.1
0.6
1.0
0.6
3.1
0.1
0.0
0.0
0.0
0.9
0.2
0.0
0.0
0.0
0.0
1.2
Relative value to
market comparable
Relative value to
market comparable
Discounted expected
cash flows
Market comparable and
securitization model
Mortality dependent
cash flow
Relative value to
market comparable
Discounted cash flow
projection
Relative value to
market comparable
Relative value to
market comparable
Discounted expected
cash flows
Relative value to
market comparable
11.0
11.0
Bond price equivalent
8
144
Loan price equivalent
Credit spread
Discount margin / spread
80
37
0
0
0
127
points
102
points
101
138
65
125
basis
points
13
1
15
Volatility of mortality
270
280
21
128
Net asset value
Constant prepayment rate
Constant default rate 3
Loss severity 3
Discount margin / spread
Bond price equivalent
Price
0
0
0
18
22
102
0
0
0
1
0
Funding spread
10
163
10
163
basis
points
Price
%
%
%
%
%
%
18
10
100
39
102
points
Note 24 Fair value measurement (continued)
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities (continued)
CHF billion
31.12.14
31.12.13
31.12.14
31.12.13 Valuation technique(s)
Fair value
Assets
Liabilities
Significant
unobservable input(s) 1
Range of inputs
31.12.14
31.12.13
low
high
low
high
unit 1
Replacement values
Interest rate contracts
0.2
0.3
0.6
0.4
Option model
Volatility of interest rates
Credit derivative contracts
1.7
3.0
1.7
2.0
Discounted expected
cash flows
Discounted expected cash
flow based on modeled
defaults and recoveries
Discounted cash flow
projection on
underlying bond
Foreign exchange contracts
0.6
0.9
0.3
0.5
Option model
Discounted expected
cash flows
Rate-to-rate correlation
Intra-curve correlation
Constant prepayment rate
Credit spreads
Upfront price points
Recovery rates
Credit index correlation
Discount margin / spread
Credit pair correlation
Constant prepayment rate
Constant default rate
Loss severity
Discount margin / spread
Bond price equivalent
Volatility of foreign
exchange 3
Rate-to-FX correlation
FX-to-FX correlation
Constant prepayment rate
Equity / index contracts
1.9
1.2
2.4
1.5
Option model
Equity dividend yields
Volatility of equity stocks,
equity and other indices
Equity-to-FX correlation
Equity-to-equity correlation
Non-financial assets 2, 5
0.2
0.1
Relative value to market
comparable
Price
Discounted cash flow
projection
Projection of cost and
income related to the
particular property
Discount rate
Assessment of the parti-
cular property’s condition
13
84
50
0
0
15
0
10
0
57
1
0
0
1
12
(57)
(70)
0
0
1
(55)
18
94
94
94
3
13
84
50
0
73
94
84
3
%
%
%
%
963
2
1,407
basis
points
83
95
85
32
94
16
9
100
33
100
60
80
13
15
130
84
99
(12)
0
10
0
42
0
0
0
0
0
7
(71)
(83)
0
0
1
(52)
17
68
95
90
39
92
15
12
100
38
%
%
%
%
%
%
%
%
%
100
points
20
60
80
13
10
88
77
99
%
%
%
%
%
%
%
%
1 The ranges of significant unobservable inputs are represented in points, percentages and basis points. Points are a percentage of par. For example, 100 points would be 100% of par. 2 The range of inputs is not
disclosed due to the dispersion of possible values given the diverse nature of the investments. 3 The range of inputs is not disclosed for 31 December 2014 because this unobservable input parameter was not significant
to the respective valuation technique as of that date. 4 Valuation techniques, significant unobservable inputs and the respective input ranges for structured debt instruments and non-structured fixed-rate bonds are the
same as the equivalent derivative or structured financing instruments presented elsewhere in this table. 5 Non-financial assets include investment properties at fair value and other assets which primarily consist of
assets held for sale. ▲
Bond price equivalent: Where market prices are not available for
a bond, fair value is measured by comparison with observable
pricing data from similar instruments. Factors considered when
selecting comparable instruments include credit quality, maturity
and industry of the issuer. Fair value may be measured either by a
direct price comparison or by conversion of an instrument price
into a yield (either as an outright yield or as a spread to LIBOR).
Bond prices are expressed as points of the nominal, where 100
represents a fair value equal to the nominal value (i.e., par).
For corporate and municipal bonds, the range of 8–144 repre-
sents the range of prices from reference issuances used in deter-
mining fair value. Bonds priced at 0 are distressed to the point that
no recovery is expected, while prices significantly in excess of 100
or par relate to inflation-linked or structured issuances that pay a
485
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
coupon in excess of the market benchmark as of the measure-
ment date. The weighted average price is approximately 100
points, with a majority of positions concentrated around this price.
For asset-backed securities, the bond price range of 0–102
points represents the range of prices for reference securities used
in determining fair value. An instrument priced at 0 is not ex-
pected to pay any principal or interest, while an instrument priced
close to 100 points is expected to be repaid in full as well as pay a
yield close to the market yield. More than 94% of the portfolio is
priced at 80 points or higher, and the weighted average price for
Level 3 assets within this portion of the Level 3 portfolio is 89
points.
For credit derivatives, the bond price range of 12–100 points
disclosed represents the range of prices used for reference instru-
ments that are typically converted to an equivalent yield or credit
spread as part of the valuation process. The range is comparable
to that for corporate and asset-backed issuances described above.
Loan price equivalent: Where market prices are not available for a
traded loan, fair value is measured by comparison with observable
pricing data for similar instruments. Factors considered when se-
lecting comparable instruments include industry segment, collat-
eral quality, maturity and issuer-specific covenants. Fair value may
be measured either by a direct price comparison or by conversion
of an instrument price into a yield. The range of 80–101 points
represents the range of prices derived from reference issuances of
a similar credit quality used in measuring fair value for loans clas-
sified as Level 3. Loans priced at 0 are distressed to the point that
no recovery is expected, while a current price of 100 represents a
loan that is expected to be repaid in full, and also pays a yield
marginally higher than market yield. The weighted average is ap-
proximately 95 points.
Credit spread: Valuation models for many credit derivatives re-
quire an input for the credit spread, which is a reflection of the
credit quality of the associated referenced underlying. The credit
spread of a particular security is quoted in relation to the yield on
a benchmark security or reference rate, typically either US Trea-
sury or LIBOR, and is generally expressed in terms of basis points.
An increase / (decrease) in credit spread will increase / (decrease)
the value of credit protection offered by CDS and other credit
derivative products. The impact on the results of the Group of
such changes depends on the nature and direction of the posi-
tions held. Credit spreads may be negative where the asset is
more creditworthy than the benchmark against which the
spread is calculated. A wider credit spread represents decreasing
creditworthiness. The ranges of 37–138 basis points in loans and
0–963 basis points in credit derivatives represents a diverse set
of underlyings, with the lower end of the range representing
credits of the highest quality (e.g., approximating the risk of
LIBOR) and the upper end of the range representing greater
levels of credit risk.
486
Constant prepayment rate: A prepayment rate represents the
amount of unscheduled principal repayment for a pool of loans. The
prepayment estimate is based on a number of factors, such as his-
torical prepayment rates for previous loans that are similar pool loans
and the future economic outlook, considering factors including, but
not limited to, future interest rates. In general, a significant in-
crease / (decrease) in this unobservable input in isolation would result
in a significantly higher / (lower) fair value for bonds trading at a dis-
count. For bonds trading at a premium the reverse would apply, with
a decrease in fair value when the constant prepayment rate in-
creases. However, in certain cases the effect of a change in prepay-
ment speed upon instrument price is more complicated and is de-
pendent upon both the precise terms of the securitization and the
position of the instrument within the securitization capital structure.
For asset-backed securities, the range of 0–18% represents in-
puts across various classes of asset-backed securities. Securities
with an input of 0% typically reflect no current prepayment be-
havior within their underlying collateral with no expectation of
this changing in the immediate future, while the high range of
18% relates to securities that are currently experiencing high pre-
payments. Different classes of asset-backed securities typically
show different ranges of prepayment characteristics depending
on a combination of factors, including the borrowers’ ability to
refinance, prevailing refinancing rates, and the quality or charac-
teristics of the underlying loan collateral pools. The weighted av-
erage constant prepayment rate for the portfolio is 9%.
For credit derivatives, the range of 1–16% represents the in-
put assumption for credit derivatives on asset-backed securities.
The range is driven in a similar manner to that for asset-backed
securities.
For FX contracts and interest rate contracts, the ranges of
0–13% and 0–3%, respectively, represent the prepayment as-
sumptions on securitizations underlying the BGS portfolio. This
portfolio is less diverse than other asset-backed securities portfo-
lios and the range of prepayment speed is therefore narrower.
Constant default rate (CDR): The CDR represents the percentage
of outstanding principal balances in the pool that are projected to
default and liquidate and is the annualized rate of default for a
group of mortgages or loans. The CDR estimate is based on a
number of factors, such as collateral delinquency rates in the pool
and the future economic outlook. In general, a significant in-
crease / (decrease) in this unobservable input in isolation would
result in significantly lower / (higher) cash flows for the deal (and
thus lower / (higher) valuations). However, different instruments
within the capital structure can react differently to changes in the
CDR rate. Generally, subordinated bonds will decrease in value as
CDR increases, but for well protected senior bonds an increase in
CDR may cause an increase in price. In addition, the presence of a
guarantor wrap on the collateral pool of a security may result in
notes at the junior end of the capital structure experiencing a
price increase with an increase in the default rate.
Note 24 Fair value measurement (continued)
The range of 0–9% for credit derivatives represents the ex-
pected default percentage across the individual instruments’ un-
derlying collateral pools.
Loss severity / recovery rate: The projected loss severity / recovery
rate reflects the estimated loss that will be realized given expected
defaults. Loss severity is generally applied to collateral within as-
set-backed securities while the recovery rate is the analogous pric-
ing input for corporate or sovereign credits. Recovery is the re-
verse of loss severity, so a 100% recovery rate is the equivalent of
a 0% loss severity. Increases in loss severity levels / decreases in
recovery rates will result in lower expected cash flows into the
structure upon the default of the instruments. In general, a sig-
nificant decrease / (increase) in the loss severity in isolation would
result in significantly higher / (lower) fair value for the respective
asset-backed securities. The impact of a change in recovery rate
on a credit derivative position will depend upon whether credit
protection has been bought or sold.
Loss severity is ultimately driven by the value recoverable from
collateral held after foreclosure occurs relative to the loan princi-
pal and possibly unpaid interest accrued at that point. For credit
derivatives, the loss severity range of 0–100% applies to deriva-
tives on asset-backed securities. The recovery rate range of
0–95% represents a wide range of expected recovery levels on
credit derivative contracts within the Level 3 portfolio.
Discount margin (DM) spread: The DM spread represents the dis-
count rates used to present value cash flows of an asset to reflect
the market return required for uncertainty in the estimated cash
flows. DM spreads are a rate or rates applied on top of a floating
index (e.g., LIBOR) to discount expected cash flows. Generally, a
decrease / (increase) in the unobservable input in isolation would
result in a significantly higher / (lower) fair value.
The different ranges represent the different discount rates
across loans (0–13%), asset-backed securities (0–22%) and credit
derivatives (0–32%). The high end of the range relates to securi-
ties that are priced very low within the market relative to the
expected cash flow schedule and there is significant discounting
relative to the expected cash flow schedule. This indicates that
the market is pricing an increased risk of credit loss into the secu-
rity that is greater than what is being captured by the expected
cash flow generation process. The low ends of the ranges are
typical of funding rates on better quality instruments. For asset-
backed securities, the weighted average DM is 5%. For loans, the
average effective DM is 1.71% compared with the disclosed
range of 0–13%.
Equity dividend yields: The derivation of a forward price for an
individual stock or index is important both for measuring fair
value for forward or swap contracts and for measuring fair value
using option pricing models. The relationship between the current
stock price and the forward price is based on a combination of
expected future dividend levels and payment timings, and, to a
lesser extent, the relevant funding rates applicable to the stock in
question. Dividend yields are generally expressed as an annualized
percentage of share price with the lowest limit of 0% represent-
ing a stock that is not expected to pay any dividend. The dividend
yield and timing represents the most significant parameter in de-
termining fair value for instruments that are sensitive to an equity
forward price. The range of 0–15% reflects the expected range of
dividend rates for the portfolio.
Volatility: Volatility measures the variability of future prices for a
particular instrument and is generally expressed as a percentage,
where a higher number reflects a more volatile instrument for
which future price movements are more likely to occur. The mini-
mum level of volatility is 0% and there is no theoretical maximum.
Volatility is a key input into option models, where it is used to
derive a probability-based distribution of future prices for the un-
derlying instrument. The effect of volatility on individual positions
within the portfolio is driven primarily by whether the option con-
tract is a long or short position. In most cases, the fair value of an
option increases as a result of an increase in volatility and is re-
duced by a decrease in volatility. Generally, volatility used in the
measurement of fair value is derived from active market option
prices (referred to as implied volatility). A key feature of implied
volatility is the volatility “smile” or “skew,” which represents the
effect of pricing options of different option strikes at different
implied volatility levels.
– Volatility of interest rates – the range of 13–94% reflects the
range of unobservable volatilities across different currencies
and related underlying interest rate levels. Volatilities of low
interest rates tend to be much higher than volatilities of high
interest rates. In addition, different currencies may have sig-
nificantly different implied volatilities.
– Volatility of equity stocks, equity and other indices – the range
of 1–130% is reflective of the range of underlying stock vola-
tilities.
– Volatility of mortality – the range of 270–280% represents
mortality volatility assumptions for different components of
the mortality contingent loan portfolio. The range in volatility
inputs is driven by different characteristics of contracts within
the portfolio. An increase in volatility will cause an increase in
loan value as the notional drawn will tend to increase.
Correlation: Correlation measures the inter-relationship between
the movements of two variables. It is expressed as a percentage
between (100)% and +100%, where +100% are perfectly corre-
lated variables (meaning a movement of one variable is associated
with a movement of the other variable in the same direction), and
(100)% are inversely correlated variables (meaning a movement
of one variable is associated with a movement of the other vari-
able in the opposite direction). The effect of correlation on the
measurement of fair value is dependent on the specific terms of
487
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
the instruments being valued, due to the range of different payoff
features within such instruments.
– Rate-to-rate correlation – the correlation between interest
rates of two separate currencies. The range of 84–94% results
from the different pairs of currency involved.
– Intra-curve correlation – the correlation between different
tenor points of the same yield curve. Correlations are typically
fairly high, as reflected by the range of 50–94%.
– Credit index correlation of 10–85% reflects the implied corre-
lation derived from different indices across different parts of
the benchmark index capital structure. The input is particularly
important for bespoke and Level 3 index tranches.
– Credit pair correlation is particularly important for first to default
credit structures. The range of 57–94% reflects the difference
between credits with low correlation and similar highly corre-
lated credits.
– Rate-to-FX correlation – captures the correlation between in-
terest rates and FX rates. The range for the portfolio is (57)–
60%, which represents the relationship between interest rates
and foreign exchange levels. The signage on such correlations
is dependent on the quotation basis of the underlying FX rate
(e.g., EUR / USD and USD / EUR correlations to the same interest
rate will have opposite signs).
– FX-to-FX correlation is particularly important for complex op-
tions that incorporate different FX rates in the projected pay-
off. The range of (70)–80% reflects the underlying characteris-
tics across the main FX pairs to which the Group has exposures.
– Equity-to-equity correlation is particularly important for com-
plex options that incorporate, in some manner, different equi-
ties in the projected payoff. The closer the correlation is to
100%, the more related one equity is to another. For example,
equities with a very high correlation could be from different
parts of the same corporate structure. The range of 18–99% is
reflective of this.
– Equity-to-FX correlation is important for equity options based on
a currency different than the currency of the underlying stock.
The range of (55)–84% represents the range of the relationship
between underlying stock and foreign exchange volatilities.
Funding spread: Structured financing transactions are valued us-
ing synthetic funding curves that best represent the assets that
are pledged as collateral to the transactions. They are not repre-
sentative of where the Group can fund itself on an unsecured
basis, but provide an estimate of where the Group can source and
deploy secured funding with counterparties for a given type of
collateral. The funding spreads are expressed in terms of basis
points over or under LIBOR and if funding spreads widen this in-
creases the impact of discounting. The range of 10–163 basis
points for both structured repurchase agreements and structured
reverse repurchase agreements represents the range of asset
funding curves, where wider spreads are due to a reduction in li-
quidity of underlying collateral for funding purposes.
A small proportion of structured debt instruments and non-
structured fixed-rate bonds within financial liabilities designated
at fair value had an exposure to funding spreads that is longer in
duration than the actively traded market. Such positions are
within the range of 10–163 basis points reported above.
Upfront price points: A component in the price quotation of credit
derivative contracts, whereby the overall fair value price level is
split between the credit spread (basis points running over the life
of the contract as described above) and a component that is
quoted and settled upfront on transacting a new contract. This
latter component is referred to as upfront price points and repre-
sents the difference between the credit spread paid as protection
premium on a current contract versus a small number of standard
contracts defined by the market. Distressed credit names fre-
quently trade and quote CDS protection only in upfront points
rather than as a running credit spread. An increase / (decrease) in
upfront points will increase / (decrease) the value of credit protec-
tion offered by CDS and other credit derivative products. The ef-
fect on the results of the Group of increases or decreases in up-
front price points depends on the nature and direction of the
positions held. Upfront pricing points may be negative where a
contract is quoting for a narrower premium than the market stan-
dard, but are generally positive, reflecting an increase in credit
premium required by the market as creditworthiness deteriorates.
The range of 15–83% within the table above represents the vari-
ety of current market credit spread levels relative to the bench-
marks used as a quotation basis. Upfront points of 83% represent
a distressed credit.
488
Note 24 Fair value measurement (continued)
i) Sensitivity of fair value measurements 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 as-
sumptions would change fair value significantly, and the esti-
mated effect thereof. As of 31 December 2014, the total favor-
able and unfavorable effects of changing one or more of the
unobservable inputs to reflect reasonably possible alternative as-
sumptions for financial instruments classified as Level 3 were CHF
1.0 billion and CHF 0.8 billion, respectively (31 December 2013:
CHF 1.4 billion and CHF 1.1 billion, respectively).
The table shown presents the favorable and unfavorable ef-
fects for each class of financial assets and liabilities for which the
potential change in fair value is considered significant. The sensi-
tivity data presented represents an estimation of valuation uncer-
tainty based on reasonably possible alternative values for Level 3
inputs at the balance sheet date and does not represent the esti-
mated 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
Levels 1–2 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. Further, direct inter-relationships between the Level 3 pa-
rameters discussed below are not a significant element of the
valuation uncertainty.
Sensitivity data is estimated using a number of techniques in-
cluding the estimation of price dispersion among different market
participants, variation in modeling approaches and reasonably
possible changes to assumptions used within the fair value mea-
surement process. The sensitivity ranges are not always symmetri-
cal around the fair values as the inputs used in valuations are not
always precisely in the middle of the favorable and unfavorable
range.
Sensitivity data is determined at a product or parameter level
and then aggregated assuming no diversification benefit. The cal-
culated sensitivity is applied to both the outright position and any
related Level 3 hedges. The main interdependencies across differ-
ent Level 3 products to a single unobservable input parameter
have been included in the basis of netting exposures within the
calculation. Aggregation without allowing for diversification in-
volves the simple summation of individual results with the total
sensitivity, therefore representing the impact of all unobservable
inputs which, if moved to a reasonably possible favorable or unfa-
vorable level at the same time, would result in a significant change
in the valuation. Diversification would incorporate estimated cor-
relations across different sensitivity results and, as such, would re-
sult in an overall sensitivity that would be less than the sum of the
individual component sensitivities. The Group believes that, while
there are diversification benefits within the portfolios representing
these sensitivity numbers, they are not significant to this analysis.
Sensitivity of fair value measurements to changes in unobservable input assumptions
CHF million
Government bills / bonds
Corporate bonds and municipal bonds, including bonds issued by financial institutions
Traded loans, loans designated at fair value and loan commitments
Asset-backed securities
Equity instruments
Interest rate derivative contracts, net
Credit derivative contracts, net
Foreign exchange derivative contracts, net
Equity / index derivative contracts, net
Structured debt instruments issued and non-structured fixed-rate bonds
Other
Total
31.12.14
31.12.13
Favorable
changes 1
10
Unfavorable
changes 1
(1)
Favorable
changes 1
17
Unfavorable
changes 1
(4)
33
103
16
105
106
248
35
82
202
23
965
(41)
(63)
(12)
(42)
(58)
(277)
(32)
(83)
(199)
(17)
(824)
35
148
54
137
127
503 2
57
41
184
63
(76)
(70)
(46)
(84)
(91)
(471) 2
(56)
(43)
(151)
(54)
1,366
(1,146)
1 Of the total favorable change, CHF 116 million as of 31 December 2014 (31 December 2013: CHF 154 million) related to financial investments available-for-sale. Of the total unfavorable change, CHF 56 million as of
31 December 2014 (31 December 2013: CHF 159 million) related to financial investments available-for-sale. 2 In 2014, comparative period figures for 31 December 2013 related to credit derivative contracts were cor-
rected. As a result, favorable and unfavorable changes related to credit derivative contracts as of 31 December 2013 were increased by CHF 137 million and CHF 52 million, respectively.
489
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
j) Financial instruments not measured at fair value
The following table reflects the estimated fair values for financial instruments not measured at fair value.
Financial instruments not measured at fair value
CHF billion
Assets
Carrying
value
31.12.14
Fair value
Carrying
value
31.12.13
Fair value
Total
Total
Level 1
Level 2
Level 3
Total
Total
Level 1
Level 2
Level 3
Cash and balances with central banks
104.1
104.1
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments
Loans
Other assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Cash collateral payables on derivative instruments
Due to customers
Debt issued
Other liabilities
Guarantees / Loan commitments
Guarantees 1
Loan commitments 2
13.3
24.1
68.4
31.0
315.8
21.3
10.5
9.2
11.8
42.4
13.3
24.1
68.4
31.0
318.3
21.1
10.5
9.2
11.8
42.4
410.2
410.2
91.2
45.4
0.0
0.0
94.3
45.4
(0.1)
0.0
104.1
12.6
0.0
0.0
0.0
0.0
0.0
9.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.7
24.1
66.5
31.0
186.4
21.1
0.9
9.2
11.6
42.4
410.2
88.5
45.4
0.0
0.0
0.0
0.0
0.0
2.0
0.0
131.9
0.0
0.0
0.0
0.2
0.0
0.0
5.8
0.0
(0.1)
0.0
80.9
13.9
27.5
91.6
26.5
287.0
17.6
12.9
9.5
13.8
44.5
390.8
81.4
39.5
0.1
0.0
80.9
13.9
27.5
91.6
26.5
289.3
17.4
12.9
9.5
13.8
44.5
390.8
84.0
39.5
(0.1)
0.1
80.9
11.4
0.0
0.0
0.0
0.0
0.0
10.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2.4
27.5
91.2
26.5
165.5
17.4
2.1
9.5
13.8
44.5
390.8
79.3
39.5
0.0
0.1
0.0
0.0
0.0
0.4
0.0
123.8
0.0
0.0
0.0
0.0
0.0
0.0
4.7
0.0
(0.1)
0.0
1 The carrying value of guarantees represented a liability of CHF 0.0 billion as of 31 December 2014 (31 December 2013: CHF 0.1 billion). The estimated fair value of guarantees represented an asset of CHF 0.1 billion
as of 31 December 2014 (31 December 2013: CHF 0.1 billion). 2 The fair value of loan commitments represented a liability of CHF 0.1 billion as of 31 December 2013.
490
Note 24 Fair value measurement (continued)
The fair values included in the table on the previous page were
calculated for disclosure purposes only. The fair value valuation
techniques and assumptions described below relate only to the
fair value of UBS’s financial instruments not measured at fair
value. Other institutions may use different methods and assump-
tions for their fair value estimation, and therefore such fair value
disclosures cannot necessarily be compared from one financial
institution to another. UBS applies significant judgments and as-
sumptions to arrive at these fair values, which are more holistic
and less sophisticated than UBS’s established fair value and model
governance policies and processes applied to financial instru-
ments accounted for at fair value whose fair values impact UBS’s
balance sheet and net profit. The following principles were ap-
plied when determining fair value estimates for financial instru-
ments not measured at fair value:
– For financial instruments with remaining maturities greater
than three months, the fair value was determined from quoted
market prices, if available.
– Where quoted market prices were not available, the fair values
were estimated by discounting contractual cash flows using
current market interest rates or appropriate yield curves for in-
struments with similar credit risk and maturity. These estimates
generally include adjustments for counterparty credit or UBS’s
own credit.
– For short-term financial instruments with remaining maturities
of three months or less, the carrying amount, which is net of
credit loss allowances, is generally considered a reasonable es-
timate of fair value. The following financial instruments not
measured at fair value have remaining maturities of three
months or less as of 31 December 2014: 100% of cash and
balances with central banks, 94% of amounts due from banks,
100% of cash collateral on securities borrowed, 88% of re-
verse repurchase agreements, 100% of cash collateral receiv-
ables on derivatives, 53% of loans, 91% of amounts due to
banks, 87% of cash collateral on securities lent, 90% of repur-
chase agreements, 100% of cash collateral payable on deriva-
tives, 99% of amount due to customers and 24% of debt is-
sued.
– The fair value estimates for repurchase and reverse repurchase
agreements with variable and fixed interest rates, for all ma-
turities, include the valuation of the interest rate component of
these instruments. Credit and debit valuation adjustments
have not been included in the valuation due to the short-term
nature of these instruments.
– The estimated fair values of off-balance sheet financial instru-
ments are based on market prices for similar facilities and guar-
antees. Where this information is not available, fair value is
estimated using discounted cash flow analysis.
491
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 25 Restricted and transferred financial assets
This Note provides information on restricted financial assets (Note 25a), transfers of financial assets (Note 25b and 25c) and financial
assets which are received as collateral with the right to resell or repledge these assets (Note 25d).
EDTF | Pillar 3 | a) Restricted financial assets
Restricted financial assets consist of assets pledged as collateral
against an existing liability or contingent liability and other assets
which are otherwise explicitly restricted such that they cannot be
used to secure funding. In addition, UBS Group AG including its
branches and its subsidiaries are generally not subject to significant
restrictions that would prevent the transfer of dividends and capital
within the Group, other than UBS Group AG’s regulated subsidiaries
which are required to maintain capital to comply with local regula-
tions, with a certain level of capital being not available for distribu-
tion or transfer. Non-regulated subsidiaries are generally not subject
to dividend or capital transfer restrictions. However, exceptions may
exist when restrictions are imposed as a result of a contractual-,
entity- or country-specific arrangement or requirement.
Financial assets are mainly pledged as collateral in securities
lending transactions, in repurchase transactions, against loans
from Swiss mortgage institutions and in connection with the issu-
ance of covered bonds. The Group generally enters into repur-
chase and securities lending arrangements under standard market
agreements, with a market-based haircut applied to the collateral,
which results in the associated liabilities having a carrying value
below the carrying value of the assets. Pledged mortgage loans
serve as collateral for existing liabilities against Swiss central
mortgage institutions and for existing covered bond issuances of
CHF 21,644 million as of 31 December 2014 (31 December 2013:
CHF 22,634 million).
Other restricted financial assets include assets protected under
client asset segregation rules, assets held by the Group’s insurance
entities to back related liabilities to the policy holders, assets held
in certain jurisdictions to comply with explicit minimum local asset
maintenance requirements and assets held in consolidated bank-
ruptcy remote entities such as certain investment funds and other
structured entities. The carrying value of the liabilities associated
with these other restricted financial assets is generally equal to the
carrying value of the assets, with the exception of assets held to
comply with local asset maintenance requirements for which the
associated liabilities are greater. ▲▲
EDTF | Restricted financial assets
CHF million
Financial assets pledged as collateral
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Loans
of which: mortgage loans 1
Financial investments available-for-sale
of which: assets pledged as collateral which may be sold or repledged by counterparties
Total financial assets pledged as collateral 2
Other restricted financial assets
Due from banks
Reverse repurchase agreements
Trading portfolio assets
Cash collateral receivables on derivative insruments
Financial assets designated at fair value
Financial investments available-for-sale
Other
Total other restricted financial assets
Total financial assets pledged and other restricted financial assets
Carrying amount
31.12.14
31.12.13
61,304
56,018
27,973
27,973
2,868
2,662
92,144
3,511
1,896
25,567
6,135
458
1,209
221
38,997
131,142
48,368
42,449
33,632
33,632
0
0
82,000
3,274
1,989
24,252
6,216
581
44
169
36,525
118,525
1 These pledged mortgage loans serve as collateral for existing liabilities against Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately
CHF 4.5 billion for 31 December 2014 (31 December 2013: approximately CHF 5.8 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements.
2 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2014: CHF 6.1 billion, 31 December 2013: CHF 4.3 billion). ▲
492
Note 25 Restricted and transferred financial assets (continued)
EDTF | b) Transferred financial assets that are not derecognized in their entirety
The table below presents information for financial assets, which have been transferred but are subject to continued recognition in full,
as well as recognized liabilities associated with those transferred assets.
EDTF | Transferred financial assets subject to continued recognition in full
CHF million
Trading portfolio assets transferred which may be sold or repledged by counterparties
relating to securities lending and repurchase agreements in exchange for cash received
relating to securities lending agreements in exchange for securities received
relating to other financial asset transfers
Financial investments available-for-sale transferred which may be sold or
repledged by counterparties
Total financial assets transferred
31.12.14
31.12.13
Carrying value
of transferred
assets
Carrying value of
associated liabilities
recognized
on-balance sheet
Carrying value of
transferred assets
Carrying value of
associated liabilities
recognized
on-balance sheet
19,366
35,557
1,095
2,662
58,680
18,147
0
142
2,584
20,873
16,296
25,349
804
0
42,449
15,026
0
442
0
15,468
▲
Transactions whereby financial assets are transferred, but con-
tinue to be recognized in their entirety on UBS’s balance sheet
include securities lending and repurchase agreements as well as
other financial asset transfers. Repurchase agreements and securi-
ties lending agreements are discussed in Note 1a items 13 and 14.
Repurchase and securities lending arrangements are, for the most
part, conducted under standard market agreements, and are un-
dertaken with counterparties subject to UBS’s normal credit risk
control processes. Other financial asset transfers include securities
transferred to collateralize derivative transactions.
As of 31 December 2014, approximately one-third of the
transferred financial assets were trading portfolio assets trans-
ferred in exchange for cash, in which case the associated recog-
nized liability represents the amount to be repaid to counterpar-
ties. For securities lending and repurchase agreements, a haircut
between 0% and 15% is generally applied to the collateral, which
results in associated liabilities having a carrying value below the
carrying value of the transferred assets. The counterparties to the
associated liabilities presented in the table above have full re-
course to UBS.
In securities lending arrangements entered into in exchange
for the receipt of other securities as collateral, neither the securi-
ties received nor the obligation to return them are recognized on
UBS’s balance sheet as the risks and rewards of ownership are not
transferred to UBS. In cases where such financial assets received
are subsequently sold or repledged in another transaction, this is
not considered to be a transfer of financial assets.
Transferred assets other than trading portfolio assets and fi-
nancial investments available-for-sale which may be sold or re-
pledged by counterparties were not material in 2014. Transferred
assets other than trading portfolio assets which may be sold or
repledged by counterparties were not material in 2013.
Transferred financial assets that are not subject to derecogni-
tion in full, but which remain on the balance sheet to the extent
of the Group’s continuing involvement, were not material in 2014
and 2013. ▲
493
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 25 Restricted and transferred financial assets (continued)
EDTF | c) Transferred financial assets that are derecognized in their entirety with continuing involvement
Continuing involvement in a transferred and fully derecognized
financial asset may result from contractual provisions in the
transfer agreement or in a separate agreement with the counter-
party or a third party entered into in connection with the transfer.
The table below provides information on the Group’s continuing
involvement in transferred and fully derecognized financial assets.
There are a limited number of specific transactions for which UBS
has continuing involvement in derecognized financial assets, as
detailed below.
EDTF | Transferred financial assets that are derecognized in their entirety with continuing involvement
CHF million
31.12.14
Type of continuing involvement
Purchased and retained interest
in securitization structures
Total
CHF million
Type of continuing involvement
Lending arrangements
Purchased and retained interest
in securitization structures
Other
Total
Balance sheet
Carrying
amount of
continuing
line item
involvement
Gain / (loss)
recognized at
the date of
transfer of the
financial assets 2
Gain / (loss) from continuing
involvement in transferred and
derecognized financial assets
For the year
ended 31.12.14
Life-to-date
31.12.14
Fair value of
continuing
involvement
Trading portfolio assets /
Replacement values 1
(22)
(22)
(22)
(22)
31.12.13
22
22
13
13
(1,582)
(1,582)
Balance sheet
line item
Carrying
amount of
continuing
involvement
Fair value of
continuing
involvement
Gain / (loss)
recognized at
the date of
transfer of the
financial assets
Gain / (loss) from continuing
involvement in transferred and
derecognized financial assets
For the year
ended 31.12.13
Life-to-date
31.12.13
Loans
Trading portfolio assets /
Replacement values 1
2,408
(34)
2,374
2,384
(34)
2,350
0
1
6
8
43
6
49
694
(1,596)
(902)
1 As of 31 December 2014, total purchased and retained interest in securitization structures consisted of trading portfolio assets of CHF 29 million and negative replacement values of CHF 51 million. As of 31 December 2013,
total purchased and retained interest in securitization structures consisted of trading portfolio assets of CHF 34 million and negative replacement values of CHF 68 million. 2 Represents gains / (losses) recognized on
the date of transfer during the respective reporting period. ▲
Purchased and retained interests in securitization vehicles
In cases where UBS has transferred assets into securitization ve-
hicles and retained or purchased interests therein, UBS has a con-
tinuing involvement in those transferred assets. The majority of
the retained continuing involvement securitization positions held
in the trading portfolio are collateralized debt obligations, US
commercial mortgage-backed securities and residential mort-
gage-backed securities. As a result of losses incurred in previous
years, the majority of these continuing involvement positions
have a carrying amount of zero as of 31 December 2014. As of
31 December 2014, the maximum exposure to loss related to pur-
chased and retained interests in securitization structures was CHF
48 million, compared with CHF 49 million as of 31 December
2013, both mainly related to trading portfolio assets. Undis-
counted cash outflows of CHF 71 million may be payable to the
transferee in future periods as a consequence of holding the pur-
chased and retained interests. The earliest period in which pay-
ment may be required is less than 1 month. Life-to-date losses
presented in the table above only relate to retained interests held
as of 31 December 2014. ▲
Lending arrangements: loan to BlackRock fund
In 2008, UBS sold a portfolio of US RMBSs for proceeds of USD 15
billion to the RMBS Opportunities Master Fund, LP (the RMBS
fund), an entity managed by BlackRock, Inc. The RMBS fund was
capitalized with approximately USD 3.75 billion in equity raised by
BlackRock from third-party investors and an eight-year amortizing
USD 11.25 billion senior secured loan provided by UBS, which
represented a continuing involvement in the assets transferred to
the fund. In 2014, the remaining amount of the loan was fully
repaid. Thus, as of 31 December 2014 UBS no longer had a con-
tinuing involvement.
494
Note 25 Restricted and transferred financial assets (continued)
d) Off-balance-sheet assets received
EDTF | The table below presents assets received from third parties that can be sold or repledged, that are not recognized on the balance
sheet, but that are held as collateral, including amounts that have been sold or repledged. ▲
EDTF | Off-balance-sheet assets received
CHF million
Fair value of assets received which can be sold or repledged
received as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative transactions and other transactions 1
received in unsecured borrowings
thereof sold or repledged 2
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions 1
31.12.14
388,855
383,354
5,502
271,963
227,515
27,958
16,491
31.12.13
351,712
348,205
3,507
240,176
193,879
26,609
19,688
1 Includes securities received as initial margin from its clients that UBS is required to remit to CCPs, brokers and deposit banks through its exchange-traded derivative (ETD) clearing and execution services. 2 Does not
include off-balance sheet securities (31 December 2014: CHF 37.6 billion, 31 December 2013: CHF 38.4 billion) placed with central banks related to undrawn credit lines and for payment, clearing and settlement
purposes for which there are no associated liabilities or contingent liabilities. ▲
Note 26 Offsetting financial assets and financial liabilities
EDTF | Pillar 3 | UBS enters into netting agreements with counterpar-
ties to manage the credit risks associated primarily with repur-
chase and reverse repurchase transactions, securities borrowing
and lending and over-the-counter and exchange-traded deriva-
tives. These netting agreements and similar arrangements gener-
ally enable the counterparties to set-off liabilities against available
assets received in the ordinary course of business and / or in the
event that the counterparty to the transaction is unable to fulfill
its contractual obligations. The right of set-off is a legal right to
settle or otherwise eliminate all or a portion of an amount due by
applying an amount receivable from the same counterparty
against it, thus reducing credit exposure.
On 1 January 2014, the Group adopted Offsetting Financial
Assets and Financial Liabilities (Amendments to IAS 32, Financial
Instruments: Presentation). Under the revised rules, the Group is
no longer able to offset certain derivative arrangements. Refer to
Note 1b for more information. The prior period offsetting disclo-
sure as of 31 December 2013 presented on the following pages
was restated to reflect the effects of adopting these amend-
ments. ▲▲
The table on the following page provides a summary of finan-
cial assets subject to offsetting, enforceable master netting ar-
rangements and similar agreements, as well as financial collateral
received to mitigate credit exposures for these financial assets.
The gross financial assets of the Group that are subject to offset-
ting, enforceable netting arrangements and similar agreements
are reconciled to the net amounts presented within the associated
balance sheet line, after giving effect to financial liabilities with
the same counterparties that have been offset on the balance
sheet and other financial assets not subject to an enforceable net-
ting arrangement or similar agreement. Further, related amounts
for financial liabilities and collateral received that are not offset on
the balance sheet are shown to arrive at financial assets after con-
sideration of netting potential.
The Group engages in a variety of counterparty credit mitiga-
tion strategies in addition to netting and collateral arrangements.
Therefore, the net amounts presented in the tables on the next
pages do not purport to represent the Group’s actual credit expo-
sure.
495
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 26 Offsetting financial assets and financial liabilities (continued)
EDTF | Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
Assets subject to netting arrangements
31.12.14
Netting recognized on the balance sheet
Netting potential not recognized on
the balance sheet 3
Gross assets
before netting
Netting with
gross liabilities 2
Net assets
recognized
on the
balance
sheet
Financial
liabilities
Collateral
received
Assets after
consid-
eration of
netting
potential
Assets not
subject to
netting ar-
rangements 4
Assets
recognized
on the
balance
sheet
Total assets
Total assets
after consid-
eration of
netting
potential
Total assets
recognized
on the
balance
sheet
22.7
99.2
249.9
245.7
3.1
620.5
0.0
(42.8)
(3.1)
22.7
56.4
246.8
(1.9)
(3.4)
(198.7)
(218.4)
27.4
(18.8)
(20.8)
(52.8)
(30.8)
(1.6)
0.0
(264.2)
3.1
356.3
0.0
(222.9)
(3.0)
(108.9)
0.0
0.1
17.3
7.0
0.1
24.5
1.4
12.1
10.1
3.6
1.9
29.1
1.4
12.2
27.4
10.6
2.0
53.6
24.1
68.4
257.0
31.0
5.0
385.4
Assets subject to netting arrangements
31.12.13
Netting recognized on the balance sheet
Netting potential not recognized on
the balance sheet 3
Gross assets
before netting
Netting with
gross liabilities 2
Net assets
recognized
on the
balance
sheet
Financial
liabilities
Collateral
received
Assets after
consid-
eration of
netting
potential
Assets not
subject to
netting ar-
rangements 4
Assets
recognized
on the
balance
sheet
Total assets
Total assets
after consid-
eration of
netting
potential
Total assets
recognized
on the
balance
sheet
26.5
111.5
244.5
219.2
3.9
605.6
0.0
(25.4)
(2.8)
26.5
86.1
241.8
(1.2)
(5.4)
(194.9)
(196.1)
23.1
(14.4)
(25.2)
(80.7)
(33.5)
(1.1)
0.0
(224.3)
3.9
381.3
0.0
(215.9)
(3.9)
(144.3)
0.2
0.0
13.3
7.5
0.1
21.0
1.0
5.5
12.3
3.5
3.4
25.8
1.2
5.5
25.6
11.0
3.5
46.8
27.5
91.6
254.1
26.5
7.4
407.1
CHF billion
Cash collateral on securities
borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on
derivative instruments 1
Financial assets designated at
fair value
Total assets
CHF billion
Cash collateral on securities
borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on
derivative instruments 1
Financial assets designated at
fair value
Total assets
1 The net amount of Cash collateral receivables on derivative instruments recognized on the balance sheet includes certain OTC derivatives which are in substance net settled on a daily basis under IAS 32 and ETD
derivatives which are economically settled on a daily basis. In addition, this balance includes OTC and ETD cash collateral balances which correspond with the cash portion of collateral pledged, reflected on the Negative
replacement values line in the table presented on the following page. 2 The logic of the table results in amounts presented in the “Netting with gross liabilities” column corresponding directly to the amounts
presented in the “Netting with gross assets” column in the liabilities table presented on the following page. 3 For the purpose of this disclosure, the amounts of financial instruments and cash collateral not set off
in the balance sheet have been capped by relevant netting agreement so as not to exceed the net amount of financial assets presented on the balance sheet, i.e., over-collateralization, where it exists, is not reflected
in the table. 4 Includes assets not subject to enforceable netting arrangements and other out-of-scope items. ▲
496
Note 26 Offsetting financial assets and financial liabilities (continued)
The table below provides a summary of financial liabilities subject
to offsetting, enforceable master netting arrangements and simi-
lar agreements, as well as financial collateral pledged to mitigate
credit exposures for these financial liabilities. The gross financial
liabilities of UBS that are subject to offsetting, enforceable netting
arrangements and similar agreements are reconciled to the net
amounts presented within the associated balance sheet line, after
giving effect to financial assets with the same counterparties that
have been offset on the balance sheet and other financial liabili-
ties not subject to an enforceable netting arrangement or similar
agreement. Further, related amounts for financial assets and col-
lateral pledged that are not offset on the balance sheet are shown
to arrive at financial liabilities after consideration of netting po-
tential.
EDTF | Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Liabilities subject to netting arrangements
31.12.14
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet 3
Liabilities
not subject
to netting
arrange-
ments 4
Gross
liabilities
before
netting
8.4
51.5
243.3
256.1
3.8
563.1
Netting with
gross assets 2
0.0
(42.8)
(3.1)
(218.4)
0.0
(264.2)
Net
liabilities
recognized
on the
balance
sheet
Liabilities
after
consider-
ation of
netting
potential
Liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
8.4
8.7
240.2
37.7
3.8
(1.9)
(3.4)
(198.7)
(25.1)
0.0
(6.5)
(5.2)
(21.8)
(2.3)
(1.4)
298.8
(229.2)
(37.3)
0.0
0.0
19.7
10.3
2.4
32.4
0.7
3.2
13.9
4.6
71.5
93.9
Liabilities subject to netting arrangements
31.12.13
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet 3
Liabilities
not subject
to netting
arrange-
ments 4
Gross
liabilities
before
netting
8.5
34.2
235.5
233.9
6.6
518.7
Netting with
gross assets 2
0.0
(25.4)
(2.8)
(196.1)
0.0
(224.3)
Net
liabilities
recognized
on the
balance
sheet
Liabilities
after
consider-
ation of
netting
potential
Liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
8.5
8.8
232.7
37.8
6.6
(1.2)
(5.4)
(194.9)
(28.3)
0.0
(7.3)
(3.4)
(18.9)
(3.6)
(2.1)
294.3
(229.8)
(35.2)
0.0
0.0
18.8
5.8
4.6
29.3
1.0
5.0
15.4
6.8
63.3
91.5
Total liabilities
Total
liabilities
after
consider-
ation of
netting
potential
Total
liabilities
recognized
on the
balance
sheet
0.8
3.2
33.5
14.9
73.9
126.3
9.2
11.8
254.1
42.4
75.3
392.8
Total liabilities
Total
liabilities
after
consider-
ation of
netting
potential
Total
liabilities
recognized
on the
balance
sheet
1.0
5.0
34.2
12.6
67.8
120.7
9.5
13.8
248.1
44.5
69.9
385.8
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on derivative instruments 1
Financial liabilities designated at fair value
Total liabilities
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on derivative instruments 1
Financial liabilities designated at fair value
Total liabilities
1 The net amount of Cash collateral payables on derivative instruments recognized on the balance sheet includes certain OTC derivatives which are in substance net settled on a daily basis under IAS 32 and ETD
derivatives which are economically settled on a daily basis. In addition, this balance includes OTC and ETD cash collateral balances which correspond with the cash portion of collateral received reflected on the Positive
replacement values line in the table presented on the previous page. 2 The logic of the table results in amounts presented in the “Netting with gross assets” column corresponding directly to the amounts presented
in the “Netting with gross liabilities” column in the assets table presented on the previous page. 3 For the purpose of this disclosure, the amounts of financial instruments and cash collateral not set off on the balance
sheet have been capped by relevant netting arrangement so as not to exceed the net amount of financial liabilities presented in the balance sheet, i.e., over-collateralization, where it exists, is not reflected in the
table. 4 Includes liabilities not subject to enforceable netting arrangements and other out-of-scope items. ▲
497
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 27 Financial assets and liabilities – additional information
a) Measurement categories of financial assets and liabilities
The table below provides information about the carrying amounts
of individual classes of financial instruments within the measure-
ment categories of financial assets and liabilities as defined in IAS
39 Financial Instruments: Recognition and Measurement. Only
those assets and liabilities which are financial instruments as de-
fined in IAS 32 Financial Instruments: Presentation are included in
the table below, which causes certain balances to differ from
those presented on the balance sheet.
➔ Refer to Note 24 for more information on how the fair value of
financial instruments is determined
Measurement categories of financial assets and financial liabilities
CHF million
Financial assets 1
Held for trading
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Debt issued 2
Positive replacement values
Total
Fair value through profit or loss
Financial assets designated at fair value
Financial assets at amortized cost
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments
Loans 3
Other assets
Total
Available-for-sale
Financial investments available-for-sale
Total financial assets
Financial liabilities
Held for trading
Trading portfolio liabilities
Debt issued 2
Negative replacement values
Total
Fair value through profit or loss, other
Financial liabilities designated at fair value
Amounts due under unit-linked investment contracts
Total
Financial liabilities at amortized cost
Due to banks
Cash collateral on securities lent
Repurchase agreements
Cash collateral payables on derivative instruments
Due to customers
Debt issued
Other liabilities
Total
Total financial liabilities
31.12.14
31.12.13
132,392
56,018
283
256,978
389,653
114,249
42,449
202
254,084
368,535
4,951
7,364
104,073
13,334
24,063
68,414
30,979
315,757
21,251
577,872
57,159
1,029,634
27,958
308
254,101
282,367
75,297
17,643
92,940
10,492
9,180
11,818
42,372
410,207
91,183
45,414
620,665
995,972
80,879
13,874
27,496
91,563
26,548
286,959
17,598
544,918
59,525
980,342
26,609
362
248,079
275,050
69,901
16,155
86,056
12,862
9,491
13,811
44,507
390,825
81,426
39,522
592,444
953,550
1 As of 31 December 2014, CHF 119 billion of Loans, CHF 0 billion of Due from banks, CHF 1 billion of Reverse repurchase agreements, CHF 35 billion of Financial investments available-for-sale and CHF 4 billion of
Financial assets designated at fair value are expected to be recovered or settled after twelve months. As of 31 December 2013, CHF 116 billion of Loans, CHF 0 billion of Due from banks, CHF 0 billion of Reverse
repurchase agreements, CHF 31 billion of Financial investments available-for-sale and CHF 5 billion of Financial assets designated at fair value are expected to be recovered or settled after twelve months. 2 Represents
the embedded derivative component of structured debt issued for which the fair value option has not been applied and which is presented within Debt issued on the balance sheet. 3 Includes finance lease receivables
of CHF 1.1 billion as of 31 December 2014 (31 December 2013: CHF 1.1 billion). Refer to Notes 10 and 33 for more information.
498
Note 27 Financial assets and liabilities – additional information (continued)
b) Maturity analysis of financial liabilities
The contractual maturities for non-derivative and non-trading fi-
nancial liabilities as of 31 December 2014 are based on the earli-
est date on which UBS could be contractually required to pay. The
total amounts that contractually mature in each time-band are
also shown for 31 December 2013. Derivative positions and trad-
ing liabilities, predominantly made up of short sale transactions,
are assigned to the column Due within 1 month, as this provides
a conservative reflection of the nature of these trading activities.
The contractual maturities may extend over significantly longer
periods.
Maturity analysis of financial liabilities 1
CHF billion
Financial liabilities recognized on balance sheet 2
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities 3, 4
Negative replacement values 3
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value 5
Due to customers
Debt issued
Other liabilities
Total 31.12.14
Total 31.12.13
Guarantees, commitments and forward starting transactions 6
Commitments
Loan commitments
Underwriting commitments
Total commitments
Guarantees
Forward starting transactions
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.14
Total 31.12.13
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
7.5
5.2
9.1
28.0
254.1
42.4
3.0
392.6
7.2
61.9
811.0
791.6
50.4
0.7
51.1
17.4
10.3
0.1
79.0
83.0
2.1
2.8
1.5
13.5
13.1
15.4
48.4
22.9
0.1
0.1
0.0
0.1
0.3
0.5
1.2
1.0
18.4
4.1
14.2
39.4
43.1
0.1
0.1
0.1
0.2
0.2
0.4
0.3
22.5
0.3
37.4
60.9
66.2
0.0
0.0
0.1
0.2
0.3
0.0
21.2
0.1
28.4
49.8
41.3
0.0
0.0
0.0
0.1
Total
10.5
9.2
11.9
28.0
254.1
42.4
78.6
410.3
102.7
61.9
1,009.5
965.1
50.7
0.7
51.4
17.7
10.3
0.1
79.5
83.9
1 Non-financial liabilities such as deferred income, deferred tax liabilities, provisions and liabilities on employee compensation plans are not included in this analysis. 2 Except for trading portfolio liabilities and
negative replacement values (see footnote 3), the amounts presented generally represent undiscounted cash flows of future interest and principal payments. 3 Carrying value is fair value. Management believes that
this best represents the cash flows that would have to be paid if these positions had to be settled or closed out. Refer to Note 14 for undiscounted cash flows of derivatives designated in hedge accounting relation-
ships. 4 Contractual maturities of trading portfolio liabilities are: CHF 26.7 billion due within one month (2013: CHF 24.3 billion), CHF 1.3 billion due between one month and one year (2013: CHF 1.2 billion), and
CHF 0 billion due between 1 and 5 years (2013: CHF 1.1 billion). 5 Future interest payments on variable rate liabilities are determined by reference to the applicable interest rate prevailing as of the reporting date.
Future principal payments which are variable are determined by reference to the conditions existing at the reporting date. 6 Comprises the maximum irrevocable amount of guarantees, commitments and forward
starting transactions.
499
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 27 Financial assets and liabilities – additional information (continued)
c) Reclassification of financial assets
In 2008 and 2009, certain financial assets were reclassified from
Trading portfolio assets to Loans. On their reclassification date,
these assets had fair values of CHF 26 billion and CHF 0.6 billion,
respectively.
The reclassification of financial assets reflected UBS’s change
in intent and ability to hold these financial assets for the foresee-
able future rather than for trading in the near term. The foresee-
able future is interpreted to mean a period of approximately 12
months following the date of reclassification. The financial assets
were reclassified using their fair value on the date of the reclas-
sification, which became their new cost basis at that date.
Held-for-trading assets reclassified to loans and receivables
CHF billion
Carrying value
Fair value
Pro-forma fair value gain / (loss)
31.12.14
31.12.13
0.7
0.7
0.0
1.5
1.5
0.0
The table below provides notional values, fair values and carrying values by product category for the remaining reclassified financial
assets.
Held-for-trading assets reclassified to loans and receivables
CHF billion
Municipal auction rate securities
Monoline-protected assets
Other assets
Total
31.12.14
Notional value
Fair value
Carrying value
0.2
0.3
0.2
0.7
0.2
0.3
0.2
0.7
0.2
0.3
0.1
0.7
Ratio of carry-
ing to notional
value (%)
97
94
92
94
In 2014, the carrying value of the remaining reclassified financial
assets decreased by CHF 0.8 billion, mainly due to sales and
redemptions of US student loan auction rate securities and mono-
line-protected assets. The overall impact on operating profit be-
fore tax from the financial assets for the year ended 31 December
2014 was a profit of CHF 84 million (see table below). If the finan-
cial assets had not been reclassified, the impact on operating
profit before tax for the year ended 31 December 2014 would
have been a profit of approximately CHF 0.1 billion (2013: CHF
0.2 billion).
Contribution of the reclassified assets to the income statement
CHF million
Net interest income
Credit loss (expense) / recovery
Other income 1
Impact on operating profit before tax
1 Includes net gains/losses on the disposal of reclassified financial assets.
For the year ended
31.12.14
31.12.13
39
2
43
84
74
4
53
132
500
Note 27 Financial assets and liabilities – additional information (continued)
d) Maximum exposure to credit risk of financial assets designated at fair value
Financial assets designated at fair value totaled CHF 4,951 million
as of 31 December 2014 (31 December 2013: CHF 7,364 million).
Maximum exposure to credit risk from financial assets designated
at fair value was CHF 4.3 billion as of 31 December 2014 (31 De-
cember 2013: CHF 6.8 billion). The exposure related to structured
loans and reverse repurchase and securities borrowing agree-
ments was mitigated by securities collateral of CHF 3.3 billion as
of 31 December 2014 (31 December 2013: CHF 5.4 billion).
The maximum exposure to credit risk of loans, but not struc-
tured loans, is generally mitigated by credit derivatives or similar
instruments. Information regarding these instruments and the
exposure which they mitigate is provided in the table below on a
notional basis.
Investment fund units designated at fair value do not have a
direct exposure to credit risk.
➔ Refer to Note 24 for more information on financial assets
designated at fair value, and to the Maximum exposure to credit
risk disclosure in the Credit risk section of this report for more
information on collateral related to financial assets designated
at fair value
Notional amounts of loans designated at fair value and related credit derivatives
CHF million
Loans – notional amount
Credit derivatives related to loans – notional amount 1
Credit derivatives related to loans – fair value 1
1 Credit derivatives contracts include credit default swaps, total return swaps and similar instruments.
31.12.14
31.12.13
667
644
1
1,103
790
(8)
The table below provides the impact on the fair values of loans from changes in credit risk for the periods presented and cumulatively
since inception. Similarly, the change in fair value of credit derivatives and similar instruments which are used to hedge these loans is
also provided.
Changes in fair value of loans and related credit derivatives attributable to changes in credit risk
CHF million
Changes in fair value of loans designated at fair value, attributable to changes in credit risk 1
Changes in fair value of credit derivatives and similar instruments which mitigate the maximum
exposure to credit risk of loans designated at fair value 1
For the year ended
Cumulative from inception
until the year ended
31.12.14
31.12.13
31.12.14
31.12.13
(3)
3
16
(9)
(2)
1
5
(8)
1 Current and cumulative changes in the fair value of loans designated at fair value, attributable to changes in their credit risk are only calculated for those loans outstanding at balance sheet date. Current and cumula-
tive changes in the fair value of credit derivatives hedging such loans include all the derivatives which have been used to mitigate credit risk of these loans since designation at fair value. For loans reported under the fair
value option, changes in fair value due to changes in the credit standing of the borrower are calculated using counterparty credit information obtained from independent market sources.
501
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
The table below provides information relating to pension costs for defined benefit plans and defined contribution plans. These costs
are part of Personnel expenses.
Income statement – expenses related to pension and other post-employment benefit plans
CHF million
Net periodic pension cost for defined benefit plans
of which: related to major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans
of which: related to post-retirement medical and life insurance plans 2
of which: related to remaining plans and other costs 3
Pension cost for defined contribution plans 4
Total pension and other post-employment benefit plan expenses 5
31.12.14
31.12.13
31.12.12
467
508
458
50
(36)
(5)
244
711
651
638
555
82
(11)
24
236
887
(222)
(116)
(198)
82
(102)
(3)
240
18
1 Refer to Note 28a for more information. 2 Refer to Note 28b for more information. 3 Other costs include differences between actual and estimated performance award accruals and net accrued pension costs re-
lated to restructuring. 4 Refer to Note 28c for more information. 5 Refer to Note 6.
The table below provides information relating to amounts recognized in other comprehensive income for defined benefit plans.
Other comprehensive income – gains / (losses) on pension and other post-employment benefit plans
CHF million
Major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans
Post-retirement medical and life insurance plans 2
Remaining plans
Gains / (losses) recognized in other comprehensive income, before tax
Tax (expense) / benefit relating to defined benefit plans recognized in other comprehensive income
Gains / (losses) recognized in other comprehensive income, net of tax 3
of which: gains / (losses) recognized in other comprehensive income attributable to UBS Group AG shareholders
of which: gains / (losses) recognized in other comprehensive income attributable to non-controlling interests
1 Refer to Note 28a for more information. 2 Refer to Note 28b for more information. 3 Refer to the “Statement of comprehensive income.”
31.12.14
31.12.13
31.12.12
1,168
1,119
49
3
7
1,178
(239)
939
1,053
1,095
(42)
(26)
(5)
1,023
(413)
609
(1,456)
(1,032)
(424)
(5)
7
(1,454)
247
(1,208)
(1,172)
(36)
502
Note 28 Pension and other post-employment benefit plans The tables below provide information on UBS’s assets and liabilities with respect to pension and post-employment benefit plans. These
are recognized on the balance sheet within Other assets and Other liabilities. All major plans are currently in a deficit situation.
Balance sheet – net defined benefit pension and post-employment asset
CHF million
Major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans
Post-retirement medical and life insurance plans
Remaining plans
Total net defined benefit pension and post-employment asset 2
1 Refer to Note 28a for more information. 2 Refer to Note 18.
Balance sheet – net defined benefit pension and post-employment liability
CHF million
Major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans 2
Post-retirement medical and life insurance plans 3
Remaining plans
Total net defined benefit pension and post-employment liability 4
31.12.14
31.12.13
0
0
0
0
0
0
952
952
0
0
0
952
31.12.14
31.12.13
1,256
25
1,231
85
32
1,374
903
0
903
114
31
1,048
1 Refer to Note 28a for more information. 2 Liability consists of: UK plan CHF 568 million, US plans CHF 297 million and German plans CHF 367 million (31 December 2013: UK plan CHF 433 million, US plans CHF
186 million and German plans CHF 284 million). 3 Refer to Note 28b for more information. 4 Refer to Note 23.
503
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
a) Defined benefit pension plans
UBS has established pension plans for its employees in various
locations. The major plans are located in Switzerland, the UK, the
US and Germany. Independent actuarial valuations for the plans
in these countries are performed as required.
The overall investment policy and strategy for UBS’s defined
benefit pension plans is guided by the objective of achieving an
investment return which, together with contributions, ensures
that there will be sufficient assets to pay pension benefits as they
fall due while also mitigating the various risks of the plans. For the
plans with assets (i.e., funded plans), the investment strategies for
the plans are managed under local laws and regulations in each
jurisdiction. The actual asset allocation is determined by the
governance body with reference to the prevailing current and
expected economic and market conditions and in consideration
of specific asset class risk in the risk profile. Within this frame-
work, UBS ensures that the fiduciaries consider how the asset
investment strategy correlates with the maturity profile of the
plan liabilities and the respective potential impact on the funded
status of the plans, including potential short term liquidity
requirements.
The defined benefit obligation for all of UBS’s defined benefit
pension plans are directly impacted by changes in yields of high-
quality corporate bonds in the respective country, as the applica-
ble discount rate to determine the defined benefit obligation is
based on these yields. For the funded plans, the pension assets
are invested in a diversified portfolio of financial assets including
real estate, bonds, investment funds and cash across geographic
regions to ensure a balance of risk and return to the extent allowed
under local pension laws. The market value of these financial
assets is not fully correlated to changes in high-quality corporate
bond yields. This results in volatility in the net asset / liability posi-
tion for each plan. Specific asset-liability matching strategies for
each pension plan are independently determined by the responsi-
ble governance body in each country. The net asset / liability volatil-
ity for each plan is dependent on the specific financial assets cho-
sen by each plan’s fiduciaries. For certain pension plans, a
liability-driven investment approach is applied to a portion of the
plan assets to reduce potential volatility.
Swiss pension plan
The Swiss pension plan covers employees of UBS AG and its affili-
ated companies in Switzerland and exceeds the minimum benefit
requirements under Swiss pension law. The pension fund must
provide the minimum mandatory benefits in accordance with
Swiss pension law.
Contributions to the pension plan are paid by the employees
and the employer. The Swiss pension plan allows employees a
choice with regard to the level of contributions paid by the em-
ployee. Employee contributions are calculated as a percentage of
contributory salary and are deducted monthly. The percentages
504
deducted from salary depend on age and choice of contribution
category and vary between 1% and 13.5% of contributory base
salary and between 0% and 9% of contributory variable compen-
sation. Depending on the age of the employee, UBS pays a con-
tribution that ranges between 6.5% and 27.5% of contributory
base salary and between 3.6% and 9% of contributory variable
compensation. UBS also pays risk contributions which are used to
finance benefits paid out in the event of death and disability, as
well as to finance bridging pensions.
The benefits include retirement benefits and disability, death
and survivor pensions. The pension plan offers to members at the
normal retirement age of 64 a choice between a lifetime pension
with or without full restitution and a partial or full lump sum pay-
ment. Members can draw retirement benefits early from the age
of 58. The amount of pension payable is a result of the conver-
sion rate applied on the accumulated balance of the individual
plan participant’s pension account at the retirement date. The
accumulated balance of each individual plan participant’s pen-
sion account is based on credited vested benefits transferred
from previous employers, purchases of benefits and the em-
ployee and employer contributions that have been made to the
pension account of each individual plan participant, as well as
the interest accrued on the accumulated balance. The interest
rate accrued is defined annually by the Pension Foundation
Board.
Although the Swiss pension plan is based on a defined contri-
bution promise under Swiss pension law, it is accounted for as a
defined benefit plan under IAS 19, primarily because of the obli-
gation to accrue interest on the pension accounts and the pay-
ment of lifetime pensions. The actuarial assumptions used for the
Swiss pension plan are based on the local economic environment.
➔ Refer to Note 1a item 24 for a description of the accounting
policy for defined benefit pension plans
The Swiss pension plan is governed by the Pension Foundation
Board as required by the Swiss pension law. The responsibilities of
the Pension Foundation Board are defined by Swiss pension law
and by the plan rules. According to Swiss pension law, a tempo-
rary limited underfunding is permitted. However, the Pension
Foundation Board is required to take the necessary measures to
ensure that full funding can be expected to be restored within a
period up to a maximum of ten years. Under Swiss pension law, if
the Swiss pension plan became significantly underfunded on a
Swiss pension law basis, additional employer and employee con-
tributions could be required. In these situations, the risk is shared
between employer and employees, and the employer is not le-
gally obliged to cover more than 50% of the additional contribu-
tions required. The Swiss pension plan has a technical funding
ratio under Swiss pension law of 123.7% as of 31 December
2014 (31 December 2013: 127.0%).
Note 28 Pension and other post-employment benefit plans (continued) The investment strategy of the Swiss plan is implemented
based on a multi-level investment and risk management process
and is in line with Swiss pension law, including the rules and regu-
lations relating to diversification of plan assets. These rules,
among others, specify restrictions to the composition of plan as-
sets (e.g., limit of 50% for investments in equities). The investment
strategy of the Swiss plan is aligned to the defined risk budget set
out by the Pension Foundation Board. The risk budget is deter-
mined based on regularly performed asset and liability manage-
ment analyses. In order to implement the risk budget, the Swiss
plan may use direct investments, investment funds and deriva-
tives. To mitigate foreign currency risk, a specific currency hedging
strategy was implemented. The Pension Foundation Board strives
for a medium and long-term balance between assets and liabili-
ties. Under IAS 19, volatility arises in the Swiss pension plan net
asset / liability because the fair value of the plan assets is not di-
rectly correlated to movements in the value of the plan’s defined
benefit obligation in the short term.
The employer contributions expected to be made to the Swiss
pension plan in 2015 are estimated to be CHF 486 million.
As of 31 December 2014, the Swiss pension plan was in a
deficit situation on an IFRS measurement basis, as the defined
benefit obligation exceeded the fair value of plan assets by CHF
25 million. On the same measurement basis, as of 31 December
2013, the Swiss pension plan had a surplus of CHF 1,760 million.
A surplus can only be recognized on the balance sheet to the ex-
tent that it does not exceed the estimated future economic ben-
efit, which is the difference between the estimated future net
service cost and the estimated future employer contributions. As
of 31 December 2013, the estimated future economic benefit
was CHF 952 million and hence, this was the amount recognized
as net defined benefit asset on the balance sheet. The difference
of CHF 808 million between the pension plan surplus and the
estimated future economic benefit, the so-called asset ceiling ef-
fect, was recognized as a loss in other comprehensive income in
2013, which was reversed in 2014.
Non-Swiss pension plans
The non-Swiss locations of UBS offer various pension plans in
accordance with local regulations and practices. The locations
with significant defined benefit plans are the UK, the US and
Germany. The remaining non-major plans are located mainly in
Asia Pacific, Europe and the Americas. As these other plans are
not significant to the financial results of UBS, no specific disclo-
sure is provided.
The non-Swiss pension plans provide benefits in the event of re-
tirement, death or disability. The level of benefits provided depends
on the specific rate of benefit accrual and the level of employee
compensation. The amounts shown for the non-Swiss pension
plans reflect the net funded positions of the significant non-Swiss
pension plans. UBS’s general principle is to ensure that the plans are
appropriately funded under local pension regulations in each coun-
try and this is the primary driver for determining when additional
contributions are required. Similar to the Swiss pension plan, volatil-
ity arises in the non-Swiss pension plans’ net asset / liability because
the fair value of the plan assets is not directly correlated to move-
ments in the value of the plans’ defined benefit obligation.
The employer contributions expected to be made to these pen-
sion plans in 2015 are estimated to be CHF 107 million. The fund-
ing policy for these plans is consistent with local government
regulations and tax requirements. The actuarial assumptions used
for the non-Swiss pension plans are based on the local economic
environment.
➔ Refer to Note 1a item 24 for a description of the accounting
policy for defined benefit pension plans
UK
The UK plan is a career average revalued earnings scheme and
benefits increase automatically based on UK price inflation. Nor-
mal retirement age for participants in the UK plan is 60. The plan
is closed to new entrants, who instead can participate in a de-
fined contribution plan. On 1 July 2013, UBS closed the UK de-
fined benefit pension plan for future service. After that date, UBS
no longer recognizes current service costs for this plan. The clo-
sure of the plan for future service did not have a financial impact
since the UK plan is a career average plan and past service ben-
efits are indexed to UK price inflation. Plan participants who were
active employees under the defined benefit plan were eligible to
become participants of the defined contribution plan for any ser-
vice after the plan was closed for future service.
The responsibility for governance of the UK plan lies jointly
with the Pension Trustee Board, which is required under local
pension laws, and UBS. The employer contributions to the pen-
sion fund included regular contributions and specific deficit
funding contributions up to the date of the closure of the UK
plan for future service and thereafter represent agreed deficit
funding contributions. The employer contributions are deter-
mined based on the most recent actuarial valuation which is
conducted based on assumptions agreed by the Pension Trustee
Board and UBS. In the event of an underfunding, UBS must
agree to a deficit recovery plan with the Pension Trustee Board
within statutory deadlines. As the plan’s obligation is to provide
guaranteed lifetime pension benefits to plan participants upon
retirement, increases in life expectancy will result in an increase in
the plan’s liabilities. This is particularly significant in the UK plan
where inflationary increases result in higher sensitivity to changes
in the life expectancy.
The plan assets are invested in a diversified class of assets and
a portion of the plan assets are invested in a liability-driven invest-
ment approach focusing on the investment in inflation-indexed
bonds which provide a partial hedge against price inflation. If
price inflation increases, the defined benefit obligation will likely
increase more significantly than any change in the fair value of
plan assets. This would result in an increase in the net defined
505
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
benefit liability. However, based on the plan rules and due to local
pension legislation, there are caps on the level of inflationary in-
crease applied to plan benefits.
US
There are two distinct major defined benefit pension plans in the
US. Normal retirement age for participants in the US plans is 65.
The plans are closed to new entrants, who instead can participate
in defined contribution plans.
One defined benefit pension plan is a contribution-based plan
where each participant accrues a percentage of salary in a pen-
sion account. The pension account is credited annually with inter-
est based on a rate that is linked to the yield on a US government
bond. Upon retirement, the plan participant can elect to receive
the retirement benefit as a lump sum or a lifetime pension. The
other plan provides a lifetime pension which is based on the ca-
reer average earnings of each individual plan participant.
There are pension plan fiduciaries for both defined benefit
pension plans as required under local state pension laws. The fi-
duciaries, jointly with UBS, are responsible for the governance of
the plans. Actuarial valuations are regularly completed for the
plans and UBS has historically elected to make contributions to
the plans in order to at least maintain a funded ratio of 80% as
calculated under local pension regulations. The annual employer
contributions are equal to the present value of benefits accrued
each year plus a rolling amortization of any prior underfunding. If
the employer contributes more than the minimum or the plan has
assets exceeding the liabilities, the excess can be used to offset
minimum funding requirements.
tion. Derivative instruments may be employed to manage volatil-
ity, including (but not limited to) interest rate futures, equity
futures and swaps (including credit default and interest rate
swaps).
In 2013, UBS offered to certain deferred vested members of
the US pension plans the option to receive a lump sum payment
(or early annuity payments) instead of a lifetime pension. This re-
sulted in a reduction of the defined benefit obligation of CHF 196
million, a reduction of fair value of plan assets of CHF 216 million
and a charge to the income statement of CHF 20 million in 2013.
Germany
There are two different defined benefit pension plans in Germany
and both are contribution-based plans. No plan assets are set
aside to fund these plans and benefits are directly paid by UBS.
Normal retirement age for the participants in the German plans
is 65. Within the larger of the two pension plans, each participant
accrues a percentage of salary in a pension account. On an annual
basis the accumulated account balance of the plan participant is
credited with guaranteed interest at a rate of 5%. The other plan
is a deferred compensation plan in which amounts are accrued
annually based on employee elections. For the deferred compen-
sation plan, the accumulated account balance is credited on an
annual basis with a guaranteed interest rate of 4% for amounts
accrued after 2009. Both German plans are regulated under Ger-
man pension law under which the responsibility to pay pension
benefits when they are due is entirely the responsibility of UBS.
For the German plans, a portion of the pension payments is di-
rectly increased in line with price inflation.
The plan assets are invested in a diversified portfolio of finan-
cial assets. Each pension plan’s fiduciaries are responsible for the
investment decisions with respect to the plan assets. A liability-
driven investment approach is applied for one of the US plans to
support the volatility management in the net asset / liability posi-
The table on the following pages provides an analysis of the
movement in the net asset / liability recognized on the balance
sheet for defined benefit pension plans from the beginning to the
end of the year, as well as an analysis of amounts recognized in
net profit and in other comprehensive income.
506
Note 28 Pension and other post-employment benefit plans (continued) Note 28 Pension and other post-employment benefit plans (continued)
Defined benefit pension plans
CHF million
For the year ended
Swiss
Non-Swiss
Total
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
Defined benefit obligation at the beginning of the year
20,738
21,901
4,670
4,773
25,408
26,674
Current service cost
Interest expense
Plan participant contributions
Remeasurements of defined benefit obligation
of which: actuarial (gains) / losses arising from changes in demographic assumptions
of which: actuarial (gains) / losses arising from changes in financial assumptions
of which: experience (gains) / losses 1
Past service cost related to plan amendments
Curtailments
Benefit payments
Termination benefits
Foreign currency translation
Defined benefit obligation at the end of the year
of which: amounts owing to active members
of which: amounts owing to deferred members
of which: amounts owing to retirees
Fair value of plan assets at the beginning of the year
Return on plan assets excluding amounts included in interest income
Interest income
Employer contributions – excluding termination benefits
Employer contributions – termination benefits
Plan participant contributions
Benefit payments
Administration expenses, taxes and premiums paid
Payments related to plan amendments
Foreign currency translation
Fair value of plan assets at the end of the year
Asset ceiling effect
Net defined benefit asset / (liability)
Movement in the net asset / (liability) recognized on the balance sheet
Net asset / (liability) recognized on the balance sheet at the beginning of the year
Net periodic pension cost
Amounts recognized in other comprehensive income
Employer contributions – excluding termination benefits
Employer contributions – termination benefits
Foreign currency translation
Net asset / (liability) recognized on the balance sheet at the end of the year
Funded and unfunded plans
Defined benefit obligation from funded plans
Defined benefit obligation from unfunded plans
Plan assets
Surplus / (deficit)
Asset ceiling effect
Net defined benefit asset / (liability)
496
465
202
3,120
66
2,705
349
0
(54)
549
399
197
(1,124)
0
(1,114)
(10)
0
(37)
(1,045)
(1,183)
34
0
23,956
11,480
0
12,477
22,498
1,262
513
478
34
202
(1,045)
(10)
0
0
36
0
20,738
9,841
0
10,897
21,783
803
403
470
36
197
(1,183)
(11)
0
0
23,931
22,498
0
(25)
808
952
952
(458)
(1,032)
478
34
0
(25)
(118)
(555)
1,119
470
36
0
952
10
217
0
619
70
669
(121)
0
0
(172)
0
297
5,642
624
2,756
2,261
3,768
195
183
181
0
0
(172)
(6)
0
261
4,410
0
(1,231)
(903)
(50)
(424)
181
0
(36)
21
199
0
105
(23)
3
125
(196)
0
(204)
0
(26)
4,670
710
2,249
1,711
3,783
154
162
125
0
0
(204)
(5)
(216)
(31)
3,768
0
(903)
(990)
(82)
49
125
0
(5)
(1,231)
(903)
(1,256)
23,956
20,738
0
23,931
(25)
0
(25)
0
22,498
1,760
808
952
5,249
392
4,410
(1,231)
0
(1,231)
4,365
306
3,768
(903)
0
(903)
29,205
392
28,341
(1,256)
0
(1,256)
506
682
202
3,739
136
3,374
228
0
(54)
569
597
197
(1,019)
(23)
(1,111)
115
(196)
(37)
(1,218)
(1,388)
34
297
29,598
12,104
2,756
14,738
26,266
1,457
697
659
34
202
36
(26)
25,408
10,551
2,249
12,608
25,566
957
565
595
36
197
(1,218)
(1,388)
(16)
0
261
(16)
(216)
(31)
28,341
26,266
0
(1,256)
50
(508)
(1,456)
659
34
(36)
808
50
(1,108)
(638)
1,168
595
36
(5)
50
25,102
306
26,266
857
808
50
1 Experience (gains) / losses are a component of actuarial remeasurements of the defined benefit obligation which reflect the effects of differences between the previous actuarial assumptions and what has actually
occurred.
507
Financial information Financial information
Notes to the UBS Group AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
Analysis of amounts recognized in net profit
CHF million
For the year ended
Current service cost
Interest expense related to defined benefit obligation
Interest income related to plan assets
Interest expense on asset ceiling effect
Administration expenses, taxes and premiums paid
Plan amendments
Curtailments
Termination benefits
Net periodic pension cost
Analysis of amounts recognized in other comprehensive income
CHF million
For the year ended
Remeasurement of defined benefit obligation
Return on plan assets excluding amounts included in interest income
Asset ceiling effect excluding interest expense on asset ceiling effect
Interest expense on asset ceiling effect
Swiss
Non-Swiss
Total
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
496
465
(513)
19
10
0
(54)
34
458
549
399
(403)
0
11
0
(37)
36
555
10
217
(183)
0
6
0
0
0
50
21
199
(162)
0
5
20
0
0
82
506
682
(697)
19
16
0
(54)
34
508
569
597
(565)
0
16
20
(37)
36
638
Swiss
Non-Swiss
Total
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
(3,120)
1,262
808
19
1,124
803
(808)
0
(619)
195
0
0
(424)
(416)
(8)
(105)
154
0
0
49
(3,739)
1,457
808
19
1,019
957
(808)
0
(1,456)
1,168
(1,412)
(44)
Total gains / (losses) recognized in other comprehensive income, before tax
(1,032)
1,119
of which: gains / (losses) recognized in other comprehensive income attributable
to UBS Group AG shareholders
of which: gains / (losses) recognized in other comprehensive income attributable
to non-controlling interests
(995)
(36)
The table below provides information on the duration of the defined benefit pension obligations and the distribution of the timing of
benefit payments.
Swiss
Non-Swiss 1
Duration of the defined benefit obligation (in years)
Maturity analysis of benefits expected to be paid
CHF million
Benefits expected to be paid within 12 months
Benefits expected to be paid between 1 to 3 years
Benefits expected to be paid between 3 to 6 years
Benefits expected to be paid between 6 to 11 years
Benefits expected to be paid between 11 to 16 years
Benefits expected to be paid in more than 16 years
1 The duration of the defined benefit obligation represents a weighted average across non-Swiss plans.
31.12.14
16.7
31.12.13
15.1
31.12.14
17.9
31.12.13
18.9
1,033
2,023
3,035
5,394
5,571
26,613
1,033
2,051
3,008
5,630
5,874
28,915
165
344
596
1,253
1,510
9,289
151
321
555
1,168
1,422
8,970
The tables below show the principal actuarial assumptions used in calculating the defined benefit obligations.
Principal actuarial assumptions used (%)
Assumptions used to determine defined benefit obligations at the end of the year
Discount rate
Rate of salary increase
Rate of pension increase
Rate of interest credit on retirement savings
1 Represents weighted average assumptions across non-Swiss plans.
508
Swiss
Non-Swiss1
31.12.14
31.12.13
31.12.14
31.12.13
1.15
2.40
0.00
1.40
2.30
2.50
0.00
2.55
3.66
3.01
2.97
1.13
4.64
3.15
3.30
1.12
Mortality tables and life expectancies for major plans
Country
Switzerland
UK
US
Germany
Country
Switzerland
UK
US
Germany
Mortality table
BVG 2010 G
S1NA_L CMI 2014 G, with projections 1
RP2014 G, with MP2014 projection scale 2
Dr. K. Heubeck 2005 G
Mortality table
BVG 2010 G
S1NA_L CMI 2014 G, with projections 1
RP2014 G, with MP2014 projection scale 2
Dr. K. Heubeck 2005 G
Life expectancy at age 65 for a male member currently
aged 65
aged 45
31.12.14
31.12.13
31.12.14
31.12.13
21.4
24.4
21.7
19.9
21.3
24.4
19.3
19.7
23.2
27.2
23.4
22.5
23.1
27.3
19.3
22.4
Life expectancy at age 65 for a female member currently
aged 65
aged 45
31.12.14
31.12.13
31.12.14
31.12.13
23.9
25.7
23.9
23.9
23.8
25.5
21.1
23.8
25.6
28.0
25.6
26.5
25.5
27.8
21.1
26.3
1 In 2013 the mortality table S1NA_L CMI 2010 G, with projections was used. 2 In 2013 the mortality table PPA mandated mortality table per IRC 1.430(h)(3) was used.
Volatility arises in the defined benefit obligation for each of the
pension plans due to the following actuarial assumptions applied in
the measurement of the defined benefit obligation:
– Discount rate: the discount rate is based on the yield of high-
quality corporate bonds of the market in the respective pen-
sion plan country. Consequently, a decrease in the yield of
high-quality corporate bonds will increase the defined benefit
obligation of the pension plans. Conversely, an increase in the
yield of high-quality corporate bonds will decrease the defined
benefit obligation of the pension plans.
– Rate of salary increase: an increase in the salary of plan partici-
pants will generally increase the defined benefit obligation,
specifically for the Swiss and German plans. For the UK plan, as
the plan is closed for future service, UBS employees are not
accruing future service benefits and thus salary increases have
no impact on the defined benefit obligation. For the US plans,
only a small percentage of the total population continues to
accrue benefits for future service thus the impact of a salary
increase on the defined benefit obligation is minimal.
– Rate of pension increase: for the Swiss plan, there is no auto-
matic indexing of pensions. Any increase would be decided by
the Pension Foundation Board. Similarly, for the US plans, there
is no automatic indexing of pensions. For the UK plan, pensions
are automatically indexed to price inflation as per plan rules
and local pension legislation. Similarly, the German defined
benefit pension plans are automatically indexed and a portion
of the pensions are directly increased by price inflation. An
increase in price inflation in the UK and Germany will increase
the plan’s defined benefit obligation.
– Rate of interest credit on retirement savings: the plan in Swit-
zerland and one of the plans in the US have retirement saving
balances which are increased annually by an interest credit
rate. For these plans, an increase in the interest credit rate
would increase the plan’s defined benefit obligation.
– Life expectancy: for most of UBS’s defined benefit pension
plans, the pension plan’s obligation is to provide guaranteed
lifetime pension benefits. The defined benefit obligation for all
plans are calculated using an underlying best estimate of the life
expectancy of plan participants. An increase in the life expec-
tancy of plan participants will increase the plan’s defined benefit
obligation.
The table on the following page presents a sensitivity analysis
for each significant actuarial assumption showing how the de-
fined benefit obligation would be affected by changes in the rel-
evant actuarial assumption that were reasonably possible at the
balance sheet date. Unforeseen circumstances may arise, which
could result in variations that are outside the range of alternatives
deemed reasonably possible. This sensitivity analysis applies to the
defined benefit obligation only and not to the net defined benefit
asset / (liability) in its entirety. Caution should be used in extrapo-
lating the sensitivities below to the overall impact on the defined
benefit obligation as the sensitivities may not be linear.
509
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Sensitivity analysis of significant actuarial assumptions 1
CHF million
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Rate of salary increase
Increase by 50 basis points
Decrease by 50 basis points
Rate of pension increase
Increase by 50 basis points
Decrease by 50 basis points
Rate of interest credit on retirement savings
Increase by 50 basis points
Decrease by 50 basis points
Life expectancy
Increase in longevity by one additional year
Swiss plan: increase / (decrease)
in defined benefit obligation
Non-Swiss plans: increase / (decrease)
in defined benefit obligation
31.12.14
31.12.13
31.12.14
31.12.13
(1,688)
1,936
210
(198)
1,315
– 2
334
(315)
755
(1,301)
1,471
142
(138)
1,007
– 2
270
(259)
561
(470)
535
2
(2)
422
(370)
9
(8)
180
(411)
472
1
(1)
391
(340)
7
(6)
132
1 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded. 2 As the assumed rate of pension
increase was 0% as of 31 December 2014 and as of 31 December 2013, a downward change in assumption is not applicable.
510
Note 28 Pension and other post-employment benefit plans (continued) The table below provides information on the composition and fair value of plan assets of the Swiss pension plan and the non-Swiss
pension plans.
Composition and fair value of plan assets
Swiss plan
31.12.14
31.12.13
Plan asset
allocation %
Fair value
Plan asset
allocation %
CHF million
Cash and cash equivalents
Real estate / property
Domestic
Investment funds
Equity
Domestic
Foreign
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Foreign
Other
Other investments
Total
Total fair value of plan assets
of which:
Bank accounts at UBS and UBS debt instruments
UBS shares
Securities lent to UBS 2
Property occupied by UBS
Derivative financial instruments, counterparty UBS 2
Structured products, counterparty UBS
Fair value
Quoted in
an active
market
829
Other
0
Total
829
0
2,582
2,582
798
6,245
2,591
0
6,418
104
0
2,513
0
19,499
0
994
0
0
0
0
104
736
17
798
7,239
2,591
0
6,418
104
104
3,249
17
4,432
23,931
100
31.12.14
23,931
385
38
921
87
(357)
42
Quoted in
an active
market
113
Other
0
Total
113
0
2,523
2,523
617
5,935
3,018
0
6,867
752
0
1,220
0
18,523
0
827
0
0
0
0
124
486
15
617
6,761
3,018
0
6,867
752
124
1,707
15
3
11
3
30
11
0
27
0
0
14
0
1
11
3
30
13
0
31
3
1
8
0
3,975
22,498
100
31.12.13
22,498
119
32
1,001
143
287
122
1 The bond credit ratings are primarily based on Standard & Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit
ratings from other rating agencies were used, these were converted to the equivalent rating in the Standard & Poor’s rating classification. 2 Securities lent to UBS and derivative financial instruments are presented
gross of any collateral. Net of collateral, derivative financial instruments amounted to CHF (123) million as of 31 December 2014 (31 December 2013: CHF 14 million). Securities lent to UBS were fully covered by collateral
as of 31 December 2014 and 31 December 2013.
511
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
Non-Swiss plans
31.12.14
31.12.13
Fair value
Quoted in
an active
market
Other
224
104
10
24
3
0
372
1,300
1,486
193
123
157
43
33
0
17
5
4,094
0
0
0
0
0
0
0
0
0
0
0
0
112
178
17
0
10
317
Weighted
average
plan asset
allocation %
5
2
0
1
0
0
8
29
34
4
3
4
4
5
0
0
0
Total
224
104
10
24
3
0
372
1,300
1,486
193
123
157
155
211
17
17
14
Fair value
Quoted in
an active
market
173
66
42
10
7
1
639
1,012
1,061
208
100
62
0
45
0
0
0
4,410
100
3,426
Weighted
average
plan asset
allocation %
5
2
1
0
0
0
17
27
28
6
4
2
3
5
0
0
0
Total
173
66
42
10
7
1
641
1,012
1,061
208
135
83
103
205
15
0
5
3,768
100
Other
0
0
0
0
0
0
3
0
0
0
35
21
103
160
15
0
5
342
CHF million
Cash and cash equivalents
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Private equity
Investment funds
Equity
Domestic
Foreign
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Other
Insurance contracts
Asset-backed securities
Other investments
Total fair value of plan assets
1 The bond credit ratings are primarily based on Standard & Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit
ratings from other rating agencies were used, these were converted to the equivalent rating in the Standard & Poor’s rating classification.
512
b) Post-retirement medical and life insurance plans
In the US and the UK, UBS offers post-retirement medical benefits
that contribute to the health care coverage of certain employees
and their beneficiaries after retirement. The UK post-retirement
medical plan is closed to new entrants. In the US, in addition to
post-retirement medical benefits, UBS also provides post-retire-
ment life insurance benefits to certain employees. The post-retire-
ment medical benefits in the UK and the US cover all types of
medical expenses including, but not limited to, cost of doctor
visits, hospitalization, surgery and pharmaceuticals. These plans
are not pre-funded plans and costs are incurred as amounts are
paid. In the US, the retirees contribute to the cost of the post-re-
tirement medical benefits.
In 2014, UBS announced changes to the US post-retirement
medical plans in relation to a reduction or elimination of the subsidy
provided for medical benefits. This change reduced the post-retire-
ment benefit obligation by CHF 33 million, resulting in a corre-
sponding gain recognized in the income statement in 2014.
Further in 2014, UBS announced changes to the US post-re-
tirement life insurance plans in relation to an elimination of the
US post-retirement life insurance policy. This change reduced the
post-retirement benefit obligation by CHF 8 million, resulting in a
corresponding gain recognized in the income statement in 2014.
In 2013, UBS announced changes to one of the US post-retire-
ment medical plans in relation to the eligibility criteria and cost
sharing. This change reduced the post-retirement benefit obliga-
tion by CHF 9 million, resulting in a corresponding gain recog-
nized in the income statement in 2013.
Further in 2013, UBS announced a change to the other US post-
retirement medical plan in relation to coverage for prescription
drugs. This plan change reduced the post-retirement benefit obli-
gation by CHF 8 million, resulting in a corresponding gain recog-
nized in the income statement in 2013.
The employer contributions expected to be made to the post-
retirement medical and life insurance plans in 2015 are estimated
to be CHF 9 million.
The table on the following page provides an analysis of the
net asset / liability recognized on the balance sheet for post-retire-
ment medical and life insurance plans from the beginning to the
end of the year, as well as an analysis of amounts recognized in
net profit and in other comprehensive income.
513
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Post-retirement medical and life insurance plans
CHF million
For the year ended
Post-retirement benefit obligation at the beginning of the year
Current service cost
Interest expense
Plan participant contributions
Remeasurements of post-retirement benefit obligation
of which: actuarial (gains) / losses arising from changes in demographic assumptions
of which: actuarial (gains) / losses arising from changes in financial assumptions
of which: experience (gains) / losses 1
Past service cost related to plan amendments
Benefit payments 2
Foreign currency translation
Post-retirement benefit obligation at the end of the year
of which: amounts owing to active members
of which: amounts owing to deferred members
of which: amounts owing to retirees
Fair value of plan assets at the end of the year
Net post-retirement benefit asset / (liability)
Analysis of amounts recognized in net profit
Current service cost
Interest expense related to post-retirement benefit obligation
Past service cost related to plan amendments
Net periodic cost
Analysis of gains / (losses) recognized in other comprehensive income
Remeasurement of post-retirement benefit obligation
Total gains / (losses) recognized in other comprehensive income, before tax
of which: gains / (losses) recognized in other comprehensive income attributable to UBS Group AG shareholders
of which: gains / (losses) recognized in other comprehensive income attributable to non-controlling interests
31.12.14
114
31.12.13
136
1
6
2
(3)
(1)
(10)
8
(17)
(9)
(2)
114
15
0
99
0
(114)
1
6
(17)
(11)
3
3
0
5
2
5
4
8
(7)
(41)
(10)
10
85
12
0
74
0
(85)
0
5
(41)
(36)
(5)
(5)
(5)
0
1 Experience (gains) / losses are a component of actuarial remeasurements of the post-retirement benefit obligation which reflect the effects of differences between the previous actuarial assumptions and what has
actually occurred. 2 Benefits payments are funded by employer contribution and plan participant contributions.
514
Note 28 Pension and other post-employment benefit plans (continued) The post-retirement benefit obligation is determined by using the
assumed average health care cost trend rate, the discount rate
and the life expectancy. On a country-by-country basis, the same
discount rate is used for the calculation of the post-retirement
benefit obligation from medical and life insurance plans as for the
defined benefit obligations arising from pension plans.
The discount rate and the assumed average health care cost
trend rates are presented in the table below. The basis for life ex-
pectancy assumptions is the same as provided for defined benefit
pension plans in Note 28a.
Principal weighted average actuarial assumptions used (%) 1
Assumptions used to determine post-retirement benefit obligations at the end of the year
For the year ended
Discount rate
Average health care cost trend rate – initial
Average health care cost trend rate – ultimate
1 The assumptions for life expectancies are provided within Note 28a.
31.12.14
31.12.13
3.84
6.44
5.19
4.77
6.81
5.12
Volatility arises in the post-retirement benefit obligation for each
of the post-retirement medical and life insurance plans due to the
following actuarial assumptions applied in the measurement of
the post-retirement benefit obligation:
– Discount rate: similar as for defined benefit pension plans, a
decrease in the yield of high-quality corporate bonds will in-
crease the post-retirement benefit obligation for these plans.
Conversely, an increase in the yield of high-quality corporate
bonds will decrease the post-retirement benefit obligation for
these plans.
– Average health care cost trend rate: an increase in health care
costs would generally increase the post-retirement benefit
obligation.
– Life expectancy: as some plan participants have lifetime bene-
fits under these plans, an increase in life expectancy would in-
crease the post- retirement benefit obligation.
The table below presents a sensitivity analysis for each significant
actuarial assumption showing how the post-retirement benefit
obligation would have been affected by changes in the relevant
actuarial assumption that were reasonably possible at the balance
sheet date.
Sensitivity analysis of significant actuarial assumptions 1
CHF million
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Average health care cost trend rate
Increase by 100 basis points
Decrease by 100 basis points
Life expectancy
Increase in longevity by one additional year
Increase / (decrease) in
post-retirement benefit obligation
31.12.14
31.12.13
(4)
4
3
(2)
7
(6)
7
9
(8)
7
1 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded.
c) Defined contribution plans
UBS also sponsors a number of defined contribution plans in its
non-Swiss locations. The locations with significant defined contri-
bution plans are the UK and the US. Certain plans permit employ-
ees to make contributions and earn matching or other contribu-
tions from UBS. The employer contributions to these plans are
recognized as an expense which, for the years ended 31 December
2014, 2013 and 2012, amounted to CHF 244 million, CHF 236
million and CHF 240 million, respectively.
515
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
d) Related party disclosure
UBS is the principal bank for the pension fund of UBS in Switzer-
land. In this function, UBS is engaged to execute most of the
pension fund’s banking activities. These activities can include, but
are not limited to, trading and securities lending and borrowing.
All transactions have been executed under arm’s length condi-
tions. The non-Swiss UBS pension funds do not have a similar
banking relationship with UBS.
In 2008, UBS sold certain bank-occupied properties to the
Swiss pension fund. Simultaneously, UBS and the Swiss pension
fund entered into lease-back arrangements for some of the prop-
erties with 25-year lease terms and two renewal options for 10
years each. During 2009, UBS renegotiated one of the lease con-
tracts, which reduced UBS’s remaining lease commitment. In
2013, after the first five years, the early break options for most of
the leases were not exercised, which resulted in an increase in the
minimum commitment for an additional five years. As of 31 De-
cember 2014, the minimum commitment toward the Swiss pen-
sion fund under the related leases is approximately CHF 14 million
(31 December 2013: CHF 19 million).
The following amounts have been received or paid by UBS
from and to the pension funds in respect of these banking activi-
ties and arrangements.
Related party disclosure
CHF million
Received by UBS
Fees
Paid by UBS
Rent
Interest
Dividends and capital repayments
The transaction volumes in UBS shares and other UBS securities are as follows.
Transaction volumes – related parties
Financial instruments bought by pension funds
UBS shares 1 (in thousands of shares)
UBS debt instruments (par values in CHF million)
Financial instruments sold by pension funds or matured
UBS shares 1 (in thousands of shares)
UBS debt instruments (par values in CHF million)
For the year ended
31.12.14
31.12.13
31.12.12
33
6
0
4
33
8
1
2
31
9
1
0
For the year ended
31.12.14
31.12.13
2,092
4
1,735
4
1,459
5
2,293
8
1 Represents purchases / sales of UBS AG shares up to 28 November 2014 and purchases / sales of UBS Group AG shares thereafter. Refer to Note 32 for more information.
Details of the fair value of the plan assets of the defined pension
plans are disclosed in Note 28a. In addition, UBS defined contri-
bution pension funds held 16,253,804 UBS Group AG shares
with a fair value of CHF 276 million as of 31 December 2014
(31 December 2013: 16,192,501 UBS AG shares with a fair value
of CHF 278 million).
516
Note 28 Pension and other post-employment benefit plans (continued) a) Plans offered
UBS operates several equity participation and other compensation
plans to align the interests of executives, managers and staff with
the interests of shareholders. Some plans (e.g., Equity Plus and
Equity Ownership Plan) are granted to eligible employees in ap-
proximately 50 countries and are designed to meet the legal, tax
and regulatory requirements of each country in which they are
offered. Certain plans are used in specific countries, business areas
(e.g., awards granted within Wealth Management Americas), or
are offered to members of the Group Executive Board (GEB) only.
UBS operates compensation plans on a mandatory, discretionary
and voluntary basis. The explanations below provide a general de-
scription of the terms of the most significant plans which relate to
the performance year 2014 (awards granted in 2015) and those
from prior years that are partly expensed in 2014.
➔ Refer to Note 1a item 25 for a description of the accounting policy
related to equity participation and other compensation plans
Transfer of deferred compensation plans
As part of the Group reorganization, in the fourth quarter 2014,
UBS Group AG assumed obligations of UBS AG as grantor in con-
nection with outstanding awards under employee share, option,
notional fund and deferred cash plans. At the same time, UBS
Group AG acquired the beneficial ownership of the financial
assets and 90.5 million treasury shares of UBS Group AG held to
hedge the economic exposure arising from these plans. Obliga-
tions relating to these deferred compensation awards, which are
required to be, and have been, granted by a separate UBS subsid-
iary or local employing UBS AG branches, have not been assumed
by UBS Group AG and will continue on this basis. Furthermore,
obligations related to other compensation vehicles, such as de-
fined benefit pension plans and other local awards, have not been
assumed by UBS Group AG and are retained by the relevant em-
ploying and / or sponsoring subsidiaries or UBS AG branches.
Mandatory share-based compensation plans
Equity Ownership Plan (EOP): Selected employees receive a por-
tion of their annual performance-related compensation above a
certain threshold in the form of an EOP award in UBS shares, no-
tional shares or UBS performance shares (notional shares which
are subject to performance conditions). From February 2014 on-
wards, in general, only notional shares and UBS performance
shares are granted. Since 2011 (for the performance year 2010),
performance shares have been granted to EOP participants who
are risk-takers, Group Managing Directors or employees whose
incentive exceeds a certain threshold. The performance shares
granted in 2011 and 2012 will only vest in full if certain perfor-
mance targets are met, i.e., if the participant’s business division is
profitable (for Corporate Center participants, the Group as a
whole needs to be profitable) in the financial year preceding the
relevant vesting date. To determine if a business division is profit-
able in this context, adjustments to reported profitability may be
made based on considerations relating to risk, quality and reliabil-
ity of earnings. For performance shares granted in respect of the
performance years 2012, 2013 and 2014, the performance con-
ditions are based on the Group return on tangible equity and the
divisional return on attributed equity (for Corporate Center par-
ticipants, the return on attributed equity of the Group excluding
Corporate Center). Awards issued outside the normal perfor-
mance year cycle, such as replacement awards or sign-on awards,
may be offered in deferred cash under the EOP plan rules.
Awards in UBS shares allow for voting and dividend rights dur-
ing the vesting period, whereas notional and performance shares
represent a promise to receive UBS shares at vesting and do not
allow for voting rights during the vesting period. Notional and
performance shares granted before February 2014 have no rights
to dividends, whereas for awards granted since February 2014
employees are entitled to receive a dividend equivalent which may
be paid in notional shares and / or cash, and which will vest on the
same terms and conditions as the award. Awards granted in the
form of UBS shares, notional shares and performance shares are
settled by delivering UBS shares at vesting, except in countries
where this is not permitted for legal or tax reasons. EOP awards
granted until 2012 generally vest in three equal increments over a
three-year vesting period and awards granted since March 2013
generally vest in equal increments two and three years following
grant. The awards are generally forfeitable upon, among other
circumstances, voluntary termination of employment with UBS.
Compensation expense is recognized in the performance year if
the employee meets the retirement eligibility requirements at the
date of grant. Otherwise, compensation expense is recognized
from the grant date to the earlier of the vesting date or the retire-
ment eligibility date of the employee, on a tiered basis.
Senior Executive Equity Ownership Plan (SEEOP): Up to 2012
(performance year 2011), GEB members received a portion of
their mandatory deferral in UBS shares or notional shares, which
vest in one-fifth increments over a five-year vesting period and are
forfeitable if certain conditions are not met. Awards granted in
2011 and 2012 are subject to the same performance conditions as
performance shares granted under the EOP. They will only vest in
full if the participant’s business division is profitable (for Corporate
Center participants, the Group as a whole must be profitable) in
the financial year preceding scheduled vesting. Awards granted
under SEEOP are settled by delivering UBS shares at vesting. Com-
pensation expense is recognized on the same basis as for share-
settled EOP awards. From 2013 (performance year 2012), GEB
members have received EOP awards. No SEEOP awards were
granted for the performance years 2012, 2013 and 2014.
Incentive Performance Plan (IPP): In 2010, GEB members and
certain other senior employees received part of their annual in-
centive in the form of performance shares granted under the IPP.
517
Financial informationNote 29 Equity participation and other compensation plans Financial information
Notes to the UBS Group AG consolidated financial statements
Each performance share granted is a contingent right to receive
between one and three UBS shares at vesting, depending on the
achievement of share price targets. The IPP awards vest in full af-
ter five years (i.e., in 2015) and are subject to continued employ-
ment with UBS. Compensation expense is recognized on a tiered
basis from the grant date to the earlier of the vesting date or the
retirement eligibility date of the employee. IPP was a one-time
plan granted in 2010 only.
Performance Equity Plan (PEP): From 2010 to 2012, GEB mem-
bers received part of their annual incentive in the form of perfor-
mance shares granted under the PEP. Each performance share is a
contingent right to receive between zero and two UBS shares at
vesting, depending on the achievement of Economic Profit (EP)
and Total Shareholder Return (TSR) targets. PEP awards vest in full
after three years. EP is a risk-adjusted profit measure that takes
into account the cost of risk capital. TSR measures the total return
to UBS shareholders (in the form of share price appreciation and
dividends) as compared to the constituents of a banking index.
Vesting is subject to continued employment with UBS. Compen-
sation expense is recognized on a tiered basis from the grant date
to the earlier of the vesting date or the retirement eligibility date
of the employee. No PEP awards were granted for the perfor-
mance years 2012, 2013 and 2014.
Special Plan Award Program for the Investment Bank 2012
(SPAP): In April 2012, certain Managing Directors and Group
Managing Directors of the Investment Bank were granted an
award of UBS shares which will vest three years after grant. Vest-
ing is subject to performance conditions, continued employment
with the firm and certain other conditions. The vesting of Special
Plan awards is subject to performance conditions based on the
level of reduction in risk-weighted assets achieved and the aver-
age return on risk-weighted assets in the Investment Bank for
2012, 2013 and 2014. Compensation expense is recognized from
the grant date to the earlier of the vesting date or the retirement
eligibility date of the employee.
Role-based allowances (RBA): In line with market practice, in
certain countries, employees are entitled to receive a role-based
allowance in addition to their base salary. This allowance reflects
the market value of a specific role and is only paid as long as the
employee is within such a role. The allowance consists of a cash
portion which is paid in December and, if applicable, a deferred
UBS notional share award. The deferred portion vests in equal
portions in year 2 and year 3 respectively. Compensation expense
is recognized in the performance year if the employee meets the
retirement eligibility requirements at the date of grant. Otherwise,
compensation expense is recognized from the grant date to the
earlier of the vesting date or the retirement eligibility date of the
employee.
Mandatory deferred cash compensation plans
Deferred Contingent Capital Plan (DCCP): The DCCP is a manda-
tory performance award deferral plan for all employees whose to-
tal compensation exceeds a certain threshold. For awards granted
up to January 2015, employees received part of their annual incen-
tive in the form of notional bonds, which are a right to receive a
cash payment at vesting. For awards granted for the performance
year 2014 (granted in 2015), employees are awarded notional
additional tier 1 (AT1) instruments, which at the discretion of UBS
can either be settled in the form of a cash payment or a perpetual,
marketable AT1 instrument. Awards vest in full after five years,
subject to there being no trigger event. Awards granted under the
DCCP forfeit if UBS’s phase-in tier 1 capital ratio falls below 10%
for GEB members and 7% for all other employees. In addition,
awards are also forfeited if a viability event occurs, that is, if FINMA
provides a written notice to UBS that the DCCP must be written
down to prevent an insolvency, bankruptcy or failure of UBS, or if
UBS receives a commitment of extraordinary support from the
public sector that is necessary to prevent such an event. For GEB
members, an additional performance condition applies. If UBS
does not achieve an adjusted profit before tax for any year during
the vesting period, GEB members forfeit 20% of their award for
each loss-making year. For awards granted up to January 2015,
interest on the awards is paid annually for performance years in
which the firm generates an adjusted profit before tax. For awards
granted in 2015 for the performance year 2014, discretionary in-
terest may be paid annually on awards that vest after 5 years. The
awards are subject to standard forfeiture and harmful acts provi-
sions, including voluntary termination of employment with UBS.
Compensation expense is recognized in the performance year if
the employee meets the retirement eligibility requirements at the
date of grant. Otherwise, compensation expense is recognized rat-
ably from the grant date to the earlier of the vesting date or the
retirement eligibility date of the employee.
Long-Term Deferred Retention Senior
Incentive Scheme
(LTDRSIS): Awards granted under the LTDRSIS are granted to em-
ployees in Australia and represent a profit share amount based on
the profitability of the Australian business. Awards vest after three
years and include an arrangement which allows for unpaid install-
ments to be reduced if the business has a loss during the calendar
year preceding vesting. The awards are generally forfeitable upon
voluntary termination of employment with UBS. Compensation
expense is recognized in the performance year if the employee
meets the retirement eligibility requirements at the date of the
grant. Otherwise, compensation expense is recognized ratably
from the grant date to the earlier of the vesting date or the retire-
ment eligibility date of the employee.
Global Asset Management Equity Ownership Plan: In order to
align their compensation with the performance of the funds they
manage, Global Asset Management employees receiving EOP
awards receive them in the form of cash-settled notional funds
since 2012. The amount depends on the value of the relevant
underlying Global Asset Management funds at the time of vest-
ing. In prior years, certain Global Asset Management employees
received EOP awards in a combination of shares and cash-settled
518
Note 29 Equity participation and other compensation plans (continued) notional funds, with the amount depending on the value of the
underlying Global Asset Management funds at the time of vest-
ing. The awards are generally forfeitable upon, among other cir-
cumstances, voluntary termination of employment with UBS.
Compensation expense is recognized in the performance year if
the employee meets the retirement eligibility requirements at the
date of grant. Otherwise, compensation expense is recognized
from the grant date to the earlier of the vesting date or the retire-
ment eligibility date of the employee, on a tiered basis.
Wealth Management Americas financial advisor compensation
Financial advisor compensation plans generally provide for cash
payments and deferred awards that are formula driven and fluc-
tuate in proportion to the level of business activity.
UBS also may enter into compensation commitments with cer-
tain new financial advisors primarily as a recruitment incentive
and to incentivize certain eligible active financial advisors to
achieve specified revenue production and other performance
thresholds. The compensation may be earned and paid to the
employee during a period of continued employment and may be
forfeited under certain circumstances.
GrowthPlus is a program for selected financial advisors whose
revenue production and length of service exceeds defined thresh-
olds from 2010 through 2017. Compensation arrangements were
granted in 2010 and 2011 with potential arrangements to be
granted in 2015 and 2018. The awards vest ratably over seven
years from grant with the exception of the 2018 arrangement,
which vests over five years.
PartnerPlus is a mandatory deferred cash compensation plan
for certain eligible financial advisors. Awards (UBS company contri-
butions) are based on a predefined formula during the perfor-
mance year. Participants are also allowed to voluntarily contribute
additional amounts otherwise payable during the year, up to a
percentage of their pay, which are vested upon contribution. Com-
pany contributions and voluntary contributions are credited with
interest in accordance with the terms of the plan. Rather than be-
ing credited with interest, a participant may elect to have voluntary
contributions, along with vested company contributions, credited
with notional earnings based on the performance of various mu-
tual funds. Company contributions and interest on both company
and voluntary contributions ratably vest in 20% increments six to
ten years following grant date. Company contributions and inter-
est / notional earnings on both company and voluntary contribu-
tions are forfeitable under certain circumstances. Compensation
expense for awards is recognized in the performance year if the
employee meets the qualifying separation eligibility requirements
at the date of grant. Otherwise, compensation expense for awards
is recognized ratably commencing in the performance year to the
earlier of the vesting date or the qualifying separation eligibility
date of the employee. Compensation expense for voluntary contri-
butions is recognized in the year of deferral.
Discretionary share-based compensation plans
Key Employee Stock Appreciation Rights Plan (KESAP) and Key
Employee Stock Option Plan (KESOP): Until 2009, key and high
potential employees were granted discretionary share-settled
stock appreciation rights (SARs) or UBS options with a strike price
not less than the fair market value of a UBS share on the date the
SAR or option was granted. A SAR gives employees the right to
receive a number of UBS shares equal to the value of any appre-
ciation in the market price of a UBS share between the grant date
and the exercise date. One option gives the right to acquire one
registered UBS share at the option’s strike price. SARs and options
are settled by delivering UBS shares, except in countries where
this is not permitted for legal reasons. These awards are generally
forfeitable upon termination of employment with UBS. Compen-
sation expense is recognized from the grant date to the earlier of
the vesting date or the retirement eligibility date of the employee.
No options or SARs awards have been granted since 2009.
Voluntary share-based compensation plans
Equity Plus Plan (Equity Plus): Equity Plus is a voluntary plan that
provides eligible employees with the opportunity to purchase UBS
shares at market value and receive, at no additional cost, one free
notional UBS share for every three shares purchased, up to a max-
imum annual limit. Share purchases may be made annually from
the performance award and / or monthly through regular deduc-
tions from salary. Shares purchased under Equity Plus are restricted
from sale for a maximum of three years from the time of pur-
chase. Equity Plus awards vest after up to three years. Prior to
2010, instead of notional shares participants received two UBS
options for each share they purchased under this plan. The op-
tions had a strike price equal to the fair market value of a UBS
share on the grant date, a two-year vesting period and generally
expired ten years from the grant date. The options are forfeitable
in certain circumstances and are settled by delivering UBS shares,
except in countries where this is not permitted for legal reasons.
Compensation expense for Equity Plus is recognized from the
grant date to the earlier of the vesting date or the retirement eli-
gibility date of the employee. For awards granted from April 2014
onwards, employees are entitled to receive a dividend equivalent
which may be paid in either notional shares and / or cash.
Share delivery obligations
UBS satisfies share delivery obligations under its share-based plans
either by purchasing UBS shares in the market or through the is-
suance of new shares. As of 31 December 2014, total future
share delivery obligations in relation to employee share-based
compensation awards were 131 million shares (31 December
2013: 109 million shares), taking into account the UBS Group AG
share price at year-end 2014 as well as performance conditions.
Share delivery obligations related to unvested and vested notional
share awards, performance share awards, options and stock ap-
preciation rights.
519
Financial informationNote 29 Equity participation and other compensation plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
As of 31 December 2014, UBS held 88 million treasury shares
(31 December 2013: 73 million UBS AG shares) which were avail-
able to satisfy delivery obligations related to notional share
awards, performance share awards, options and stock apprecia-
tion rights. An additional 136 million unissued UBS Group AG
shares (31 December 2013: 139 million UBS AG shares) in condi-
tional share capital were available to satisfy the delivery obligation
related to options and stock appreciation rights. Treasury shares
held or newly issued shares are delivered to employees at exercise
or vesting.
b) Effect on the income statement
Effect on the income statement for the financial year and future
periods
The following table summarizes the compensation expenses rec-
ognized for the year ended 31 December 2014 and deferred com-
pensation expenses that will be recognized as an expense in the
income statements of 2015 and later. The deferred compensation
expenses in the table also include vested and non-vested awards
granted mainly in February 2015, which relate to the performance
year 2014.
Personnel expenses – Recognized and deferred1
Personnel expenses for the year ended 2014
Personnel expenses deferred to 2015 and later
CHF million
Performance awards
Cash performance awards
Deferred Contingent Capital Plan (DCCP)
Deferred cash plans (DCP and other cash plans)
Equity Ownership Plan (EOP / SEEOP) – UBS shares
Incentive Performance Plan (IPP)
Total UBS share plans
Equity Ownership Plan (EOP) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 5
Total
Expenses
relating to
awards for
2014
Expenses
relating to
awards for
prior years
Relating to
awards for
2014
Relating to
awards for
prior years
Total
1,822
(108)
1,714
155
0
215
0
215
24
2,216
260
2,396
39
81
23
2,539
5,015
194
12
444
21
465
41
604
206
0
636
153
57
846
1,656
349
12
659
21
680
65
2,820
466 2
2,396
675
234
80
3,385
6,671
0
312
0
459
0
459
36
807
307 3
0
524
189
41
754
1,868
0
386
8
367
0
367
33
794
340 4
0
2,058
528
143
2,729
3,863
Total
0
698
8
826
0
826
69
1,601
647
0
2,582
717
184
3,483
5,731
1 Total share-based personnel expenses recognized for the year ended 31 December 2014 were CHF 999 million and were comprised of UBS share plans of CHF 800 million, Equity Ownership Plan – notional funds of
CHF 65 million, related social security costs of CHF 41 million and other compensation plans (reported within Variable compensation – other) of CHF 93 million. 2 Includes replacement payments of CHF 81 million (of
which CHF 70 million related to prior years), forfeiture credits of CHF 70 million (all related to prior years), severance payments of CHF 162 million (all related to current year) and retention plan and other payments of
CHF 292 million (of which CHF 206 million related to prior years). 3 Includes DCCP interest expense of CHF 121 million for DCCP awards 2014 (granted in 2015). 4 Includes DCCP interest expense of CHF 161 mil-
lion for DCCP awards 2013 and 2012 (granted in 2014 and 2013). 5 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and
supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes charges related to compensation commitments with financial advisors entered into
at the time of recruitment which are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date.
520
Note 29 Equity participation and other compensation plans (continued) Personnel expenses – Recognized and deferred1
Personnel expenses for the year ended 2013
Personnel expenses deferred to 2014 and later
CHF million
Performance awards
Cash performance awards
Deferred Contingent Capital Plan (DCCP)
Deferred cash plans (DCP and other cash plans)
Equity Ownership Plan (EOP / SEEOP) – UBS shares
Performance Equity Plan (PEP)
Incentive Performance Plan (IPP)
Total UBS share plans
Equity Ownership Plan (EOP) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 5
Total
Expenses
relating to
awards for
2013
Expenses
relating to
awards for
prior years
1,942
152
2
190
0
0
190
19
2,305
152
2,219
33
62
20
2,334
4,791
(30)
96
53
466
3
33
502
60
681
136
0
605
132
69
806
1,623
Relating to
awards for
2013
Relating to
awards for
prior years
0
348
7
520
0
0
520
37
912
340 3
0
440
107
45
592
1,844
0
230
12
307
0
21
328
36
606
398 4
0
2,098
564
165
2,827
3,831
Total
1,912
248
55
656
3
33
692
79
2,986
288 2
2,219
638
194
89
3,140
6,414
Total
0
578
19
827
0
21
848
73
1,518
738
0
2,538
671
210
3,419
5,675
1 Total share-based personnel expenses recognized for the year ended 31 December 2013 were CHF 1,042 million and were comprised of UBS share plans of CHF 787 million, Equity Ownership Plan – notional funds of
CHF 79 million, related social security costs of CHF 65 million and other compensation plans (reported within Variable compensation – other) of CHF 111 million. 2 Includes replacement payments of CHF 78 million
(of which CHF 72 million related to prior years), forfeiture credits of CHF 146 million (all related to prior years), severance payments of CHF 114 million (all related to current year) and retention plan and other payments
of CHF 242 million (of which CHF 210 million related to prior years). 3 Includes DCCP interest expense of CHF 101 million for DCCP awards 2013 (granted in 2014). 4 Includes DCCP interest expense of CHF 109 mil-
lion for DCCP awards 2012 (granted in 2013). 5 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental com-
pensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes charges related to compensation commitments with financial advisors entered into at the time of re-
cruitment which are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date.
During 2014 and 2013, UBS accelerated the recognition of ex-
penses for certain deferred compensation arrangements relating
to employees that were affected by restructuring programs. Based
on the redundancy provisions of the plan rules, these employees
retain their deferred compensation awards. However, as the em-
ployees are not required to provide future service, compensation
expense relating to these awards was accelerated to the termina-
tion date based on the shortened service period. The amounts ac-
celerated and recognized relating to share-based payment awards
in 2014 and 2013 were CHF 38 million and CHF 62 million respec-
tively, and the amounts related to deferred cash awards were CHF
29 million and CHF 9 million, respectively.
UBS also shortened the service period for certain employees in
accordance with the mutually agreed termination provisions of
their deferred compensation awards. Expense recognition was ac-
celerated to the termination date. The amounts accelerated and
recognized relating to share-based payment awards in 2014 and
2013 were CHF 11 million and CHF 11 million, respectively, and
the amounts related to deferred cash awards were CHF 8 million
and CHF 3 million, respectively.
521
Financial informationNote 29 Equity participation and other compensation plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Personnel expenses – Recognized and deferred 1
CHF million
Performance awards
Cash performance awards
Deferred Contingent Capital Plan (DCCP)
Deferred cash plans (CBP, DCP and other cash plans)
Equity Ownership Plan (EOP / SEEOP) – UBS shares
Performance Equity Plan (PEP)
Incentive Performance Plan (IPP)
Total UBS share plans
UBS share option plans (KESAP / KESOP)
Equity Ownership Plan (EOP) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 4
Total
Personnel expenses for the year ended 2012
Personnel expenses deferred to 2013 and later
Expenses relating
to awards for
2012
Expenses relating
to awards for pri-
or years
1,411
145
5
135
0
0
135
0
28
1,724
424
1,957
54
54
21
2,087
4,235
(38)
0
149
995
10
62
1,067
14
84
1,276
(57)
0
579
129
78
786
2,005
Relating
to awards
for 2012
Relating
to awards
for prior years
0
361
10
383
0
0
383
0
20
774
494 3
0
587
54
66
706
1,974
0
0
87
495
4
82
581
0
46
714
71
0
2,115
620
216
2,951
3,736
Total
1,373
145
154
1,130
10
62
1,202
14
112
3,000
367 2
1,957
634
183
99
2,873
6,240
Total
0
361
97
878
4
82
964
0
66
1,488
565
0
2,702
674
282
3,657
5,710
1 Total share-based personnel expenses recognized for the year ended 31 December 2012 were CHF 1,584 million and were comprised of UBS share plans of CHF 1,261 million, UBS share option plans of CHF 14 mil-
lion, Equity Ownership Plan – AIVs of CHF 112 million, related social security costs of CHF 89 million and other compensation plans (reported within Variable compensation – other) of CHF 108 million. 2 Includes re-
placement payments of CHF 109 million (of which CHF 94 million related to prior year), forfeiture credits of CHF 174 million (prior year), severance payments of CHF 303 million (current year) and retention plan and
other payments of CHF 128 million (of which CHF 21 million related to prior year). 3 Includes DCCP interest expense of CHF 137 million. 4 Financial advisor compensation consists of grid-based compensation based
directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes charges related
to compensation commitments with financial advisors entered into at the time of recruitment which are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred expo-
sure as of the balance sheet date.
Additional disclosures on mandatory, discretionary and voluntary
share-based compensation plans (including notional funds
granted under EOP)
The total share-based personnel expenses recognized for the
years ended 31 December 2014, 2013 and 2012 were CHF 999
million, CHF 1,042 million and CHF 1,584 million, respectively.
This includes the current period expense, amortization and related
social security costs for awards issued in prior periods and perfor-
mance year expensing for awards granted to retirement-eligible
employees where the terms of the awards do not require the em-
ployee to provide future services.
The total compensation expenses for non-vested share-based
awards granted up to 31 December 2014 relating to prior years to
be recognized in future periods is CHF 634 million and will be
recognized as personnel expenses over a weighted average period
of 1.9 years. This includes UBS share plans, the Equity Ownership
Plan (notional funds), other variable compensation and the Equity
Plus Plan. Total deferred compensation amounts included in the
2014 table differ from this amount as the deferred compensation
amounts also include non-vested awards granted in February
2015 related to the performance year 2014.
Actual payments to participants in cash-settled share-based
plans, including amounts granted as notional funds issued under
the EOP, for the years ended 31 December 2014 and 2013 were
CHF 90 million and CHF 157 million, respectively. The total carry-
ing amount of the liability related to these plans was CHF 143
million as of 31 December 2014 and CHF 164 million as of 31 De-
cember 2013.
522
Note 29 Equity participation and other compensation plans (continued) c) Movements during the year
UBS share and performance share awards
Movements in UBS share and notional share awards were as follows:
UBS share awards
Outstanding, at the beginning of the year
Shares awarded during the year
Distributions during the year
Forfeited during the year
Outstanding, at the end of the year
of which: shares vested for accounting purposes
Weighted
average grant
date fair
value (CHF)
15
18
16
16
15
Number of
shares
2014
186,633,491
58,925,185
(69,921,325)
(6,859,017)
168,778,334
48,749,489
Number of
shares
2013
249,059,529
50,270,660
(99,955,951)
(12,740,747)
186,633,491
48,096,537
Weighted
average grant
date fair
value (CHF)
15
15
15
15
15
The fair value of shares that became legally vested and were distributed (i.e., all restrictions were fulfilled) during the years ended
31 December 2014 and 2013 was CHF 1,269 million and CHF 1,398 million, respectively.
Movements in performance shares granted under the IPP are as follows:
Incentive Performance Plan
Forfeitable, at the beginning of the year
Vested during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
Forfeitable, at the beginning of the year
Vested during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
2014
Number
of performance
shares 2014
13,151,023
(240,064) 2
(168,791)
12,742,168 3
12,742,168
2013
14,231,831
(8,690)
(1,072,118)
13,151,023 3
10,248,071
Weighted average fair
value of IPP
performance shares at
grant date (CHF) 1
22
22
22
22
22
22
22
22
1 The weighted average fair value takes into account the applicable performance conditions and the range of possible outcomes. 2 The corresponding number of UBS shares distributed in 2014 was 240,064. In 2013
it amounted to 8,690. 3 As of 31 December 2014 and 31 December 2013, the number of deliverable UBS shares was equal to the number of forfeitable performance shares.
523
Financial informationNote 29 Equity participation and other compensation plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Movements in performance shares granted under the PEP are as follows:
Performance Equity Plan
Forfeitable, at the beginning of the year
Vested during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
Forfeitable, at the beginning of the year
Vested during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
2014
Number
of performance
shares 2014
1,380,958
(613,427) 2
0
767,531 3
767,531
2013
1,825,199
(359,613)
(84,628)
1,380,958 3
1,041,901
Weighted average fair
value of PEP
performance shares at
grant date (CHF) 1
16
19
19
13
16
16
17
16
1 The weighted average fair value takes into account the applicable performance conditions and the range of possible outcomes. 2 The corresponding number of UBS shares distributed in 2014 was 245,371. In 2013
it amounted to 186,999. 3 As of 31 December 2014, the number of deliverable UBS shares was 337,714 based on the applicable performance conditions. As of 31 December 2013, the number of deliverable UBS
shares was 629,136 based on the applicable performance conditions.
UBS option awards
Movements in option awards were as follows:
UBS option awards
Outstanding, at the beginning of the year
Exercised during the year
Forfeited during the year
Expired unexercised
Outstanding, at the end of the year
Exercisable, at the end of the year
Number of
options
2014
133,170,139
(1,498,620)
(71,376)
(23,204,036)
108,396,107
108,396,107
Weighted
average exercise
price (CHF) 1
45
13
41
48
45
45
Number of
options
2013
158,090,564
(3,430,697)
(177,272)
(21,312,456)
133,170,139
133,170,139
Weighted
average exercise
price (CHF) 1
43
12
45
36
45
45
1 Some of the options in this table have exercise prices denominated in USD which have been converted into CHF at the year-end spot exchange rate for the purposes of this table.
The following table provides additional information about option exercises and intrinsic values:
For the year ended
Weighted average share price of options exercised (CHF)
Intrinsic value of options exercised during the year (CHF million)
31.12.14
31.12.13
18
8.0
17
17.5
524
Note 29 Equity participation and other compensation plans (continued) The following table provides additional information about options outstanding and options exercisable as of 31 December 2014:
Options outstanding
Options exercisable
Number of
options
outstanding
Weighted
average
exercise price
(CHF / USD)
Aggregate
intrinsic value
(CHF / USD
million)
Weighted
average
remaining
contractual
term (years)
Number of
options
exercisable
Weighted
average
exercise price
(CHF / USD)
Aggregate
intrinsic value
(CHF / USD
million)
Weighted
average
remaining
contractual
term (years)
10,793,042
9,205,348
25,017,920
1,654,297
11,990,393
4,154,809
38,742,444
101,558,253
956,379
5,881,475
6,837,854
11.38
18.97
31.46
35.67
49.36
60.06
67.55
37.58
42.10
61.6
4.8
0.0
0.0
0.0
0.0
0.0
66.4
0.0
0.0
0.0
3.6
3.8
2.9
2.8
0.6
1.8
1.6
0.4
0.3
10,793,042
9,205,348
25,017,920
1,654,297
11,990,393
4,154,809
38,742,444
101,558,253
956,379
5,881,475
6,837,854
11.38
18.97
31.46
35.67
49.36
60.06
67.55
37.58
42.10
61.6
4.8
0.0
0.0
0.0
0.0
0.0
66.4
0.0
0.0
0.0
3.6
3.8
2.9
2.8
0.6
1.8
1.6
0.4
0.3
Range of exercise prices
CHF Awards
10.21–15.00
15.01–25.00
25.01–35.00
35.01–45.00
45.01–55.00
55.01–65.00
65.01–75.00
10.21–75.00
USD Awards
36.62–40.00
40.01–50.00
36.62–50.00
UBS SAR awards
Movements in SAR awards were as follows:
UBS SARs awards
Outstanding, at the beginning of the year
Exercised during the year
Forfeited during the year
Expired unexercised
Outstanding, at the end of the year
Exercisable, at the end of the year
Number of SARs
2014
21,444,016
(3,575,927)
(14,500)
(164,500)
17,689,089
17,689,089
Weighted
average exercise
price (CHF)
Number of SARs
2013
Weighted
average exercise
price (CHF)
12
11
14
12
12
12
33,118,335
(10,427,263)
(57,500)
(1,189,556)
21,444,016
21,444,016
12
11
11
33
12
12
The following table provides additional information about SARs exercises and intrinsic values:
For the year ended
Weighted average share price of SARs exercised (CHF)
Intrinsic value of SARs exercised during the year (CHF million)
31.12.14
31.12.13
18
22.8
17
57.0
525
Financial informationNote 29 Equity participation and other compensation plans (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
The following table provides additional information about SARs outstanding as of 31 December 2014:
SARs outstanding
SARs exercisable
Range of exercise prices
Number of
SARs
outstanding
Weighted
average exercise
price (CHF)
Aggregate
intrinsic value
(CHF million)
Weighted
average
remaining
contractual term
(years)
Number of
SARs
exercisable
Weighted
average exercise
price (CHF)
Aggregate
intrinsic value
(CHF million)
Weighted
average
remaining
contractual term
(years)
17,290,089
4,000
57,000
338,000
17,689,089
11.34
14.22
16.80
19.25
99.4
0.0
0.0
0.0
99.4
4.0
4.5
4.4
4.7
17,290,089
4,000
57,000
338,000
17,689,089
11.34
14.22
16.80
19.25
99.4
0.0
0.0
0.0
99.4
4.0
4.5
4.4
4.7
CHF
9.35–12.50
12.51–15.00
15.01–17.50
17.51–20.00
9.35–20.00
d) Valuation
UBS share awards
UBS measures compensation expense based on the average mar-
ket price of the UBS share on the grant date as quoted on the SIX
Swiss Exchange, taking into consideration post-vesting sale and
hedge restrictions, non-vesting conditions and market conditions,
where applicable. The fair value of the share awards subject to
post-vesting sale and hedge restrictions is discounted based upon
the duration of the post-vesting restriction and is referenced to
the cost of purchasing an at-the-money European put option for
the term of the transfer restriction. The weighted average dis-
count for share and performance share awards granted during
2014 is approximately 12.9% (2013: 13.4%) of the market price
of the UBS share. The grant date fair value of notional UBS shares
without dividend entitlements also includes a deduction for the
present value of future expected dividends to be paid between
the grant date and distribution.
UBS options and SARs awards
The fair values of options and SARs have been determined using
a standard closed-formula option valuation model. The expected
term of each instrument is calculated based on historical em-
ployee exercise behavior patterns, taking into account the share
price, strike price, vesting period and the contractual life of the
instrument. The term structure of volatility is derived from the
implied volatilities of traded UBS options in combination with the
observed long-term historical share price volatility. Expected fu-
ture dividends are derived from traded UBS options or from the
historical dividend pattern. No options or SARs have been granted
since 2009.
526
Note 29 Equity participation and other compensation plans (continued) a) Interests in subsidiaries
UBS defines its significant subsidiaries as those entities that, ei-
ther individually or in aggregate, contribute significantly to the
Group’s financial position or results of operations, based on a
number of criteria, including the subsidiaries’ equity and their
contribution to the Group’s total assets and profit / (loss) before
tax, in accordance with the requirements set by IFRS 12, Swiss
regulations and the regulations of the US Securities and Ex-
change Commission (SEC).
Individually significant subsidiaries
The two tables below list the Group’s individually significant
subsidiaries as of 31 December 2014. Unless otherwise stated,
the subsidiaries listed below have share capital consisting solely of
ordinary shares, which are held fully by the Group, and the pro-
portion of ownership interest held is equal to the voting rights
held by the Group. The country where the respective registered
office is located is also generally the principal place of business.
Pillar 3 | Subsidiary of UBS Group AG as of 31 December 2014
Company
UBS AG
Registered office
Zurich and Basel, Switzerland
Share capital in million
CHF
384.5
Equity interest
accumulated in %
96.7
▲
During 2014, UBS Group AG was established as the holding company of the UBS Group. Following the share-for-share exchange, UBS
Group AG acquired 96.68% of UBS AG shares by 31 December 2014, becoming the parent company of UBS AG.
➔ Refer to Note 32 for more information
Pillar 3 | Individually significant subsidiaries of UBS AG as of 31 December 2014
Company
UBS Americas Inc.
UBS Bank USA
UBS Financial Services Inc.
UBS Limited
Registered office
Primary business division
Share capital in million
Wilmington, Delaware, USA
Investment Bank
Salt Lake City, Utah, USA
Wealth Management Americas
Wilmington, Delaware, USA
Wealth Management Americas
London, United Kingdom
Investment Bank
USD
USD
USD
GBP
USD
0.0
0.0
0.0
226.6
1,283.1 1
Equity interest
accumulated in %
100.0
100.0
100.0
100.0
100.0
UBS Securities LLC
1 Mainly comprised on non-voting preferred shares held by UBS Americas Inc. ▲
Wilmington, Delaware, USA
Investment Bank
UBS Limited and UBS Americas Inc. are fully held by UBS AG. UBS Bank USA and UBS Financial Services Inc. are fully held by UBS
Americas Inc. 30% of UBS Securities LLC is held by UBS AG and 70% by UBS Americas Inc. (after consideration of preferred shares).
527
Financial informationNote 30 Interests in subsidiaries and other entities Financial information
Notes to the UBS Group AG consolidated financial statements
Other subsidiaries
The table below lists other subsidiaries of UBS AG that are not individually significant but that contribute to the Group’s total assets
and aggregated profit before tax thresholds and are thereby disclosed in accordance with the requirements set by the US SEC.
Other subsidiaries of UBS AG as of 31 December 2014
Registered office
Primary business division
Share capital in million
Equity interest
accumulated in %
CHF
EUR
EUR
CHF
USD
AUD
EUR
CHF
USD
EUR
USD
CHF
EUR
USD
USD
JPY
SGD
USD
USD
USD
USD
THB
AUD
CAD
EUR
INR
JPY
SGD
USD
USD
0.2
95.0
15.1
150.0
0.1
46.7
568.8
0.1
0.0
176.0
0.0
1.0
13.0
5.6
0.0
2,200.0
4.0
0.1
1.0
0.0
9.0
500.0
0.3 1
10.0
15.0
140.0
46,450.0
420.4
0.0
0.1
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Company
Topcard Service AG
UBS (Italia) SpA
UBS Italia SIM SpA
UBS (Luxembourg) S.A.
Glattbrugg, Switzerland
Retail & Corporate
Milan, Italy
Milan, Italy
Wealth Management
Investment Bank
Luxembourg, Luxembourg
Wealth Management
UBS Alternative and Quantitative Investments LLC
Wilmington, Delaware, USA
Global Asset Management
UBS Australia Holdings Pty Ltd
UBS Beteiligungs-GmbH & Co. KG
UBS Card Center AG
UBS Credit Corp.
UBS Deutschland AG
UBS Fund Advisor, L.L.C.
Sydney, Australia
Frankfurt, Germany
Investment Bank
Wealth Management
Glattbrugg, Switzerland
Retail & Corporate
Wilmington, Delaware, USA
Wealth Management Americas
Frankfurt, Germany
Wealth Management
Wilmington, Delaware, USA
Wealth Management Americas
UBS Fund Management (Switzerland) AG
Basel, Switzerland
Global Asset Management
UBS Fund Management (Luxembourg) S.A.
Luxembourg, Luxembourg
Global Asset Management
UBS Fund Services (Cayman) Ltd
George Town, Cayman Islands Global Asset Management
UBS Global Asset Management (Americas) Inc.
Wilmington, Delaware, USA
Global Asset Management
UBS Global Asset Management (Japan) Ltd
Tokyo, Japan
Global Asset Management
UBS Global Asset Management (Singapore) Ltd
Singapore, Singapore
Global Asset Management
UBS Loan Finance LLC
UBS O’Connor LLC
UBS Real Estate Securities Inc.
UBS Realty Investors LLC
UBS Securities (Thailand) Ltd
UBS Securities Australia Ltd
UBS Securities Canada Inc.
UBS Securities España Sociedad de Valores SA
UBS Securities India Private Limited
UBS Securities Japan Co., Ltd.
UBS Securities Pte. Ltd.
UBS Services LLC
Wilmington, Delaware, USA
Investment Bank
Dover, Delaware, USA
Global Asset Management
Wilmington, Delaware, USA
Investment Bank
Boston, Massachusetts, USA
Global Asset Management
Bangkok, Thailand
Sydney, Australia
Toronto, Canada
Madrid, Spain
Mumbai, India
Tokyo, Japan
Singapore, Singapore
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Wilmington, Delaware, USA
Investment Bank
UBS Trust Company of Puerto Rico
Hato Rey, Puerto Rico
Wealth Management Americas
1 Includes a nominal amount relating to redeemable preference shares.
528
Note 30 Interests in subsidiaries and other entities (continued) Changes in consolidation scope
There were no material changes in the scope of consolidation in
2014.
Non-controlling interests
As a result of the share-for-share exchange, UBS Group AG recog-
nized equity attributable to non-controlling interests in its con-
solidated balance sheet and statement of changes in equity, in
relation to the 3.32% of UBS AG shares held by non-controlling
shareholders as of 31 December 2014.
Subsequent to the share-for-share exchange, UBS Group AG
recognized net profit and other comprehensive income attribut-
able to non-controlling interests relating to UBS AG in its consoli-
dated income statement and statement of comprehensive income.
In addition, the establishment of UBS Group AG as the Group’s
holding company changed the presentation of preferred notes
issued by UBS AG. In the consolidated balance sheet and state-
ment of changes in equity these instruments were reclassified
from Equity attributable to preferred noteholders to Equity attrib-
utable to non-controlling interests as they no longer represent
equity interests in the ultimate parent entity of the Group, but
rather in the subsidiary UBS AG, which satisfies the IFRS definition
of non-controlling interests. Similarly, future distributions on these
preferred notes will be presented as Net profit attributable to
non-controlling interests in the consolidated income statement
and statement of comprehensive income.
➔ Refer to the “Statement of changes in equity” and Note 32 for
more information
Non-controlling interests in subsidiaries other than UBS AG
were not material to the Group.
As of 31 December 2014 and 31 December 2013, there were
no significant restrictions on UBS’s ability to access or use the as-
sets and settle the liabilities of the Group resulting from protective
rights of non-controlling interests.
Consolidated structured entities
UBS consolidates a structured entity (SE) if it has power over the
relevant activities of the entity, exposure to variable returns and
the ability to use its power to affect its returns. Consolidated SEs
include certain investment funds, securitization vehicles, and cli-
ent investment vehicles. UBS has no individually significant sub-
sidiaries that are SEs.
Investment fund SEs are generally consolidated when the
Group’s aggregate exposure combined with its decision making
rights indicate the ability to use such power in a principal capacity.
Typically the Group will have decision making rights as fund man-
ager, earning a management fee, and will provide seed capital at
the inception of the fund or hold a significant percentage of the
fund units. Where other investors do not have the substantive
ability to remove UBS as decision maker, the Group is deemed to
control the fund and consolidates.
Securitization SEs are generally consolidated when the Group
holds a significant percentage of the asset backed securities is-
sued by the SE and has the power to remove without cause the
servicer of the asset portfolio.
Client investment SEs are generally consolidated when the
Group has a substantive liquidation right over the SE or a decision
right over the assets held by the SE and has exposure to variable
returns through derivatives traded with the SE or holding notes
issued by the SE.
In 2014 and 2013, the Group has not entered into any con-
tractual obligation that could require the Group to provide finan-
cial support to a consolidated SEs. In addition, the Group did not
provide support, financial or otherwise, to a consolidated SE
when the Group was not contractually obligated to do so, nor has
the Group an intention to do so in the future. Further, the Group
did not provide support, financial or otherwise, to a previously
unconsolidated SE which resulted in the Group controlling the SE
during the reporting period.
529
Financial informationNote 30 Interests in subsidiaries and other entities (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Pillar 3 | b) Interests in associates and joint ventures
As of 31 December 2014 and 2013, no associate or joint venture
was individually material to the Group. In addition, there were no
significant restrictions on the ability of associates or joint ventures to
transfer funds to UBS Group AG or its subsidiaries in the form of
cash dividends or to repay loans or advances made. There were no
quoted market prices for any associates or joint ventures of the
Group. ▲
Pillar 3 | Investments in associates and joint ventures
CHF million
Carrying amount at the beginning of the year
Additions
Disposals
Share of comprehensive income
of which: share of net profit 1
of which: share of other comprehensive income 2
Dividends received
Foreign currency translation
Carrying amount at the end of the year
of which: associates
of which: UBS Securities Co. Limited, Beijing 3
of which: SIX Group AG, Zurich 4
of which: other associates
of which: joint ventures
31.12.14
31.12.13
842
1
(2)
103
94
9
(54)
38
927
900
404
406
90
27
858
0
(2)
59
49
10
(69)
(4)
842
815
369
367
78
27
1 For 2014, consists of CHF 83 million from associates and CHF 11 million from joint ventures. For 2013, consists of CHF 37 million from associates and CHF 12 million from joint ventures. 2 For 2014, consists of
CHF 8 million from associates and CHF 0.1 million from joint ventures. For 2013, consists of CHF 9 million from associates and CHF 1 million from joint ventures. 3 UBS AG’s equity interest amounts to 20.0%. 4 UBS AG’s
equity interest amounts to 17.3%. UBS AG is represented on the Board of Directors. ▲
530
Note 30 Interests in subsidiaries and other entities (continued) Pillar 3 | c) Interests in unconsolidated structured entities
During 2014, the Group sponsored the creation of various SEs
and interacted with a number of non-sponsored SEs, including
securitization vehicles, client vehicles as well as certain invest-
ment funds, which UBS did not consolidate as of 31 December
2014 because it did not control these entities.
➔ Refer to Note 1a item 3 for more information on the nature,
purpose, activities and financing structure of these entities
The table below presents the Group’s interests in and maxi-
mum exposure to loss from unconsolidated SEs as of 31 Decem-
ber 2014. In addition, the total assets held by the SE in which
UBS had an interest as of 31 December 2014 are provided, ex-
cept for investment funds sponsored by third parties, for which
the carrying value of UBS’s interest as of 31 December 2014 has
been disclosed. ▲
Interests in unconsolidated structured entities
CHF million, except where indicated
Trading portfolio assets
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Other assets
Total assets
Negative replacement values
Total liabilities
Assets held by the unconsolidated structured entities
in which UBS had an interest (CHF billion)
CHF million, except where indicated
Trading portfolio assets
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Other assets
Total assets
Negative replacement values
Total liabilities
Assets held by the unconsolidated structured entities
in which UBS had an interest (CHF billion)
Securitization
vehicles
Client vehicles
1,955
26
466
2,447 3
245 4
245 5
355 6
676
83
115 2
40
4,029
52 2
4,996
27
27
113 7
Securitization
vehicles
Client vehicles
3,298
26
1,878
5,202 3
1,263 4
1,263 5
390 6
544
16
124 2
4,020
53 2
4,756
96 7
31.12.14
Investment
funds
8,079
2
102
206
94
8,482
75
75
304 8
31.12.13
Investment
funds
6,509
0
91
366
77
6
7,048
0
0
266 8
Maximum
exposure to loss 1
10,711
111
2,422
712
4,123
1,248
21
Maximum
exposure to loss 1
10,350
42
2,449
2,244
4,096
933
16
Total
10,711
111
217
712
4,123
52
15,925
347
347
Total
10,350
42
215
2,244
4,096
58
17,005
1,263
1,263
1 For purposes of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other credit enhancements. 2 Represents the carrying value of loan commitments, both
designated at fair value and held at amortized cost. The maximum exposure to loss for these instruments is equal to the notional amount. 3 As of 31 December 2014, CHF 2.2 billion of the CHF 2.4 billion, or 90%,
was held in Corporate Center – Non-core and Legacy Portfolio. As of 31 December 2013, CHF 5.0 billion of the CHF 5.2 billion, or 96%, was held in Corporate Center – Non-core and Legacy Portfolio. 4 Comprised of
credit default swap (CDS) liabilities and other swap liabilities. The maximum exposure to loss for CDS is equal to the sum of the negative carrying value and the notional amount. For other swap liabilities, no maximum
exposure to loss is reported. 5 Entirely held by Corporate Center – Non-core and Legacy Portfolio. 6 Represents principal amount outstanding. 7 Represents the market value of total assets. 8 Represents the net
asset value of the investment funds sponsored by UBS (31 December 2014: CHF 296 billion, 31 December 2013: CHF 260 billion) and the carrying value of UBS’s interest in the investment funds not sponsored by UBS
(31 December 2014: CHF 8 billion, 31 December 2013: CHF 7 billion).
531
Financial informationNote 30 Interests in subsidiaries and other entities (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Pillar 3 | The Group retains or purchases interests in unconsolidated
SEs in the form of direct investments, financing, guarantees, letters
of credit, derivatives and through management contracts.
For retained interests, the Group’s maximum exposure to loss is
generally equal to the carrying value of the Group’s interest in the
SE, with the exception of guarantees, letters of credit and credit
derivatives for which the contract’s notional amount, adjusted for
losses already incurred, represents the maximum loss that the
Group is exposed to. In addition, the current fair value of derivative
swap instruments with a positive replacement value only, such as
total return swaps, is presented as UBS’s maximum exposure to
loss. Risk exposure for these swap instruments could change over
time with market movements.
The maximum exposure to loss disclosed in the table on the
previous page does not reflect the Group’s risk management ac-
tivities, including effects from financial instruments that the Group
may utilize to economically hedge the risks inherent in the uncon-
solidated SE or the risk-reducing effects of collateral or other credit
enhancements.
In 2014 and 2013, the Group did not provide support, finan-
cial or otherwise, to an unconsolidated SE when the Group was
not contractually obligated to do so, nor has the Group an inten-
tion to do so in the future.
In 2014 and 2013, income earned from interests in unconsoli-
dated SEs primarily resulted from mark-to-market movements
recognized in net trading income as well as fee and commission
income received from UBS sponsored funds.
Interests in securitization vehicles
As of 31 December 2014 and 31 December 2013, the Group re-
tained interests in securitization vehicles related to financing, un-
derwriting, secondary market and derivative trading activities. In
some cases the Group may be required to absorb losses from an
unconsolidated SE before other parties because the Group’s inter-
est is subordinated to others in the ownership structure. An over-
view of the Group’s interests in unconsolidated securitization ve-
hicles and the relative ranking and external credit rating of those
interests as of 31 December 2014 and 31 December 2013 is pre-
sented in the table on the following page. ▲
The numbers outlined in that table differ from the securitiza-
tion positions presented in the “UBS Group AG consolidated
supplemental disclosures required under Basel III Pillar 3 regula-
tions” section of this report, primarily due to: (i) exclusion from
the table on the following page of synthetic securitizations trans-
acted with entities that are not SEs and transactions in which the
Group did not have an interest because it did not absorb any risk,
(ii) a different measurement basis in certain cases (e.g., IFRS carry-
ing value within the table above compared with net exposure
amount at default for Basel III Pillar 3 disclosures) and (iii) different
classification of vehicles viewed as sponsored by the Group versus
sponsored by third parties.
➔ Refer to Note 1a items 3 and 12 for more information on when
the Group is viewed as the sponsor of an SE and for the Group’s
accounting policies regarding securitization vehicles established
by UBS
➔ Refer to the “UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3 regulations” section
of this report for more information on securitization exposures
Interests in client vehicles
As of 31 December 2014 and 31 December 2013, the Group re-
tained interests in client vehicles sponsored by the Group and
third parties that relate to financing and derivative activities and
to hedge structured product offerings. Included within these in-
vestments are securities guaranteed by US government agencies.
Interests in investment funds
The Group holds interests in a number of investment funds, pri-
marily resulting from seed investments or to hedge structured
product offerings. In addition to the interests disclosed in the ta-
ble on the previous page, the Group manages the assets of vari-
ous pooled investment funds and receives fees which are based,
in whole or part, on the net asset value of the fund and / or the
performance of the fund. The specific fee structure is determined
based on various market factors and considers the nature of the
fund, the jurisdiction of incorporation as well as fee schedules
negotiated with clients. These fee contracts represent an interest
in the fund as they align the Group’s exposure to investors, pro-
viding a variable return which is based on the performance of the
entity. Depending on the structure of the fund, these fees may be
collected directly from the fund assets and / or from the investors.
Any amounts due are collected on a regular basis and are gener-
ally backed by the assets of the fund. The Group did not have any
material exposure to loss from these interests as of 31 December
2014 or as of 31 December 2013.
532
Note 30 Interests in subsidiaries and other entities (continued) Pillar 3 | Interests in unconsolidated securitization vehicles 1
CHF million, except where indicated
Sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
Interests in mezzanine tranches
of which rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in junior tranches
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS had an interest (CHF billion)
Not sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in junior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Total
of which: Trading portfolio assets
of which: Loans
31.12.14
Residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
Other
asset-backed
securities 2
Re-securiti-
zation 3
0
0
1
1
1
1
1
376
369
6
0
0
154
134
15
5
68
56
4
0
8
598
598
59
59
16
7
1
8
75
75
14
293
286
6
143
105
37
1
0
18
11
6
0
1
453
453
0
1
1
0
1
1
3
454
452
2
0
172
164
8
1
1
627
588
39
389
381
8
6
6
0
395
14
381
2
207
205
1
0
62
54
8
0
2
2
271
225
46
12
Total assets held by the vehicles in which UBS had an interest (CHF billion)
1 This table excludes derivative transactions with securitization vehicles. 2 Includes credit card, car and student loan structures. 3 Includes collateralized debt obligations. ▲
115
115
88
Total
450
442
0
8
22
13
0
2
8
0
472
91
381
20
1,329
1,313
15
0
0
531
457
69
5
0
89
67
10
1
11
1,949
1,865
85
331
533
Financial informationNote 30 Interests in subsidiaries and other entities (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
Interests in unconsolidated securitization vehicles 1 (continued)
CHF million, except where indicated
Sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in mezzanine tranches
of which rated investment grade
of which: rated sub-investment grade
of which: defaulted
Interests in junior tranches
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS had an interest (CHF billion)
Not sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in junior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS had an interest (CHF billion)
Residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
31.12.13
Other
asset-backed
securities 2
Re-securiti-
zation 3
24
23
1
4
4
0
0
28
28
1
391
332
57
2
0
218
135
79
5
0
88
57
21
0
11
698
698
0
103
103
103
0
27
20
6
1
130
130
26
745
575
170
350
212
133
5
0
8
4
4
0
1,103
1,103
0
149
96
90
6
8
8
104
57
47
2
1,263
1,112
148
3
0
369
332
23
14
134
133
1
0
1,766
763
1,002
70
627
624
1
1
33
33
0
0
660
21
639
4
449
412
37
0
237
211
25
0
2
2
688
498
190
27
Total
849
839
1
7
1
73
61
10
2
0
922
237
686
32
2,848
2,431
412
5
0
1,173
890
260
10
14
234
194
26
1
13
4,254
3,062
1,192
349
1 This table excludes derivative transactions with securitization vehicles. 2 Includes credit card, car and student loan structures. 3 Includes collateralized debt obligations.
534
Note 30 Interests in subsidiaries and other entities (continued) Sponsored unconsolidated structured entities in which UBS did
not have an interest
For several sponsored SEs, no interest was held by the Group as of
31 December 2014 or as of 31 December 2013. However, during
the respective reporting period the Group transferred assets, pro-
vided services and held instruments which did not qualify as an in-
terest with these sponsored SEs, and accordingly earned income or
incurred expenses from these entities. The table below presents the
income earned and expenses incurred directly from these entities
during 2014 and 2013 as well as corresponding asset information.
The table does not include income earned and expenses incurred
from risk management activities, including income and expenses
from financial instruments that the Group may utilize to economi-
cally hedge instruments transacted with the unconsolidated SE.
Sponsored Unconsolidated Structured Entities in which UBS did not have an interest at year end 1
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Total income
Asset information (CHF billion)
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Total income
Asset information (CHF billion)
As of or for the year ended
31.12.14
Securitization
vehicles
Client vehicles
Investment
funds
6
63
69
4 2
(51)
(158)
(208)
1 3
54
10
64
14 4
As of or for the year ended
31.12.13
Securitization
vehicles
Client vehicles
Investment funds
1
(271)
(270)
2 2
(48)
(368)
(416)
0 3
(19)
64
113
159
13 4
Total
(44)
54
(85)
(75)
Total
(66)
64
(525)
(527)
1 These tables exclude profit attributable to preferred noteholders of CHF 142 million for the year ended 31 December 2014 and CHF 204 million for the year ended 31 December 2013. 2 Represents the amount of
assets transferred to the respective securitization vehicles. Of the total amount transferred, CHF 1 billion was transferred by UBS (31 December 2013: CHF 1 billion) and CHF 3 billion was transferred by third parties
(31 December 2013: CHF 1 billion). 3 Represents total assets transferred to the respective client vehicles. Of the total amount transferred, CHF 1 billion was transferred by UBS (31 December 2013: CHF 0 billion) and
CHF 1 billion was transferred by third parties (31 December 2013: CHF 0 billion). 4 Represents the total net asset value of the respective investment funds.
535
Financial informationNote 30 Interests in subsidiaries and other entities (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
During 2014 and 2013, the Group primarily earned fees and in-
curred net trading losses from sponsored SEs in which UBS did not
hold an interest. The majority of the fee income arose from invest-
ment funds which are sponsored and administrated by the Group,
but managed by third parties. As the Group does not provide any
active management services, UBS was not exposed to risk from
the performance of these entities and was therefore deemed not
to have an interest in them.
In certain structures, the fees receivable for administrative pur-
poses may be collected directly from the investors and have there-
fore not been included in the table above.
In addition, the Group incurred net trading losses from mark-
to-market movements arising primarily from derivatives, such as
interest rate swaps and credit derivatives, in which the Group pur-
chases protection, and financial liabilities designated at fair value,
which do not qualify as interests because the Group does not
absorb variability from the performance of the entity. The net
losses reported do not reflect economic hedges or other mitigat-
ing effects from the Group’s risk management activities.
During 2014, UBS and third parties transferred assets totaling
CHF 6 billion (2013: CHF 3 billion) into sponsored securitization
and client vehicles created in 2014. For sponsored investment
funds, transfers arose during the period as investors invested and
redeemed positions, thereby changing the overall size of the funds
alongside market movements, resulting in a total closing net asset
value of CHF 14 billion (31 December 2013: CHF 13 billion).
Business combinations in 2014
In 2014, no significant business combinations were completed.
Business combinations in 2013
In 2013, UBS completed the acquisition of all voting and owner-
ship interests in Link Investimentos, a Brazilian financial services
firm that was integrated into the Investment Bank. The acquisi-
tion cost was CHF 90 million, of which CHF 55 million related to
goodwill, CHF 21 million to intangible assets, primarily related to
customer relationships, and CHF 14 million to other net assets.
The acquisition costs included a cash payment of CHF 35 million
and deferred consideration of CHF 55 million.
536
Note 30 Interests in subsidiaries and other entities (continued)Note 31 Business combinations Establishment of UBS Group AG as the holding company
of the UBS Group
During 2014, UBS Group AG was established as the holding com-
pany of the Group. This change is intended, along with other
measures already announced, to substantially improve the resolv-
ability of the UBS Group in response to evolving too big to fail
regulatory requirements.
UBS Group AG was incorporated on 10 June 2014 as a wholly
owned subsidiary of UBS AG. On 29 September 2014, UBS Group
AG launched an offer to acquire all the issued ordinary shares of
UBS AG in exchange for registered shares of UBS Group AG on a
one-for-one basis. Following the exchange offer and subsequent
private exchanges on a one-for-one basis with various shareholders
and banks in Switzerland and elsewhere outside the United
States, UBS Group AG acquired 96.68% of UBS AG shares by
31 December 2014, becoming the holding company of the UBS
Group and the parent company of UBS AG.
As a result of the share-for-share exchange, UBS Group AG
recognized equity attributable to non-controlling interests in rela-
tion to UBS AG shares held by third parties, in its consolidated bal-
ance sheet and statement of changes in equity. Subsequent to the
share-for-share exchange, UBS Group AG recognized net profit and
other comprehensive income attributable to non-controlling inter-
ests relating to those UBS AG shares in its consolidated income
statement and statement of comprehensive income.
In prior years, UBS AG issued subordinated notes, also referred
to as preferred notes, to structured entities which are not consoli-
dated under IFRS. All but one of the preferred notes, which is
presented as a liability, contain no contractual obligation to de-
liver cash, and, therefore, were classified as equity instruments.
Prior to the share-for-share exchange, these preferred notes were
presented as Equity attributable to preferred noteholders on the
consolidated balance sheet and statement of changes in equity of
UBS AG. Distributions on these preferred notes were presented as
Net profit attributable to preferred noteholders in the consoli-
dated income statement and statement of comprehensive income.
Following the share-for-share exchange, these preferred notes are
presented as Equity attributable to non-controlling interests on
the consolidated balance sheet and statement of changes in
equity. In accordance with the terms of these preferred notes, the
share-for-share exchange resulted in accruals for future distribu-
tions to preferred noteholders of CHF 31 million, which is pre-
sented as Net profit attributable to preferred noteholders in the
consolidated income statement and statement of comprehensive
income. Future distributions on these preferred notes will be pre-
sented as Net profit attributable to non-controlling interests in the
consolidated income statement and statement of comprehensive
income.
The impact of establishing UBS Group AG on total equity
attributable to UBS Group AG shareholders, equity attributable to
non-controlling interests and equity attributable to preferred
noteholders is presented in the consolidated statement of changes
in equity.
Restructuring charges
Restructuring charges arise from programs that materially change
either the scope of business undertaken by the Group or the man-
ner in which such business is conducted. Restructuring charges
are temporary costs that are necessary to effect such programs
and include items such as severance and other personnel-related
charges, duplicate headcount costs, impairment and accelerated
depreciation of assets, contract termination costs, consulting fees,
and related infrastructure and system costs. These costs are pre-
sented in the income statement according to the underlying na-
ture of the expense. As the costs associated with restructuring
programs are temporary in nature, and in order to provide a more
thorough understanding of business performance, such costs are
separately presented in this Note.
537
Financial informationNote 32 Changes in organization Financial information
Notes to the UBS Group AG consolidated financial statements
Net restructuring charges by business division and Corporate Center
CHF million
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
of which: Core Functions
of which: Non-core and Legacy Portfolio
Total net restructuring charges
of which: personnel expenses
of which: general and administrative expenses
of which: depreciation and impairment of property and equipment
of which: amortization and impairment of intangible assets
Net restructuring charges by personnel expense category
CHF million
Salaries
Variable compensation – performance awards
Variable compensation – other
Contractors
Social security
Pension and other post-employment benefit plans
Other personnel expenses
Total net restructuring charges: personnel expenses
Net restructuring charges by general and administrative expense category
CHF million
Occupancy
Rent and maintenance of IT and other equipment
Administration
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Other 1
Total net restructuring charges: general and administrative expenses
1 Mainly comprised of onerous real estate lease contracts.
538
For the year ended
31.12.14
31.12.13
31.12.12
185
55
64
50
261
61
30
31
677
327
319
29
2
178
59
54
43
210
229
(6)
235
772
156
548
68
0
26
(1)
3
20
273
51
(8)
58
371
358
0
14
0
For the year ended
31.12.14
31.12.13
31.12.12
145
35
138
28
4
(29)
6
327
65
(15)
88
3
5
8
3
156
64
115
247
0
(10)
(56)
(1)
358
For the year ended
31.12.14
31.12.13
31.12.12
49
23
3
11
148
82
2
319
35
8
2
4
76
59
364
548
(1)
4
0
0
1
0
(5)
0
Note 32 Changes in organization (continued) In 2014, this Note was expanded to also cover finance lease receivables. Information on lease contracts classified as operating leases
where UBS is the lessee is provided in Note 33a and information on finance leases where UBS acts as a lessor is provided in Note 33b.
a) Operating lease commitments
As of 31 December 2014, UBS was obligated under a number of
non-cancellable operating leases for premises and equipment
used primarily for banking purposes. The significant premises
leases usually include renewal options and escalation clauses in
line with general office rental market conditions, as well as rent
adjustments based on price indices. However, the lease agree-
ments do not contain contingent rent payment clauses and pur-
chase options, nor do they impose any restrictions on UBS’s ability
to pay dividends, engage in debt financing transactions or enter
into further lease agreements.
The minimum commitments for non-cancellable leases of
premises and equipment are presented as follows.
CHF million
Expenses for operating leases to be recognized in:
2015
2016
2017
2018
2019
2020 and thereafter
Subtotal commitments for minimum payments under operating leases
Less: sublease rental income commitments
Net commitments for minimum payments under operating leases
CHF million
Gross operating lease expense recognized in the income statement
Sublease rental income
Net operating lease expense recognized in the income statement
b) Finance lease receivables
31.12.14
766
719
655
522
427
2,080
5,170
403
4,767
31.12.14
31.12.13
31.12.12
759
73
686
792
74
718
860
87
773
UBS leases a variety of assets to third parties under finance leases,
such as commercial vehicles, production lines, medical equip-
ment, construction equipment and aircrafts. At the end of the
respective leases, assets may be sold to third parties or be leased
further. Lessees may participate in any sales proceeds achieved.
Leasing charges cover the cost of the assets less their residual
value as well as financing costs.
The minimum receivables for non-cancellable finance leases are presented in the following table:
As of 31 December 2014, unguaranteed residual values of CHF 187 million had been accrued, and the accumulated allowance
for uncollectible minimum lease payments receivable amounted to CHF 19 million. No contingent rents were received in 2014.
539
Financial informationNote 33 Operating leases and finance leasesLease receivablesCHF million31.12.14Total minimum lease paymentsUnearned finance incomePresent value2015388233652016–2019618355832020 and thereafter1618153Total 1,167661,101 Financial information
Notes to the UBS Group AG consolidated financial statements
UBS defines related parties as associates (entities which are sig-
nificantly influenced by UBS), post-employment benefit plans for
the benefit of UBS employees, key management personnel, close
family members of key management personnel and entities which
are, directly or indirectly, controlled or jointly controlled by key
management personnel or their close family members. Key man-
agement personnel is defined as members of the Board of Direc-
tors (BoD) and Group Executive Board (GEB).
a) Remuneration of key management personnel
The non-independent members of the BoD have top manage-
ment employment contracts and receive pension benefits upon
retirement. Total remuneration of the non-independent members
of the BoD and GEB members, including those who stepped
down during 2014, is provided in the table below.
Remuneration of key management personnel
CHF million
Base salaries and other cash payments
Incentive awards – cash 2
Annual incentive award under DCCP
Employer’s contributions to retirement benefit plans
Benefits in kind, fringe benefits (at market value)
Equity-based compensation 3
Total
31.12.14
221
8
18
2
1
35
86
31.12.13
31.12.12
19
10
19
2
2
38
89
20
0
21
1
1
34
76
1 Includes role-based allowances that have been made in line with market practice in response to the EU Capital Requirements Directive of 2013 (CRD IV). 2 Includes immediate and deferred cash. 3 Expenses for
shares granted is measured at grant date and allocated over the vesting period, generally for 5 years. In 2014, 2013 and 2012, equity-based compensation was entirely comprised of EOP awards.
The independent members of the BoD do not have employment or service contracts with UBS, and thus are not entitled to benefits
upon termination of their service on the BoD. Payments to these individuals for their services as external board members amounted to
CHF 7.1 million in 2014, CHF 7.6 million in 2013 and CHF 7.6 million in 2012.
b) Equity holdings of key management personnel
Number of stock options from equity participation plans held by non-independent members of the BoD and the GEB members 2
Number of shares held by members of the BoD, GEB and parties closely linked to them 3
31.12.14 1
1,738,598
3,716,957
31.12.13 1
2,865,603
3,951,869
1 Entirely comprised of UBS Group AG shares and options on UBS Group AG shares as of 31 December 2014. Entirely comprised of UBS AG shares and options on UBS AG shares as of 31 December 2013, which were ex-
changed into UBS Group AG shares and options on UBS Group AG shares during 2014. 2 Refer to Note 29 for more information. 3 Excludes shares granted under variable compensation plans with forfeiture provisions.
Of the share totals above, 95,597 shares were held by close family
members of key management personnel on 31 December 2014 and
5,597 on 31 December 2013. No shares were held by entities that
are directly or indirectly controlled or jointly controlled by key man-
agement personnel or their close family members on 31 December
2014 and 31 December 2013. Refer to Note 29 for more informa-
tion. As of 31 December 2014, no member of the BoD or GEB was
the beneficial owner of more than 1% of UBS Group AG’s shares.
540
Note 34 Related parties c) Loans, advances and mortgages to key management personnel
Non-independent members of the BoD and GEB members have
been granted loans, fixed advances and mortgages on the same
terms and conditions that are available to other employees, which
are based on terms and conditions granted to third parties but are
adjusted for differing credit risk. Independent BoD members are
granted loans and mortgages under general market conditions.
Movements in the loan, advances and mortgage balances are
as follows.
Loans, advances and mortgages to key management personnel 1
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year
1 Loans are granted by UBS AG. All loans are secured loans.
2014
2013
20
10
(3)
27
19
2
(1)
20
d) Other related party transactions with entities controlled by key management personnel
During 2014 and 2013, UBS entered into transactions at arm’s
length with entities which are directly or indirectly controlled or
jointly controlled by UBS’s key management personnel or their
close family members. In 2014, these entities included Immo
Heudorf AG (Switzerland). In 2013, these entities included H21
Macro Fund Ltd (Cayman Islands), DKSH Holding Ltd. (Switzer-
land) and Immo Heudorf AG (Switzerland).
Other related party transactions
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year 1
1 Comprised of loans.
Other transactions with these related parties include:
CHF million
Goods sold and services provided to UBS
Fees received for services provided by UBS
2014
2013
10
0
10
0
2014
0
0
11
0
1
10
2013
0
2
541
Financial informationNote 34 Related parties (continued) Financial information
Notes to the UBS Group AG consolidated financial statements
e) Transactions with associates and joint ventures
All transactions with associates and joint ventures are conducted at arm’s length.
Loans and outstanding receivables to associates and joint ventures
CHF million
Carrying value at the beginning of the year
Additions
Reductions
Impairment
Foreign currency translation
Carrying value at the end of the year
of which: unsecured loans
includes allowances for credit losses
Other transactions with associates and joint ventures
CHF million
Payments to associates and joint ventures for goods and services received
Fees received for services provided to associates and joint ventures
Commitments and contingent liabilities to associates and joint ventures
➔ Refer to Note 30 for an overview of investments in associates and joint ventures
2014
288
313
(1)
(51)
3
552
539
1
2013
450
2
(163)
0
0
288
271
1
As of or for the year ended
31.12.14
31.12.13
169
1
2
163
2
2
542
Note 34 Related parties (continued) Invested assets
Net new money
Invested assets include all client assets managed by or deposited
with UBS for investment purposes. Invested assets include man-
aged fund assets, managed institutional assets, discretionary and
advisory wealth management portfolios, fiduciary deposits, time
deposits, savings accounts and wealth management securities or
brokerage accounts. All assets held for purely transactional pur-
poses and custody-only assets, including corporate client assets
held for cash management and transactional purposes, are ex-
cluded from invested assets as the Group only administers the
assets and does not offer advice on how the assets should be in-
vested. Also excluded are non-bankable assets (e.g., art collec-
tions) and deposits from third-party banks for funding or trading
purposes.
Discretionary assets are defined as client assets that UBS de-
cides how to invest. Other invested assets are those where the
client ultimately decides how the assets are invested. When a
single product is created in one business division and sold in an-
other, it is counted in both the business division that manages the
investment and the one that distributes it. This results in double
counting within UBS total invested assets, as both business divi-
sions are providing a service independently to their respective cli-
ents, and both add value and generate revenue.
Net new money in a reporting period is the amount of invested
assets that are entrusted to UBS by new and existing clients, less
those withdrawn by existing clients and clients who terminated
their relationship with UBS.
Net new money is calculated using the direct method, under
which inflows and outflows to / from invested assets are deter-
mined at the client level based on transactions. Interest and divi-
dend income from invested assets are not counted as net new
money inflows. Market and currency movements as well as fees,
commissions and interest on loans charged are excluded from net
new money, as are the effects resulting from any acquisition or
divestment of a UBS subsidiary or business. Reclassifications be-
tween invested assets and custody-only assets as a result of a
change in the service level delivered are generally treated as net
new money flows; however, where such change in service level
directly results from a new externally-imposed regulation, the
one-time net effect of the implementation is reported as an asset
reclassification without net new money impact.
The Investment Bank does not track invested assets and net
new money. However, when a client is transferred from the In-
vestment Bank to another business division, this produces net
new money even though client assets were already with UBS. Net
new money resulting from such transfers between business divi-
sions was zero in 2014 and 2013.
Invested assets and net new money
CHF billion
Fund assets managed by UBS
Discretionary assets
Other invested assets
Total invested assets (double counts included)
of which: double count
of which: acquisitions (divestments)
Net new money (double counts included)
For the year ended
31.12.14
31.12.13
270
854
1,610
2,734
173
0.0
58.9
244
714
1,432
2,390
156
(6.6)
32.3
543
Financial informationNote 35 Invested assets and net new money Financial information
Notes to the UBS Group AG consolidated financial statements
Note 36 Currency translation rates
The following table shows the rates of the main currencies used to translate the financial information of foreign operations into Swiss francs.
1 USD
1 EUR
1 GBP
100 JPY
Spot rate
As of
Average rate 1
Year ended
31.12.14
31.12.13
31.12.14
31.12.13
31.12.12
0.99
1.20
1.55
0.83
0.89
1.23
1.48
0.85
0.92
1.21
1.51
0.86
0.92
1.23
1.45
0.95
0.93
1.20
1.49
1.12
1 Monthly income statement items of foreign operations with a functional currency other than Swiss franc are translated with month-end rates into Swiss francs. Disclosed average rates for a year represent an average
of twelve month-end rates, weighted according to the income and expense volumes of all foreign operations of the Group with the same functional currency for each month. Weighted average rates for individual busi-
ness divisions may deviate from the weighted average rates for the Group.
544
Adjustments to 2014 results
After the issuance of the unaudited fourth quarter 2014 financial
report on 10 February 2015, management adjusted the 2014 results
to account for subsequent events. The net impact of these adjust-
ments on net profit attributable to UBS Group AG shareholders was
a loss of CHF 105 million, which decreased basic and diluted earnings
per share by CHF 0.03. The principal change arose due to an increase
in charges for provisions for litigation, regulatory and similar matters
of CHF 134 million. The other adjustments made to the income state-
ment in 2014 was an increase in the net tax benefit of CHF 22 million
and a decrease in net profit attributable to non-controlling interests
of CHF 7 million.
Impact of Swiss National Bank actions
On 15 January 2015, the Swiss National Bank (SNB) discontinued the
minimum targeted exchange rate for the Swiss franc versus the euro,
which had been in place since September 2011. At the same time,
the SNB lowered the interest rate on deposit account balances at the
SNB that exceed a given exemption threshold by 50 basis points to
negative 0.75%. It also moved the target range for three-month
LIBOR to between negative 1.25% and negative 0.25%, (previously
negative 0.75% to positive 0.25%). These decisions resulted in a
considerable strengthening of the Swiss franc against the euro, US
dollar, British pound, Japanese yen and several other currencies, as
well as a reduction in Swiss franc interest rates. As of 28 February
2015, the Swiss franc exchange rate was 0.95 to the US dollar, 1.07
to the euro, 1.47 to the British pound and 0.80 to 100 Japanese yen.
Volatility levels in foreign currency exchange and interest rates also
increased.
A significant portion of the equity of UBS’s foreign operations is
denominated in US dollars, euros, British pounds and other foreign
currencies. The appreciation of the Swiss franc would have led to an
estimated decline in total equity of approximately CHF 1.2 billion or
2% when applying currency translation rates as of 28 February 2015
to the reported balances as of 31 December 2014. This includes a
reduction in recognized deferred tax assets, mainly related to the US,
of approximately CHF 0.4 billion (of which CHF 0.2 billion relates to
temporary differences deferred tax assets), which would be recog-
nized in Other comprehensive income.
On a fully applied basis for Swiss systemically relevant banks (SRB)
UBS would have experienced the following approximate declines in
its capital balances when applying currency translation rates as of
28 February 2015 to the reported balances as of 31 December 2014:
CHF 0.5 billion or 2% in fully applied common equity tier 1 (CET1)
capital and CHF 0.8 billion or 2% in fully applied total capital.
In aggregate, UBS did not experience negative revenues in its
trading businesses in connection with the SNB announcement. How-
ever, the portion of its operating income denominated in non-Swiss
franc currencies is greater than the portion of operating expenses
denominated in non-Swiss franc currencies. Therefore, appreciation
of the Swiss franc against other currencies generally has an adverse
effect on earnings in the absence of any mitigating actions.
In addition to the estimated effects from changes in foreign cur-
rency exchange rates, UBS’s equity and capital are affected by
changes in interest rates. In particular, the calculation of its net de-
fined benefit assets and liabilities is sensitive to the assumptions ap-
plied. Specifically, the changes in applicable discount rate and inter-
est rate related assumptions for its Swiss pension plan during January
and February would have reduced UBS’s equity and fully applied
Swiss SRB CET1 capital by around CHF 0.7 billion. Also, the persis-
tently low interest rate environment would continue to have an ad-
verse effect on UBS’s replication portfolios, and its net interest in-
come would further decrease.
Furthermore, the stronger Swiss franc may have a negative im-
pact on the Swiss economy, which, given its reliance on exports,
could impact some of the counterparties within UBS’s domestic lend-
ing portfolio and lead to an increase in the level of credit loss ex-
penses in future periods.
Sale of real estate
In January 2015, UBS sold a real estate property in Geneva, Switzer-
land for CHF 535 million, resulting in a gain on sale of CHF 377 mil-
lion, which will be recognized in the income statement within Cor-
porate Center in the first quarter of 2015. As of 31 December 2014,
the property was classified on the balance sheet as property held-for-
sale, which is measured at the lower of carrying value or fair value
less costs to sell.
Issuance of additional tier 1 capital
In February 2015, UBS issued additional tier 1 (AT1) capital notes
consisting of USD 1.25 billion high-trigger loss-absorbing notes with
a coupon of 7.125%; USD 1.25 billion low-trigger loss-absorbing
notes with a coupon of 7%; and EUR 1.0 billion low-trigger loss-
absorbing notes with a coupon of 5.75%. All tranches include a
contingent permanent write-down triggered at 5.125% (low-trigger
loss-absorbing notes) or at 7% (high-trigger loss-absorbing notes)
phase-in CET1 capital ratio and at the point of non-viability as deter-
mined by FINMA. In accordance with Basel III regulations, AT1 trans-
actions have fully discretionary and non-cumulative coupons and a
perpetual maturity with embedded call features. ▲
545
Financial informationEDTF | Note 37 Events after the reporting period Financial information
Notes to the UBS Group AG consolidated financial statements
The consolidated financial statements of UBS Group AG are pre-
pared in accordance with International Financial Reporting Stan-
dards (IFRS). The Swiss Financial Market Supervisory Authority
(FINMA) requires financial groups which present their financial
statements under IFRS to provide a narrative explanation of the
main differences between IFRS and Swiss GAAP (FINMA Circular
2008 / 2 and the Banking Ordinance). Included in this note are
the significant differences in regard to recognition and measure-
ment between IFRS and the provisions of the Banking Ordinance
and the guidelines of the FINMA governing true and fair view
financial statement reporting pursuant to Article 23 through
Article 27 of the Banking Ordinance.
corded in the income statement as Other income from ordinary
activities. Equity instruments with a permanent holding intent
are classified as participations in Investments in subsidiaries and
other participations and measured at cost less impairment. Im-
pairment losses are recorded in the income statement as Impair-
ment of investments in subsidiaries and other participations.
Reversal of impairments up to the original cost amount as well
as realized gains or losses upon disposal of the investment are
recorded as Extraordinary income / Extraordinary expenses in the
income statement.
3. Cash flow hedges
1. Consolidation
Under IFRS, all entities which are controlled by the holding entity
are consolidated.
Under Swiss GAAP, only entities that are active in the field of
banking and finance and real estate entities are subject to con-
solidation. Entities which are held temporarily are generally re-
corded as financial investments.
2. Financial investments available-for-sale
Under IFRS, financial investments available-for-sale are carried at
fair value. Changes in fair value are recorded directly in equity
until an investment is sold, collected or otherwise disposed of, or
until an investment is determined to be impaired. At the time an
available-for-sale investment is determined to be impaired, the
cumulative unrealized loss previously recognized in equity is in-
cluded in net profit or loss for the period. On disposal of a finan-
cial investment available-for-sale, the cumulative unrecognized
gain or loss previously recognized in equity is recognized in the
income statement.
Under Swiss GAAP, classification and measurement of finan-
cial investments available-for-sale depends on the nature of the
investment. Equity instruments with no permanent holding in-
tent and debt instruments are classified as Financial investments
and measured at the lower of (amortized) cost or market value.
Market value adjustments up to the original cost amount and
realized gains or losses upon disposal of the investment are re-
UBS designates derivative instruments in cash flow hedge ac-
counting relationships. Under IFRS, when hedge accounting is
applied, the fair value gain or loss on the effective portion of the
derivative designated as a cash flow hedge is recognized in eq-
uity. When the hedged cash flows materialize, the accumulated
unrecognized gain or loss is reclassified to the income statement.
Under Swiss GAAP, the effective portion of the fair value
change of the derivative instrument used to hedge cash flow ex-
posures is deferred on the balance sheet as Other assets or Other
liabilities. The deferred amounts are released to the income state-
ment when the hedged cash flows materialize.
4. Fair value option
Under IFRS, UBS applies the fair value option to certain financial
assets and financial liabilities not held for trading. Instruments for
which the fair value option is applied are accounted for at fair
value with changes in fair value reflected in Net trading income.
The fair value option is applied primarily to structured debt instru-
ments, certain non-structured debt instruments, structured re-
verse repurchase and repurchase agreements and securities bor-
rowing agreements, certain structured and non-structured loans
as well as loan commitments.
Under Swiss GAAP, the fair value option can only be applied to
structured products issued that consist of a debt host contract and
one or more embedded derivatives that require bifurcation. Changes
in fair value attributable to changes in unrealized own credit are not
recognized in the income statement and the balance sheet.
546
Note 38 Swiss GAAP requirements 5. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is not
amortized but tested annually for impairment. Intangible assets
acquired in a business combination with an indefinite useful life
are also not amortized but tested annually for impairment.
Under Swiss GAAP, goodwill and intangible assets with indefi-
nite useful lives are amortized over a period not exceeding five
years, unless a longer useful life, which may not exceed 20 years,
can be justified.
6. Pension and other post-employment benefit plans
Swiss GAAP permits the use of IFRS or Swiss accounting standards
for pension and other post-employment benefit plans, with the
election made on a plan-by-plan basis.
UBS has elected to apply IFRS (IAS 19) for its non-Swiss defined
benefit plans and Swiss GAAP (FER 16) for the Swiss pension plan
in UBS AG standalone financial statements. The requirements of
FER 16 are better aligned with the specific nature of Swiss pension
plans, which are hybrid in that they combine elements of defined
contribution and defined benefit plans, but are treated as defined
benefit plans under IFRS. Key differences between Swiss GAAP
and IAS 19 include the treatment of dynamic elements, such as
future salary increases and future interest credits on retirement
savings, which are not considered under the static method used
in accordance with Swiss GAAP. Also, the discount rate used to
determine the defined benefit obligation in accordance with IAS
19 is based on the yield of high quality corporate bonds of the
market in the respective pension plan country. The discount rate
used in accordance with Swiss GAAP (i.e., the technical interest
rate) is determined by the Pension Foundation Board based on the
expected returns of the Board’s investment strategy.
For defined benefit plans, IFRS requires the full defined benefit
obligation net of the plan assets to be recorded on the balance
sheet, with changes resulting from remeasurements recognized
directly in equity. However, for plans for which IFRS is elected,
Swiss GAAP requires that changes due to remeasurements are
recognized in the income statement.
Swiss GAAP require that employer contributions to the pen-
sion fund are recognized as personnel expenses in the income
statement. Further, FER 16 requires an assessment as to whether,
based on the financial statements of the pension fund prepared in
accordance with Swiss accounting standards (FER 26), an eco-
nomic benefit or obligation for the employer arises from the pen-
sion fund and is recognized in the balance sheet when conditions
are met. Conditions for recording a pension asset or liability would
be met if, for example, an employer contribution reserve is avail-
able or the employer is required to contribute to the reduction of
a pension deficit (on a FER 26 basis).
7. Netting of replacement values
Under IFRS, replacement values are reported on a gross basis un-
less certain restrictive requirements are met which then allow for
the replacement values, and in certain cases the related cash col-
lateral, to be reported on a net basis. Under Swiss GAAP, replace-
ment values and the related cash collateral are generally reported
on a net basis, provided the master netting and the related
collateral agreements are legally enforceable.
8. Extraordinary income and expense
Certain items of non-recurring and non-operating income and ex-
pense are classified as extraordinary items under Swiss GAAP. This
distinction is not available under IFRS.
9. Other presentational differences
Under IFRS, financial statements are comprised of an Income
statement, Statement of comprehensive income, Balance sheet,
Statement of changes in equity, Statement of cash flows and
Notes to the financial statements. Under Swiss GAAP, no State-
ment of comprehensive income is required and the Statement of
changes in equity is part of the Notes to the financial statements.
In addition, various other presentational differences exist. ▲
547
Financial informationNote 38 Swiss GAAP requirements (continued) UBS AG consolidated financial statements
Management’s report on internal control over financial
reporting
Management’s responsibility for internal control over financial
reporting
The Board of Directors and management of UBS AG are responsi-
ble for establishing and maintaining adequate internal control
over financial reporting. UBS AG’s internal control over financial
reporting is designed to provide reasonable assurance regarding
the preparation and fair presentation of published financial state-
ments in accordance with IFRS as issued by the IASB.
UBS AG’s internal control over financial reporting includes
those policies and procedures that:
– Pertain to the maintenance of records that, in reasonable de-
tail, accurately and fairly reflect transactions and dispositions
of assets;
– Provide reasonable assurance that transactions are recorded as
necessary to permit preparation and fair presentation of finan-
cial statements, and that receipts and expenditures of the com-
pany are being made only in accordance with authorizations of
UBS AG management; and
– Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the fi-
nancial statements.
Because of its inherent limitations, internal control over finan-
cial reporting may not prevent or detect misstatements. Also, pro-
jections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management’s assessment of internal control over financial
reporting as of 31 December 2014
UBS AG management has assessed the effectiveness of UBS AG’s
internal control over financial reporting as of 31 December 2014
based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control Integrated Framework (2013 Framework). Based on this
assessment, management believes that, as of 31 December 2014,
UBS AG’s internal control over financial reporting was effective.
The effectiveness of UBS AG’s internal control over financial
reporting as of 31 December 2014 has been audited by Ernst &
Young Ltd, UBS AG’s independent registered public accounting
firm, as stated in their report appearing on pages 550 to 551,
which expresses an unqualified opinion on the effectiveness of
UBS AG’s internal control over financial reporting as of 31 Decem-
ber 2014.
549
Financial information Financial information
UBS AG consolidated financial statements
550
551
Financial information Financial information
UBS AG consolidated financial statements
552
553
Financial information Note
31.12.14
31.12.13
For the year ended
3
3
3
12
4
3
5
6
7
16
17
17
8
9
9
13,194
(6,639)
6,555
(78)
6,477
17,076
3,841
632
28,026
15,280
9,377
817
0
83
25,557
2,469
(1,180)
3,649
142
5
3,502
0.93
0.91
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
580
27,732
15,182
8,380
816
0
83
24,461
3,272
(110)
3,381
204
5
3,172
0.84
0.83
31.12.12
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
641
25,423
14,737
8,653
689
3,030
106
27,216
(1,794)
461
(2,255)
220
5
(2,480)
(0.66)
(0.66)
% change from
31.12.13
0
(10)
13
56
13
5
(25)
9
1
1
12
0
0
4
(25)
973
8
(30)
0
10
11
10
Financial information
UBS AG consolidated financial statements
Audited | Income statement
CHF million, except per share data
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss expense
Net fee and commission income
Net trading income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS AG shareholders
Earnings per share (CHF)
Basic
Diluted
554
Statement of comprehensive income
CHF million
Comprehensive income attributable to UBS AG shareholders
Net profit / (loss)
Other comprehensive income
Other comprehensive income that may be reclassified to the income statement
Foreign currency translation
Foreign currency translation movements, before tax
Foreign exchange amounts reclassified to the income statement from equity
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation, net of tax
Financial investments available-for-sale
Net unrealized gains / (losses) on financial investments available-for-sale, before tax
Impairment charges reclassified to the income statement from equity
Realized gains reclassified to the income statement from equity
Realized losses reclassified to the income statement from equity
Income tax relating to net unrealized gains / (losses) on financial investments available-for-sale
Subtotal financial investments available-for-sale, net of tax
Cash flow hedges
Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax
Net realized (gains) / losses reclassified to the income statement from equity
Income tax relating to cash flow hedges
Subtotal cash flow hedges, net of tax
Total other comprehensive income that may be reclassified to the income statement, net of tax
Other comprehensive income that will not be reclassified to the income statement
Defined benefit plans
Gains / (losses) on defined benefit plans, before tax
Income tax relating to defined benefit plans
Subtotal defined benefit plans, net of tax
Property revaluation surplus
Gains on property revaluation, before tax
Net (gains) / losses reclassified to retained earnings
Income tax relating to gains on property revaluation
Subtotal changes in property revaluation surplus, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Total other comprehensive income
Total comprehensive income attributable to UBS AG shareholders
Table continues on the next page.
31.12.14
31.12.13
31.12.12
For the year ended
3,502
3,172
(2,480)
1,839
2
(7)
1,834
335
76
(244)
25
(52)
140
2,086
(1,197)
(196)
693
2,667
(1,454)
247
(1,208)
0
0
0
0
(1,208)
1,459
4,961
(440)
(36)
5
(471)
(57)
41
(265)
56
71
(154)
(652)
(1,261)
393
(1,520)
(2,145)
1,178
(239)
939
0
(6)
0
(6)
933
(1,211)
1,961
(362)
(58)
(91)
(511)
335
85
(433)
19
20
26
1,714
(1,235)
(95)
384
(102)
1,023
(413)
609
8
0
(2)
6
615
514
(1,966)
555
Financial information Financial information
UBS AG consolidated financial statements
Statement of comprehensive income (continued)
Table continued from previous page.
CHF million
Comprehensive income attributable to preferred noteholders
Net profit / (loss)
Other comprehensive income
Other comprehensive income that will not be reclassified to the income statement
Foreign currency translation movements, before tax
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Total comprehensive income attributable to preferred noteholders
Comprehensive income attributable to non-controlling interests
Net profit / (loss)
Other comprehensive income
Other comprehensive income that will not be reclassified to the income statement
Foreign currency translation movements, before tax
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
Net profit / (loss)
Other comprehensive income
of which: other comprehensive income that may be reclassified to the income statement
of which: other comprehensive income that will not be reclassified to the income statement
Total comprehensive income
31.12.14
31.12.13
31.12.12
For the year ended
142
119
0
119
119
260
5
3
0
3
3
7
204
355
0
355
355
559
5
(1)
0
(1)
(1)
4
3,649
1,580
2,667
(1,087)
5,229
3,381
(857)
(2,145)
1,288
2,524
220
(41)
0
(41)
(41)
179
5
15
0
15
15
20
(2,255)
487
(102)
589
(1,767)
556
Balance sheet
CHF million
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Provisions
Other liabilities
Total liabilities
Equity
Share capital
Share premium
Treasury shares
Equity classified as obligation to purchase own shares
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
Equity attributable to UBS AG shareholders
Equity attributable to preferred noteholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
Note
31.12.14
31.12.13
31.12.13
% change from
10
11
11
13
25
14
11
27
10
15
30
16
17
8
18
19
11
11
13
14
11
20
19
21
22
8, 23
104,073
13,334
24,063
68,414
138,156
56,018
256,978
30,979
4,493
315,984
57,159
927
6,854
6,785
11,060
23,069
1,062,327
10,492
9,180
11,818
27,958
254,101
42,372
75,297
410,979
91,207
4,366
70,392
1,008,162
384
32,057
(37)
0
22,902
(3,199)
52,108
2,013
45
54,165
80,879
13,874
27,496
91,563
122,848
42,449
254,084
26,548
7,364
286,959
59,525
842
6,006
6,293
8,845
20,228
1,013,355
12,862
9,491
13,811
26,609
248,079
44,507
69,901
390,825
81,586
2,971
62,777
963,419
384
33,952
(1,031)
(46)
20,608
(5,866)
48,002
1,893
41
49,936
1,062,327
1,013,355
29
(4)
(12)
(25)
12
32
1
17
(39)
10
(4)
10
14
8
25
14
5
(18)
(3)
(14)
5
2
(5)
8
5
12
47
12
5
0
(6)
(96)
(100)
11
(45)
9
6
10
8
5
557
Financial information Financial information
UBS AG consolidated financial statements
Statement of changes in equity
CHF million
Balance as of 1 January 2012
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
Share
premium
34,614
Treasury
shares
(1,160)
Equity classified
as obligation to
purchase own shares
(39)
Share
capital
383
0
(1,398)
1,486
(9)
4
126
(457)
(379) 2
(1)
2
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
foreign currency translation
Balance as of 31 December 2012
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
384
1
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
foreign currency translation
33,898
(1,071)
(37)
16,491
(3,715)
(6,954)
249
2,983
45,949
(846)
887
203
30
305
91
(564) 2
(11)
(9)
Balance as of 31 December 2013
384
33,952
(1,031)
(46)
20,608
(5,866)
(7,425)
95
1,463
48,002
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment of CHF 0.25 (2013: CHF 0.15, 2012: CHF 0.10) per share of CHF 0.10 par value out of capital contribution reserve
of UBS AG (standalone).
558
Other comprehensive
income recognized
of which:
Financial invest-
Retained
earnings
18,361
directly in equity,
Foreign currency
net of tax 1
(3,620)
translation
(6,443)
of which:
ments avail-
able-for-sale
223
Total equity
attributable to
UBS AG
shareholders
of which:
Cash flow
hedges
2,600
Preferred
Non-controlling
noteholders
3,150
interests
Total equity
46
48,540
0
(1,398)
1,486
(9)
4
126
(457)
(379)
2
0
0
(1)
(1,966)
(2,480)
(102)
609
0
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
1,961
3,172
(2,145)
939
0
(220)
179
220
(41)
3,109
(204)
(1,572)
0
559
204
355
1,893
51,737
0
(1,398)
1,486
(9)
4
126
(457)
(605)
2
0
(11)
(9)
(1,767)
(2,255)
(102)
49,100
609
(26)
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
3,381
(2,145)
939
355
49,936
(6)
(10)
(9)
20
5
15
42
(6)
4
5
(1)
41
(1,871)
(2,480)
609
6
4,111
3,172
939
(96)
(102)
(511)
(511)
26
26
384
384
(2,151)
(2,145)
(471)
(471)
(154)
(154)
(1,520)
(1,520)
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Statement of changes in equity
CHF million
Balance as of 1 January 2012
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Preferred notes
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
foreign currency translation
Balance as of 31 December 2012
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Preferred notes
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
foreign currency translation
Balance as of 31 December 2013
of UBS AG (standalone).
(9)
4
126
(457)
(379) 2
(1)
203
30
305
91
(564) 2
(11)
384
1
(846)
887
2
(9)
Share
premium
34,614
Treasury
shares
(1,160)
Equity classified
as obligation to
purchase own shares
(39)
Share
capital
383
0
(1,398)
1,486
Other comprehensive
income recognized
directly in equity,
net of tax 1
(3,620)
of which:
Foreign currency
translation
of which:
Financial invest-
ments avail-
able-for-sale
(6,443)
223
Retained
earnings
18,361
of which:
Cash flow
hedges
2,600
(1,871)
(2,480)
609
(96)
(102)
(511)
(511)
26
26
384
384
Total equity
attributable to
UBS AG
shareholders
48,540
0
(1,398)
1,486
(9)
4
126
(457)
(379)
2
0
(1)
0
(1,966)
(2,480)
(102)
609
0
33,898
(1,071)
(37)
16,491
(3,715)
(6,954)
249
2,983
45,949
6
4,111
3,172
939
(2,151)
(2,145)
(471)
(471)
(154)
(154)
(1,520)
(1,520)
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
1,961
3,172
(2,145)
939
0
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment of CHF 0.25 (2013: CHF 0.15, 2012: CHF 0.10) per share of CHF 0.10 par value out of capital contribution reserve
384
33,952
(1,031)
(46)
20,608
(5,866)
(7,425)
95
1,463
48,002
Preferred
noteholders
Non-controlling
interests
3,150
46
(220)
179
220
(41)
3,109
(204)
(1,572)
0
559
204
355
1,893
(6)
(10)
(9)
20
5
15
42
(6)
4
5
(1)
41
Total equity
51,737
0
(1,398)
1,486
(9)
4
126
(457)
(605)
2
0
(11)
(9)
(1,767)
(2,255)
(102)
609
(26)
49,100
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
3,381
(2,145)
939
355
49,936
559
Financial information Financial information
UBS AG consolidated financial statements
Statement of changes in equity (continued)
CHF million
Balance as of 31 December 2013
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
foreign currency translation
Share
premium
33,952
Treasury
shares
(1,031)
Equity classified
as obligation to
purchase own shares
(46)
Share
capital
384
0
(953)
1,9462
24
802
(1,785)3
3
(938) 4
46
Balance as of 31 December 2014
384
32,057
(37)
0
22,902
(3,199)
(5,591)
236
2,156
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Includes CHF 1,454 million related to the exchange of UBS AG treasury shares for UBS Group AG treasury shares. 3 Includes CHF
(2,365) million related to the transfer of deferred compensation plans from UBS AG to UBS Group AG. Refer to Note 29 for more information. 4 Reflects the payment of CHF 0.25 (2013: CHF 0.15, 2012: CHF 0.10)
per share of CHF 0.10 par value out of capital contribution reserve of UBS AG (standalone).
Other comprehensive
income recognized
of which:
Financial invest-
Retained
earnings
20,608
directly in equity,
Foreign currency
net of tax 1
(5,866)
translation
(7,425)
of which:
ments avail-
able-for-sale
95
Total equity
attributable to
UBS AG
shareholders
of which:
Cash flow
hedges
1,463
Preferred
Non-controlling
noteholders
1,893
interests
Total equity
41
49,936
48,002
0
(953)
1,946
24
802
(1,785)
(938)
46
3
0
0
0
4,961
3,502
2,667
(1,208)
0
52,108
0
(953)
1,946
24
802
(1,785)
(1,084)
46
3
1
1
0
5,229
3,649
2,667
(1,208)
121
54,165
(142)
1
260
142
119
2,013
(4)
1
7
5
3
45
2,294
3,502
(1,208)
2,667
2,667
1,834
1,834
140
140
693
693
560
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
Statement of changes in equity (continued)
CHF million
Balance as of 31 December 2013
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
of which: Other comprehensive income that may be reclassified to the income statement, net of tax
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
of which: Other comprehensive income that will not be reclassified to the income statement, net of tax –
defined benefit plans
foreign currency translation
Balance as of 31 December 2014
Share
premium
33,952
Treasury
shares
(1,031)
Equity classified
as obligation to
purchase own shares
(46)
Share
capital
384
0
(953)
1,9462
24
802
(1,785)3
3
(938) 4
Equity classified as obligation to purchase own shares – movements
46
Other comprehensive
income recognized
directly in equity,
net of tax 1
(5,866)
of which:
Foreign currency
translation
of which:
Financial invest-
ments avail-
able-for-sale
(7,425)
95
Retained
earnings
20,608
of which:
Cash flow
hedges
1,463
2,294
3,502
(1,208)
2,667
2,667
1,834
1,834
140
140
693
693
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Includes CHF 1,454 million related to the exchange of UBS AG treasury shares for UBS Group AG treasury shares. 3 Includes CHF
(2,365) million related to the transfer of deferred compensation plans from UBS AG to UBS Group AG. Refer to Note 29 for more information. 4 Reflects the payment of CHF 0.25 (2013: CHF 0.15, 2012: CHF 0.10)
per share of CHF 0.10 par value out of capital contribution reserve of UBS AG (standalone).
384
32,057
(37)
0
22,902
(3,199)
(5,591)
236
2,156
Total equity
attributable to
UBS AG
shareholders
48,002
0
(953)
1,946
24
802
(1,785)
3
(938)
46
0
0
0
4,961
3,502
2,667
(1,208)
0
52,108
Preferred
noteholders
Non-controlling
interests
1,893
41
Total equity
49,936
(142)
1
260
142
119
2,013
(4)
1
7
5
3
45
0
(953)
1,946
24
802
(1,785)
3
(1,084)
46
1
1
0
5,229
3,649
2,667
(1,208)
121
54,165
561
Financial information Financial information
UBS AG consolidated financial statements
UBS AG shares issued and treasury shares held
Number of shares
Shares issued
Balance at the beginning of the year
Issuance of shares
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
Acquisitions
Dispositions 1
Balance at the end of the year
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
3,842,002,069
3,835,250,233
3,832,121,899
2,558,844
6,751,836
3,128,334
3,844,560,913
3,842,002,069
3,835,250,233
73,800,252
51,317,486
87,879,601
55,346,016
84,955,551
114,292,481
(123,002,483)
(69,425,365)
(111,368,431)
2,115,255
73,800,252
87,879,601
0
(62)
0
(16)
(7)
77
(97)
1 The 123 million treasury shares disposed of during 2014 included 91 million shares related to the exchange of UBS AG shares for shares of UBS Group AG. The remainder mainly related to the delivery of shares under
employee share-based compensation plans. Refer to Note 32 for more information.
562
Conditional share capitalAs of 31 December 2014, 136,200,312 additional UBS AG shares could have been issued to fund UBS AG’s employee share option programs.Additional conditional capital up to a maximum number of 380,000,000 shares was available as of 31 December 2014 for conversion rights / warrants granted in connection with the issu-ance of bonds or similar financial instruments.In 2013, the conditional capital of up to 100,000,000 shares, which was available in connection with an arrangement with the Swiss National Bank (SNB), was removed. The SNB provided a loan to the SNB StabFund, to which UBS AG transferred certain illiquid securities and other positions in 2008 and 2009. As part of this arrangement, UBS AG granted warrants on shares to the SNB, which would have become exercisable if the SNB had incurred a loss on the loan. In 2013, the loan was repaid in full, the warrants were terminated and the respective conditional capital was re-moved. Statement of cash flows
CHF million
Cash flow from / (used in) operating activities
Net profit / (loss)
Adjustments to reconcile net profit to cash flow from / (used in) operating activities
Non-cash items included in net profit and other adjustments:
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Credit loss expense / (recovery)
Share of net profits of associates
Deferred tax expense / (benefit)
Net loss / (gain) from investing activities
Net loss / (gain) from financing activities
Other net adjustments
Net (increase) / decrease in operating assets and liabilities:
Due from / to banks
Cash collateral on securities borrowed and reverse repurchase agreements
Cash collateral on securities lent and repurchase agreements
Trading portfolio, replacement values and financial assets designated at fair value
Cash collateral on derivative instruments
Loans / due to customers
Other assets, provisions and other liabilities
Income taxes paid, net of refunds
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets 1
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale 2
Net cash flow from / (used in) investing activities
For the year ended
31.12.14
31.12.13
31.12.12
3,649
3,381
(2,255)
817
0
83
78
(94)
(1,635)
(227)
2,135
(6,899)
(1,235)
32,262
(3,698)
(2,879)
(6,458)
(11,624)
4,751
(600)
8,426
(18)
70
(1,915)
350
4,108
2,596
816
0
83
50
(49)
(545)
(522)
3,988
5,148
(7,551)
43,754
(23,659)
43,944
(25,649)
12,087
(3,935)
(382)
50,959
(49)
136
(1,236)
639
5,966
5,457
689
3,030
106
118
(88)
294
(486)
3,717
6,088
(7,686)
102,436
(66,407)
9,369
4,399
15,869
(1,771)
(261)
67,160
(11)
41
(1,118)
202
(13,994)
(14,879)
1 Includes dividends received from associates. 2 Includes gross cash inflows from sales and maturities (CHF 140,438 million for the year ended 31 December 2014, CHF 153,887 million for the year ended 31 December
2013) and gross cash outflows from purchases of (CHF 136,330 million for the year ended 31 December 2014, CHF 147,921 million for the year ended 31 December 2013).
Table continues on the next page.
563
Financial information Financial information
UBS AG consolidated financial statements
Statement of cash flows (continued)
Table continued from previous page.
CHF million
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Capital issuance
Distributions paid on UBS AG shares
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Dividends paid and repayments of preferred notes
Net changes of non-controlling interests
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Due from banks 2
Money market paper 3
Total 4
Additional information
Net cash flow from / (used in) operating activities include:
Cash received as interest
Cash paid as interest
Cash received as dividends on equity investments, investment funds and associates 5
For the year ended
31.12.14
31.12.13
31.12.12
(2,921)
(719)
0
(938)
40,982
(34,210)
(110)
(3)
2,081
8,611
21,714
105,266
126,980
104,073
22,037
869
126,980
11,321
5,360
1,961
(4,290)
(341)
1
(564)
28,014
(68,954)
(1,415)
(6)
(47,555)
(2,702)
6,158
99,108
105,266 1
80,879
20,099
4,288
105,266
12,148
7,176
1,421
(37,967)
(1,159)
0
(379)
55,890
(54,259)
(221)
(16)
(38,110)
(673)
13,500
85,609
99,108
66,383
28,344
4,381
99,108
14,551
9,166
1,430
1 Cash and cash equivalents as of 31 December 2013 were restated from CHF 108,632 million to CHF 105,266 million related to the removal of exchange-traded derivative client cash balances from the balance sheet.
Refer to Note 1b for more information. 2 Includes positions recognized in the balance sheet under Due from banks (31 December 2014: CHF 11,772 million, 31 December 2013: CHF 11,117 million, 31 December 2012:
CHF 15,951 million) and Cash collateral receivables on derivative instruments with bank counterparties (31 December 2014: CHF 10,265 million, 31 December 2013: CHF 8,982 million, 31 December 2012: CHF 12,393
million, refer to Note 10). 3 Money market paper is included in the balance sheet under Trading portfolio assets (31 December 2014: CHF 835 million, 31 December 2013: CHF 1,716 million, 31 December 2012: CHF
2,192 million) and Financial investments available-for-sale (31 December 2014: CHF 34 million, 31 December 2013: CHF 2,571 million, 31 December 2012: CHF 2,190 million). 4 CHF 4,593 million, CHF 4,966 million
and CHF 10,109 million of cash and cash equivalents (mainly reflected in Due from banks) were restricted as of 31 December 2014, 31 December 2013 and 31 December 2012, respectively. Refer to Note 25 for more
infor mation. 5 Includes dividends received from associates (2014: CHF 54 million, 2013: CHF 69 million, 2012: CHF 37 million) reported within cash flow from / (used in) investing activities.
564
Note 1 Summary of significant accounting policies
a) Significant accounting policies
565
Financial informationThe significant accounting policies applied in the preparation of the consolidated financial statements (the “Financial Statements”) of UBS AG and its subsidiaries (“UBS AG”) are described in this note. These policies have been applied consistently in all years presented unless otherwise stated.1) Basis of accountingUBS AG provides a broad range of financial services including: advisory services, underwriting, financing, market-making, asset management and brokerage on a global level, and retail banking in Switzerland. UBS AG was formed on 29 June 1998 when Swiss Bank Corporation and Union Bank of Switzerland merged. During 2014, UBS Group AG was established as the holding company of the Group and the parent company of UBS AG. ➔Refer to Note 32 for more information on the establishment of UBS Group AGThe Financial Statements are prepared in accordance with In-ternational Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and are pre-sented in Swiss francs (CHF), the currency of Switzerland where UBS AG is incorporated. On 5 March 2015, the Financial State-ments were authorized for issue by the Board of Directors. The Financial Statements are prepared using uniform accounting poli-cies for similar transactions and other events. Intercompany trans-actions and balances have been eliminated.Disclosures incorporated in the “Risk, treasury and capital man-agement” section of this report, which form part of these Financial Statements, are marked as audited. These disclosures relate to re-quirements under IFRS 7 Financial Instruments: Disclosures and IAS 1 Presentation of Financial Statements and are not repeated in the “Financial information – consolidated financial statements” section.2) Use of estimatesPreparation of these Financial Statements under IFRS requires man-agement to make estimates and assumptions that affect reported amounts of assets, liabilities, income and expenses and disclosure 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 such differences may be material to the Financial Statements. Revisions to estimates, based on regular reviews, are recognized in the period in which they occur.The following notes to the Financial Statements contain infor-mation about those areas of estimation uncertainty considered to require critical judgment and have the most significant effect on the amounts recognized in the Financial Statements: Note 8 Income taxes, Note 12 Allowances and provisions for credit losses, Note 17 Goodwill and intangible assets, Note 22 Provisions and contingent liabilities, Note 24 Fair value measurement, Note 28 Pension and other post-employment benefit plans, Note 29 Equity participation and other compensation plans and Note 30 Interests in subsidiaries and other entities.3) Subsidiaries and structured entitiesThe Financial Statements comprise those of UBS AG and its subsid-iaries, including controlled structured entities (SEs), presented as a single economic entity. Equity attributable to non-controlling inter-ests is presented on the consolidated balance sheet within Equity, separately from Equity attributable to UBS AG share holders.UBS AG controls an entity when it has power over the relevant activities of the entity, exposure to variable returns and the ability to use its power to affect its returns.Where an entity is governed by voting rights, control is gener-ally indicated by a direct shareholding of more than one-half of the voting rights.In other cases, the assessment of control is more complex and requires greater use of judgment. Where UBS AG has an interest in an entity that absorbs variability, UBS AG considers whether it has power over the entity that allows it to affect the variability of its returns. Consideration is given to all facts and circumstances to determine whether UBS AG has power over another entity, that is, the current ability to direct the relevant activities of an entity when decisions about those activities need to be made. Factors such as the purpose and design of the entity, rights held through contractual arrangements such as call rights, put rights or liquida-tion rights, as well as potential decision-making rights are all considered in this assessment. Where UBS AG has power over the relevant activities, a further assessment is made to determine whether, through that power, it has the ability to affect its own returns – that is, assessing whether power is held in a principal or agent capacity. Consideration is given to (i) the scope of decision-making authority, (ii) rights held by other parties, including re-moval or other participating rights and (iii) exposure to variability, including remuneration, relative to total variability of the entity as well as whether that exposure is different from other investors. If, after review of these factors, UBS AG concludes that it can exer-cise its power to affect its own returns, the entity is consolidated.Subsidiaries, including SEs, are consolidated from the date control is obtained and are deconsolidated from the date control ceases. Control, or the lack thereof, is reassessed if facts and Notes to the UBS AG consolidated financial statements Financial information
Notes to the UBS AG consolidated financial statements
circumstances indicate that there is a change to one or more of
the elements needed to establish that control is present.
➔ Refer to Note 30 for more information on subsidiaries and
structured entities
Structured entities (SEs)
SEs are entities that have been designed so that voting or similar
rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate only to administrative
tasks and the relevant activities are directed by means of contrac-
tual arrangements. Such entities generally have a narrow and
well-defined objective and include those historically referred to as
special purpose entities (SPEs) and some investment funds.
UBS AG assesses whether an entity is an SE by considering the
nature of the activities of the entity as well as the substance of
voting or similar rights afforded to other parties, including inves-
tors and independent boards or directors. UBS AG considers rights
such as the ability to liquidate the entity or remove the decision
maker to be similar to voting rights when the holder has the sub-
stantive ability to exercise such rights without cause. In the ab-
sence of such rights or in cases where the existence of such rights
cannot be fully established, the entity is considered to be an SE.
UBS AG sponsors the formation of SEs and interacts with non-
sponsored SEs for a variety of reasons including allowing clients to
obtain or be exposed to particular risk profiles, to provide funding
or to sell or purchase credit risk. Many SEs are established as
bankruptcy remote, meaning that only the assets in the SE are
available for the benefit of the SE’s investors and such investors
have no other recourse to UBS AG. UBS AG is deemed to be the
sponsor of an SE when it is involved in its creation, establishment
and promotion and facilitates its ongoing success through the
transfer of assets or the provision of explicit or implicit financial,
operational or other support. Where UBS AG acts purely as an
advisor, administrator or placement agent for an SE created by a
third-party entity, it is not considered to be sponsored by UBS AG.
Each individual entity is assessed for consolidation in line with
the consolidation principles described above, considering the na-
ture and scope of UBS AG’s involvement. As the nature and extent
of UBS AG’s involvement is unique to each entity, there is no uni-
form consolidation outcome by entity – certain entities within a
class are consolidated and others are not. When UBS AG does not
consolidate an SE but has an interest in an SE or has sponsored an
SE, additional disclosures are provided in Note 30 on the nature of
these interests and sponsorship activities. The classes of SEs UBS
AG is involved with include the following:
– Securitization structured entities are established to issue securi-
ties to investors that are backed by assets held by the SE and
whereby (i) significant credit risk associated with the securi-
tized exposures has been transferred to third parties and (ii)
there is more than one risk position or tranche issued by the
securitization vehicle in line with the Basel III securitization
definition. All securitization entities are classified as SEs.
– Client investment structured entities are established predomi-
nantly for clients to invest in specific assets or risk exposures
through purchasing notes issued by the SE, predominantly on a
fixed-term basis. The SE may source assets via a transfer from
UBS AG or through an external market transaction. In some
cases, UBS AG may enter into derivatives with the SE to either
align the cash flows of the entity with the investor’s intended
investment objective or to introduce other desired risk expo-
sures. In certain cases, UBS AG may have interests in a third-
party sponsored SE to hedge specific risks or participate in asset-
backed financing.
– Investment fund structured entities have a collective investment
objective, are managed by an investment manager and are ei-
ther passively managed, such that any decision-making does
not have a substantive effect on variability, or are actively man-
aged and investors or their governing bodies do not have sub-
stantive voting or similar rights. UBS AG creates and sponsors a
large number of funds in which it may have an interest through
the receipt of variable management fees and / or a direct invest-
ment. In addition, UBS AG has interests in a number of funds
created and sponsored by third parties, including exchange-
traded funds and hedge funds, to hedge issued structured
products.
Business combinations
Business combinations are accounted for using the acquisition
method. As of the acquisition date, UBS AG recognizes the iden-
tifiable assets acquired and the liabilities assumed at their acquisi-
tion-date fair values. For each business combination, UBS AG
measures the non-controlling interests in the acquiree (present
ownership interests providing entitlement to a proportionate
share of the net assets of the acquiree in the event of liquidation)
either at fair value or at their proportionate share of the acquiree’s
identifiable net assets.
The cost of an acquisition is the aggregate of the assets trans-
ferred, the liabilities incurred to former owners of the acquiree
and the equity instruments issued, measured at acquisition-date
fair values. Acquisition-related costs are expensed as incurred.
Any contingent consideration that may be transferred by UBS AG
is recognized at fair value at the acquisition date. If the contingent
consideration is classified as an asset or liability, subsequent
changes in the fair value of the contingent consideration are
recognized in the income statement. If the contingent consider-
ation is classified as equity, it is not remeasured and its subsequent
settlement is accounted for within Equity.
Any excess of the aggregate of the consideration transferred
and the amount recognized for non-controlling interests over the
net identifiable assets acquired and liabilities assumed is consid-
ered goodwill and is recognized as a separate asset on the bal-
ance sheet, initially measured at cost. If the fair value of the net
assets of the subsidiary acquired exceeds the aggregate of the
consideration transferred and the amount recognized for non-
566
Note 1 Summary of significant accounting policies (continued) controlling interests, the difference is recognized in the income
statement on the acquisition date.
➔ Refer to Note 31 for more information
4) Associates and joint ventures
Investments in entities in which UBS AG has significant influence,
but not control, over the financial and operating policies of the
entity are classified as investments in associates and accounted for
under the equity method of accounting. Normally, significant in-
fluence is indicated when UBS AG owns between 20% and 50%
of a company’s voting rights. Investments in associates are initially
recognized at cost, and the carrying amount is increased or de-
creased after the date of acquisition to recognize the UBS AG
share of the investee’s net profit or loss (including net profit or loss
recognized directly in equity). Interests in joint ventures are also
accounted for under the equity method of accounting. A joint
venture is subject to a contractual agreement between UBS AG
and one or more third parties, which establishes joint control over
the relevant activities and provides rights to the net assets of the
entity. Interests in joint ventures are classified as Investments in
associates.
If the reporting date of an associate or joint venture is different
than UBS AG’s reporting date, the most recently available finan-
cial statements of the associate or joint venture are used to apply
the equity method. Adjustments are made for effects of signifi-
cant transactions or events that may occur between that date and
the UBS AG reporting date.
Investments in associates and interests in joint ventures are
classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through con-
tinuing use. Refer to item 29 for more information.
➔ Refer to Note 30 for more information on associates and joint
ventures
5) Recognition and derecognition of financial instruments
UBS AG recognizes financial instruments on its balance sheet
when UBS AG becomes a party to the contractual provisions of
the instruments. UBS AG also acts in a trustee or other fiduciary
capacity, which results in the holding or placing of assets on be-
half of individuals, trusts, retirement benefit plans and other insti-
tutions. Unless the recognition criteria are satisfied, these assets
and the related income are excluded from UBS AG’s Financial
Statements, as they are not assets of UBS AG.
Financial assets
UBS AG enters into certain transactions where it transfers finan-
cial assets recognized on its balance sheet but retains either all or
a portion of the risks and rewards of the transferred financial as-
sets. If all or substantially all of the risks and rewards are retained,
the transferred financial assets are not derecognized from the bal-
ance sheet. Transactions where transfers of financial assets result
in UBS AG retaining all or substantially all risks and rewards in-
clude securities lending and repurchase transactions described
under items 13 and 14. They also include transactions where
financial assets are sold to a third party together with a total
return swap that results in UBS AG retaining all or substantially all
risks and rewards of the transferred assets. These types of transac-
tions are accounted for as secured financing transactions.
In transactions where substantially all of the risks and rewards
of ownership of a financial asset are neither retained nor trans-
ferred, UBS AG derecognizes the financial asset if control over the
asset is surrendered. The rights and obligations retained following
the transfer are recognized separately as assets and liabilities, re-
spectively. In transfers where control over the financial asset is
retained, UBS AG continues to recognize the asset to the extent
of its continuing involvement, determined by the extent to which
it is exposed to changes in the value of the transferred asset fol-
lowing the transfer. Examples of such transactions include written
put options, acquired call options, or other instruments linked to
the performance of the transferred asset.
For the purposes of the UBS AG’s disclosures of transferred fi-
nancial assets, a financial asset is typically considered to have been
transferred when UBS AG a) transfers the contractual rights to re-
ceive the cash flows of the financial asset or b) retains the contrac-
tual rights to receive the cash flows of that asset, but assumes a
contractual obligation to pay the cash flows to one or more entities.
Where financial assets have been pledged as collateral or in
similar arrangements, they are considered to have been trans-
ferred if the counterparty has received the contractual right to the
cash flows of the pledged assets, as may be evidenced, for ex-
ample, by the counterparty’s right to sell or repledge the assets.
Where the counterparty to the pledged financial assets has not
received the contractual right to the cash flows, the assets are
considered pledged, but not transferred.
➔ Refer to Note 25b and 25c for more information on transferred
financial assets
Financial liabilities
UBS AG derecognizes a financial liability from its balance sheet
when it is extinguished, such as when the obligation specified in
the contract is discharged, cancelled or has expired. When an
existing financial liability is exchanged for a new one from the
same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original liabil-
ity and the recognition of a new liability with any difference in
the respective carrying amounts being recognized in the income
statement.
6) Determination of fair value
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between mar-
ket participants at the measurement date.
➔ Refer to Note 24 for more information
567
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
7) Trading portfolio assets and liabilities
Non-derivative financial assets and liabilities are classified at ac-
quisition as held for trading and presented in the trading portfolio
if they are a) acquired or incurred principally for the purpose of
selling or repurchasing in the near term, or b) part of a portfolio
of identified financial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-
term profit-taking.
The trading portfolio includes non-derivative financial instruments
(including those with embedded derivatives) and commodities. Fi-
nancial instruments that are considered derivatives in their entirety
generally are presented on the balance sheet as Positive replacement
values or Negative replacement values. Refer to item 15 for more
information. The trading portfolio includes recognized assets and
liabilities relating to proprietary, hedging and client-related business.
Trading portfolio assets include debt instruments (including
those in the form of securities, money market paper and traded
corporate and bank loans), equity instruments, assets held under
unit-linked contracts and precious metals and other commodities
owned by UBS AG (long positions). Trading portfolio liabilities in-
clude obligations to deliver financial instruments such as debt and
equity instruments which UBS AG has sold to third parties but
does not own (short positions).
Assets and liabilities in the trading portfolio are measured at
fair value. Gains and losses realized on disposal or redemption of
these assets and liabilities and unrealized gains and losses from
changes in the fair value of these assets and liabilities are reported
as Net trading income. Interest and dividend income and expense
on these assets and liabilities are included in Interest and dividend
income or Interest and dividend expense.
UBS AG uses settlement date accounting when recognizing as-
sets and liabilities in the trading portfolio. From the date a pur-
chase transaction is entered into (trade date) until settlement date,
UBS AG recognizes any unrealized profits and losses arising from
remeasuring the transaction to fair value in Net trading income.
The corresponding receivable or payable is presented on the bal-
ance sheet as a Positive replacement value or Negative replace-
ment value, respectively. On settlement date, the resulting finan-
cial asset is recognized on the balance sheet at the fair value of the
consideration given or received, plus or minus the change in fair
value of the contract since the trade date. From the trade date of
a sales transaction, unrealized profits and losses are no longer rec-
ognized and, on settlement date, the asset is derecognized.
Trading portfolio assets transferred to external parties that do
not qualify for derecognition (refer to item 5 for more informa-
tion) and where the transferee has obtained the right to sell or
repledge the assets continue to be classified on the UBS AG bal-
ance sheet as Trading portfolio assets but are identified as Assets
pledged as collateral which may be sold or repledged by coun-
terparties. Such assets continue to be measured at fair value.
➔ Refer to Note 13 and 24 for more information on trading
portfolio assets and liabilities
8) Financial assets and financial liabilities designated at fair value
through profit or loss
A financial instrument may only be designated at fair value
through profit or loss upon initial recognition and this designation
cannot be changed subsequently. Financial assets and financial
liabilities designated at fair value are presented on separate lines
on the face of the balance sheet. The fair value option can be ap-
plied only if one of the following criteria is met:
– the financial instrument is a hybrid instrument which includes
a substantive embedded derivative;
– the financial instrument is part of a portfolio which is risk man-
aged on a fair value basis and reported to senior management
on that basis or
– the application of the fair value option eliminates or significantly
reduces an accounting mismatch that would otherwise arise.
UBS AG has used the fair value option to designate most of its
issued hybrid debt instruments as financial liabilities designated at
fair value through profit or loss, on the basis that such financial
instruments include embedded derivatives and / or are managed
on a fair value basis. Such hybrid debt instruments predominantly
include the following:
– Equity-linked bonds or notes: linked to a single stock, a basket
of stocks or an equity index;
– Credit-linked bonds or notes: linked to the performance (cou-
pon and / or redemption amount) of single names (such as a
company or a country) or a basket of reference entities and
– Rates-linked bonds or notes: linked to a reference interest rate,
interest rate spread or formula.
The fair value option is applied to certain loans and loan com-
mitments, otherwise accounted for at amortized cost, which are
hedged predominantly with credit derivatives. The application of
the fair value option to the loans and loan commitments reduces an
accounting mismatch, as the credit derivatives are accounted for as
derivative instruments at fair value through profit or loss. Similarly,
UBS AG has applied the fair value option to certain structured loans
and reverse repurchase and securities borrowing agreements which
are part of portfolios managed on a fair value basis.
The fair value option is applied to assets held to hedge de-
ferred cash-settled employee compensation awards, in order to
reduce an accounting mismatch that would otherwise arise due
to the liability being measured on a fair value basis.
Fair value changes related to financial instruments designated
at fair value through profit or loss are recognized in Net trading
income. Interest income and interest expense on financial assets
and liabilities designated at fair value through profit or loss are
recognized in Interest income on financial assets designated at
fair value or Interest expense on financial liabilities designated at
fair value, respectively.
UBS AG applies the same recognition and derecognition prin-
ciples to financial instruments designated at fair value as to finan-
568
Note 1 Summary of significant accounting policies (continued) cial instruments in the trading portfolio. Refer to items 5 and 7 for
more information.
➔ Refer to Notes 3, 20, 24e and 27d for more information on
financial assets and liabilities designated at fair value
9) Financial investments available-for-sale
Financial investments available-for-sale are non-derivative finan-
cial assets that are not classified as held for trading, designated at
fair value through profit or loss, or loans and receivables. They are
recognized on a settlement date basis.
Financial investments available-for-sale include debt securities
held as part of the multi-currency portfolio of unencumbered,
high-quality, liquid assets, a majority of which are short-term,
managed centrally by Group Treasury, strategic equity invest-
ments, certain investments in real estate funds, certain equity in-
struments including private equity investments, and debt instru-
ments and non-performing loans acquired in the secondary
market.
Financial investments available-for-sale are recognized initially
at fair value less transaction costs and are measured subsequently
at fair value. Unrealized gains and losses are reported in Other
comprehensive income within Equity, net of applicable income
taxes, until such investments are sold, collected or otherwise dis-
posed of, or until any such investment is determined to be im-
paired. Unrealized gains before tax are presented separately from
unrealized losses before tax in Note 15.
For monetary instruments (such as debt securities), foreign ex-
change translation gains and losses determined by reference to
the instrument’s amortized cost basis are recognized in Net trad-
ing income. Foreign exchange translation gains and losses related
to other changes in fair value are recognized in Other comprehen-
sive income within Equity. Foreign exchange translation gains and
losses associated with non-monetary instruments (such as equity
securities) are part of the overall fair value change of the instru-
ments and are recognized in Other comprehensive income within
Equity.
Interest and dividend income on financial investments avail-
able-for-sale are included in Interest and dividend income from
financial investments available-for-sale. Interest income is deter-
mined by reference to the instrument’s amortized cost basis using
the effective interest rate (EIR).
On disposal of an investment, any related accumulated unreal-
ized gains or losses included in Equity are transferred to the in-
come statement and reported in Other income. Gains or losses on
disposal are determined using the average cost method.
At each balance sheet date, UBS AG assesses whether indicators
of impairment are present for an available-for-sale investment. An
available-for-sale investment is impaired when there is objective
evidence that, as a result of one or more events that occurred after
the initial recognition of the investment, the estimated future cash
flows from the investment have decreased. A significant or pro-
longed decline in the fair value of an available-for-sale equity instru-
ment below its original cost is considered objective evidence of an
impairment. In the event of a significant decline in fair value below
its original cost (20%) or a prolonged decline (six months), an im-
pairment is recorded unless facts and circumstances clearly indicate
that this information, on its own, is not evidence of an impairment.
For debt investments, objective evidence of impairment in-
cludes significant financial difficulty for the issuer or counterparty,
default or delinquency in interest or principal payments, or it be-
coming probable that the borrower will enter bankruptcy or fi-
nancial reorganization. If a financial investment available-for-sale
is determined to be impaired, the related cumulative net unreal-
ized loss previously recognized in Other comprehensive income
within Equity is reclassified to the income statement within Other
income. For equity instruments, any further loss is recognized di-
rectly in the income statement, whereas for debt instruments, any
further loss is recognized in the income statement only if there is
additional objective evidence of impairment. After the recognition
of an impairment on a financial investment available-for-sale,
increases in the fair value of equity instruments are reported in
Other comprehensive income within Equity and increases in the
fair value of debt instruments up to amortized cost in original cur-
rency are recognized in Other income, provided that the fair value
increase is related to an event occurring after the impairment loss
was recorded.
UBS AG applies the same recognition and derecognition prin-
ciples to financial assets available-for-sale as to financial instru-
ments in the trading portfolio (refer to items 5 and 7 for more
information), except that unrealized gains and losses between
trade date and settlement date are recognized in Other compre-
hensive income within Equity rather than in the income state-
ment.
➔ Refer to Note 15 and 24 for more information on financial
investments available-for-sale
10) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market, not classified as held-for-trading, not designated as at fair
value through profit and loss or available-for-sale, and are not as-
sets for which UBS AG may not recover substantially all of its ini-
tial net investment, other than because of a credit deterioration.
Financial assets classified as loans and receivables include:
– originated loans where funding is provided directly to the bor-
rower;
– participation in a loan from another lender and purchased
loans;
– securities which were classified as loans and receivables at
acquisition date, such as auction rate securities in the Legacy
Portfolio;
– securities previously in the trading portfolio and reclassified to
loans and receivables (refer to Note 27c for more information).
569
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
Loans and receivables are recognized when UBS AG becomes
a party to the contractual provisions of the instrument, which is
when funding is advanced to borrowers. They are recorded ini-
tially at fair value, based on the amount provided to originate or
purchase the loan or receivable, together with any transaction
costs directly attributable to the acquisition. Subsequently, they
are measured at amortized cost using the EIR method, less allow-
ances for credit losses. Refer to item 11 for information on allow-
ances for credit losses and to Note 27a for an overview of the fi-
nancial assets classified as loans and receivables.
Interest on loans and receivables is included in Interest earned
on loans and advances and is recognized on an accrual basis. Up-
front fees and direct costs relating to loan origination, refinancing
or restructuring as well as to loan commitments are generally de-
ferred and amortized to Interest earned on loans and advances
over the life of the loan using the EIR method. For loan commit-
ments that are not expected to result in a loan being advanced,
the fees are recognized in Net fee and commission income over
the commitment period. For loan syndication fees where UBS AG
does not retain a portion of the syndicated loan, or where UBS AG
does retain a portion of the syndicated loan at the same effective
yield for comparable risk as other participants, fees are credited
to Net fee and commission income when the services have been
provided.
Presentation of receivables from central banks
Deposits with central banks which are available on demand are
presented on the balance sheet as Cash and balances with central
banks. All longer-dated receivables with central banks are pre-
sented under Due from banks.
Financial assets reclassified to loans and receivables
When a financial asset is reclassified from held for trading to loans
and receivables, the financial asset is reclassified at its fair value on
the date of reclassification. Any gain or loss recognized in the in-
come statement before reclassification is not reversed. The fair
value of a financial asset on the date of reclassification becomes
its cost basis going forward. In 2008 and 2009, UBS AG deter-
mined that certain financial assets classified as held for trading
were no longer held for the purpose of selling or repurchasing in
the near term and that UBS AG had the intention and ability to
hold these assets for the foreseeable future, considered to be a
period of approximately twelve months from the reclassification.
Therefore, these assets were reclassified from held-for-trading to
loans and receivables.
➔ Refer to Note 27c for more information
Renegotiated loans
A renegotiated or restructured loan is a loan for which the
terms have been modified or for which additional collateral has
been requested that was not contemplated in the original
contract.
Typical key features of terms and conditions granted through
renegotiation to avoid default include special interest rates, post-
ponement of interest or amortization payments, modification of
the schedule of repayments or amendment of loan maturity. There
is no change in the EIR following a renegotiation.
If a loan is renegotiated with preferential conditions (i.e.,
new / modified terms and conditions are agreed which do not
meet the normal market criteria for the quality of the obligor and
the type of loan), the position is still classified as non-performing
and is rated as being in counterparty default. It will remain so
until the loan is collected or written off and will be assessed for
impairment on an individual basis.
If a loan is renegotiated on a non-preferential basis (e.g., ad-
ditional collateral is provided by the client, or new terms and
conditions are agreed which meet the normal market criteria, for
the quality of the obligor and the type of loan), the loan will be
re-rated using UBS AG’s regular rating scale. In these circum-
stances, the loan is removed from impaired status and therefore
included in the collective assessment of loan loss allowances,
unless an indication of impairment exists, in which case the loan
is assessed for impairment on an individual basis. For the pur-
poses of measuring credit losses within the collective loan loss
assessment, these loans are not segregated from other loans
which have not been renegotiated. Management regularly
reviews all loans to ensure that all criteria according to the loan
agreement continue to be met and that future payments are
likely to occur.
A restructuring of a loan could lead to a fundamental change
in the terms and conditions of a loan, resulting in the original loan
being derecognized and a new loan being recognized.
If a loan is derecognized in these circumstances, the new loan
is measured at fair value at initial recognition. Any allowance
taken to date against the original loan is eliminated and is not at-
tributed to the new loan. Consequently, the new loan is assessed
for impairment on an individual basis. If the loan is not impaired,
the loan is included within the general collective loan assessment
for the purpose of measuring credit losses.
11) Allowances and provisions for credit losses
An allowance or provision for credit losses is established if there
is objective evidence that UBS AG will be unable to collect all
amounts due (or the equivalent thereof) on a claim based on the
original contractual terms due to credit deterioration of the issuer
or counterparty. A claim means a loan or receivable carried at
amortized cost, or a commitment such as a letter of credit, a
guarantee, or another similar instrument. Objective evidence of
impairment includes significant financial difficulty for the issuer
or counterparty, default or delinquency in interest or principal
payments, or it becoming probable that the borrower will enter
bankruptcy or financial reorganization.
An allowance for credit losses is reported as a reduction of
the carrying value of a claim on the balance sheet. For an off-
570
Note 1 Summary of significant accounting policies (continued) balance-sheet item, such as a commitment, a provision for credit
loss is reported in Provisions. Changes to allowances and provi-
sions for credit losses are recognized as Credit loss expense / re-
covery.
Allowances and provisions for credit losses are evaluated at
both a counterparty-specific level and collectively based on the
following principles:
Counterparty-specific: A loan is considered impaired when
management determines that it is probable that UBS AG will not
be able to collect all amounts due (or the equivalent value
thereof) based on the original contractual terms. Individual credit
exposures are evaluated based on the borrower’s character, over-
all financial condition and capacity, resources and payment re-
cord, the prospects for support from any financially responsible
guarantors and, where applicable, the realizable value of any col-
lateral. The estimated recoverable amount is the present value,
calculated using the claim’s original EIR, of expected future cash
flows including amounts that may result from restructuring or
the liquidation of collateral. If a loan has a variable interest rate,
the discount rate used for calculating the recoverable amount is
the current EIR. Impairment is measured and allowances for
credit losses are established based on the difference between the
carrying amount and the estimated recoverable amount. Upon
impairment, the accrual of interest income based on the original
terms of the loan is discontinued. The increase of the present
value of the impaired loan due to the passage of time is reported
as Interest income.
All impaired loans are reviewed and analyzed at least annually.
Any subsequent changes to the amounts and timing of the ex-
pected future cash flows compared with prior estimates result in
a change in the allowance for credit losses and are charged or
credited to Credit loss expense / recovery. An allowance for im-
pairment is reversed only when the credit quality has improved to
such an extent that there is reasonable assurance of timely collec-
tion of principal and interest in accordance with the original con-
tractual terms of the claim, or the equivalent value thereof. A
write-off is made when all or part of a claim is deemed uncollect-
ible or forgiven. Write-offs reduce the principal amount of a claim
and are charged against previously established allowances for
credit losses or, if no allowance has been established previously,
directly to Credit loss expense / recovery. Recoveries, in part or in
full, of amounts previously written off are credited to Credit loss
expense / recovery.
A loan is classified as non-performing when the payment of
interest, principal or fees is overdue by more than 90 days, when
insolvency proceedings have commenced, or when obligations
have been restructured on preferential terms. Loans are evaluated
individually for impairment when amounts have been overdue by
more than 90 days, or if other objective evidence indicates that a
loan may be impaired.
Collectively: All loans for which no impairment is identified at
a counterparty-specific level are grouped on the basis of
UBS AG’s internal credit grading system that considers credit risk
characteristics such as asset type, industry, geographical loca-
tion, collateral type, past-due status and other relevant factors,
to collectively assess whether impairment exists within a portfo-
lio. Future cash flows for a group of financial assets that are
collectively evaluated for impairment are estimated on the basis
of historical loss experience for assets with credit risk character-
istics similar to those in the group. Historical loss experience is
adjusted on the basis of current observable data to reflect the
effects of current conditions of the group of financial assets on
which the historical loss experience is based and to remove the
effects of conditions in the historical period that do not exist cur-
rently in the portfolio. Estimates of changes in future cash flows
for the group of financial assets reflect, and are directionally
consistent with, changes in related observable data from year to
year. The methodology and assumptions used for estimating fu-
ture cash flows for the group of financial assets are reviewed
regularly to reduce any differences between loss estimated and
actual loss experience. Allowances from collective assessment of
impairment are recognized as Credit loss expense / recovery and
result in an offset to the aggregated loan position. As the allow-
ance cannot be allocated to individual loans, the loans are not
considered to be impaired and interest is accrued on each loan
according to its contractual terms. If objective evidence becomes
available that indicates that an individual financial asset is im-
paired, it is removed from the group of financial assets assessed
for impairment on a collective basis and is assessed separately as
a counterparty-specific claim.
Reclassified securities and similar acquired securities carried at
amortized cost: Estimated cash flows associated with financial as-
sets reclassified from the held for trading category to loans and
receivables in accordance with the requirements in item 10 and
other similar assets acquired subsequently are revised periodically.
Adverse revisions in cash flow estimates related to credit events
are recognized in the income statement as Credit loss expense.
For reclassified securities, increases in estimated future cash re-
ceipts, as a result of increased recoverability over those expected
at the time of reclassification, are recognized as an adjustment to
the EIR on the loan from the date of change (refer to Note 27c for
more information).
➔ Refer to Note 12 for more information on allowances and
provisions for credit losses
12) Securitization structures set up by UBS AG
UBS AG securitizes certain financial assets, generally selling
Trading portfolio assets to SEs which issue securities to inves-
tors. UBS AG applies the policies set out in item 3 in determin-
ing whether the respective SE must be consolidated and those
set out in item 5 in determining whether derecognition of
transferred financial assets is appropriate. The following state-
ments mainly apply to transfers of financial assets which qualify
for derecognition.
571
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
Gains or losses related to the sale of Trading portfolio assets
involving a securitization are recognized when the derecognition
criteria are satisfied with the gain or loss being classified in Net
trading income.
Interests in the securitized financial assets may be retained in
the form of senior or subordinated tranches, interest-only strips or
other residual interests (retained interests). Retained interests are
primarily recorded in Trading portfolio assets and are carried at
fair value. Synthetic securitization structures typically involve de-
rivative financial instruments for which the principles set out in
item 15 apply.
UBS AG acts as structurer and placement agent in various
mortgage-backed securities (MBS) and other asset-backed securi-
ties (ABS) securitizations. In such capacity, UBS AG may purchase
collateral on its own behalf or on behalf of clients during the pe-
riod prior to securitization. UBS AG then typically sells the collat-
eral into designated trusts upon closing of the securitization. In
other securitizations, UBS AG may only provide financing to a
designated trust in order to fund the purchase of collateral by the
trust prior to securitization. UBS AG underwrites the offerings to
investors, earning fees for its placement and structuring services.
Consistent with the valuation of similar inventory, fair value of
retained tranches is initially and subsequently determined using
market price quotations where available or internal pricing mod-
els that utilize variables such as yield curves, prepayment speeds,
default rates, loss severity, interest rate volatilities and spreads.
Where possible, assumptions based on observable transactions
are used to determine the fair value of retained interests, but for
some interests substantially no observable information is avail-
able.
➔ Refer to Note 30c for more information on the UBS AG’s
involvement with securitization vehicles
13) Securities borrowing and lending
Securities borrowing and securities lending transactions are gen-
erally entered into on a collateralized basis. In such transactions,
UBS AG typically borrows or lends equity and debt securities in
exchange for securities or cash collateral. Additionally, UBS AG
borrows securities from its clients’ custody accounts in exchange
for a fee. The transactions are normally conducted under standard
agreements employed by financial market participants and are
undertaken with counterparties subject to UBS AG’s normal credit
risk control processes. UBS AG monitors on a daily basis the mar-
ket value of the securities received or delivered and requests or
provides additional collateral or returns or recalls surplus collateral
in accordance with the underlying agreements.
Cash collateral received is recognized with a corresponding ob-
ligation to return it (Cash collateral on securities lent) and cash
collateral delivered is derecognized and a corresponding receiv-
able reflecting UBS AG’s right to receive it back is recorded (Cash
collateral on securities borrowed). The securities which have been
transferred are not recognized on, or derecognized from, the bal-
ance sheet unless the risks and rewards of ownership are also
transferred. Refer to item 5 for more information. UBS AG-owned
securities transferred to a borrower that is granted the right to sell
or repledge those transferred securities are presented on the
balance sheet as Trading portfolio assets, of which: assets pledged
as collateral which may be sold or repledged by counterparties.
Securities received in a borrowing transaction are disclosed as
off-balance-sheet items if UBS AG has the right to resell or re-
pledge them, with additional disclosure provided for securities
that UBS AG has actually resold or repledged. The sale of securi-
ties which is settled by delivering securities received in a borrow-
ing transaction generally triggers the recognition of a trading lia-
bility (short sale). Where securities are either received or delivered
in lieu of cash (securities for securities transactions), neither the
securities received or delivered nor the obligation to return or
right to receive the securities are recognized on the balance sheet,
as the derecognition criteria are not met. Refer to item 5 for more
information.
Interest receivable or payable for financing transactions is
recognized in the income statement on an accrual basis and is
recorded as Interest income or Interest expense.
➔ Refer to Notes 11, 25 and 26 for more information on securities
borrowing and lending
14) Repurchase and reverse repurchase transactions
Securities purchased under agreements to resell (Reverse repur-
chase agreements) and securities sold under agreements to re-
purchase (Repurchase agreements) are treated as collateralized
financing transactions. Nearly all reverse repurchase and repur-
chase agreements involve debt instruments, such as bonds,
notes or money market paper. The transactions are normally
conducted under standard agreements employed by financial
market participants and are undertaken with counterparties
subject to UBS AG’s normal credit risk control processes. UBS AG
monitors on a daily basis the market value of the securities re-
ceived or delivered and requests or provides additional collateral
or returns or recalls surplus collateral in accordance with the un-
derlying agreements.
In a reverse repurchase agreement, the cash delivered is
derecognized and a corresponding receivable, including ac-
crued interest, is recorded in the balance sheet line Reverse re-
purchase agreements, representing UBS AG’s right to receive
the cash back. Similarly, in a repurchase agreement, the cash
received is recognized and a corresponding obligation, includ-
ing accrued interest, is recorded in the balance sheet line Repur-
chase agreements. Securities received under reverse repurchase
agreements and securities delivered under repurchase agree-
ments are not recognized on or derecognized from the balance
sheet, unless the risks and rewards of ownership are trans-
ferred. UBS AG-owned securities transferred to a recipient who
is granted the right to resell or repledge them are presented on
the balance sheet as Trading portfolio assets, of which: assets
572
Note 1 Summary of significant accounting policies (continued) pledged as collateral which may be sold or repledged by coun-
terparties. Securities received in reverse repurchase agreements
are disclosed as off-balance-sheet items if UBS AG has the right
to resell or repledge them, with additional disclosure provided
for securities that UBS AG has actually resold or repledged (refer
to Note 25d for more information). Additionally, the sale of se-
curities which is settled by delivering securities received in re-
verse repurchase transactions generally triggers the recognition
of a trading liability (short sale).
Interest earned on reverse repurchase agreements and interest
incurred on repurchase agreements is recognized as interest in-
come or interest expense over the life of each agreement.
UBS AG generally offsets reverse repurchase agreements and
repurchase agreements with the same counterparty, maturity, cur-
rency and Central Securities Depository (CSD) in accordance with
the relevant accounting requirements. Refer to item 35 for more
information.
➔ Refer to Notes 11, 25 and 26 for more information on repurchase
and reverse repurchase transactions
15) Derivative instruments and hedge accounting
Derivatives are initially recognized at fair value on the date the
derivative contract is entered into and are remeasured subse-
quently to fair value. The method of recognizing fair value gains
or losses depends on whether derivatives are held for trading, or
are designated and effective as hedging instruments. If desig-
nated as hedging instruments, the method of recognizing gains
or losses depends on the nature of the risk being hedged as de-
scribed within this item.
Derivative instruments are generally reported on the balance
sheet as Positive replacement values or Negative replacement val-
ues. However, exchange-traded derivatives which are economi-
cally settled on a daily basis and certain OTC derivatives which
qualify for IFRS netting and are in substance net settled on a daily
basis are classified as Cash collateral receivables on derivative in-
struments or Cash collateral payables on derivative instruments.
Products that receive this treatment include futures contracts,
100% daily margined exchange-traded options and interest rate
swaps transacted with the London Clearing House. Changes in
the fair values of derivatives are recorded in Net trading income,
unless the derivatives are designated and effective as hedging in-
struments in certain types of hedge accounting relationships.
➔ Refer to Note 14 for more information on derivative instruments
and hedge accounting
Hedge accounting
UBS AG uses derivative instruments as part of its risk manage-
ment activities to manage exposures particularly to interest rate
and foreign currency risks, including exposures arising from fore-
cast transactions. If derivative and non-derivative instruments
meet certain criteria specified below, they may be designated as
hedging instruments in hedges of the change in fair value of rec-
ognized assets or liabilities (fair value hedges), hedges of the
varia bility in future cash flows attributable to a recognized asset
or liability or highly probable forecast transactions (cash flow
hedges) or hedges of a net investment in a foreign operation (net
investment hedges).
At the time a financial instrument is designated in a hedge re-
lationship, UBS AG formally documents the relationship between
the hedging instrument(s) and hedged item(s), including the risk
management objectives and strategy in undertaking the hedge
transaction and the methods that will be used to assess the effec-
tiveness of the hedging relationship. Accordingly, UBS AG as-
sesses, both at the inception of the hedge and on an ongoing
basis, whether the hedging instruments, primarily derivatives,
have been “highly effective” in offsetting changes in the fair value
or cash flows associated with the designated risk of the hedged
items. A hedge is considered highly effective if the following crite-
ria are met: (i) at inception of the hedge and throughout its life,
the hedge is expected to be highly effective in achieving offsetting
changes in fair value or cash flows attributable to the hedged risk
and (ii) actual results of the hedge are within a range of 80% to
125%. In the case of hedging forecast transactions, the trans-
action must have a high probability of occurring and must present
an exposure to variations in cash flows that could ultimately affect
the reported net profit or loss. UBS AG discontinues hedge ac-
counting voluntarily, or when UBS AG determines that a hedging
instrument is not, or has ceased to be, highly effective as a hedge,
when the derivative expires or is sold, terminated or exercised,
when the hedged item matures, is sold or repaid or when forecast
transactions are no longer deemed highly probable.
Hedge ineffectiveness represents the amount by which the
changes in the fair value of the hedging instrument differ from
changes in the fair value of the hedged item attributable to the
hedged risk, or the amount by which changes in the present value
of future cash flows of the hedging instrument exceed changes in
the present value of (expected) future cash flows of the hedged
item. Such ineffectiveness is recorded in current period earnings
in Net trading income. Interest income and expense on derivatives
designated as hedging instruments in effective hedge relation-
ships is included in Net interest income.
Fair value hedges
For qualifying fair value hedges, the change in the fair value of the
hedging instrument is recognized in the income statement along
with the change in the fair value of the hedged item that is at-
tributable to the hedged risk. In fair value hedges of interest rate
risk, the fair value change of the hedged item attributable to the
hedged risk is reflected in the carrying value of the hedged item.
If the hedge accounting relationship is terminated for reasons
other than the derecognition of the hedged item, the difference
between the carrying value of the hedged item at that point and
the value at which it would have been carried had the hedge
never existed (the unamortized fair value adjustment) is amortized
573
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
to the income statement over the remaining term to maturity of
the hedged item.
For a portfolio hedge of interest rate risk, the equivalent
change in fair value is reflected within Other assets or Other
liabilities. If the hedge relationship is terminated for reasons
other than the derecognition of the hedged item, the amount
included in Other assets or Other liabilities is amortized to the
income statement over the remaining term to maturity of the
hedged items.
Cash flow hedges
Fair value gains or losses associated with the effective portion of
derivatives designated as cash flow hedges for cash flow repricing
risk are recognized initially in Other comprehensive income within
Equity. When the hedged forecast cash flows affect profit or loss,
the associated gains or losses on the hedging derivatives are re-
classified from Equity to the income statement.
If a cash flow hedge for forecasted transactions is deemed to be
no longer effective, or if the hedge relationship is terminated, the
cumulative gains or losses on the hedging derivatives pre viously
reported in Equity remain there until the committed or forecasted
transactions occur and affect profit or loss. If the forecasted trans-
actions are no longer expected to occur, the deferred gains or
losses are reclassified immediately to the income statement.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted
for similarly to cash flow hedges. Gains or losses on the hedging
instrument relating to the effective portion of the hedge are
recognized directly in Equity (and presented in the statement of
changes in equity and statement of comprehensive income un-
der Foreign currency translation), while any gains or losses relat-
ing to the ineffective and / or undesignated portion (for exam-
ple, the interest element of a forward contract) are recognized
in the income statement. Upon disposal or partial disposal of
the foreign operation or its liquidation, the cumulative value of
any such gains or losses associated with the entity, and recog-
nized directly in Equity, is reclassified to the income statement.
Economic hedges that do not qualify for hedge accounting
Derivative instruments that are transacted as economic hedges but
do not qualify for hedge accounting are treated in the same way
as derivative instruments used for trading purposes (i.e., realized
and unrealized gains and losses are recognized in Net trading in-
come), except for the forward points on certain short duration
foreign exchange contracts, which are reported in Net interest in-
come.
➔ Refer to Note 14 for more information on economic hedges
Embedded derivatives
Derivatives may be embedded in other financial instruments (host
contracts). For example, they could be represented by the con-
version feature embedded in a convertible bond. Such combina-
tions are known as hybrid instruments and arise predominantly
from the issuance of certain structured debt instruments. An em-
bedded derivative is generally required to be separated from the
host contract and accounted for as a standalone derivative instru-
ment at fair value through profit or loss if: (i) the host contract is
not carried at fair value with changes in fair value reported in the
income statement, (ii) the economic characteristics and risks of
the embedded derivative are not closely related to the economic
characteristics and risks of the host contract and (iii) the terms of
the embedded derivative would meet the definition of a stand-
alone derivative were they contained in a separate contract. Bifur-
cated embedded derivatives are presented on the same balance
sheet line as the host contract, and are shown in Note 27a in the
Held for trading category, reflecting the measurement and recog-
nition principles applied.
Typically, UBS AG applies the fair value option to hybrid instru-
ments (refer to item 8 for more information), in which case bifur-
cation of an embedded derivative component is not required.
16) Loan commitments
Loan commitments are defined amounts (unutilized credit lines or
undrawn portions of credit lines) against which clients can borrow
money under defined terms and conditions.
Loan commitments that can be cancelled at any time by UBS AG
at its discretion, according to their general terms and conditions,
are not recognized on the balance sheet and are not included in
the off-balance-sheet disclosures. Upon a loan drawdown by the
counterparty, the amount of the loan is accounted for in accor-
dance with Loans and receivables. Refer to item 10 for more infor-
mation.
Irrevocable loan commitments (where UBS AG has no right to
withdraw the loan commitment once communicated to the ben-
eficiary, or which are revocable only due to automatic cancellation
upon deterioration in a borrower’s creditworthiness) are classified
into the following categories:
– derivative loan commitments, being loan commitments that
can be settled net in cash or by delivering or issuing another
financial instrument, or loan commitments for which there is
evidence of selling loans resulting from similar loan commit-
ments before or shortly after origination;
– loan commitments designated at fair value through profit and
loss (refer to item 8 for more information) and
– all other loan commitments. These are not recorded in the bal-
ance sheet, but a provision is recognized if it is probable that a
loss has been incurred and a reliable estimate of the amount of
the obligation can be made. Other loan commitments include
irrevocable forward starting reverse repurchase and irrevocable
securities borrowing agreements. Any change in the liability
relating to these other loan commitments is recorded in the
income statement in Credit loss expense / recovery. Refer to
items 11 and 27 for more information.
574
Note 1 Summary of significant accounting policies (continued) 17) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer
to make specified payments to reimburse the holder for an in-
curred loss because a specified debtor fails to make payments
when due in accordance with the terms of a specified debt instru-
ment. UBS AG issues such financial guarantees to banks, financial
institutions and other parties on behalf of clients to secure loans,
overdrafts and other banking facilities.
Certain written financial guarantees that are managed on a
fair value basis are designated at fair value through profit or loss.
Refer to item 8 for more information. Financial guarantees that
are not managed on a fair value basis are initially recognized in
the financial statements at fair value. Subsequent to initial recog-
nition, these financial guarantees are measured at the higher of
the amount initially recognized less cumulative amortization, and
to the extent a payment under the guarantee has become prob-
able, the present value of the expected payment. Any change in
the liability relating to probable expected payments resulting from
guarantees is recorded in the income statement in Credit loss ex-
pense / recovery.
18) Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash
equivalents comprise balances with an original maturity of three
months or less including cash, money market paper and balances
with central and other banks.
19) Physical commodities
Physical commodities (precious metals, base metals and other
commodities) held by UBS AG as a result of its broker-trader ac-
tivities are accounted for at fair value less costs to sell and recog-
nized within Trading portfolio assets. Changes in fair value less
costs to sell are recorded in Net trading income.
20) Property and equipment
Property and equipment includes own-used properties, invest-
ment properties, leasehold improvements, information technol-
ogy hardware, externally purchased and internally generated
software and communication and other similar equipment. With
the exception of investment properties, Property and equipment
is carried at cost (which includes capitalized interest from associ-
ated borrowings, where applicable), less accumulated deprecia-
tion and impairment losses, and is reviewed periodically for im-
pairment.
➔ Refer to Note 16 for more information on property and
equipment
Classification of own-used property
Own-used property is defined as property held by UBS AG for use
in the supply of services or for administrative purposes, whereas
investment property is defined as property held to earn rental in-
come and / or for capital appreciation. Where a property of UBS
AG includes an own-used portion and an investment portion
which can be sold separately, they are separately accounted for as
own-used property and investment property. If the portions can-
not be sold separately, the whole property is classified as own-
used unless the portion used by UBS AG is minor. The classifica-
tion of property is reviewed on a regular basis. When the use of a
property changes from own-used to investment property, the
property is remeasured to fair value and reclassified as investment
property. Any gain arising on remeasurement is recognized in the
income statement. to the extent that it reverses a previous impair-
ment loss on the specific property, with any remaining gain recog-
nized in Other comprehensive income within Equity and pre-
sented in the reva luation reserve within Equity. Any loss is
recognized immediately in the income statement. When an invest-
ment property is re classified as own-used property, its fair value at
the date of reclassification becomes its cost basis for subsequent
measurement purposes.
Investment property
Investment property is carried at fair value with changes in fair
value recognized in the income statement in Other income in the
period of change.
Leasehold improvements
Leasehold improvements are investments made to customize
buildings and offices occupied under operating lease contracts to
make them suitable for their intended purpose. The present value
of estimated reinstatement costs required to bring a leased prop-
erty back into its original condition at the end of the lease is
capitalized as part of total leasehold improvements with a corre-
sponding liability recognized to reflect the obligation incurred.
Reinstatement costs are recognized in the income statement
through depreciation of the capitalized leasehold improvements
over their estimated useful lives and the liability is relieved as cash
payments are applied.
Property held for sale
Where UBS AG has decided to sell non-current assets such as prop-
erty or equipment and the sale of these assets is highly probable
to occur within 12 months, these assets are classified as non-cur-
rent assets held for sale and are reclassified to Other assets. Upon
classification as held for sale, they are no longer depreciated and
are carried at the lower of book value or fair value less cost to sell.
Software
Software development costs are recognized only when the costs
can be measured reliably and it is probable that future economic
benefits will arise.
Estimated useful life of property and equipment
Property and equipment is depreciated on a straight-line basis
over its estimated useful life. Depreciation of property and equip-
575
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
ment begins when it is available for use, that is, when it is in the
location and condition necessary for it to be capable of operating
in the manner intended by management.
Estimated useful life of property and equipment
Properties, excluding land
Leasehold improvements
Other machines and equipment
IT hardware and communication
equipment
Software
Not exceeding 67 years
Residual lease term
Not exceeding 10 years
Not exceeding 5 years
Not exceeding 10 years
21) Goodwill and intangible assets
Goodwill represents the excess of the cost of an acquisition over the
fair value of UBS AG’s share of net identifiable assets of the acquired
entity at the date of acquisition. Goodwill is not amortized. It is
tested annually for impairment and, additionally, when an indication
of impairment exists at the end of each reporting period. For good-
will impairment testing purposes, UBS AG considers the segments
reported in Note 2a as separate cash-generating units, since this is
the level at which the performance of investments is reviewed and
assessed by management. The recoverable amount of a segment is
determined on the basis of its value-in-use.
Intangible assets are comprised of separately identifiable intan-
gible items arising from business combinations and certain pur-
chased trademarks and similar items. Intangible assets are recog-
nized at cost. The cost of an intangible asset acquired in a business
combination is its fair value at the date of acquisition. Intangible
assets with a definite useful life are amortized using the straight-
line method over their estimated useful economic life, generally not
exceeding 20 years. Intangible assets with an indefinite useful life
are not amortized. In nearly all cases, identified intangible assets
have a definite useful life. At each balance sheet date, intangible
assets are reviewed for indications of impairment. If such indica-
tions exist, the intangible assets are analyzed to assess whether
their carrying amount is fully recoverable. An impairment loss is
recognized if the carrying amount exceeds the recoverable amount.
Intangible assets are classified into two categories: (i) infra-
structure and (ii) customer relationships, contractual rights and
other. Infrastructure consists of a branch network intangible asset
recognized in connection with the acquisition of PaineWebber
Group, Inc. Client relationships, contractual rights and other in-
cludes mainly intangible assets for client relationships, non-com-
pete agreements, favorable contracts, trademarks and trade
names acquired in business combinations.
➔ Refer to Note 17 for more information on goodwill and
intangible assets
22) Income taxes
Income tax payable on profits is recognized as an expense based
on the applicable tax laws in each jurisdiction in the period in
which profits arise. The tax effects of income tax losses available
for carry forward are recognized as a deferred tax asset if it is prob-
able that future taxable profit (based on profit forecast assump-
tions) will be available against which those losses can be utilized.
Deferred tax assets are recognized for temporary differences
that will result in deductible amounts in future periods, but only
to the extent that it is probable that sufficient taxable profits will
be available against which these differences can be utilized. De-
ferred tax liabilities are recognized for temporary differences be-
tween the carrying amounts of assets and liabilities in the balance
sheet and their amounts as measured for tax purposes, which will
result in taxable amounts in future periods. Deferred tax assets
and liabilities are measured at the tax rates that are expected to
apply in the period in which the asset will be realized or the liabil-
ity will be settled based on enacted rates.
Tax assets and liabilities of the same type (current or deferred)
are offset when they arise from the same tax reporting group, they
relate to the same tax authority, the legal right to offset exists, and
they are intended to be settled net or realized simultaneously.
Current and deferred taxes are recognized as income tax ben-
efit or expense in the income statement except for current and
deferred taxes recognized (i) upon the acquisition of a subsidiary,
(ii) for unrealized gains or losses on financial investments avail-
able-for-sale, for changes in fair value of derivative instruments
designated as cash flow hedges, for remeasurements of defined
benefit plans, and for certain foreign currency translations of for-
eign operations, (iii) for certain tax benefits on deferred compen-
sation awards and (iv) for gains and losses on the sale of treasury
shares. Deferred taxes recognized in a business combination
(point (i)) are considered when determining goodwill. Amounts
relating to points (ii), (iii) and (iv) are recognized in Other compre-
hensive income within Equity.
➔ Refer to Note 8 for more information on income taxes
23) Debt issued
Debt issued is carried at amortized cost. In cases where, as part of
the UBS AG’s risk management activity, fair value hedge account-
ing is applied to fixed-rate debt instruments carried at amortized
cost, their carrying amount is adjusted for changes in fair value
related to the hedged exposure. Refer to item 15 for more infor-
mation on hedge accounting. In most cases, structured notes is-
sued are designated at fair value through profit or loss using the
fair value option, on the basis that they are managed on a fair
value basis, that the structured notes contain an embedded de-
rivative, or both. Refer to item 8 for more information on the fair
value option. The fair value option is not applied to certain struc-
tured notes that contain embedded derivatives that reference for-
eign exchange rates and / or precious metal prices. For these in-
struments, the embedded derivative component is measured on a
fair value basis and the related underlying debt host component is
measured on an amortized cost basis, with both components pre-
sented together within Debt issued.
576
Note 1 Summary of significant accounting policies (continued)
Debt issued and subsequently repurchased in relation to mar-
ket-making or other activities is treated as redeemed. A gain or
loss on redemption (depending on whether the repurchase price
of the bond is lower or higher than its carrying value) is recorded
in Other income. A subsequent sale of own bonds in the market
is treated as a reissuance of debt. Interest expense on debt instru-
ments measured at amortized cost is included in Interest on debt
issued.
➔ Refer to Note 21 for more information on debt issued
24) Pension and other post-employment benefit plans
UBS AG sponsors a number of post-employment benefit plans for
its employees worldwide, which include defined benefit and de-
fined contribution pension plans, and other post-employment
benefits such as medical and life insurance benefits that are pay-
able after the completion of employment. The major defined ben-
efit pension plans are located in Switzerland, the UK, the US and
Germany.
➔ Refer to Note 28 for more information on pension and other
post-employment benefit plans
Other post-retirement benefits
UBS AG also provides post-retirement medical and life insurance
benefits to certain retirees in the US and the UK. The expected
costs of these benefits are recognized over the period of employ-
ment using the same accounting methodology used for defined
benefit pension plans.
25) Equity participation and other compensation plans
Transfer of deferred compensation plans
As part of the Group reorganization, in the fourth quarter 2014,
UBS Group AG assumed obligations of UBS AG as grantor in con-
nection with outstanding awards under employee share, option,
notional fund and deferred cash plans. This section separately
describes the accounting policies applied to these plans during
the periods prior to and post the Group reorganization and trans-
fer of deferred compensation plans.
Periods prior to the Group reorganization and transfer of
deferred compensation plans
Defined benefit pension plans
Defined benefit pension plans specify an amount of benefit that
an employee will receive, which is usually dependent on one or
more factors such as age, years of service and compensation. The
defined benefit liability recognized in the balance sheet is the
present value of the defined benefit obligation less the fair value
of the plan assets at the balance sheet date. If the fair value of the
plan assets is higher than the present value of the defined benefit
obligation, the measurement of the resulting defined benefit as-
set is limited to the present value of economic benefits available
in the form of refunds from the plan or reductions in future con-
tributions to the plan. UBS AG applies the projected unit credit
method to determine the present value of its defined benefit ob-
ligations, the related current service cost and, where applicable,
past service cost. These amounts, which take into account the
specific features of each plan, including risk sharing between the
employee and employer, are calculated periodically by indepen-
dent qualified actuaries.
Defined contribution plans
A defined contribution plan is a pension plan under which UBS AG
pays fixed contributions into a separate entity from which post-em-
ployment and other benefits are paid. UBS AG has no legal or con-
structive obligation to pay further contributions if the plan does not
hold sufficient assets to pay employees the benefits relating to em-
ployee service in the current and prior periods. UBS AG’s contribu-
tions are expensed when the employees have rendered services in
exchange for such contributions. This is generally in the year of
contribution. Prepaid contributions are recognized as an asset to
the extent that a cash refund or a reduction in future payments is
available.
Equity participation plans
UBS AG has established several equity participation plans in the
form of share plans, option plans and share-settled stock appre-
ciation right (SAR) plans. UBS AG’s equity participation plans in-
clude mandatory, discretionary and voluntary plans. UBS AG rec-
ognizes the fair value of share, option and SAR awards granted to
its employees, determined at the date of grant, as compensation
expense over the period during which the employee is required to
provide services in order to earn the award.
If the employee is not required to provide future services, such
as for awards granted to employees who are retirement eligible,
including those employees who meet full career retirement crite-
ria, compensation expense is recognized on or prior to the grant
date. Such awards may remain forfeitable until the legal vesting
date if certain non-vesting conditions are not met. Forfeiture
events resulting from breach of a non-vesting condition do not
result in a reversal of compensation expense.
If future service is required, compensation expense is recog-
nized over that future period. For awards that are delivered in
tranches, each tranche is considered a separate award and amor-
tized separately. Plans may contain provisions that shorten the
required service period due to achievement of retirement eligibil-
ity or upon termination due to redundancy. In such instances,
compensation expense is recognized over the period from grant
date to the retirement eligibility or redundancy date. Forfeiture of
these awards that occurs during the service period results in a re-
versal of compensation expense.
Awards settled in UBS AG shares or options are classified as
equity settled. The fair value of an equity-settled award is deter-
mined at the date of grant and is not subsequently remeasured,
unless its terms are modified such that the fair value immediately
577
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
after modification exceeds the fair value immediately prior to
modification. Any increase in fair value resulting from a modifica-
tion is recognized as compensation expense, either over the
remaining service period or, for vested awards, immediately.
voluntary plans. UBS AG recognizes the fair value of awards
granted to its employees, determined at the grant date, over the
period that the employee is required to provide services in order
to earn the award.
Cash-settled awards are classified as liabilities and are remea-
sured to fair value at each balance sheet date as long as the award
is outstanding. Changes in fair value are reflected in compensa-
tion expense and, on a cumulative basis, no compensation ex-
pense is recognized for awards that expire worthless or remain
unexercised.
➔ Refer to Note 29 for more information on equity participation
plans
Other compensation plans
UBS AG has established other fixed and variable deferred com-
pensation plans, the values of which are not linked to UBS AG’s
own equity. Deferred cash compensation plans are either manda-
tory or discretionary plans and include awards based on a notional
cash amount, where ultimate payout is fixed or may vary based on
achievement of performance conditions or the value of specified
underlying assets. Compensation expense is recognized over the
period that the employee is required to provide services to earn
the award. If the employee is not required to provide future ser-
vices, such as for awards granted to employees who are retire-
ment eligible, including those employees who meet full career
retirement criteria, compensation expense is recognized on or
prior to the grant date. The amount recognized during the service
period is based on an estimate of the amount expected to be paid
out under the plan, such that cumulative expense recognized ulti-
mately equals the cash distributed to employees. For awards in
the form of alternative investment vehicles or similar structures,
which provide employees with a payout based on the value of
specified underlying assets, the initial value is based on the fair
value of the underlying assets (e.g., money market funds, UBS
and non-UBS mutual funds and other UBS-sponsored funds).
These awards are remeasured at each reporting date based on the
fair value of the underlying assets until the award is distributed.
Changes in value are recognized proportionately to the elapsed
service period. Forfeiture of these awards results in the reversal of
compensation expense.
➔ Refer to Note 29 for more information on other compensation
plans
Periods post the Group reorganization and transfer of deferred
compensation plans
Equity participation plans
UBS Group AG has established, and maintains the obligation to
settle, several equity participation plans in the form of share plans,
option plans and share-settled stock appreciation right (SAR)
plans, which are granted to employees of UBS AG. UBS Group AG’s
equity participation plans include mandatory, discretionary and
If the employee is not required to provide future services, such
as for awards granted to employees who are retirement eligible,
including those employees who meet full career retirement crite-
ria, compensation expense is recognized on or prior to the grant
date. Such awards may remain forfeitable until the legal vesting
date if certain non-vesting conditions are not met. Forfeiture
events resulting from breach of a non-vesting condition do not
result in a reversal of compensation expense.
If future service is required, compensation expense is recog-
nized over that future period. For awards that are delivered in
tranches, each tranche is considered a separate award and amor-
tized separately. Plans may contain provisions that shorten the
required service period due to achievement of retirement eligibil-
ity or upon termination due to redundancy. In such instances,
compensation expense is recognized over the period from grant
date to the retirement eligibility or redundancy date. Forfeiture of
these awards that occurs during the service period results in a re-
versal of compensation expense.
UBS AG has no obligation to settle the awards and therefore
awards over UBS Group AG shares or options are classified as
equity settled share-based payment transactions. The fair value of
an equity-settled award is determined at the date of grant and is
not subsequently remeasured, unless its terms are modified such
that the fair value immediately after modification exceeds the fair
value immediately prior to modification. Any increase in fair value
resulting from a modification is recognized as compensation ex-
pense, either over the remaining service period or, for vested
awards, immediately.
➔ Refer to Note 29 for more information on equity participation
plans
Other compensation plans
UBS Group AG has established other fixed and variable deferred
compensation plans, the values of which are not linked to UBS
Group AG’s or UBS AG’s own equity. Deferred cash compensa-
tion plans are either mandatory or discretionary plans and include
awards based on a notional cash amount, where ultimate payout
is fixed or may vary based on achievement of performance condi-
tions or the value of specified underlying assets. Compensation
expense is recognized over the period that the employee is re-
quired to provide services to earn the award. If the employee is
not required to provide future services, such as for awards
granted to employees who are retirement eligible, including
those employees who meet full career retirement criteria, com-
pensation expense is recognized on or prior to the grant date.
The amount recognized during the service period is based on an
estimate of the amount expected to be paid out under the plan,
such that cumulative expense recognized ultimately equals the
578
Note 1 Summary of significant accounting policies (continued) cash distributed to employees. For awards in the form of alterna-
tive investment vehicles or similar structures, which provide em-
ployees with a payout based on the value of specified underlying
assets, the initial value is based on the fair value of the underlying
assets (e.g., money market funds, UBS and non-UBS mutual
funds and other UBS-sponsored funds). These awards are remea-
sured at each reporting date based on the fair value of the under-
lying assets until the award is distributed. Changes in value are
recognized proportionately to the elapsed service period. Forfei-
ture of these awards results in the reversal of compensation
expense.
➔ Refer to Note 29 for more information on other compensation
plans
26) Amounts due under unit-linked investment contracts
Financial liabilities from unit-linked investment contracts are pre-
sented as Other liabilities on the balance sheet. These contracts
allow investors to invest in a pool of assets through issued invest-
ment units. The unit holders receive all rewards and bear all risks
associated with the reference asset pool. The financial liability rep-
resents the amounts due to unit holders and is equal to the fair
value of the reference asset pool. Assets held under unit-linked
investment contracts are presented as Trading portfolio assets.
➔ Refer to Notes 13 and 23 for more information on unit-linked
investment contracts
27) Provisions
Provisions are liabilities of uncertain timing or amount, and are
recognized when UBS AG has a present obligation as a result of a
past event, it is probable that an outflow of resources will be re-
quired to settle the obligation, and a reliable estimate of the
amount of the obligation can be made.
The majority of UBS AG’s provisions relate to litigation, regula-
tory and similar matters, restructuring, employee benefits, real
estate and loan commitments and guarantees. Provisions that are
similar in nature are aggregated to form a class, while the remain-
ing provisions, including those of less significant amounts, are
presented under Other provisions. Provisions are presented sepa-
rately on the balance sheet and, when they are no longer consid-
ered uncertain in timing or amount, are reclassified to Other liabil-
ities – Other.
UBS AG recognizes provisions for litigation, regulatory and
similar matters when, in the opinion of management after seek-
ing legal advice, it is more likely than not that UBS AG has a pres-
ent 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.
Restructuring provisions are recognized when a detailed and
formal restructuring plan has been approved and a valid expecta-
tion has been raised that the restructuring will be carried out, ei-
ther through commencement of the plan or announcements to
affected employees.
Provisions are recognized for lease contracts if the unavoidable
costs of a contract exceed the benefits expected to be received
under it (onerous lease contracts). For example, this may occur
when a significant portion of leased property is expected to be
vacant for an extended period.
Provisions for employee benefits are recognized mainly in re-
spect of service anniversaries and sabbatical leave.
Provisions are recognized at the best estimate of the consider-
ation required to settle the present obligation at the balance sheet
date. Such estimates are based on all available information and
are revised over time as more information becomes available. If
the effect of the time value of money is material, provisions are
discounted and measured at the present value of the expenditure
expected to settle or discharge the obligation, using a rate that
reflects the current market assessments of the time value of
money and the risks specific to the obligation.
A provision is not recognized when UBS AG has a present ob-
ligation that has arisen from past events but it is not probable that
an outflow of resources will be required to settle it, or a suffi-
ciently reliable estimate of the amount of the obligation cannot
be made. Instead, a contingent liability is disclosed, unless the
likelihood of an outflow of resources is remote. Contingent liabil-
ities are also disclosed for possible obligations that arise from past
events whose existence will be confirmed only by uncertain future
events not wholly within the control of UBS AG.
➔ Refer to Note 22 for more information on provisions
28) Equity, treasury shares and contracts on UBS AG shares
Non-controlling interests and preferred noteholders
Net profit and Equity are presented including non-controlling in-
terests and preferred noteholders. Net profit is split into Net profit
attributable to UBS AG shareholders, Net profit attributable to
non-controlling interests and Net profit attributable to preferred
noteholders. Equity is split into Equity attributable to UBS AG
shareholders, Equity attributable to non-controlling interests and
Equity attributable to preferred noteholders.
UBS AG shares held (treasury shares)
UBS AG shares held by UBS AG are presented in Equity as Treasury
shares at their acquisition cost, which includes transaction costs.
Treasury shares are deducted from Equity until they are cancelled
or reissued. The difference between the proceeds from sales of
treasury shares and their weighted average cost (net of tax, if any)
is reported as Share premium.
Preferred notes issued to non-consolidated preferred securities
entities
On 1 January 2013, UBS AG deconsolidated certain entities that
issued preferred securities, which resulted in UBS AG recognizing
the subordinated notes (that is, the preferred notes) issued to
these entities rather than the preferred securities issued by them.
579
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
UBS AG has fully and unconditionally guaranteed all contractual
payments on the preferred securities. UBS AG’s obligations under
these guarantees are subordinated to the full prior payment of
the deposit liabilities of UBS AG and all other liabilities of UBS AG.
All but one of the preferred notes, which is classified as a liability,
contain no contractual obligation to deliver cash, and, therefore,
were classified as equity instruments.
The preferred notes classified as equity instruments are pre-
sented as Equity attributable to preferred noteholders on the con-
solidated balance sheet and statement of changes in equity. Dis-
tributions on these preferred notes are presented as Net profit
attributable to preferred noteholders in the consolidated income
statement and statement of comprehensive income.
For the preferred note classified as liability, interest is accrued
through the income statement and presented within Net interest
income.
Net cash settlement contracts
Prior to the share-for-share exchange, UBS AG issued contracts on
own shares that required net cash settlement, or provided the
counterparty or UBS AG with a settlement option which included
a choice of settling net in cash. These contracts were classified as
held for trading, with changes in fair value reported in the income
statement as Net trading income.
Following the share-for-share exchange, these contracts con-
tinue to be accounted for in the same manner, however, they are
no longer classified as contracts on own shares.
29) Non-current assets held for sale
UBS AG classifies individual non-current assets and disposal groups
as held for sale if such assets or disposal groups are available for
immediate sale in their present condition subject to terms that are
usual and customary for sales of such assets or disposal groups and
their sale is considered highly probable. For a sale to be highly
probable, management must be committed to a plan to sell such
assets and must be actively looking for a buyer. Furthermore, the
assets must be actively marketed at a reasonable sales price in rela-
tion to their fair value and the sale must be expected to be com-
pleted within one year. The assets held for sale and disposal groups
are measured at the lower of their carrying amount and fair value
less costs to sell and are presented in Other assets and Other liabil-
ities. Non-current assets and liabilities of subsidiaries are classified
as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use.
➔ Refer to Note 18 for more information on non-current assets
held for sale
30) Leasing
UBS AG enters into lease contracts, or contracts that include lease
components, predominantly of premises and equipment, and pri-
marily as lessee. Leases that transfer substantially all the risks and
rewards incidental to the ownership of assets, but not necessarily
legal title, are classified as finance leases. All other leases are clas-
sified as operating leases.
Assets leased pursuant to finance leases are recognized on the
balance sheet as Property and equipment and are depreciated
over the lesser of the useful life of the asset or the lease term,
with corresponding amounts payable included in Due to
banks / customers. Finance charges payable are recognized in Net
interest income over the period of the lease based on the interest
rate implicit in the lease on the basis of a constant yield.
Lease contracts classified as operating leases where UBS AG is
the lessee are disclosed in Note 33. These contracts include non-
cancellable long-term leases of office buildings in most UBS AG
locations. Operating lease rentals payable are recognized as an
expense on a straight-line basis over the lease term, which com-
mences with control of the physical use of the property. Lease in-
centives are treated as a reduction of rental expense and are rec-
ognized on a consistent basis over the lease term.
Where UBS AG acts as lessor under a finance lease, a receiv-
able is recognized in Loans at an amount equal to the present
value of the aggregate of the minimum lease payments plus any
unguaranteed residual value which UBS AG expects to recover at
the end of the lease term. Initial direct costs are also included in
the initial measurement of the lease receivable. Lease payments
received during the lease term are allocated to repayment of the
outstanding receivable and interest income to reflect a constant
periodic rate of return on UBS AG’s net investment using the in-
terest rate implicit in the lease. UBS AG reviews the estimated
unguaranteed residual value annually and if the estimated resid-
ual value to be realized is less than the amount assumed at lease
inception, a loss is recognized for the expected shortfall.
Certain arrangements do not take the legal form of a lease but
convey a right to use an asset in return for a payment or series of
payments. For such arrangements, UBS AG determines at the in-
ception of the arrangement whether the fulfillment of the ar-
rangement is dependent on the use of a specific asset or assets
and, if so, the arrangement is accounted for as a lease.
➔ Refer to Note 33 for more information on operating leases and
finance leases
31) Fee income
UBS AG earns fee income from a diverse range of services it pro-
vides to its clients. Fee income can be divided into two broad
categories: fees earned from services that are provided over a cer-
tain period of time (for example, investment fund fees, portfolio
management and advisory fees) and fees earned from providing
transaction-type services (for example, underwriting fees, corpo-
rate finance fees and brokerage fees). Fees earned from services
that are provided over a certain period of time are recognized
ratably over the service period, with the exception of perfor-
mance-linked fees or fee components with specific performance
criteria. Such fees are recognized when the performance criteria
are fulfilled and when collectability is reasonably assured. Fees
580
Note 1 Summary of significant accounting policies (continued) earned from providing transaction-type services are recognized
when the service has been completed. Generally, fees are pre-
sented in the income statement in line with the balance sheet
classification of the underlying instruments.
Loan commitment fees on lending arrangements, where there
is an initial expectation that the facility will be drawn down, are
deferred until the loan is drawn down and are then recognized as
an adjustment to the effective yield over the life of the loan. If the
commitment expires and the loan is not drawn down, the fees are
recognized as revenue when the commitment expires. Where the
initial expectation that the facility will be drawn down is remote,
the loan commitment fees are recognized on a straight-line basis
over the commitment period. If, subsequently, the commitment is
actually exercised, the unamortized component of the loan com-
mitment fees are amortized as an adjustment to the effective yield
over the life of the loan.
➔ Refer to Note 4 for more information on net fee and commission
income
32) Foreign currency translation
Transactions denominated in foreign currency are translated into
the functional currency of the reporting unit at the spot exchange
rate on the date of the transaction. At the balance sheet date, all
monetary assets and liabilities denominated in foreign currency are
translated to the functional currency using the closing exchange
rate. Non-monetary items measured at historical cost are trans-
lated at the exchange rate on the date of the transaction. Foreign
currency translation differences on financial investments available-
for-sale are recorded directly in Equity until the asset is sold or be-
comes impaired, with the exception of translation differences on
the amortized cost of monetary financial investments available-
for-sale which are reported in Net trading income, along with all
other foreign currency translation differences on monetary assets
and liabilities.
Upon consolidation, assets and liabilities of foreign operations
are translated into Swiss francs (CHF), UBS AG’s presentation cur-
rency, at the closing exchange rate on the balance sheet date, and
income and expense items are translated at the average rate for
the period. The resulting foreign currency translation differences
attributable to UBS AG shareholders are recognized directly in
Foreign currency translation within Equity which forms part of
Total equity attributable to UBS AG shareholders, whereas the
foreign currency translation differences attributable to non-con-
trolling interests are shown within Equity attributable to non-con-
trolling interests.
When a foreign operation is disposed or partially disposed of, the
cumulative amount in Foreign currency translation within Equity re-
lated to that foreign operation is reclassified to the income state-
ment as part of the gain or loss on disposal. When UBS AG disposes
of a portion of its interest in a subsidiary that includes a foreign op-
eration but retains control, the related portion of the cumulative
currency translation balance is reclassified to Equity attributable to
non-controlling interests. When UBS AG disposes of a portion of its
investment in an associate or joint venture that includes a foreign
operation while retaining significant influence or joint control, the
related portion of the cumulative currency translation balance is re-
classified to the income statement.
➔ Refer to Note 36 for more information on currency translation
rates
33) Earnings per share (EPS)
Basic EPS are calculated by dividing the net profit or loss for the
period attributable to ordinary shareholders by the weighted aver-
age number of ordinary shares outstanding during the period.
Diluted EPS are calculated using the same method as for basic
EPS and adjusting the net profit or loss for the period attributable
to ordinary shareholders and the weighted average number of
ordinary shares outstanding to reflect the potential dilution that
could occur if options, warrants, convertible debt securities or
other contracts to issue ordinary shares were converted or exer-
cised into ordinary shares.
➔ Refer to Note 9 for more information on EPS
34) Segment reporting
UBS AG’s businesses are organized globally into five business divi-
sions: Wealth Management, Wealth Management Americas, Re-
tail & Corporate, Global Asset Management and the Investment
Bank, supported by the Corporate Center. The five business divi-
sions qualify as reportable segments for the purpose of segment
reporting and, together with the Corporate Center and its com-
ponents, reflect the management structure of UBS AG. Addition-
ally, the non-core activities and positions formerly in the Invest-
ment Bank are managed and reported in the Corporate Center.
Together with the Legacy Portfolio, these non-core activities and
positions are reported as a separate reportable segment within
the Corporate Center as Non-core and Legacy Portfolio. Financial
information about the five business divisions and the Corporate
Center (with its components) is presented separately in internal
management reports to the Group Executive Board, which is con-
sidered the “chief operating decision maker” within the context
of IFRS 8 Operating Segments.
UBS AG’s internal accounting policies, which include manage-
ment accounting policies and service level agreements, determine
the revenues and expenses directly attributable to each reportable
segment. Internal charges and transfer pricing adjustments are
reflected in operating results of the reportable segments. Transac-
tions between the reportable segments are carried out at inter-
nally agreed rates or at arm’s length and are also reflected in the
operating results of the reportable segments. Revenue-sharing
agreements are used to allocate external client revenues to re-
portable segments where several reportable segments are in-
volved in the value-creation chain. Commissions are credited to
the reportable segments based on the corresponding client rela-
tionship. Net interest income is generally allocated to the report-
581
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
able segments based on their balance sheet positions. Interest
income earned from managing UBS AG’s consolidated equity is
allocated to the reportable segments based on average attributed
equity. Own credit gains and losses on financial liabilities desig-
nated at fair value are excluded from the measurement of perfor-
mance of the business divisions, are considered reconciling differ-
ences to UBS AG results and are reported collectively under
Corporate Center – Core Functions.
Assets and liabilities of the reportable segments are funded
through and invested with Group Treasury within Corporate Cen-
ter – Core Functions, and the net interest margin is reflected in
the results of each reportable segment. Total intersegment reve-
nues for UBS AG are immaterial as the majority of the revenues
are allocated across the segments by means of revenue-sharing
agreements.
Effective from 2014, each year, as part of the annual business
planning cycle, Corporate Center – Core Functions agrees with
the business divisions and Corporate Center – Noncore and Leg-
acy Portfolio cost allocations for services at fixed amounts or at
variable amounts based on fixed formulas, depending on capital
and service consumption levels, as well as the nature of the ser-
vices performed. Because actual costs incurred may differ from
those expected, however, Corporate Center – Core Functions may
recognize significant under or over-allocations depending on vari-
ous factors. Each year these cost allocations will be reset, taking
account of the prior years’ experience and plans for the forthcom-
ing period. Until December 2013, the operating expenses of
Corporate Center – Core Functions were allocated to the report-
able segments based on internally determined allocation bases.
These allocations were adjusted on a periodic basis and differ-
ences may have arisen between actual costs incurred and amounts
recharged.
Segment balance sheet assets are based on a third-party and do
not include intercompany balances. This view is in line with internal
reporting to management. Certain assets managed centrally by
Corporate Center – Core Functions (including property and equip-
ment and certain financial assets) are allocated to the segments on
a basis different to which the corresponding costs and / or revenues
are allocated. Specifically, certain assets are reported in Corporate
Center – Core Functions, whereas the corresponding costs and / or
revenues are entirely or partially allocated to the segments based
on various internally determined allocations. Similarly, certain as-
sets are reported in the business divisions, whereas the correspond-
ing costs and / or revenues are entirely or partially allocated to Cor-
porate Center – Core Functions.
For the purpose of segment reporting under IFRS 8, the non-
current assets consist of investments in associates and joint ven-
tures, goodwill, other intangible assets and property and equip-
ment.
➔ Refer to Note 2 for more information on segment reporting
35) Netting
UBS AG nets financial assets and liabilities on its balance sheet if
it has the unconditional and legally enforceable right to set-off
the recognized amounts, both in the normal course of business
and in the event of default, bankruptcy or insolvency of the entity
and all of the counterparties, and intends either to settle on a net
basis, or to realize the asset and settle the liability simultaneously.
Netted positions include, for example, over-the-counter interest
rate swaps transacted with the London Clearing House, netted by
currency and across maturity dates, repurchase and reverse repur-
chase transactions entered into with both the London Clearing
House and the Fixed Income Clearing Corporation, netted by
counterparty, currency, central securities depository and maturity,
as well as transactions with various other counterparties, ex-
changes and clearing houses.
In assessing whether UBS AG intends to either settle on a net
basis, or to realize the asset and settle the liability simultaneously,
emphasis is placed on the effectiveness of operational settlement
mechanics in eliminating substantially all credit and liquidity expo-
sure between the counterparties. This condition precludes offset-
ting on the balance sheet for substantial amounts of UBS AG’s
financial assets and liabilities, even though they may be subject to
enforceable netting arrangements. For derivative contracts, bal-
ance sheet offsetting is generally only permitted in circumstances
in which a market settlement mechanism exists via an exchange
or clearing house which effectively accomplishes net settlement
through a daily cash margining process. For repurchase arrange-
ments and securities financings, balance sheet offsetting may be
permitted only to the extent that the settlement mechanism elim-
inates or results in insignificant credit and liquidity risk, and pro-
cesses the receivables and payables in a single settlement process
or cycle.
➔ Refer to Note 1b and Note 26 for more information on offsetting
financial assets and financial liabilities
582
Note 1 Summary of significant accounting policies (continued) b) Changes in accounting policies, comparability and other adjustments
Effective in 2014
Offsetting Financial Assets and Financial Liabilities (Amendments
to IAS 32, Financial Instruments: Presentation)
On 1 January 2014, UBS AG adopted Offsetting Financial Assets
and Financial Liabilities (Amendments to IAS 32, Financial Instru-
ments: Presentation). The amended IAS 32 restricts offsetting on
the balance sheet to only those arrangements in which a right of
set-off exists that is unconditional and legally enforceable, in the
normal course of business and in the event of the default, bank-
ruptcy or insolvency of UBS AG and its relevant counterparties
and for which UBS AG intends to either settle on a net basis, or to
realize the asset and settle the liability simultaneously.
The amendments also provide incremental guidance for deter-
mining when gross settlement systems, such as a delivery versus
payment (DVP) process used to settle repurchase agreements, re-
sult in the functional equivalent of net settlement.
Under the revised rules, UBS AG is no longer able to offset cer-
tain derivative arrangements, mainly credit derivative contracts and
equity / index contracts, due to a combination of product and coun-
terparty-specific considerations. The comparative balance sheet as
of 31 December 2013 was restated with the effect presented in the
table below. A balance sheet as of the beginning of 2013 has not
been presented because the change in policy was not deemed to
have a material impact on the financial statements. There was no
impact on total equity, net profit or earnings per share. In addition,
there was no impact on UBS AG’s Basel III capital.
➔ Refer to Note 26 for more information
Removing exchange-traded derivative client cash balances from
the UBS AG’s balance sheet
UBS collects cash and securities collateral, in the form of initial
and variation margin, from its clients and remits them to central
counterparties (CCPs), brokers and deposit banks through its
exchange-traded derivative (ETD) clearing and execution services.
In 2014, UBS AG changed its accounting policy with respect to
recognizing cash initial margin collected and remitted (together,
client cash balances) to more closely align with evolving market
practices.
Specifically, if through contractual agreement, regulation or
practice (i) UBS AG is not permitted to reinvest client cash bal-
ances; (ii) interest paid by the CCP, broker or deposit bank on cash
deposits forms part of the client cash balances with deductions
being made solely as compensation for clearing and execution
services provided; (iii) UBS AG does not guarantee and is not liable
to the client for the performance of the CCP, broker or deposit
bank; and (iv) the client cash balances are legally isolated from
UBS AG’s estate, UBS AG concluded that it does not obtain ben-
efits from or control client cash balances. Therefore, those
amounts are not deemed to represent assets and corresponding
liabilities of UBS AG and are no longer reflected within Cash col-
lateral payables on derivative instruments for the amounts due to
clients, Cash collateral receivables on derivative instruments for
amounts posted to CCPs and Due from Banks for any amounts
that are deposited at third party deposit banks. As a result, Cash
collateral receivables on derivatives decreased by CHF 1.2 billion,
Due from Banks decreased by CHF 3.0 billion and Cash collateral
payables on derivatives decreased by CHF 4.2 billion as of 31 De-
cember 2014.
The comparative balance sheet as of 31 December 2013 was
restated with the effect presented in the table below. A balance
sheet as of the beginning of 2013 has not been presented be-
cause the change in policy was not deemed to have a material
impact on the financial statements. There was no impact on total
equity, net profit, earnings per share or on UBS AG’s Basel III
capital.
Amendments to IAS 32 and Removing ETD client cash balances: Effect on the balance sheet
CHF million
Total assets
of which: Due from banks
of which: Positive replacement values
of which: Cash collateral receivables on derivative instruments
Total liabilities
of which: Negative replacement values
of which: Cash collateral payables on derivative instruments
Total equity
Total liabilities and equity
Balance as of
31 December 2013
previously reported
Change in reported
figures due
to amendments
Change in reported
figures due
to removing ETD
Restated balance
as of
to IAS 32
client cash balances
31 December 2013
1,009,860
17,170
245,835
28,007
959,925
239,953
49,138
49,936
1,009,860
8,513
0
8,249
264
8,513
8,125
388
0
8,513
(5,019)
(3,296)
0
(1,723)
(5,019)
0
(5,019)
0
(5,019)
1,013,355
13,874
254,084
26,548
963,419
248,079
44,507
49,936
1,013,355
583
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments to IAS 39, Financial Instruments: Recognition and
Measurement)
On 1 January 2014, UBS AG adopted Novation of Derivatives and
Continuation of Hedge Accounting (Amendments to IAS 39, Fi-
nancial Instruments: Recognition and Measurement) which pro-
vides relief from discontinuing hedge accounting when a deriva-
tive designated as a hedging instrument is novated to effect
clearing with a central counterparty as a result of laws and regula-
tions, provided certain criteria are met. Adoption of the amend-
ments had no impact on the Financial Statements.
IFRIC Interpretation 21, Levies
In 2014, UBS AG adopted IFRIC Interpretation 21, Levies. IFRIC 21
sets out the accounting for an obligation to pay a government
levy that is not within the scope of IAS 12, Income Taxes. The in-
terpretation specifies that liabilities for levies should not be recog-
nized prior to the occurrence of a specified triggering event, even
when an entity has no realistic ability to avoid the triggering
event. Adoption of the interpretation did not have a material im-
pact on the Financial Statements.
Fair value measurements – funding valuation adjustments
In 2014, UBS AG incorporated funding valuation adjustments
(FVA) into its fair value measurements. This resulted in a net loss
of CHF 267 million when the change was adopted on 30 Septem-
ber 2014, of which CHF 252 million was attributable to Corporate
Center – Non-core and Legacy Portfolio, CHF 12 million to the
Investment Bank and CHF 3 million to Retail & Corporate. FVA
reflect the costs and benefits of funding associated with uncol-
lateralized and partially collateralized derivative receivables and
derivative payables and are also applied to collateralized derivative
assets in cases where the collateral cannot be sold or repledged.
FVA were implemented in response to growing evidence that
market participants incorporate FVA in the fair value measure-
ment of uncollateralized and partially collateralized derivatives
and was implemented on a prospective basis as a change in ac-
counting estimate.
➔ Refer to Note 24d for more information
Refinement to the allocation of operating costs
for internal services
To further enhance cost discipline and strengthen its efforts to
reduce its underlying cost base, UBS AG has refined in 2014 the
way that operating costs for internal services are allocated from
Corporate Center – Core Functions to the business divisions and
Corporate Center – Non-core and Legacy Portfolio.
➔ Refer to Note 1a item 34 for more information
584
Changes in presentation
Presentation of Defined Benefit Plans
In 2014, to align with market practice, the disclosure of defined
benefit plan remeasurements in the balance sheet and statement
of changes in equity was amended to present the year-to-date and
life-to-date movements directly within Retained earnings, rather
than as a separate component of other comprehensive income.
The comparative balance sheet and statement of changes in equity
as of 31 December 2013 were restated to reflect this presentational
change. Cumulative net income recognized directly in equity, net of
tax as presented within the balance sheet and statement of changes
in equity was renamed to Other comprehensive income recognized
directly in equity, net of tax. In addition, further lines were added to
the statement of changes in equity to separately disclose Net
profit / (loss), Other comprehensive income that may be reclassified
to the income statement and Other comprehensive income that
will not be reclassified to the income statement.
Segment reporting by geographic location
In 2014, UBS AG revised the basis on which it attributes Total
operating income to geographical locations in order to provide
more relevant information. Total operating income is now attrib-
uted to the region consistent with how the business is managed
and performance is evaluated, with income primarily attributed to
the domicile of the client. Historically, total operating income was
primarily attributed to the location of the entity in which the
transactions and assets were recorded. Prior period information
was restated to reflect this change.
➔ Refer to Note 2b for more information
Net fee and commission income
In 2014, UBS AG revised its presentation of certain line items
within Net fee and commission income in order to provide more
relevant information. Prior period information was adjusted ac-
cordingly.
➔ Refer to Note 4 for more information
Other income
In 2014, UBS AG introduced several new reporting lines in order
to enhance transparency on the composition of Other within
Other income. Prior period information was adjusted accordingly.
➔ Refer to Note 5 for more information
Note 1 Summary of significant accounting policies (continued) c) International Financial Reporting Standards and Interpretations to be adopted in 2015 and later and other adjustments
IFRS 9, Financial instruments
In November 2009, the IASB issued IFRS 9, Financial Instruments,
which includes revised guidance on the classification and mea-
surement of financial assets. In October 2010, the IASB updated
IFRS 9 to include guidance on financial liabilities and derecogni-
tion of financial instruments. The publication of IFRS 9 repre-
sented the completion of the first part of a multi-stage project to
replace IAS 39, Financial Instruments: Recognition and Measure-
ment.
The standard required all financial assets, except equity instru-
ments, to be classified at fair value through profit or loss or amor-
tized cost on the basis of the entity’s business model for manag-
ing the financial assets and the contractual cash flow
characteristics of the financial asset. If a financial asset meets the
criteria to be measured at amortized cost, it can be designated at
fair value through profit or loss under the fair value option if do-
ing so would significantly reduce or eliminate an accounting mis-
match. Equity instruments that are not held for trading may be
accounted for at fair value through other comprehensive income
(OCI).
The accounting guidance for financial liabilities is unchanged
with one exception: any gain or loss arising out of a financial lia-
bility designated at fair value through profit or loss that is attribut-
able to changes in the credit risk of that liability (own credit) is
presented in OCI and not recognized in the income statement.
There is no subsequent recycling of realized gains or losses from
OCI to the income statement.
In November 2013, the IASB issued IFRS 9, Financial Instru-
ments (Hedge accounting and amendments to IFRS 9, IFRS 7 and
IAS 39). This standard contains guidance on hedge accounting
that will replace the existing requirements of IAS 39, introducing
substantial changes to hedge effectiveness and eligibility re-
quirements as well as new disclosures. The amendments also
remove the previous mandatory effective date of 1 January 2015
for all of the IFRS 9 requirements. The standard further permits
entities to early adopt the own credit presentation changes pro-
spectively, without having to apply any of the other require-
ments of IFRS 9.
In July 2014, the IASB published a final version of IFRS 9, Finan-
cial Instruments. IFRS 9 now fully reflects the classification and
measurement, impairment and hedge accounting phases of the
IASB’s project to replace IAS 39, Financial Instruments: Recogni-
tion and Measurement. The final standard incorporates significant
modifications to the previous version (as issued in 2010), includ-
ing new classification and measurement requirements for finan-
cial assets; notably the introduction of a new fair value through
OCI classification, the addition of a single forward-looking ex-
pected credit loss impairment model, replacing the incurred loss
model of IAS 39, and the incorporation of a reformed approach
to hedge accounting (as discussed above). The final standard in-
cludes the guidance for financial liabilities, as previously issued.
There is no subsequent recycling of realized gains or losses on
own credit from OCI to profit or loss. The mandatory effective
date of the new standard will be 1 January 2018, with earlier
adoption permitted.
UBS AG is currently assessing the impact of the new require-
ments on the Financial Statements.
IFRS 15, Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts
with Customers, which establishes principles for revenue recogni-
tion that apply to all contracts with customers. The standard re-
quires an entity to recognize revenue as goods or services are
transferred to the customer in an amount that reflects the consid-
eration to which the entity expects to be entitled in exchange for
those goods or services. It also establishes a cohesive set of disclo-
sure requirements regarding information about the nature,
amount, timing and uncertainty of revenue and cash flows from
contracts with customers. The standard is effective for UBS AG
reporting periods beginning on 1 January 2017, with early adop-
tion permitted. Entities can choose to apply the standard retro-
spectively or use a modified approach in the year of adoption.
UBS AG is currently assessing the impact of the new standard on
the Financial Statements.
Amendments to IFRS 11, Joint Arrangements, IAS 16, Property,
Plant and Equipment and IAS 38, Intangible Assets
In May 2014, the IASB issued amendments to IFRS 11, Joint Ar-
rangements, IAS 16, Property, Plant and Equipment and IAS 38,
Intangible Assets. The amendments will have no material impact
on the Financial Statements. UBS AG’s joint arrangements are im-
material, both individually and in aggregate (refer to Note 30),
and UBS AG does not use revenue-based depreciation method-
ologies, which the amendments to IAS 16 and IAS 38 will pro-
hibit.
Narrow-scope amendments to IAS 19, Employee Benefits
In December 2013, the IASB issued Defined Benefit Plans: Em-
ployee Contributions (Amendments to IAS 19, Employee Bene-
fits). The amendments offer an alternative, simplified treatment
for considering contributions from employees or third parties in
the calculation of the defined benefit obligation if the amount of
employee or third-party contributions is independent of the num-
ber of years of service. Under the alternative treatment, an entity
may recognize such contributions as a reduction in service cost in
the period in which the related service is rendered, instead of at-
tributing the contributions to the periods of service. This is appli-
cable for the Swiss pension plan, whereby UBS AG currently at-
tributes employee contributions to the periods of service in
accordance with the plan’s benefit formula. The amendments to
585
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the UBS AG consolidated financial statements
IAS 19 are applicable retrospectively, for UBS AG on 1 January
2015. UBS AG does not apply the alternative treatment intro-
duced by this amendment to IAS 19.
Annual Improvements to IFRSs 2010 – 2012 Cycle and
Annual Improvements to IFRSs 2011 – 2013 Cycle
In December 2013, the IASB issued Annual Improvements to IFRSs
2010 – 2012 Cycle and Annual Improvements to IFRSs 2011 –
2013 Cycle that resulted in 12 amendments to nine IFRSs. Gener-
ally, the amendments are effective for UBS AG on 1 January 2015,
with early adoption permitted. UBS AG expects that the adoption
of these amendments will not have a material impact on the Fi-
nancial Statements.
Annual Improvements to IFRSs 2012 – 2014 Cycle
In September 2014, the IASB issued Annual Improvements to IFRSs
2012 – 2014 Cycle that resulted in amendments to four IFRSs.
Generally, the amendments are effective for UBS AG on 1 January
2016, with early adoption permitted. UBS AG is currently assessing
the impact of the amendments on the Financial Statements.
Amendments to IAS 1, Presentation of Financial Statements
In December 2014, the IASB issued amendments to IAS 1 to fur-
ther encourage companies to apply professional judgment in de-
termining what information to disclose in their financial state-
ments and in determining where and in what order information is
presented in the financial disclosures. The amendments have a
mandatory effective date of 1 January 2016 for UBS AG, with
earlier adoption permitted. UBS AG expects that the adoption of
these amendments will not have a material impact on the Finan-
cial Statements.
586
Note 1 Summary of significant accounting policies (continued) The operational structure of UBS AG is comprised of the Corpo-
rate Center and five business divisions: Wealth Management,
Wealth Management Americas, Retail & Corporate, Global Asset
Management and the Investment Bank.
Wealth Management
Wealth Management provides comprehensive financial services to
wealthy private clients around the world – except those served by
Wealth Management Americas. UBS AG is a global firm with
global capabilities, and Wealth Management clients benefit from
the full spectrum of UBS AG’s global resources, ranging from in-
vestment management solutions to wealth planning and corpo-
rate finance advice, as well as a wide range of specific offerings.
Its guided architecture model gives clients access to a wide range
of products from third-party providers that complement UBS AG’s
own products.
Wealth Management Americas
Wealth Management Americas is one of the leading wealth man-
agers in the Americas in terms of financial advisor productivity
and invested assets. It provides advice-based solutions and bank-
ing services through financial advisors who deliver a fully inte-
grated set of products and services specifically designed to ad-
dress the needs of ultra high net worth and high net worth
individuals and families. It includes the domestic US and Canadian
business as well as international business booked in the US.
Retail & Corporate
Retail & Corporate provides comprehensive financial products and
services to its retail, corporate and institutional clients in Switzer-
land, maintaining a leading position in these client segments and
embedding its offering in a multi-channel approach. The retail
and corporate business constitutes a central building block of
UBS AG’s universal bank delivery model in Switzerland, support-
ing other business divisions by referring clients to them and assist-
ing retail clients to build their wealth to a level at which they can
be transferred to Wealth Management. Furthermore, it leverages
the cross-selling potential of products and services provided by its
asset-gathering and investment banking businesses. In addition,
Retail & Corporate manages a substantial part of UBS AG’s Swiss
infrastructure and Swiss banking products platform, which are
both leveraged across the Group.
Global Asset Management
Global Asset Management is a large-scale asset manager with
well diversified businesses across regions and client segments. It
serves third-party institutional and wholesale clients, as well as
clients of UBS AG’s wealth management businesses with a broad
range of investment capabilities and styles across all major tradi-
tional and alternative asset classes. Complementing the invest-
ment offering, the fund services unit provides fund administration
services for UBS AG and third-party funds.
Investment Bank
The Investment Bank provides corporate, institutional and wealth
management clients with expert advice, innovative solutions, ex-
ecution and comprehensive access to the world’s capital markets.
The Investment Bank advisory services and access to international
capital markets, and provide comprehensive cross-asset research,
along with access to equities, foreign exchange, precious metals
and selected rates and credit markets, through its business units,
Corporate Client Solutions and Investor Client Services. The In-
vestment Bank is an active participant in capital markets flow ac-
tivities, including sales, trading and market-making across a range
of securities.
Corporate Center
Corporate Center is comprised of Core Functions and Non-core
and Legacy Portfolio. Core Functions include Group-wide control
functions such as finance (including treasury services such as
liquidity, funding, balance sheet and capital management), risk
control (including compliance) and legal. In addition, Core Func-
tions provide all logistics and support services, including opera-
tions, information technology, human resources, regulatory rela-
tions and strategic initiatives, communications and branding,
corporate services, physical security, information security as well
as outsourcing, nearshoring and offshoring. Non-core and Legacy
Portfolio is comprised of the non-core businesses and legacy
positions that were part of the Investment Bank prior to its
restructuring.
As of 1 January 2015, Corporate Center – Core Functions
was reorganized into two new components, Corporate Center –
Services and Corporate Center – Group Asset and Liability
Management (Group ALM).
587
Financial informationNote 2a Segment reporting Financial information
Notes to the UBS AG consolidated financial statements
Note 2a Segment reporting (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS AG
CHF million
For the year ended 31 December 2014
Net interest income
Non-interest income
Income 1, 2
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets 3
Total operating expenses 4
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
2,165
5,736
7,902
(1)
7,901
3,369
1,937
58
205
5
5,574
2,326
983
6,001
6,984
15
6,998
4,802
1,109
10
129
48
6,099
900
2,184
1,653
3,836
(95)
3,741
1,363
859
(126)
139
0
2,235
1,506
(11)
1,912
1,902
0
1,902
887
516
(20)
43
9
1,435
467
1,482
6,862
8,343
2
8,346
4,065
4,037
3
272
15
8,392
(47)
127,588
56,026
143,711
15,207
292,347
Additions to non-current assets
7
6
9
2
7
Core
Functions
Non-core
and Legacy
Portfolio
(347)
307
(40)
0
(40)
423
235
13
2
6
679
(719)
98
(921)
(823)
2
(821)
371
684
62
27
0
1,144
(1,965)
6,555
21,549
28,104
(78)
28,026
15,280
9,377
0
817
83
25,557
2,469
(1,180)
3,649
257,622
1,677
169,826
1,062,327
0
1,708
1 Impairments of financial investments available-for-sale for the year ended 31 December 2014 were as follows: Wealth Management CHF 3 million, Global Asset Management CHF 1 million, Investment Bank
CHF 49 million, Corporate Center – Non-core and Legacy Portfolio CHF 23 million. 2 Refer to Note 24 for more information on own credit in Corporate Center – Core Functions. 3 Refer to Note 17 for more informa-
tion. 4 Refer to Note 32 for information on restructuring charges.
588
Note 2a Segment reporting 1 (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS AG
CHF million
For the year ended 31 December 2013
Net interest income
Non-interest income
Income 3, 4
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets 5
Total operating expenses 6
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
Additions to non-current assets
2,061
5,512
7,573
(10)
7,563
3,371
1,650
97
190
8
5,316
2,247
936
5,629
6,565
(27)
6,538
4,574
924
13
121
49
5,680
858
2,144
1,630
3,774
(18)
3,756
1,442
875
(162)
143
0
2,298
1,458
(20)
1,954
1,935
0
1,935
873
448
(17)
47
8
1,359
576
886
7,712
8,599
2
8,601
3,984
2,040
3
260
14
6,300
2,300
Core
Functions
Non-core
and Legacy
Portfolio
(405) 2
(602) 2
(1,007)
0
(1,007)
424
422
1
0
0
847
(1,854)
183 2
161 2
344
3
347
515
2,022
65
55
3
2,660
(2,312)
5,786
21,997
27,782
(50)
27,732
15,182
8,380
0
816
83
24,461
3,272
(110)
3,381
109,758
45,491
141,369
14,223
239,971
5
1
17
1
81
247,407
1,236
215,135
1,013,355
0
1,341
1 Figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of new account-
ing standards or changes in accounting policies. Refer to Note 1b for more information. 2 In 2014, net interest income and non-interest income figures for the year ended 31 December 2013 were corrected. Net inter-
est income in Corporate Center – Core Functions was decreased by CHF 374 million with a corresponding increase in non-interest income. In addition, net interest income in Corporate Center – Non-core and Legacy
Portfolio was increased by CHF 374 million with a corresponding decrease in non-interest income. 3 Impairments of financial investments available-for-sale for the year ended 31 December 2013 were as follows: Wealth
Management CHF 10 million, Global Asset Management CHF 3 million, Investment Bank CHF 20 million, Corporate Center – Non-core and Legacy Portfolio CHF 8 million. 4 Refer to Note 24 for more information on
own credit in Corporate Center – Core Functions. 5 Refer to Note 17 for more information. 6 Refer to Note 32 for information on restructuring charges.
589
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 2a Segment reporting 1 (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS AG
CHF million
For the year ended 31 December 2012
Net interest income
Non-interest income
Income 3, 4
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Impairment of goodwill 6
Amortization and impairment of intangible assets 6
Total operating expenses 7
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
1,951
5,089
7,040
1
7,041
2,865
1,360
243
159
0
7
4,634
2,407
792
5,099
5,891
(14)
5,877
4,252
893
(15)
100
0
51
5,281
597
2,186
1,569
3,756
(27)
3,728
1,287
857
(370)
128
0
0
1,901
1,827
(21)
1,904
1,883
0
1,883
885
395
(10)
37
0
8
1,314
569
834
6,310
7,144
0
7,144
4,539
2,312
(202)
214
0
13
6,877
267
104,620
43,948
145,320
12,916
261,511
Additions to non-current assets
4
1
45
12
62
Core
Functions
Non-core
and Legacy
Portfolio
(229) 2
(1,461) 2
(1,689)
0
(1,689)
282
1,696 5
21
9
0
0
465 2
1,051 2
1,516
(78)
1,439
628
1,141
335
41
3,030
28
2,008
(3,698)
5,202
(3,764)
5,978
19,563
25,541
(118)
25,423
14,737
8,653
0
689
3,030
106
27,216
(1,794)
461
(2,255)
262,857
1,032
428,625
1,259,797
0
1,158
1 Figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, and restatements due to the retrospective adoption of new accounting
standards or changes in accounting policies. Refer to Note 1b for more information. 2 In 2014, net interest income and non-interest income figures for the year ended 31 December 2012 were corrected. Net interest in-
come in Corporate Center – Core Functions was decreased by CHF 276 million with a corresponding increase in non-interest income. In addition, net interest income in Corporate Center – Non-core and Legacy Portfolio was
increased by CHF 276 million with a corresponding decrease in non-interest income. 3 Impairments of financial investments available-for-sale for the year ended 31 December 2012 were as follows: Global Asset Manage-
ment CHF 4 million, Investment Bank CHF 12 million, Corporate Center – Core Functions CHF 2 million, Corporate Center – Non-core and Legacy Portfolio CHF 67 million. 4 Refer to Note 24 for more information on own
credit in Corporate Center – Core Functions. 5 Includes charges of approximately CHF 1.4 billion arising from fines and disgorgement resulting from regulatory investigations concerning LIBOR and other benchmark
rates. 6 Refer to Note 17 for more information. 7 Refer to Note 32 for information on restructuring charges.
590
The operating regions shown in the table below, i.e., Americas,
Asia Pacific, Europe, Middle East and Africa, and Switzerland, cor-
respond to the management structure of UBS AG from a regional
perspective. The allocation of operating income to these regions
reflects, and is consistent with, the basis on which the business is
managed and performance evaluated. These allocations involve
assumptions and judgments which management considers to be
reasonable. The main principles of the allocation methodology are
that client revenues are attributed to the domicile of the client,
with global clients being split into relevant countries and trading
and portfolio management revenues attributed to the country
where the risk is managed. This revenue attribution is consistent
with the mandate of the country and regional Presidents. Certain
revenues, such as those related to the Corporate Center – Non-
core and Legacy Portfolio, are managed at a Group level. These
revenues are included in the Global line.
The geographic analysis of non-current assets is based on the
location of the entity in which the assets are recorded.
➔ Refer to Note 1b for more information on changes to segment
reporting by geographic location
For the year ended 31 December 2014
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
Switzerland
Global
Total
For the year ended 31 December 2013
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
Switzerland
Global
Total
For the year ended 31 December 2012
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
Switzerland
Global
Total
Total operating income
Total non-current assets
CHF billion
Share %
CHF billion
Share %
10.7
10.1
4.6
6.8
6.8
(0.9)
28.0
38
36
16
24
24
(3)
100
7.0
6.6
0.4
1.5
5.6
0.0
14.6
48
45
3
10
38
0
100
Total operating income
Total non-current assets
CHF billion
Share %
CHF billion
Share %
10.2
9.6
4.5
6.6
6.8
(0.4)
27.7
37
35
16
24
25
(1)
100
6.1
5.6
0.4
1.5
5.3
0.0
13.1
46
43
3
11
40
0
100
Total operating income
Total non-current assets
CHF billion
Share %
CHF billion
Share %
9.5
8.9
3.5
6.4
6.9
(0.8)
25.4
37
35
14
25
27
(3)
100
6.2
5.8
0.4
1.5
5.3
0.0
13.3
46
43
3
11
40
0
100
591
Financial informationNote 2b Segment reporting by geographic location Financial information
Notes to the UBS AG consolidated financial statements
Note 3 Net interest and trading income
CHF million
Net interest and trading income
Net interest income
Net trading income
Total net interest and trading income
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
of which: Corporate Client Solutions 1
of which: Investor Client Services 1
Corporate Center
of which: Core Functions
of which: own credit on financial liabilities designated at fair value 2
of which: Non-core and Legacy Portfolio
Total net interest and trading income
Net interest income
Interest income
Interest earned on loans and advances 3
Interest earned on securities borrowed and reverse repurchase agreements
Interest and dividend income from trading portfolio
Interest income on financial assets designated at fair value
Interest and dividend income from financial investments available-for-sale
Total
Interest expense
Interest on amounts due to banks and customers
Interest on securities lent and repurchase agreements
Interest expense from trading portfolio 4
Interest on financial liabilities designated at fair value
Interest on debt issued
Total
Net interest income
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
6,555
3,841
10,396
2,845
1,352
2,536
0
4,554
1,047
3,507
(892)
(29)
292
(864)
10,396
8,722
752
3,196
208
315
13,194
708
827
1,804
919
2,382
6,639
6,555
5,786
5,130
10,915
2,868
1,323
2,485
9
5,015
1,142
3,873
(784)
(1,045)
(283)
261
10,915
8,686
852
2,913
364
322
13,137
893
829
1,846
1,197
2,586
7,351
5,786
5,978
3,526
9,504
2,728
1,265
2,467
9
3,574
706
2,868
(540)
(1,992)
(2,202)
1,452
9,504
9,323
1,413
4,482
369
381
15,968
1,433
1,208
2,442
1,744
3,163
9,990
5,978
13
(25)
(5)
(1)
2
2
(100)
(9)
(8)
(9)
14
(97)
(5)
0
(12)
10
(43)
(2)
0
(21)
0
(2)
(23)
(8)
(10)
13
1 In 2014, comparative period figures were corrected. As a result, net interest and trading income for Investment Bank Corporate Client Solutions increased by CHF 107 million and CHF 131 million for 2013 and 2012,
respectively, with an equal and offsetting decrease for Investment Bank Investor Client Services. 2 Refer to Note 24 for more information on own credit. 3 Includes interest income on impaired loans and advances of
CHF 15 million for 2014, CHF 15 million for 2013 and CHF 16 million for 2012. 4 Includes expense related to dividend payment obligations on trading liabilities.
592
Income statement notes Note 3 Net interest and trading income (continued)
CHF million
Net trading income
Investment Bank Corporate Client Solutions 1
Investment Bank Investor Client Services 1
Other business divisions and Corporate Center
Net trading income
of which: net gains / (losses) from financial assets designated at fair value
of which: net gains / (losses) from financial liabilities designated at fair value 2, 3
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
293
2,780
768
3,841
(81)
(2,380)
422
3,707
1,002
5,130
99
389
2,351
786
3,526
420
(2,056)
(6,493)
(31)
(25)
(23)
(25)
16
1 In 2014, comparative period figures were corrected. As a result, net trading income for Investment Bank Corporate Client Solutions decreased by CHF 123 million for 2013, with an equal and offsetting increase for
Investment Bank Investor Client Services. 2 Refer to Note 24 for more information on own credit. 3 Excludes fair value changes of hedges related to financial liabilities designated at fair value and foreign currency
effects arising from translating foreign currency transactions into the respective functional currency, both of which are reported within net trading income.
Net trading income in 2013 included a gain of CHF 431 million from the valuation of the option to acquire the SNB StabFund’s equity,
reflected in the line Other business divisions and Corporate Center, compared with a gain of CHF 526 million in 2012. The option was
exercised in 2013.
Note 4 Net fee and commission income
CHF million
Underwriting fees
of which: equity underwriting fees
of which: debt underwriting fees
M& A and corporate finance fees
Brokerage fees
Investment fund fees
Portfolio management and advisory fees
Other
Total fee and commission income
Brokerage fees paid
Other
Total fee and commission expense
Net fee and commission income
of which: net brokerage fees
For the year ended
31.12.14
1,470
31.12.13
1,374
31.12.12
1,539
947
522
731
3,918
3,717
7,343
1,760
18,940
818
1,045
1,863
17,076
3,100
850
524
613
4,035
3,803
6,625
1,725
18,176
839
1,050
1,889
16,287
3,196
807
732
679
3,836
3,626
5,895
1,698
17,273
871
1,006
1,876
15,396
2,965
% change from
31.12.13
7
11
0
19
(3)
(2)
11
2
4
(3)
0
(1)
5
(3)
593
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 5 Other income
CHF million
Associates and subsidiaries
Net gains / (losses) from disposals of subsidiaries 1
Net gains / (losses) from disposals of investments in associates
Share of net profits of associates
Total
Financial investments available-for-sale
Net gains / (losses) from disposals
Impairment charges
Total
Net income from properties (excluding net gains / losses from disposals) 2
Net gains / (losses) from investment properties at fair value 3
Net gains / (losses) from disposals of properties held for sale
Net gains / (losses) from disposals of loans and receivables
Other
Total other income
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
56
69
94
219
219
(76)
143
30
2
44
39
155
632
111
0
49
160
209
(41)
168
35
(16)
291
53
(111)
580
(7)
0
88
81
393
(85)
308
35
4
128
(11)
97
641
(50)
92
37
5
85
(15)
(14)
(85)
(26)
9
1 Includes foreign exchange gains / losses reclassified from other comprehensive income related to disposed or dormant subsidiaries. 2 Includes net rent received from third parties and net operating expenses.
3 Includes unrealized and realized gains / losses from investment properties at fair value and foreclosed assets.
Note 6 Personnel expenses
CHF million
Salaries 1
Variable compensation – performance awards 2
of which: guarantees for new hires
Variable compensation – other 2
of which: replacement payments 3
of which: forfeiture credits
of which: severance payments 4
of which: retention plan and other payments
Contractors
Social security
Pension and other post-employment benefit plans 5
Wealth Management Americas: Financial advisor compensation 2, 6
Other personnel expenses
Total personnel expenses 7
For the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
6,269
2,820
48
466
81
(70)
162
292
234
791
711
3,385
605
15,280
6,268
2,986
76
288
78
(146)
114
242
190
792
887
3,140
631
15,182
6,814
3,000
134
367
109
(174)
303
128
214
768
18
2,873
682
14,737
0
(6)
(37)
62
4
(52)
42
21
23
0
(20)
8
(4)
1
1 Includes role-based allowances. 2 Refer to Note 29 for more information. 3 Replacement payments are payments made to compensate employees for deferred awards forfeited as a result of joining UBS AG.
4 Includes legally obligated and standard severance payments. 5 2014 included credits of CHF 41 million related to changes to retiree benefit plans in the US. 2012 included a credit of CHF 730 million related to changes
to the Swiss pension plan and a credit of CHF 116 million related to changes to retiree medical and life insurance benefit plans in the US. Refer to Note 28 for more information. 6 Financial advisor compensation con-
sists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other
variables. It also includes charges related to compensation commitments with financial advisors entered into at the time of recruitment which are subject to vesting requirements. 7 Included net restructuring charges
of CHF 327 million, CHF 156 million and CHF 358 million for the years ended 31 December 2014, 31 December 2013 and 31 December 2012, respectively. Refer to Note 32 for more information.
594
Note 7 General and administrative expenses
CHF million
Occupancy
Rent and maintenance of IT and other equipment
Communication and market data services
Administration
Marketing and public relations
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Provisions for litigation, regulatory and similar matters 1, 2
Other 3
Total general and administrative expenses 4
For the year ended
31.12.14
1,005
31.12.13
1,044
31.12.12
1,074
479
608
608
468
458
1,306
1,603
2,594
248
9,377
458
609
638
478
451
1,032
1,340
1,701
628
8,380
473
632
636
528
450
908
1,357
2,549
47
8,653
% change from
31.12.13
(4)
5
0
(5)
(2)
2
27
20
52
(61)
12
1 Reflects the net increase / release of provisions for litigation, regulatory and similar matters recognized in the income statement. In addition, it includes recoveries from third parties of CHF 10 million, CHF 15 million
and CHF 12 million for the years ended 31 December 2014, 31 December 2013 and 31 December 2012, respectively. A portion (CHF 58 million release) of the net increase / release recognized in the income statement
for provisions for certain litigation, regulatory and similar matters for 2014 as presented in Note 22a was recorded as other income rather than as general and administrative expenses. 2 Refer to Note 22 for more
information. 3 2014 included a net charge of CHF 120 million related to certain disputed receivables. 2013 included a charge of CHF 110 million related to the Swiss-UK tax agreement and an impairment charge of
CHF 87 million related to certain disputed receivables. 4 Included net restructuring charges of CHF 319 million, CHF 548 million and CHF 0 million for the years ended 31 December 2014, 31 December 2013 and
31 December 2012, respectively. Refer to Note 32 for more information.
Note 8 Income taxes
CHF million
Tax expense / (benefit)
Swiss
Current
Deferred
Foreign
Current
Deferred
Total income tax expense / (benefit)
Income tax expense / (benefit)
The Swiss current tax expense of CHF 46 million relates to taxable
profits, against which no losses were available to offset, mainly
earned by Swiss subsidiaries. The Swiss deferred tax expense of
CHF 1,348 million mainly reflects the net decrease of deferred tax
assets previously recognized in relation to tax losses carried
forward.
For the year ended
31.12.14
31.12.13
31.12.12
46
1,348
409
(2,983)
(1,180)
93
455
342
(1,000)
(110)
95
23
72
271
461
The foreign current tax expense of CHF 409 million relates to
taxable profits earned by non-Swiss subsidiaries and branches,
against which no losses were available to offset. The foreign net
deferred tax benefit of CHF 2,983 million primarily reflects an
increase of deferred tax assets relating to the US.
The components of operating profit before tax, and the differ-
ences between income tax expense reflected in the financial
statements and the amounts calculated at the Swiss tax rate, are
listed in the table on the following page.
595
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 8 Income taxes (continued)
CHF million
Operating profit / (loss) before tax
of which: Swiss
of which: Foreign
Income tax at Swiss tax rate of 21%
Increase / (decrease) resulting from:
Foreign tax rates differing from Swiss tax rate
Tax effects of losses not recognized
Previously unrecognized tax losses now utilized
Non-taxable and lower taxed income
Non-deductible expenses and additional taxable income
Adjustments related to prior years – current tax
Adjustments related to prior years – deferred tax
Change in deferred tax valuation allowances
Adjustments to deferred tax balances arising from changes in tax rates
Other items
Income tax expense / (benefit)
For the year ended
31.12.14
31.12.13
31.12.12
2,469
1,181
1,288
519
68
325
(285)
(384)
1,069
5
(9)
(2,373)
(183)
68
(1,180)
3,272
3,323
(51)
687
(305)
58
(419)
(624)
1,245
(32)
6
(859)
107
28
(110)
(1,794)
4,040
(5,834)
(377)
(680)
184
(1,342)
(417)
2,205
(216)
1
1,071
7
25
461
The following is an explanation of the items included as differ-
ences between the expected tax expense at the Swiss tax rate
applied to operating profit before tax and the actual income tax
benefit:
Foreign tax rates differing from Swiss tax rate
To the extent that profits or losses arise outside Switzerland, the
applicable local tax rate may differ from the Swiss tax rate. This
item reflects, for such profits or losses, an adjustment from the tax
expense / benefit that would arise at the Swiss tax rate and the tax
expense / benefit that would arise at the applicable local tax rate.
A tax expense arises in the year in relation to entities, which have
profits and also local tax rates in excess of the Swiss tax rate.
Non-taxable and lower taxed income
This item relates to profits for the year, which are either perma-
nently not taxable or are taxable, but at a lower rate of tax than
the local tax rate. It also includes any permanent deductions made
for tax purposes, which are not reflected in the accounts, thereby
effectively ensuring that profits covered by the deduction are not
taxable.
Non-deductible expenses and additional taxable income
This item mainly relates to income for the year, which is imputed
for tax purposes for an entity, but is not included in its operating
profit. In addition, it includes expenses for the year, which are
permanently non-deductible.
Tax effects of losses not recognized
This item relates to tax losses of entities arising in the year, which
are not recognized as deferred tax assets. Consequently, no tax
benefit arises in relation to those losses. Therefore, the tax benefit
calculated by applying the local tax rate to those losses as de-
scribed above is reversed.
Adjustments related to prior years – current tax
This item relates to adjustments to current tax expenses for prior
years, for example, if the tax payable for a year agreed with the
tax authorities is expected to differ from the amount previously
reflected in the accounts.
Previously unrecognized tax losses now utilized
This item relates to taxable profits of the year, which are offset by
tax losses of previous years, for which no deferred tax assets were
previously recorded. Consequently, no current tax or deferred tax
expense arises in relation to those taxable profits. Therefore, the
tax expense calculated by applying the local rate on those profits
is reversed.
Adjustments related to prior years – deferred tax
This item relates to adjustments to deferred tax positions recog-
nized in prior years, for example, if a tax loss for a year is fully
recognized and the amount of the tax loss agreed with the tax
authorities is expected to differ from the amount previously rec-
ognized as deferred tax assets in the accounts.
596
Change in deferred tax valuation allowances
This item includes revaluations of deferred tax assets previously
recognized resulting from reassessments of expected future tax-
able profits. It also includes changes in temporary differences in
the year, for which deferred tax is not recognized. The amount in
the year mainly relates to the upward revaluation of deferred tax
assets referred to above.
Adjustments to deferred tax balances arising from
changes in tax rates
This item relates to re-measurements of deferred tax assets and
liabilities recognized due to changes in tax rates. These have the
effect of changing the future tax saving that is expected from tax
losses or deductible tax differences and therefore the amount of
deferred tax assets recognized or, alternatively, changing the tax
cost of additional taxable income from taxable temporary differ-
ences and therefore the deferred tax liability.
Other items
Other items include other differences between profit or losses at
the local tax rate and the actual local tax expense or benefit,
including increases in provisions for uncertain positions in relation
to the current year, interest accruals for such provisions in relation
to prior years and other items.
Tax in equity
Certain tax expenses and benefits were recognized directly in
equity. These included an expense of CHF 196 million for cash flow
hedges (2013: benefit of CHF 393 million), an expense of CHF 52
million for financial investments available-for-sale (2013: benefit of
CHF 71 million), an expense of CHF 7 million for foreign currency
translation gains and losses (2013: benefit of CHF 5 million) and a
benefit of CHF 246 million for defined benefit pension plans (2013:
expense of CHF 239 million) recognized in other comprehensive
income. In addition, they included a benefit of CHF 3 million
recognized in share premium (2013: benefit of CHF 91 million). In
addition, there were net foreign currency translation movements
related to the effects of exchange rate changes on tax assets and
liabilities denominated in currencies other than Swiss francs.
Deferred tax assets and liabilities
UBS AG has deferred tax assets related to tax loss carry-forwards
and other items as shown in the table below. Deferred tax assets
of CHF 1,378 million (CHF 4,484 million as of 31 December 2013)
are recognized by entities consolidated by UBS AG, which in-
curred losses in either the current or preceding year.
The valuation allowance reflects deferred tax assets which are
not recognized because it is not considered probable that future
taxable profits will be available to utilize the related tax loss carry-
forwards and deductible temporary differences.
CHF million
Deferred tax assets 1
Tax loss carry-forwards
Temporary differences
of which: related to compensation and benefits
of which: related to trading assets
of which: other
Total deferred tax assets
Deferred tax liabilities
Goodwill and intangible assets
Financial investments
Investments in associates and other
Total deferred tax liabilities
1 Less deferred tax liabilities as applicable
31.12.14
Valuation
allowance Recognized
(22,271)
(1,264)
(317)
(61)
(886)
7,456
3,605
1,107
1,398
1,100
Gross
29,727
4,869
1,424
1,459
1,986
31.12.13
Valuation
allowance
(22,534)
(1,272)
(415)
(84)
(773)
Recognized
6,267
2,577
875
747
956
Gross
28,801
3,850
1,290
831
1,729
34,596
(23,535)
11,060
32,651
(23,807)
8,845
32
13
35
80
37
0
21
59
597
Financial informationNote 8 Income taxes (continued) Financial information
Notes to the UBS AG consolidated financial statements
The net increase in recognized deferred tax assets during 2014
was affected by UBS AG’s reassessment of its approach for taking
forecasted future profit into account for these purposes. Based on
the performance of our businesses, UBS AG has extended the
forecast period for taxable profits to six years from five. In addi-
tion, UBS AG considers other factors in evaluating the recover-
ability of its deferred tax assets, including the remaining tax loss
carry-forward period, and its confidence level in assessing the
probability of taxable profit beyond the current outlook period.
As of 31 December 2014, tax loss carry-forwards totaling CHF
68,869 million (31 December 2013: CHF 69,962 million), which
are not recognized as deferred tax assets, were available to be
offset against future taxable profits. These tax losses expire as
outlined in the table below.
Unrecognized tax loss carry-forwards
CHF million
Within 1 year
From 2 to 5 years
From 6 to 10 years
From 11 to 20 years
No expiry
Total
31.12.14
31.12.13
9,341
43
613
39,899
18,973
68,869
0
10,683
189
40,579
18,512
69,962
In general, Swiss tax losses can be carried forward for seven years,
US federal tax losses for 20 years and UK and Jersey tax losses for
an unlimited period. UBS AG provides for deferred income tax on
undistributed earnings of subsidiaries except to the extent that
those earnings are indefinitely invested. As of 31 December 2014,
no such earnings were considered indefinitely invested.
598
Note 8 Income taxes (continued) Note 9 Earnings per share (EPS) and shares outstanding
Basic earnings (CHF million)
Net profit / (loss) attributable to UBS AG shareholders
Diluted earnings (CHF million)
Net profit / (loss) attributable to UBS AG shareholders
Less: (profit) / loss on UBS AG equity derivative contracts
Net profit / (loss) attributable to UBS AG shareholders for diluted EPS
Weighted average shares outstanding
Weighted average shares outstanding for basic EPS
Effect of dilutive potential shares resulting from notional shares,
in-the-money options and warrants outstanding
Weighted average shares outstanding for diluted EPS
Earnings per share (CHF)
Basic
Diluted
Shares outstanding
Shares issued
Treasury shares
Shares outstanding
Exchangeable shares
Shares outstanding for EPS
As of or for the year ended
% change from
31.12.14
31.12.13
31.12.12
31.12.13
3,502
3,172
(2,480)
3,502
0
3,502
3,172
0
3,172
(2,480)
(1)
(2,481)
3,767,459,778
3,763,076,788
3,754,112,403
73,654,112
81,111,217
126,261
3,841,113,890
3,844,188,005
3,754,238,664
0.93
0.91
0.84
0.83
(0.66)
(0.66)
3,844,560,913
3,842,002,069
3,835,250,233
2,115,255
73,800,252
87,879,601
3,842,445,658
3,768,201,817
3,747,370,632
0
246,042
418,526
3,842,445,658
3,768,447,859
3,747,789,158
10
10
10
0
(9)
0
11
10
0
(97)
2
(100)
2
The table below outlines the potential shares which could dilute basic earnings per share in the future, but were not dilutive for the
periods presented.
Number of shares
Potentially dilutive instruments
Employee share-based compensation awards
Other equity derivative contracts
SNB warrants 1
Total
31.12.14
31.12.13
31.12.12
31.12.13
% change from
0
0
0
0
117,623,624
233,256,208
16,517,384
0
134,141,008
15,386,605
100,000,000
348,642,813
(100)
(100)
(100)
1 These warrants related to the SNB transaction. The SNB provided a loan to a fund owned and controlled by the SNB (the SNB StabFund), to which UBS AG transferred certain illiquid securities and other positions in
2008 and 2009. As part of this arrangement, UBS AG granted warrants on shares to the SNB, which would have been exercisable if the SNB incurred a loss on its loan to the SNB StabFund. In 2013, these warrants
were terminated following the full repayment of the loan.
599
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 10 Due from banks and loans (held at amortized cost)
CHF million
By type of exposure
Due from banks, gross
of which: due from central banks
Allowance for credit losses
Other allowances
Due from banks, net
Loans, gross
Residential mortgages
Commercial mortgages
Lombard loans
Other loans 1
Finance lease receivables2
Securities 3
Subtotal
Allowance for credit losses
Other allowances
Loans, net
Total due from banks and loans, net 4
31.12.14
31.12.13
13,347
648
(13)
0
13,936
2,407
(15)
(47)
13,334
13,874
142,380
22,368
108,230
39,152
1,101
3,448
316,679
(695)
0
315,984
329,317
137,370
22,716
86,820
34,893
1,053
4,813
287,665
(671)
(35)
286,959
300,832
1 Includes corporate loans. 2 In 2014, changes in the presentation of this Note were made. Finance lease receivables are now presented as a separate line item. Previously, these were included in the line item Other loans.
Prior period information was adjusted accordingly. Refer to Note 33b for more information. 3 Includes securities reclassified from held-for-trading. Refer to Note 1a item 10 and Note 27 for more information.
4 Refer to “Maximum exposure to credit risk” in the “Risk management and control” section of this report for information on collateral and credit enhancements.
600
Balance sheet notes: assets Note 11 Cash collateral on securities borrowed and lent, reverse repurchase and repurchase agreements,
and derivative instruments
UBS AG enters into collateralized reverse repurchase and repur-
chase agreements, securities borrowing and securities lending
transactions and derivative transactions that may result in credit
exposure in the event that the counterparty to the transaction is
unable to fulfill its contractual obligations. UBS AG manages cred-
it risk associated with these activities by monitoring counterparty
credit exposure and collateral values on a daily basis and requiring
additional collateral to be deposited with or returned to UBS AG
when deemed necessary.
➔ Refer to Note 26 for more information
Balance sheet assets
CHF million
By counterparty
Banks
Customers
Total
Balance sheet liabilities
CHF million
By counterparty
Banks
Customers
Total
31.12.14
31.12.13
Cash collateral
on securities
borrowed
Reverse
repurchase
agreements
Cash collateral
receivables
on derivative
instruments
Cash collateral
on securities
borrowed
Reverse
repurchase
agreements
Cash collateral
receivables
on derivative
instruments
10,517
13,546
24,063
13,746
54,668
68,414
10,265
20,713
30,979
10,495
17,001
27,496
34,729
56,834
91,563
8,982
17,566
26,548
31.12.14
Cash collateral
on securities
lent
Repurchase
agreements
Cash collateral
payables
on derivative
instruments
Cash collateral
on securities
lent
7,041
2,138
9,180
5,174
6,644
11,818
20,895
21,477
42,372
8,805
686
9,491
31.12.13
Repurchase
agreements
3,953
9,858
13,811
Cash collateral
payables
on derivative
instruments
26,166
18,341
44,507
601
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 12 Allowances and provisions for credit losses
CHF million
By movement
Balance at the beginning of the year
Write-offs / usage of provisions
Recoveries
Increase / (decrease) recognized in the income statement 2
Reclassifications
Foreign currency translation
Other
Balance at the end of the year
Specific
allowances
Collective
allowances
Total
allowances
669
(151)
29
138
(10)
18
11
704
20
(1)
0
(11)
0
0
0
8
688
(153)
29
127
(10)
19
11
711
Provisions 1
61
(1)
0
(49)
10
3
0
23
Total 31.12.14
Total 31.12.13
750
(154)
29
78
0
21
11
735
794
(128)
45
50
0
(9)
(3)
750
1 Represents provisions for loan commitments and guarantees. Refer to Note 22 for more information. Refer to the “Financial and operating performance” section of this report for the maximum irrevocable amount of
loan commitments and guarantees. 2 Excludes an impairment charge of CHF 166 million related to certain disputed receivables. Including this, total impairment charges related to financial instruments were CHF 244
million in 2014.
By balance sheet line
Due from banks
Loans
Cash collateral on securities borrowed
Provisions 1
Balance at the end of the year
1 Represents provisions for loan commitments and guarantees.
Specific
allowances
Collective
allowances
Total
allowances
Provisions
Total 31.12.14
Total 31.12.13
13
687
4
704
0
8
0
8
13
695
4
711
13
695
4
23
735
15
671
2
61
750
23
23
602
Note 13 Trading portfolio
CHF million
Trading portfolio assets by issuer type 1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Australia
of which: United Kingdom
of which: Germany
of which: South Korea
of which: Italy
Banks
Corporates and other
Total debt instruments
Equity instruments
Financial assets for unit-linked investment contracts
Financial assets held for trading
Precious metals and other physical commodities
Total trading portfolio assets
Trading portfolio liabilities by issuer type 1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Australia
of which: United Kingdom
of which: Germany
of which: South Korea
of which: Italy
Banks
Corporates and other
Total debt instruments
Equity instruments
Total trading portfolio liabilities
1 Refer to Note 24e for more information on product type and fair value hierarchy categorization.
31.12.14
31.12.13
16,625
16,073
293
3,816
2,307
2,103
1,280
1,080
1,041
4,342
24,252
45,219
69,763
17,410
132,392
5,764
138,156
8,716
232
2,987
1,087
631
335
43
569
743
2,591
12,050
15,908
27,958
352
3,657
1,312
424
1,192
1,482
1,603
5,039
25,407
46,519
51,881
15,849
114,249
8,599
122,848
8,222
173
2,508
573
516
308
15
1,140
823
2,453
11,498
15,111
26,609
603
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Derivatives: overview
A derivative is a financial instrument, the value of which is derived
from the value of one or more variables (underlyings). Underlyings
may be indices, exchanges or interest rates, or the value of shares,
commodities, bonds or other financial instruments. A derivative
commonly requires little or no initial net investment by either
counterparty to the trade.
The majority of derivative contracts are negotiated with re-
spect to notional amounts, tenor, price and settlement mecha-
nisms, as is customary with other financial instruments.
Over-the-counter (OTC) derivative contracts are usually traded
under a standardized International Swaps and Derivatives Associ-
ation (ISDA) master agreement between UBS AG and its counter-
parties. Terms are negotiated directly with counterparties and the
contracts will have industry-standard settlement mechanisms pre-
scribed by ISDA. The industry continues to promote the use of
central counterparties (CCP) to clear OTC trades. The trend to-
ward CCP clearing and settlement will generally facilitate the re-
duction of systemic credit exposures.
Other derivative contracts are standardized in terms of their
amounts and settlement dates, and are bought and sold on orga-
nized exchanges. These are commonly referred to as exchange-
traded derivatives (ETD) contracts. Exchanges offer the benefits of
pricing transparency, standardized daily settlement of changes in
value, and consequently reduced credit risk.
For presentation purposes, UBS AG is subject to the IFRS netting
provisions for derivative contracts. Derivative instruments are mea-
sured at fair value and generally classified as Positive replacement
values and Negative replacement values on the face of the balance
sheet. However, ETD derivatives which are economically settled on
a daily basis and certain OTC derivatives which qualify for IFRS net-
ting and are in substance net settled on a daily basis are classified
as Cash collateral receivables on derivative instruments or Cash col-
lateral payables on derivative instruments. Changes in the replace-
ment values of derivatives are recorded in Net trading income, un-
less the derivatives are designated and effective as hedging
instruments in certain types of hedge accounting relationships.
➔ Refer to Note 1a item 15 for more information
Valuation principles and techniques applied in the measure-
ment of derivative instruments are discussed in Note 24. Positive
replacement values represent the estimated amount UBS AG
would receive if the derivative contract were sold on the balance
sheet date. Negative replacement values indicate the estimated
amount UBS AG would pay to transfer its obligations in respect of
the underlying contract, were it required or entitled to do so on
the balance sheet date.
Derivatives embedded in other financial instruments are not
included in the table “Derivative instruments” within this Note.
Bifurcated embedded derivatives are presented on the same bal-
ance sheet line as the host contract. In cases where UBS AG ap-
plies the fair value option to hybrid instruments, bifurcation of an
embedded derivative component is not required and as such, this
component is also not included in the table “Derivative instru-
ments.”
➔ Refer to Notes 20 and 24 for more information
Types of derivative instruments
UBS AG uses the following derivative financial instruments for
both trading and hedging purposes. Through the use of the prod-
ucts listed below, UBS AG is engaged in extensive high-volume
market-making and client facilitation trading referred to as the
flow business. Measurement techniques applied to determine the
fair value of each product type are described in Note 24.
The main types of derivative instruments used by UBS AG are:
– Swaps: Swaps are transactions in which two parties exchange
cash flows on a specified notional amount for a predetermined
period. Cross-currency swaps involve the exchange of interest
payments based on two different currency notional amounts
and reference interest rates and generally also entail exchange
of notional amounts at the start or end of the contract. Most
cross-currency swaps are traded in the OTC market.
– Forwards and futures: Forwards and futures are contractual
obligations to buy or sell financial instruments or commodities
on a future date at a specified price. Forward contracts are
tailor-made agreements that are transacted between counter-
parties in the OTC market, whereas futures are standardized
contracts transacted on regulated exchanges.
– Options and warrants: Options and warrants are contractual
agreements under which, typically, the seller (writer) grants the
purchaser the right, but not the obligation, either to buy (call
option), or to sell (put option) at, or before, a set date, a spec-
ified quantity of a financial instrument or commodity at a pre-
determined price. The purchaser pays a premium to the seller
for this right. Options involving more complex payment struc-
tures are also transacted. Options may be traded in the OTC
market, or on a regulated exchange, and may be traded in the
form of a security (warrant).
The main products and underlyings used by UBS AG are:
– Interest rate contracts: Interest rate products include interest
rate swaps, forward rate agreements, swaptions and caps and
floors.
– Credit derivative contracts: Credit default swaps (CDS) are the
most common form of a credit derivative, under which the
party buying protection makes one or more payments to the
party selling protection in exchange for an undertaking by the
seller to make a payment to the buyer following the occurrence
604
Note 14 Derivative instruments and hedge accounting of a contractually defined credit event with respect to a speci-
fied third-party credit entity. Settlement following a credit event
may be a net cash amount, or cash in return for physical deliv-
ery of one or more obligations of the credit entity, and is made
regardless of whether the protection buyer has actually suf-
fered a loss. After a credit event and settlement, the contract is
generally terminated. More information on credit derivatives is
included in a separate section on the following pages. Total re-
turn swaps (TRS) are structured with one party making pay-
ments based on a set rate, either fixed or variable, plus any
negative changes in fair value of an underlying asset, and the
other party making payments based on the return of the asset,
which includes both income it generates and any positive
changes in its fair value.
– Foreign exchange contracts: Foreign exchange contracts in-
clude spot, forward and cross-currency swaps and options and
warrants. Forward purchase and sale currency contracts are
typically executed to meet client needs and for trading and
hedging purposes.
– Equity / index contracts: UBS AG uses equity derivatives linked
to single names, indices and baskets of single names and indi-
ces. The indices used may be based on a standard market in-
dex, or may be defined by UBS AG. The product types traded
include vanilla listed derivatives, both options and futures, total
return swaps, forwards and exotic OTC contracts.
– Commodities contracts: UBS AG has an established commodity
derivatives trading business, which includes the commodity in-
dex and structured commodities business. The index and struc-
tured business are client facilitation businesses trading ex-
change-traded funds, OTC swaps and options on commodity
indices and individual underlying commodities. The underlying
indices cover third-party and UBS AG owned indices such as the
UBS Bloomberg Constant Maturity Commodity Index and the
Bloomberg Commodity Indices. All of the trading is cash-set-
tled with no physical delivery of the underlying. UBS AG also
has an established precious metals business in both flow and
non-vanilla OTC products incorporating both physical and non-
physical trading. The flow business is investor led and products
include ETD, vanilla OTC and certain non-vanilla OTC. The va-
nilla OTC are in forwards, swaps and options.
Risks of derivative instruments
Derivative instruments are transacted in many trading portfolios,
which generally include several types of instruments, not just de-
rivatives. The market risk of derivatives is predominantly managed
and controlled as an integral part of the market risk of these port-
folios. UBS AG’s approach to market risk is described in the au-
dited portions of Market risk in the “Risk management and con-
trol” section of this report.
Derivative instruments are transacted with many different
counterparties, most of whom are also counterparties for other
types of business. The credit risk of derivatives is managed and
controlled in the context of UBS AG’s overall credit exposure to
each counterparty. UBS AG’s approach to credit risk is described in
the audited portions of Credit risk in the “Risk management and
control” section of this report. It should be noted that, although
the positive replacement values shown on the balance sheet can
be an important component of UBS AG’s credit exposure, the
positive replacement values for a counterparty are rarely an ade-
quate reflection of UBS AG’s credit exposure in its derivatives busi-
ness with that counterparty. This is, for example, because on one
hand, replacement values can increase over time (potential future
exposure), while on the other hand, exposure may be mitigated
by entering into master netting agreements and bilateral collat-
eral arrangements. Both the exposure measures used internally by
UBS AG to control credit risk and the capital requirements im-
posed by regulators reflect these additional factors.
The replacement values presented on UBS AG’s balance sheet
include netting in accordance with IFRS requirements (refer to
Note 1a item 35), which is generally more restrictive than netting
in accordance with Swiss federal banking law. Swiss federal bank-
ing law netting is generally based on close-out netting arrange-
ments that are enforceable in case of insolvency.
➔ Refer to Note 26 for more information on the values of positive
and negative replacement values after consideration of netting
potential allowed under enforceable netting arrangements
605
Financial informationNote 14 Derivative instruments and hedge accounting (continued) Financial information
Notes to the UBS AG consolidated financial statements
31.12.14
31.12.13
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
0.1
49.0
0.2
55.9
2,622.8
0.2
123.7
91.8 1,323.4
83.7 1,233.4 10,244.3
105.3
2,427.5
31.7
799.8
33.9
790.3
0.0
25.2
928.8
0.2
92.8
25.3
107.1
1,944.2
2,297.7 13,779.6
900.3
0.0
15.7
0.0
0.1
0.0
0.1
446.0
134.7
4.9
0.0
0.1
0.2
0.1
0.0
492.0
287.5
1.8
123.7 2,187.9
117.9 2,084.5 13,447.7
130.7
3,480.1
118.4
3,306.9 16,503.3
11.1
238.1
11.3
245.8
0.4
0.0
3.8
6.5
0.4
0.0
5.1
1.6
11.5
248.4
11.7
252.4
20.6
817.6
19.2
741.4
62.2 1,626.3
62.3 1,554.0
15.6
667.3
16.0
601.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
22.9
641.1
21.3
630.9
0.2
0.0
3.1
3.6
0.2
0.0
3.1
0.1
23.1
647.8
21.5
634.0
12.4
54.2
9.3
661.2
1,924.0
494.0
13.4
57.4
9.4
667.9
1,858.1
455.5
4.9
0.0
0.0
0.1
0.0
14.8
0.0
3.7
0.0
0.1
5.4
0.0
0.1
6.1
98.4 3,116.2
97.6 2,900.5
14.8
76.0
3,084.4
80.3
2,987.6
0.1
58.5
71.7
109.4
0.1
3.4
6.4
4.8
4.9
0.1
70.0
115.4
124.2
0.0
4.7
8.9
4.8
4.8
0.0
0.0
0.0
27.9
10.1
0.0
45.9
74.7
110.8
0.0
3.2
7.7
5.6
4.0
0.0
59.2
103.1
112.4
0.0
4.6
9.3
6.5
4.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
7.2
0.0
7.2
0.0
0.0
0.0
25.7
7.2
19.5
239.6
23.3
309.6
38.0
20.6
231.4
24.4
274.7
32.9
Derivative instruments 1
CHF billion
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts 6
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
Total
Credit derivative contracts
Over-the-counter (OTC) contracts
Credit default swaps
Total return swaps
Options and warrants
Total
Foreign exchange contracts
Over-the-counter (OTC) contracts
Forward contracts
Interest and currency swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
Total
Table continues on the next page.
606
Note 14 Derivative instruments and hedge accounting (continued) Derivative instruments 1 (continued)
Table continued from previous page.
CHF billion
Commodity contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Forward contracts
Options
Agency transactions 7
Total
Unsettled purchases of non-derivative financial investments 8
Unsettled sales of non-derivative financial investments 8
Total derivative instruments, based on IFRS netting9
31.12.14
31.12.13
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
0.3
0.9
0.9
0.0
0.0
1.4
3.6
0.1
0.2
4.6
13.8
12.5
6.5
0.8
38.1
11.4
16.1
0.3
0.5
0.7
0.1
0.1
1.4
3.2
0.2
0.1
4.4
7.9
9.8
5.3
3.7
31.1
12.9
9.1
0.0
0.0
0.0
7.3
0.0
0.1
7.3
0.0
0.0
0.6
0.9
1.0
0.0
0.0
0.9
3.5
0.1
0.1
4.5
14.9
12.9
9.7
0.6
42.7
19.6
12.7
0.4
0.9
0.9
0.1
0.1
0.9
3.2
0.1
0.2
3.5
11.2
9.4
8.2
2.3
34.6
8.9
15.2
0.0
0.0
0.0
11.1
0.0
0.2
11.3
0.0
0.0
257.0 5,857.8
254.1 5,600.2 13,507.9
254.1
7,518.8
248.1
7,261.9 16,554.7
1 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are excluded from this table. As of 31 December 2014, these derivatives amounted to a PRV of CHF 0.3 bil-
lion (related notional values of CHF 6.5 billion) and an NRV of CHF 0.3 billion (related notional values of CHF 7.8 billion). As of 31 December 2013, these derivatives amounted to a PRV of CHF 0.2 billion (related notional
values of CHF 6.7 billion) and an NRV of CHF 0.4 billion (related notional values of CHF 12.8 billion). 2 PRV: Positive replacement value. 3 In cases where replacement values are presented on a net basis on the bal-
ance sheet, the respective notional values of the netted replacement values are still presented on a gross basis. 4 NRV: Negative replacement value. 5 Other notional values relate to derivatives which are cleared
through either a central clearing counterparty or an exchange. 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 were not material for the periods presented. 6 Negative replacement values as of 31 December 2014 include CHF 0.0 billion related to deriva-
tive loan commitments (31 December 2013: CHF 0.0 billion). No notional amounts related to these replacement values are included in the table. The maximum irrevocable amount related to these commitments was
CHF 4.5 billion as of 31 December 2014 (31 December 2013: CHF 7.1 billion). 7 Notional values of exchange-traded agency transactions and OTC cleared transactions entered into on behalf of clients are not disclosed
due to their significantly different risk profile. 8 Changes in the fair value of purchased and sold non-derivative financial investments between trade date and settlement date are recognized as replacement val-
ues. 9 Refer to Note 26 for more information on netting arrangements.
The notional amount of a derivative is generally the quantity of
the underlying instrument on which the derivative contract is
based and is the reference against which changes in the value of
the derivative are measured. Notional values, in themselves, are
generally not a direct indication of the values which are exchanged
between parties, and are therefore not a direct measure of risk or
financial exposure, but are viewed as an indication of the scale of
the different types of derivatives entered into by UBS AG.
The maturity profile of OTC interest rate contracts held as of
31 December 2014, based on notional values, was: approximately
45% (31 December 2013: 38%) mature within one year, 34%
(31 December 2013: 38%) within one to five years and 22%
(31 December 2013: 24%) after five years. Notional values of in-
terest rate contracts cleared with a clearing house that qualify for
IFRS balance sheet netting are presented under other notional val-
ues and are categorized into maturity buckets on the basis of con-
tractual maturities of the cleared underlying derivative contracts.
Derivatives transacted for trading purposes
Most of the Group’s derivative transactions relate to sales and
trading activities. Sales activities include the structuring and mar-
keting of derivative products to customers to enable them to take,
transfer, modify, or reduce current or expected risks. Trading ac-
tivities include market-making to directly support the facilitation
and execution of client activity. Market-making involves quoting
bid and offer prices to other market participants with the inten-
tion of generating revenues based on spread and volume.
Credit derivatives
UBS AG is an active dealer in the fixed income market, including
CDS and related products, with respect to a large number of issu-
ers’ securities. The primary purpose of these activities is for the
benefit of UBS AG’s clients through market-making activities and
for the ongoing hedging of trading book exposures.
607
Financial informationNote 14 Derivative instruments and hedge accounting (continued) Financial information
Notes to the UBS AG consolidated financial statements
Market-making activity, which is done within the Investment
Bank, consists of buying and selling single-name CDS, index CDS,
loan CDS and related referenced cash instruments to facilitate cli-
ent trading activity. UBS AG also actively utilizes CDS to economi-
cally hedge specific counterparty credit risks in its accrual loan
portfolio and off-balance sheet loan portfolio (including loan
commitments) with the aim of reducing concentrations in indi-
vidual names, sectors or specific portfolios.
In addition, UBS AG actively utilizes CDS to economically
hedge specific counterparty credit risks in its OTC derivative port-
folios including financial instruments which are designated at fair
value through profit or loss.
During 2012, UBS AG announced an Investment Bank strategy
change which resulted in a focus on certain types of client facilita-
tion business and resulted in reduced market-making activity. As a
result, CDS have increasingly been used for economic hedging
purposes. In 2013, large portfolios of credit derivatives including
structured credit products were transferred to and are now man-
aged and reported in Corporate Center – Non Core. The majority
of these positions have now been unwound through trade nova-
tions to other counterparties.
The tables below provide further details on credit protection
bought and sold, including replacement and notional value infor-
mation by instrument type and counterparty type. The value of
protection bought and sold is not, in isolation, a measure of
UBS AG’s credit risk. Counterparty relationships are viewed in
terms of the total outstanding credit risk, which relates to other
instruments in addition to CDS, and in connection with collateral
arrangements in place. On a notional value basis, credit protec-
tion bought and sold as of 31 December 2014 matures in a range
of approximately 27% (31 December 2013: 22%) within one
year, approximately 64% (31 December 2013: 72%) within one
to five years and approximately 8% (31 December 2013: 6%)
after five years.
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
5.9
0.4
0.1
0.1
0.0
6.5
3.2
3.3
4.0
0.9
0.3
0.3
0.0
5.4
5.0
0.4
173.3
72.8
4.8
5.4
6.5
262.8
245.5
17.3
3.0
1.7
0.0
0.3
0.0
5.0
4.6
0.5
5.6
0.5
0.1
0.2
0.0
6.3
3.0
3.3
148.8
80.7
3.4
3.5
1.6
238.0
220.5
17.4
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
6.6
1.0
0.4
0.2
0.0
8.1
7.8
0.3
12.0
1.9
0.4
0.1
0.0
14.3
14.1
0.3
487.9
146.8
9.4
5.4
3.6
653.1
644.3
8.7
10.4
4.4
0.1
0.0
0.0
15.0
14.7
0.3
4.6
2.3
0.2
0.1
0.0
7.2
6.9
0.3
450.6
171.9
5.3
0.8
0.1
628.8
620.6
8.2
Credit derivatives by type of instrument
CHF billion
Single-name credit default swaps
Multi-name index linked credit default swaps
Multi-name other credit default swaps
Total rate of return swaps
Options and warrants
Total 31 December 2014
of which: credit derivatives related to economic hedges
of which: credit derivatives related to market-making
CHF billion
Single-name credit default swaps
Multi-name index linked credit default swaps
Multi-name other credit default swaps
Total rate of return swaps
Options and warrants
Total 31 December 2013
of which: credit derivatives related to economic hedges
of which: credit derivatives related to market-making
608
Note 14 Derivative instruments and hedge accounting (continued) Credit derivatives by counterparty
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2014
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2013
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
1.4
4.0
0.2
0.9
6.5
0.5
2.9
1.1
0.9
5.4
32.8
156.4
53.2
20.4
262.8
0.3
2.6
1.3
0.8
5.0
1.1
4.4
0.3
0.5
6.3
23.5
144.3
56.7
13.5
238.0
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
1.6
4.7
0.5
1.4
8.1
2.9
8.9
1.8
0.7
14.3
146.9
377.0
101.2
27.9
653.1
3.0
9.0
2.3
0.6
15.0
1.5
4.6
0.7
0.3
7.2
138.0
370.7
102.2
17.8
628.8
UBS AG’s credit derivatives are usually traded as OTC contracts.
Since 2009, in line with the broader derivatives industry, a number
of initiatives have been launched in both the US and Europe to es-
tablish CCP solutions for OTC CDS contracts with the aim of reduc-
ing counterparty risk. UBS AG, along with other dealer members,
has continued to participate in these initiatives during 2014.
tion, respectively, in UBS AG’s long-term credit ratings, and a cor-
responding reduction in short-term ratings. In evaluating UBS
AG’s liquidity requirements, UBS AG considers additional collat-
eral or termination payments that would be required in the event
of a reduction in UBS AG’s long-term credit ratings, and a corre-
sponding reduction in short-term ratings.
UBS AG’s CDS trades are documented using industry standard
forms of documentation or equivalent terms documented in a
bespoke (i.e., tailored) agreement. The agreements that govern
CDS generally do not contain recourse provisions that would en-
able UBS AG to recover from third parties any amounts paid out
by UBS AG (i.e., this is the case where a credit event occurs and
UBS AG is required to make payment under a CDS).
The types of credit events that would require UBS AG to per-
form under a CDS contract are subject to agreement between the
parties at the time of the transaction. However, nearly all transac-
tions are traded using credit events that are applicable under cer-
tain market conventions based on the type of reference entity to
which the transaction relates. Applicable credit events by market
conventions include bankruptcy, failure to pay, restructuring, obli-
gation acceleration and repudiation / moratorium.
Contingent collateral features of derivative liabilities
Certain derivative payables contain contingent collateral or termi-
nation features triggered upon a downgrade of the published
credit rating of UBS AG in the normal course of business. Based
on UBS AG’s credit ratings as of 31 December 2014, additional
collateral or termination payments pursuant to bilateral agree-
ments with certain counterparties of approximately CHF 1.0 bil-
lion, CHF 2.8 billion and CHF 2.9 billion would have been required
in the event of a one-notch, two-notch and three-notch reduc-
Derivatives transacted for hedging purposes
Derivatives used for structural hedging
UBS AG enters into derivative transactions for the purposes of
hedging risks inherent in assets, liabilities and forecast transac-
tions. The accounting treatment of hedge transactions varies ac-
cording to the nature of the instrument hedged and whether the
hedge qualifies as such for accounting purposes.
Derivative transactions that qualify and are designated as
hedges for accounting purposes are described under the corre-
sponding headings in this note (fair value hedges, cash flow
hedges and hedges of net investments in foreign operations). UBS
AG’s accounting policies for derivatives designated and accounted
for as hedging instruments are explained in Note 1a item 15, un-
der which terms used in the following sections are explained.
UBS AG has also entered into various hedging strategies utiliz-
ing derivatives for which hedge accounting has not been applied.
These include interest rate swaps and other interest rate derivatives
(e.g., futures) for day-to-day economic interest rate risk manage-
ment purposes. In addition, UBS AG has used equity futures, op-
tions and, to a lesser extent, swaps for economic hedging in a va-
riety of equity trading strategies to offset underlying equity and
equity volatility exposure. UBS AG has also entered into CDS that
provide economic hedges for credit risk exposures (refer to the
609
Financial informationNote 14 Derivative instruments and hedge accounting (continued) Financial information
Notes to the UBS AG consolidated financial statements
credit derivatives section). Fair value changes of derivatives that are
part of economic relationships, but do not qualify for hedge ac-
counting treatment, are reported in Net trading income, except for
the forward points on certain short duration foreign exchange con-
tracts which are reported in Net interest income.
Fair value hedges: interest rate risk related to debt issued
UBS AG’s fair value hedges principally consist of interest rate
swaps that are used to protect against changes in the fair value of
fixed-rate instruments (e.g., non-structured fixed-rate bonds, cov-
ered bonds and subordinated debt) due to movements in market
interest rates. The fair values of outstanding interest rate deriva-
tives designated as fair value hedges were assets of CHF 2,236
million and liabilities of CHF 37 million as of 31 December 2014
and assets of CHF 1,588 million and liabilities of CHF 140 million
as of 31 December 2013.
Fair value hedges of interest rate risk
CHF million
Gains / (losses) on hedging instruments
Gains / (losses) on hedged items attributable to the hedged risk
Net gains / (losses) representing ineffective portions of fair value hedges
For the year ended
31.12.14
31.12.13
31.12.12
1,113
(1,111)
2
(1,123)
1,116
(7)
537
(581)
(44)
Fair value hedges: portfolio interest rate risk related to loans
UBS AG also applies fair value hedge accounting to mortgage
loan portfolio interest rate risk. The change in fair value of the
hedged items is recorded separately from the hedged item and is
included within Other assets on the balance sheet. The fair values
of outstanding interest rate derivatives designated for these
hedges as of 31 December 2014 were liabilities of CHF 256 mil-
lion (31 December 2013: assets of CHF 176 million and liabilities
of CHF 716 million). The reduction in fair value of outstanding
derivatives during 2014 was partly related to the hedge de-desig-
nation of certain interest rate derivatives.
Fair value hedge of portfolio of interest rate risk
CHF million
Gains / (losses) on hedging instruments
Gains / (losses) on hedged items attributable to the hedged risk
Net gains / (losses) representing ineffective portions of fair value hedges
For the year ended
31.12.14
31.12.13
31.12.12
(694)
676
(18)
636
(625)
11
139
(159)
(20)
Cash flow hedges of forecasted transactions
UBS AG is exposed to variability in future interest cash flows on
non-trading financial assets, and liabilities that bear interest at
variable rates or are expected to be refinanced or reinvested in the
future. The amounts and timing of future cash flows, representing
both principal and interest flows, are projected based on contrac-
tual terms and other relevant factors including estimates of pre-
payments and defaults. The aggregate principal balances and
interest cash flows across all portfolios over time form the basis
for identifying the non-trading interest rate risk of UBS AG, which
is hedged with interest rate swaps, the maximum maturity of
which is 14 years. The table on the following page shows fore-
casted principal balances on which expected interest cash flows
arise as of 31 December 2014. Amounts shown represent, by
time bucket, average assets and liabilities subject to forecasted
cash flows designated as hedged items in cash flow hedge
accounting relationships.
As of 31 December 2014, the fair values of outstanding deriva-
tives designated as cash flow hedges of forecasted transactions
were CHF 4,521 million assets and CHF 1,262 million liabilities
(31 December 2013: CHF 4,770 million assets and CHF 2,275 mil-
lion liabilities).
In 2014, a gain of CHF 87 million was recognized in Net trading
income due to hedge ineffectiveness, compared with a loss of CHF
80 million in 2013 and a gain of CHF 158 million in 2012.
At the end of 2014 and 2013, a gain of CHF 265 million and a
loss of CHF 18 million associated with terminated interest rate
swaps were deferred in OCI, respectively. They will be removed
from OCI when the previously hedged forecasted cash flows af-
fect net profit or loss, or when the forecasted cash flows are no
longer expected to occur. Amounts reclassified from OCI to Net
interest income relating to de-designated swaps were a net gain
CHF 51 million in 2014, a net gain of CHF 1 million in 2013 and a
net gain of CHF 4 million in 2012.
610
Note 14 Derivative instruments and hedge accounting (continued) Principal balances subject to cash flow forecasts
CHF billion
Assets
Liabilities
Net balance
< 1 year
1–3 years
3–5 years
5–10 years
over 10 years
66
9
57
113
19
94
37
3
34
33
2
32
1
0
1
Hedges of net investments in foreign operations
UBS AG applies hedge accounting for certain net investments in
foreign operations. As of 31 December 2014, the positive replace-
ment values and negative replacement values of FX derivatives
(mainly FX swaps) designated as hedging instruments in net in-
vestment hedge accounting relationships were CHF 158 million
and CHF 305 million, respectively (31 December 2013: positive
replacement values of CHF 104 million and negative replacement
values of CHF 102 million). As of 31 December 2014, the underly-
ing hedged structural exposures in several currencies amounted to
CHF 8.0 billion (31 December 2013: CHF 7.2 billion).
Hedges of structural FX exposures in currencies other than the
US dollar may be comprised of two jointly designated derivatives
as the foreign currency risk may be hedged against the US dollar
first and then converted into Swiss francs, the presentation cur-
rency of UBS AG, as part of a separate FX derivative transaction.
The aggregated notional amount of designated hedging deriva-
tives as of 31 December 2014 was CHF 14.7 billion in total (31 De-
cember 2013: CHF 13.8 billion) including CHF 7.8 billion notional
values related to US dollar versus Swiss franc swaps and CHF 6.9
billion notional values related to derivatives hedging foreign cur-
rencies (other than the US dollar) versus the US dollar. The effective
portion of gains and losses of these FX swaps is transferred directly
to OCI to offset foreign currency translation (FCT) gains and losses
on the net investments in foreign branches and subsidiaries. As
such, these FX swaps hedge the structural FX exposure resulting in
the accumulation of FCT on the level of individual foreign branches
and subsidiaries and hence on the total FCT OCI of UBS AG.
UBS AG designates certain non-derivative foreign currency fi-
nancial assets and liabilities of foreign branches or subsidiaries as
hedging instruments in net investment hedge accounting ar-
rangements. The FX translation difference recorded in FCT OCI of
the non-derivative hedging instrument of one foreign entity off-
sets the structural FX exposure of another foreign entity. There-
fore, the aggregated FCT OCI of UBS AG is unchanged from this
hedge designation. As of 31 December 2014, the nominal
amount of non-derivative financial assets and liabilities desig-
nated as hedging instruments in such net investment hedges was
CHF 14.3 billion and CHF 14.3 billion, respectively (31 December
2013: CHF 15.5 billion non-derivative financial assets and CHF
15.5 billion non-derivative financial liabilities).
No material ineffectiveness of hedges of net investments in
foreign operations was recognized in the income statement in
2014, 2013 and 2012.
Undiscounted cash flows
The table below provides undiscounted cash flows of all derivative
instruments designated in hedge accounting relationships. Inter-
est rate swap cash flows include cash inflows and cash outflows
of all interest rate swaps designated in hedge accounting relation-
ships, which are either assets or liabilities of UBS AG as of 31 De-
cember 2014. The table includes derivatives traded on an ex-
change or through a clearing house where the change in fair
value is settled each day, either in fact or in substance, through
cash payment of variation margin.
Derivatives designated in hedge accounting relationships (undiscounted cash flows)
CHF billion
Interest rate swaps 1
Cash inflows
Cash outflows
FX swaps / forwards
Cash inflows
Cash outflows
Net cash flows
On demand
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
0
0
0
0
0
0
0
7
7
0
1
0
6
6
1
2
1
0
0
1
8
5
0
0
3
1
1
0
0
0
1 The table includes gross cash inflows and cash outflows of all interest rate swaps designated in hedge accounting relationships, which are either assets or liabilities of UBS as of 31 December 2014.
Total
12
7
13
14
5
611
Financial informationNote 14 Derivative instruments and hedge accounting (continued) Financial information
Notes to the UBS AG consolidated financial statements
Note 15 Financial investments available-for-sale
CHF million
Financial investments available-for-sale by issuer type 1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Germany
of which: France
of which: United Kingdom
of which: Japan
Banks
Corporates and other
Total debt instruments
Equity instruments
Total financial investments available-for-sale
Unrealized gains – before tax
Unrealized (losses) – before tax
Net unrealized gains / (losses) – before tax
Net unrealized gains / (losses) – after tax
1 Refer to Note 24e for more information on product type and fair value hierarchy categorization.
31.12.14
31.12.13
45,334
43
17,219
10,145
5,351
2,348
1
8,490
2,670
56,494
664
57,159
430
(64)
365
238
50,761
44
17,876
6,733
5,601
8,089
4,865
4,983
3,132
58,876
649
59,525
372
(196)
175
95
612
Note 16 Property and equipment
At historical cost less accumulated depreciation
Own-used
properties
Leasehold
improvements
IT hardware
and
communication
Internally
generated
software1
Purchased
software
Other
machines and
equipment
Projects
in progress
31.12.14
31.12.13
CHF million
Historical cost
Balance at the beginning of the year
Additions
Disposals / write-offs 2
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
7,970
38
(115)
(166)
29
7,756
2,677
2,205
1,259
21
(92)
281
173
270
(221)
4
119
8
(25)
260
24
3,060
2,377
1,525
Balance at the beginning of the year
4,485
1,894
1,841
Depreciation
Impairment 3
Disposals / write-offs 2
Reclassifications
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year 4, 5
186
2
(114)
(208)
15
4,365
3,391
179
8
(86)
(8)
134
2,120
940
215
1
(184)
0
102
1,976
402
965
130
7
(25)
0
11
1,089
436
459
58
(18)
3
35
536
408
30
0
(18)
1
31
452
85
769
38
(46)
44
42
847
547
58
1
(46)
(2)
34
592
255
799
1,257
0
(786)
72
16,136
1,690
(518)
(359) 7
493
16,428
1,244
(871)
(488)
(178)
1,341
17,442
16,136
0
0
0
0
0
0
10,140
10,524
799
19
(474)
(217) 7
326
734
81
(756)
(319)
(124)
0
1,341 6
10,593
6,849
10,140
5,996
1 In 2014, changes in the presentation of this Note were made. Internally generated software is now presented as a separate column. Previously, this was presented together with Purchased software. 2 Includes write-
offs of fully depreciated assets. 3 Impairment charges recorded in 2014 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired assets: CHF 58 million
Leasehold improvements, CHF 5 million Internally generated software). 4 As of 31 December 2014, contractual commitments to purchase property in the future amounted to approximately CHF 0.4 billion. 5 Includes
CHF 104 million related to leased assets, mainly IT hardware and communication. 6 Includes CHF 1,045 million related to Internally generated software, CHF 172 million related to Own-used properties and CHF 119
million related to Leasehold improvements. 7 Reflects reclassifications to Properties held-for-sale (CHF 143 million on a net basis) reported within Other assets.
Investment properties at fair value
CHF million
Balance at the beginning of the year
Additions
Sales
Revaluations
Reclassifications
Foreign currency translation
Balance at the end of the year
31.12.14
31.12.13
10
0
0
1
(7)
1
5
99
7
0
(16)
(81)
0
10
613
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 17 Goodwill and intangible assets
Introduction
UBS AG performs an impairment test on its goodwill assets on an
annual basis, or when indicators of impairment exist. UBS AG
considers the segments, as reported in Note 2, as separate cash-
generating units (CGU). The impairment test is performed for
each segment to which goodwill is allocated by comparing the
recoverable amount, based on its value-in-use, to the carrying
amount of the respective segment. An impairment charge is rec-
ognized if the carrying amount exceeds the recoverable amount.
As of 31 December 2014, total goodwill recognized on the bal-
ance sheet was CHF 6.4 billion, of which CHF 1.4 billion, CHF 3.5
billion and CHF 1.5 billion was carried by Wealth Management,
Wealth Management Americas and Global Asset Management,
respectively. Based on the impairment testing methodology de-
scribed below, UBS AG concluded that the goodwill balances as
of 31 December 2014 allocated to these segments remain recov-
erable and thus were not impaired.
Methodology for goodwill impairment testing
The recoverable amounts are determined using a discounted cash
flow model, which has been adapted to use inputs that consider
features of the banking business and its regulatory environment.
The recoverable amount of a segment is the sum of the dis-
counted earnings attributable to shareholders from the first five
forecasted years and the terminal value. The terminal value, which
covers all periods beyond the fifth year, is calculated on the basis
of the forecast of fifth-year profit, the discount rate and the long-
term growth rate and is adjusted for the effect of the capital as-
sumed to be needed to support the perpetual growth implied by
the long-term growth rate. The carrying amount for each seg-
ment is determined by reference to the Group’s equity attribution
framework. Within this framework, which is described in the
“Capital management” section of this report, the Board of Direc-
tors (BoD) attributes equity to the businesses after considering
their risk exposure, risk-weighted assets and leverage ratio de-
nominator usage, goodwill and intangible assets. The total
amount of equity attributed to the business divisions can differ
from UBS AG’s actual equity during a given period. The frame-
work is primarily used for purposes of measuring the performance
of the businesses and includes certain management assumptions.
Attributed equity equals the capital that a segment requires to
conduct its business and is considered an appropriate starting
point from which to determine the carrying value of the seg-
ments. The attributed equity methodology is aligned with the
business planning process, the inputs from which are used in cal-
culating the recoverable amounts of the respective CGU.
➔ Refer to the “Capital management” section of this report for
more information on the equity attribution framework
Assumptions
Valuation parameters used within UBS AG’s impairment test model
are linked to external market information, where applicable. The
model used to determine the recoverable amount is most sensi-
tive to changes in the forecast earnings available to shareholders
in years one to five, to changes in the discount rates, and to
changes in the long-term growth rate. The applied long-term
growth rate is based on long-term economic growth rates for dif-
ferent regions worldwide. Earnings available to shareholders are
estimated based on forecast results, which are part of the busi-
ness plan approved by the BoD.
The discount rates are determined by applying a capital-asset-
pricing-model-based approach, as well as considering quantita-
tive and qualitative inputs from both internal and external ana-
lysts and the view of management. Based on this approach, the
discount rate for the Investment Bank was decreased by one per-
centage point compared with last year. For the other CGU, the
respective discount rates were unchanged.
Key assumptions used to determine the recoverable amounts
of each segment are tested for sensitivity by applying a reasonably
possible change to those assumptions. Forecast earnings available
to shareholders were changed by 10%, the discount rates were
changed by 1.0 percentage point and the long-term growth rates
were changed by 0.5 percentage point. Under all scenarios, the
recoverable amounts for each segment exceeded the respective
carrying amount, such that the reasonably possible changes in key
assumptions would not result in impairment.
If the estimated earnings and other assumptions in future peri-
ods deviate from the current outlook, the value of goodwill may
become impaired in the future, giving rise to losses in the income
statement. Recognition of any impairment of goodwill would re-
duce IFRS equity attributable to UBS AG shareholders and net
profit. It would not impact cash flows and, as goodwill is required
to be deducted from capital under the Basel capital framework,
no impact would be expected on UBS AG’s total capital ratios.
614
Note 17 Goodwill and intangible assets (continued)
Discount and growth rates
In %
Wealth Management
Wealth Management Americas
Investment Bank
Global Asset Management
CHF million
Historical cost
Balance at the beginning of the year
Additions
Disposals
Foreign currency translation
Balance at the end of the year
Accumulated amortization and impairment
Balance at the beginning of the year
Amortization
Impairment 1
Disposals
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year
Discount rates
Growth rates
31.12.14
31.12.13
31.12.14
31.12.13
9.0
9.0
11.0
9.0
9.0
9.0
12.0
9.0
1.7
2.4
2.4
2.4
1.7
2.4
2.4
2.4
Goodwill
Total
Infrastructure
Intangible assets
Customer
relationships,
contractual
rights and other
5,842
526
6,368
0
0
6,368
678
78
756
447
35
54
536
219
763
17
(1)
54
833
543
45
2
0
45
635
198
Total
31.12.14
31.12.13
1,441
17
(1)
131
1,589
990
80
2
0
99
1,171
417
7,283
17
(1)
657
7,957
990
80
2
0
99
1,171
6,785
7,417
79
(35)
(179)
7,283
956
79
3
(28)
(21)
990
6,293
1 Impairment charges recorded in 2014 and 2013 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired assets: CHF 3 million for 2014 and
CHF 5 million for 2013).
615
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 17 Goodwill and intangible assets (continued)
The table below presents the disclosure of goodwill and intangible assets by segment for the year ended 31 December 2014.
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Global Asset
Management
CHF million
Goodwill
Balance at the beginning of the year
1,281
3,131
44
1,386
Corporate Center
Total
Core Functions
Non-core and
Legacy Portfolio
5,842
0
0
0
526
6,368
451
17
0
(80)
(2)
33
417
Intangible assets
94
81
61
54
45
62
20
417
Additions
Disposals
Impairment
Foreign currency translation
Balance at the end of the year
Intangible assets
Balance at the beginning of the year
Additions / transfers
Disposals
Amortization
Impairment
Foreign currency translation
Balance at the end of the year
77
1,359
50
(4)
(1)
(1)
45
359
3,490
267
(48)
27
246
0
44
90
3
0
(15)
6
84
90
1,476
25
(8)
(1)
1
17
15
17
(6)
25
3
(3)
0
The estimated, aggregated amortization expenses for intangible assets are as follows.
CHF million
Estimated, aggregated amortization expenses for:
2015
2016
2017
2018
2019
2020 and thereafter
Not amortized due to indefinite useful life
Total
616
Note 18 Other assets
CHF million
Prime brokerage receivables 1
Recruitment loans to financial advisors
Other loans to financial advisors
Bail deposit 2
Accrued interest income
Accrued income – other
Prepaid expenses
Net defined benefit pension and post-employment assets 3
Settlement and clearing accounts
VAT and other tax receivables
Properties and other non-current assets held for sale
Other
Total other assets
31.12.14
12,534
2,909
372
1,323
453
1,009
1,027
0
616
272
236
2,317
23,069
31.12.13
11,175
2,733
358
0
433
931
985
952
466
410
119
1,665
20,228
1 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading across multiple asset classes. 2 Refer to item 1 in Note 22b for more infor-
mation. 3 Refer to Note 28 for more information.
617
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 19 Due to banks and customers
CHF million
Due to banks
Due to customers: demand deposits
Due to customers: time deposits
Due to customers: fiduciary deposits
Due to customers: retail savings / deposits
Total due to customers
Total due to banks and customers
Note 20 Financial liabilities designated at fair value
CHF million
Non-structured fixed-rate bonds
Structured debt instruments issued:
Equity-linked
Credit-linked
Rates-linked 1
Other
Structured over-the-counter debt instruments:
Equity-linked
Other
Repurchase agreements
Loan commitments and guarantees 2
Total
of which: own credit on financial liabilities designated at fair value
31.12.14
10,492
187,516
52,269
14,766
156,427
410,979
421,471
31.12.13
12,862
178,972
47,326
21,459
143,068
390,825
403,686
31.12.14
4,488
31.12.13
3,664
37,725
4,645
19,380
2,138
2,508
3,154
1,167
93
75,297
302
32,835
6,279
14,488
2,698
3,478
4,839
1,572
49
69,901
577
1 Also includes non-structured rates-linked debt instruments issued. 2 Loan commitments recognized as “Financial liabilities designated at fair value” until drawn and recognized as loans. See Note 1a item 8 for
additional information.
As of 31 December 2014, the contractual redemption amount at
maturity of Financial liabilities designated at fair value through
profit or loss was CHF 0.7 billion lower than the carrying value. As
of 31 December 2013, the contractual redemption amount at
maturity of such liabilities was CHF 0.3 billion higher than the car-
rying value.
As of 31 December 2014 and 2013, UBS AG had CHF 75,297
million and CHF 69,901 million, respectively, of financial liabilities
designated at fair value, comprised of both Swiss franc and non-
Swiss franc-denominated fixed-rate and floating-rate debt.
The table on the following page shows the contractual maturity
of the carrying value of financial liabilities designated at fair value,
split between fixed-rate and floating-rate instruments based on
the contractual terms and ignoring any early redemption features.
Interest rate ranges for future interest payments related to these
financial liabilities designated at fair value have not been included
in the table below as a majority of these liabilities are structured
products, and therefore the future interest payments are highly
dependent upon the embedded derivative and prevailing market
conditions at the time each interest payment is made.
➔ Refer to Note 27b for maturity information on an undiscounted
cash flow basis
618
Balance sheet notes: liabilities Note 20 Financial liabilities designated at fair value (continued)
Contractual maturity of carrying value
CHF million, except where indicated
2015
2016
2017
2018
2019
2020–2024
Thereafter
Total
31.12.14
Total
31.12.13
UBS AG
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Subsidiaries
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Total
2,893
27,755
30,648
115
400
515
903
6,131
7,034
30
217
248
2,155
5,018
7,173
69
599
668
693
2,350
3,043
137
183
320
526
4,339
4,864
26
215
241
1,868
3,340
5,208
234
448
682
31,163
7,281
7,841
3,362
5,105
5,890
3,854
9,711
13,565
862
227
1,090
14,654
12,891
58,643
71,535
1,473
2,289
3,762
15,431
49,760
65,191
1,468
3,242
4,710
75,297
69,901
Note 21 Debt issued held at amortized cost
CHF million
Certificates of deposit
Commercial paper
Other short-term debt
Short-term debt
Non-structured fixed-rate bonds
Covered bonds
Subordinated debt
of which: Swiss SRB Basel III low-trigger loss-absorbing capital
of which: Swiss SRB Basel III phase-out additional tier 1 capital
of which: Swiss SRB Basel III phase-out tier 2 capital
Debt issued through the central bond institutions of the Swiss regional or cantonal banks
Medium-term notes
Other long-term debt
Long-term debt
Total debt issued held at amortized cost 1
31.12.14
16,591
31.12.13
15,811
4,841
5,931
27,363
24,582
13,614
16,123
10,464
1,197
4,462
8,029
602
893
63,844
91,207
2,961
8,862
27,633
17,417
14,341
11,040
4,710
1,221
5,107
8,293
779
2,083
53,953
81,586
1 Net of bifurcated embedded derivatives with a net negative fair value of CHF 25 million as of 31 December 2014 (31 December 2013: net negative fair value of CHF 160 million).
UBS AG uses interest rate and foreign exchange derivatives to
manage the risks inherent in certain debt instruments held at am-
ortized cost. In certain cases, UBS AG applies hedge accounting
for interest rate risk as discussed in Note 1a item 15 and Note 14.
As a result of applying hedge accounting, the carrying value of
debt issued increased by CHF 1,703 million and by CHF 1,119
million as of 31 December 2014 and 2013, respectively, reflecting
changes in fair value due to interest rate movements.
Subordinated debt are unsecured obligations of UBS AG that
are subordinated in right of payment to all other present and future
indebtedness and also to certain other obligations of UBS AG. As
of 31 December 2014 and 2013, UBS AG had CHF 16,123 million
and CHF 11,040 million, respectively, of subordinated debt, which
included CHF 10,464 million and CHF 4,710 million of Swiss SRB
Basel III low-trigger loss-absorbing capital as of 31 December 2014
and 2013, respectively. All of the subordinated debt outstanding as
of 31 December 2014 pay a fixed rate of interest.
As of 31 December 2014 and 2013, UBS AG had CHF 75,084
million and CHF 70,546 million, respectively, of non-subordinated
debt issued held at amortized cost, comprised of both Swiss franc
and non-Swiss franc-denominated fixed-rate and floating-rate
debt.
619
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 21 Debt issued held at amortized cost (continued)
The table below shows the contractual maturity of the carrying
value of debt issued, split between fixed-rate and floating-rate
based on the contractual terms and ignoring any early redemp-
tion features. UBS AG uses interest rate swaps to hedge the ma-
jority of fixed-rate debt issued, which changes their repricing
characteristics into those similar to floating-rate debt.
➔ Refer to Note 27b for maturity information on an undiscounted
cash flow basis
Contractual maturity dates of carrying value
CHF million, except where indicated
2015
2016
2017
2018
2019
2020–2024
Thereafter
UBS AG
Non-subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subtotal
Subsidiaries
Non-subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subtotal
Total
22,013
0–3.9
6,378
930
2.4–7.4
0
29,321
3,688
0
0
3,688
33,010
5,457
0–6.4
1,950
1,340
3.1–5.9
0
8,748
600
0–8.3
0
600
9,348
9,049
0–5.9
212
683
4.1–7.4
0
9,944
172
0–8.0
0
172
6,109
0.4–6.6
0
0
0
4,965
0.5–4.0
1,045
0
0
10,307
0–4.9
0
8,483
4.8–7.6
0
6,109
6,011
18,790
0
1
1
0
0
0
0
0
0
1,426
0–2.8
1,710
4,687
4.3–8.8
0
7,823
0
0
0
10,117
6,110
6,011
18,790
7,823
Total
31.12.14
Total
31.12.13
59,327
59,381
11,296
7,988
16,123
10,805
0
86,746
235
78,409
4,460
3,175
1
4,462
91,207
1
3,177
81,586
620
Note 22 Provisions and contingent liabilities
a) Provisions
CHF million
Balance at the beginning of the year
Additions from acquired companies
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
Provisions used in conformity with designated purpose
Capitalized reinstatement costs
Reclassifications
Foreign currency translation / unwind of discount
Balance at the end of the year
Litigation,
regulatory
and similar
matters 2
1,622
Operational
risks 1
45
0
32
(4)
(26)
0
0
2
50
0
2,941
(395)
(1,286)
0
(2)
172
3,053
Loan com-
mitments
and
guarantees
Restruc-
turing
Real
estate
Employee
benefits
658
0
272
(44)
(302)
(2)
0
65
647 3
61
0
1
(50)
(1)
0
10
3
23
157
0
3
(4)
(20)
2
0
14
153 4
222
0
14
(24)
(5)
0
0
8
215 5
Other
205
Total
31.12.14
Total
31.12.13
2,971
2,536
0
43
(7)
(19)
0
0
2
224
0
3,308
(528)
(1,659)
0
8
266
4,366
8
2,599
(238)
(1,855)
5
21
(104)
2,971
1 Comprises provisions for losses resulting from security risks and transaction processing risks. 2 Comprises provisions for losses resulting from legal, liability and compliance risks. 3 Includes personnel related
restructuring provisions of CHF 116 million as of 31 December 2014 (31 December 2013: CHF 104 million) and provisions for onerous lease contracts of CHF 530 million as of 31 December 2014 (31 December 2013:
CHF 554 million). 4 Includes reinstatement costs for leasehold improvements of CHF 98 million as of 31 December 2014 (31 December 2013: CHF 95 million) and provisions for onerous lease contracts of CHF 55 mil-
lion as of 31 December 2014 (31 December 2013: CHF 62 million). 5 Includes provisions for sabbatical and anniversary awards as well as provisions for severance which are not part of restructuring provisions.
Restructuring provisions primarily relate to onerous lease con-
tracts and severance amounts. The utilization of onerous lease
provisions is driven by the maturities of the underlying lease con-
tracts, which cover a period of up to 12 years. Severance-related
provisions are utilized within a short time period, usually within six
months, but potential changes in amount may be triggered when
natural staff attrition reduces the number of people affected by a
restructuring and therefore the estimated costs.
Information on provisions and contingent liabilities in respect
of litigation, regulatory and similar matters, as a class, is included
in Note 22b. There are no material contingent liabilities associated
with the other classes of provisions.
b) Litigation, regulatory and similar matters
UBS 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 AG and / or one or more of its sub-
sidiaries, 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 out-
come is often difficult to predict, particularly in the earlier stages
of a case. There are also situations where UBS may enter into a
settlement agreement. This may occur in order to avoid the ex-
pense, management distraction or reputational implications of
continuing to contest liability, even for those matters for which
UBS 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. UBS makes pro-
visions for such matters brought against it when, in the opinion of
management after seeking legal advice, it is more likely than not
that UBS 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. If any of
those conditions is not met, such matters result in contingent lia-
bilities. If the amount of an obligation cannot be reliably esti-
mated, 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 select
matters could be significant.
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
due to potential financial, reputational and other effects. The
amount of damages claimed, the size of a transaction or other in-
formation 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 out-
flow, we do not disclose that amount. In some cases we are sub-
ject 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 estab-
lished a provision, in which case the matter is treated as a contin-
gent liability under the applicable accounting standard or (b) we
have established a provision but expect disclosure of that fact to
621
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
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 Note 22a above. It is
not practicable to provide an aggregate estimate of liability for
our litigation, regulatory and similar matters as a class of contin-
gent liabilities. Doing so would require us to provide speculative
legal assessments as to claims and proceedings that involve
unique fact patterns or novel legal theories, which 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. Al-
though we therefore cannot provide a numerical estimate of the
future losses that could arise from the class of litigation, regula-
tory and similar matters, we believe that the aggregate amount of
possible future losses from this class that are more than remote
substantially exceeds the level of current provisions. Litigation,
regulatory and similar matters may also result in non-monetary
penalties and consequences. Among other things, the non-prose-
cution agreement (NPA) described in paragraph 7 of this note,
which we entered into with the US Department of Justice, Crimi-
nal Division, Fraud Section (DOJ) in connection with our submis-
sions of benchmark interest rates, including among others the
British Bankers’ Association London Interbank Offered Rate
(LIBOR), may be terminated by the DOJ if we commit any US crime
or otherwise fail to comply with the NPA, and the DOJ may obtain
a criminal conviction of UBS in relation to the matters covered by
the NPA. See paragraph 7 of this note for a description of the
NPA. A guilty plea to, or conviction of, a crime (including as a re-
sult of termination of the NPA) could have material consequences
for UBS. 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 par-
ticipation 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 deter-
mining our 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.
Provisions for litigation, regulatory and similar matters by segment 1
CHF million
Balance at the beginning of the year
Additions from acquired companies
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
Provisions used in conformity with designated purpose
Reclassifications
Foreign currency translation / unwind of discount
Balance at the end of the year
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
Retail &
Corporate
Global
Asset Man-
agement
Investment
Bank
Corporate
Center –
Core
Functions
Corporate
Center –
Non-core
and Legacy
Portfolio
165
0
409
(15)
(374)
0
3
188
56
0
196
(27)
(36)
0
20
209
82
0
59
0
(49)
0
0
92
3
0
55
0
(5)
0
1
53
22
0
1,861
(5)
(649)
(4)
33
488
0
17
(201)
0
0
8
1,258
312
808
0
344
(147)
(173)
2
107
941
Total
31.12.14
Total
31.12.13
1,622
1,432
0
2,941
(395)
8
1,788
(93)
(1,286)
(1,417)
(2)
172
3,053
(6)
(89)
1,622
1 Provisions, if any, for the matters described in (a) item 4 of this Note 22b are recorded in Wealth Management, (b) item 6 of this Note 22b are recorded in Wealth Management Americas, (c) items 10 and 11 of this
Note 22b are recorded in the Investment Bank, (d) items 3 and 9 of this Note 22b are recorded in Corporate Center – Core Functions and (e) items 2 and 5 of this Note 22b are recorded in Corporate Center – Non-core
and Legacy Portfolio. Provisions, if any, for the matters described in items 1 and 8 of this Note 22b are allocated between Wealth Management and Retail & Corporate, and provisions for the matter described in item 7
of this Note 22b are allocated between the Investment Bank and Corporate Center – Core Functions.
622
Note 22 Provisions and contingent liabilities (continued)
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 em-
ployees located in their respective jurisdictions relating to the
cross-border wealth management services provided by UBS and
other financial institutions. It is possible that implementation of
automatic tax information exchange and other measures relating
to cross-border provision of financial services could give rise to
further inquiries in the future.
As a result of investigations in France, in May and June 2013,
respectively, UBS (France) S.A. and UBS AG were put under formal
examination (“mise en examen”) for complicity in having illicitly
solicited clients on French territory, and were declared witness with
legal assistance (“témoin assisté”) regarding the laundering of pro-
ceeds of tax fraud and of banking and financial solicitation by un-
authorized persons. In July 2014, UBS AG was placed under formal
examination with respect to the potential charges of laundering of
proceeds of tax fraud, for which it had been previously declared
witness with legal assistance, and the investigating judges ordered
UBS to provide bail (“caution”) of EUR 1.1 billion. UBS appealed
the determination of the bail amount, but both the appeal court
(“Cour d’Appel”) and the French Supreme Court (“Cour de Cassa-
tion”) upheld the bail amount and rejected the appeal in full in late
2014. UBS intends to challenge the judicial process in the Euro-
pean Court of Human Rights. UBS (France) S.A. and UBS AG are
summoned to appear in March 2015. In addition, the investigating
judges have issued arrest warrants against three Swiss-based for-
mer employees of UBS who did not appear when summoned by
the investigating judge. Separately, in June 2013, the French bank-
ing supervisory authority’s disciplinary commission reprimanded
UBS (France) S.A. for having had insufficiencies in its control and
compliance framework around its cross-border activities and
“know your customer” obligations. It imposed a penalty of EUR 10
million, which was paid.
In January 2015, we received inquiries from the US Attorney’s
Office for the Eastern District of New York and from the US Secu-
rities and Exchange Commission (SEC), which are investigating
potential sales to US persons of bearer bonds and other unregis-
tered securities in possible violation of the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) and the registration require-
ments of the US securities laws. We are cooperating with the
authorities in these investigations.
Our balance sheet at 31 December 2014 reflected provisions
with respect to matters described in this item 1 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 es-
tablished provisions, the future outflow of resources in respect of
such matters cannot be determined with certainty based on cur-
rently available information, and accordingly may ultimately prove
to be substantially greater (or may be less) than the provision that
we have recognized.
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 pur-
chaser and seller of US residential mortgages. A subsidiary of UBS,
UBS Real Estate Securities Inc. (UBS RESI), acquired pools of resi-
dential mortgage loans from originators and (through an affiliate)
deposited them into securitization trusts. In this manner, from
2004 through 2007, UBS RESI sponsored approximately USD 80
billion in RMBS, based on the original principal balances of the
securities issued.
Loan repurchase demands by year received – original principal balance of loans 1
USD million
Resolved demands
Actual or agreed loan repurchases / make whole payments by UBS
Demands rescinded by counterparty
Demands resolved in litigation
Demands expected to be resolved by third parties
Demands resolved or expected to be resolved through enforcement
of indemnification rights against third-party originators
Demands in dispute
Demands in litigation
Demands in review by UBS
Demands rebutted by UBS but not yet rescinded by counterparty
Total
1 Loans submitted by multiple counterparties are counted only once.
2006–2008
2009
2010
2011
2012
2013
2014
5 March
Total
2015, through
12
110
1
1
104
21
19
303
237
77
2
45
107
99
72
346
2
368
732
2
1
1,084
1,041
18
1,404
1
205
122
519
618
260
332
0
13
773
21
403
2,118
3
801
4,133
623
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
UBS RESI also sold pools of loans acquired from originators to
third-party purchasers. These whole loan sales during the period
2004 through 2007 totaled approximately USD 19 billion in origi-
nal principal balance.
We were not a significant originator of US residential loans.
A subsidiary of UBS originated approximately USD 1.5 billion in
US residential mortgage loans during the period in which it was
active from 2006 to 2008, and securitized less than half of these
loans.
RMBS-related lawsuits concerning disclosures: UBS is named as
a defendant relating to its role as underwriter and issuer of RMBS
in a large number of lawsuits related to approximately USD 10 bil-
lion in original face amount of RMBS underwritten or issued by
UBS. Of the USD 10 billion in original face amount of RMBS that
remains at issue in these cases, approximately USD 3 billion was
issued in offerings in which a UBS subsidiary transferred underly-
ing loans (the majority of which were purchased from third-party
originators) into a securitization trust and made representations
and warranties about those loans (UBS-sponsored RMBS). The re-
maining USD 7 billion of RMBS to which these cases relate was
issued by third parties in securitizations in which UBS acted as
underwriter (third-party RMBS).
In connection with certain of these lawsuits, UBS has indemni-
fication rights against surviving third-party issuers or originators
for losses or liabilities incurred by UBS, but UBS cannot predict the
extent to which it will succeed in enforcing those rights. A class
action in which UBS was named as a defendant was settled by a
third-party issuer and received final approval by the district court
in 2013. The settlement reduced the original face amount of
third-party RMBS at issue in the cases pending against UBS by ap-
proximately USD 24 billion. The third-party issuer will fund the
settlement at no cost to UBS. In January 2014, certain objectors to
the settlement filed a notice of appeal from the district court’s
approval of the settlement.
UBS is also named as a defendant in several cases asserting
fraud and other claims brought by entities that purchased collat-
eralized debt obligations that had RMBS exposure and that were
arranged or sold by UBS.
UBS is a defendant in two lawsuits brought by the National
Credit Union Administration (NCUA), as conservator for certain
failed credit unions, asserting misstatements and omissions in the
offering documents for RMBS purchased by the credit unions.
Both lawsuits were filed in US District Courts, one in the District of
Kansas and the other in the Southern District of New York (South-
ern District of New York). The Kansas court partially granted UBS’s
motion to dismiss in 2013 and held that the NCUA’s claims for ten
of the 22 RMBS certificates on which it had sued were time-
barred. As a result, the original principal balance at issue in that
case was reduced from USD 1.15 billion to approximately USD
413 million. The original principal balance at issue in the Southern
District of New York case is approximately USD 402 million. In
March 2015, the US Court of Appeals for the Tenth Circuit issued
a ruling in a similar case filed by the NCUA against Barclays Capi-
tal, Inc. and others that substantially endorsed the Kansas Court’s
reasoning in dismissing certain of the NCUA’s claims as time-
barred. However, the Tenth Circuit nevertheless held that the
NCUA’s claims against Barclays could proceed because Barclays
had contractually agreed not to assert certain statute of limita-
tions defenses against the NCUA. UBS is evaluating the Tenth
Circuit’s ruling and assessing the potential impact of the decision
on the NCUA’s dismissed claims against UBS.
Loan repurchase demands related to sales of mortgages and
RMBS: When UBS acted as an RMBS sponsor or mortgage seller,
we generally made certain representations relating to the charac-
teristics of the underlying loans. In the event of a material breach
of these representations, we were in certain circumstances con-
tractually obligated to repurchase the loans to which they related
or to indemnify certain parties against losses. UBS has received
demands to repurchase US residential mortgage loans as to which
UBS made certain representations at the time the loans were
transferred to the securitization trust. We have been notified by
certain institutional purchasers of mortgage loans and RMBS of
their contention that possible breaches of representations may
entitle the purchasers to require that UBS repurchase the loans or
to other relief. The table “Loan repurchase demands by year re-
ceived – original principal balance of loans” summarizes repur-
chase demands received by UBS and UBS’s repurchase activity
from 2006 through 5 March 2015. In the table, repurchase de-
mands characterized as Demands resolved in litigation and De-
mands rescinded by counterparty are considered to be finally re-
solved. Repurchase demands in all other categories are not finally
resolved.
Provision for claims related to sales of residential mortgage-backed securities and mortgages
USD million
Balance at the beginning of the year
Increase in provision recognized in the income statement
Release of provision recognized in the income statement
Provision used in conformity with designated purpose
Balance at the end of the year
624
31.12.14
817
239
(120)
(87)
849
31.12.13
668
1,359
(1)
(1,208)
817
Note 22 Provisions and contingent liabilities (continued)
Payments that UBS has made to date to resolve repurchase
demands equate to approximately 62% of the original principal
balance of the related loans. Most of the payments that UBS has
made to date have related to so-called “Option ARM” loans; se-
verity rates may vary for other types of loans with different char-
acteristics. Losses upon repurchase would typically reflect the es-
timated value of the loans in question at the time of repurchase,
as well as, in some cases, partial repayment by the borrowers or
advances by servicers prior to repurchase.
In most instances in which we would be required to repur-
chase loans due to misrepresentations, we would be able to as-
sert demands against third-party loan originators who provided
representations when selling the related loans to UBS. However,
many of these third parties are insolvent or no longer exist. We
estimate that, of the total original principal balance of loans sold
or securitized by UBS from 2004 through 2007, less than 50%
was purchased from surviving third-party originators. In connec-
tion with approximately 60% of the loans (by original principal
balance) for which UBS has made payment or agreed to make
payment in response to demands received in 2010, UBS has as-
serted indemnity or repurchase demands against originators.
Since 2011, UBS has advised certain surviving originators of re-
purchase demands made against UBS for which UBS would be
entitled to indemnity, and has asserted that such demands should
be resolved directly by the originator and the party making the
demand.
We cannot reliably estimate the level of future repurchase de-
mands, and do not know whether our rebuttals of such demands
will be a good predictor of future rates of rebuttal. We also can-
not reliably estimate the timing of any such demands.
Lawsuits related to contractual representations and warranties
concerning mortgages and RMBS: In 2012, certain RMBS trusts
filed an action (Trustee Suit) in the Southern District of New York
seeking to enforce UBS RESI’s obligation to repurchase loans in
the collateral pools for three RMBS securitizations (Transactions)
with an original principal balance of approximately USD 2 billion
for which Assured Guaranty Municipal Corp. (Assured Guaranty),
a financial guaranty insurance company, had previously de-
manded repurchase. In January 2015, the court rejected plaintiffs’
efforts to seek damages for all loans purportedly in breach of rep-
resentations and warranties in any of the three Transactions and
limited plaintiffs to pursuing claims based solely on alleged
breaches of loans identified in the complaint or other breaches
that plaintiffs can establish were independently discovered by
UBS. On 25 February 2015, the court denied plaintiffs’ motion
seeking reconsideration of its ruling. With respect to the loans
subject to the Trustee Suit that were originated by institutions still
in existence, UBS intends to enforce its indemnity rights against
those institutions. Related litigation brought by Assured Guaranty
was resolved in 2013.
In 2012, the Federal Housing Finance Agency, on behalf of
Freddie Mac, filed a notice and summons in New York Supreme
Court initiating suit against UBS RESI for breach of contract and
declaratory relief arising from alleged breaches of representations
and warranties in connection with certain mortgage loans and
UBS RESI’s alleged failure to repurchase such mortgage loans. The
lawsuit seeks, among other relief, specific performance of UBS
RESI’s alleged loan repurchase obligations for at least USD 94 mil-
lion in original principal balance of loans for which Freddie Mac
had previously demanded repurchase; no damages are specified.
In 2013, the Court dismissed the complaint for lack of standing,
on the basis that only the RMBS trustee could assert the claims in
the complaint, and the complaint was unclear as to whether the
trustee was the plaintiff and had proper authority to bring suit.
The trustee subsequently filed an amended complaint, which UBS
moved to dismiss. The motion remains pending.
In 2013, Residential Funding Company LLC (RFC) filed a com-
plaint in New York Supreme Court against UBS RESI asserting
claims for breach of contract and indemnification in connection
with loans purchased from UBS RESI with an original principal bal-
ance of at least USD 460 million that were securitized by an RFC
affiliate. This is the first case filed against UBS seeking damages
allegedly arising from the securitization of whole loans purchased
from UBS. Damages are unspecified.
We also have tolling agreements with certain institutional pur-
chasers of RMBS concerning their potential claims related to sub-
stantial purchases of UBS-sponsored or third-party RMBS.
As reflected in the table “Provision for claims related to sales of
residential mortgage-backed securities and mortgages,” our bal-
ance sheet at 31 December 2014 reflected a provision of USD 849
million with respect to matters described in this item 2. As in the
case of other matters for which we have established provisions,
the future outflow of resources in respect of this matter cannot be
determined with certainty based on currently available informa-
tion, and accordingly may ultimately prove to be substantially
greater (or may be less) than the provision that we have recog-
nized.
Mortgage-related regulatory matters: In August 2014, UBS re-
ceived a subpoena from the US Attorney’s Office for the Eastern
District of New York issued pursuant to the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (FIRREA), which
seeks documents and information related to UBS’s RMBS business
from 2005 through 2007. UBS has also been responding to a
subpoena from the New York State Attorney General (NYAG)
relating to its RMBS business. In addition, UBS has also been
responding to inquiries from both the Special Inspector General
for the Troubled Asset Relief Program (SIGTARP) (who is working
in conjunction with the US Attorney’s Office for Connecticut and
the DOJ) and the SEC relating to trading practices in connection
with purchases and sales of mortgage-backed securities in the
625
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
secondary market from 2009 through the present. We are coop-
erating with the authorities in these matters. Numerous other
banks reportedly are responding to similar inquiries from these
authorities.
3. Claims related to UBS disclosure
In 2012, a consolidated complaint was filed in a putative securi-
ties fraud class action pending in federal court in Manhattan
against UBS AG and certain of its current and former officers re-
lating to the unauthorized trading incident that occurred in the
Investment Bank and was announced in September 2011. The
lawsuit was filed on behalf of parties who purchased publicly
traded UBS securities on any US exchange, or where title passed
within the US, during the period 17 November 2009 through
15 September 2011. In 2013, the district court granted UBS’s mo-
tion to dismiss the complaint in its entirety, from which plaintiffs
filed an appeal. In 2015, the appellate court affirmed the district
court’s dismissal of the action.
4. Madoff
In relation to the Bernard L. Madoff Investment Securities LLC
(BMIS) investment fraud, UBS AG, UBS (Luxembourg) SA and cer-
tain other UBS subsidiaries have been subject to inquiries by a
number of regulators, including the Swiss Financial Market Super-
visory Authority (FINMA) and the Luxembourg Commission de
Surveillance du Secteur Financier (CSSF). Those inquiries con-
cerned 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 in-
direct exposure to BMIS. These funds now face severe losses, and
the Luxembourg funds are in liquidation. The last reported net
asset value of the two Luxembourg funds before revelation of the
Madoff scheme was approximately USD 1.7 billion in the aggre-
gate, although that figure likely includes fictitious profit reported
by BMIS. The documentation establishing both funds identifies
UBS entities in various roles including custodian, administrator,
manager, distributor and promoter, and indicates that UBS em-
ployees serve as board members. UBS (Luxembourg) SA and cer-
tain other UBS subsidiaries are responding to inquiries by Luxem-
bourg investigating authorities, without however being named as
parties in those investigations. In 2009 and 2010, the liquidators
of the two Luxembourg funds filed claims on behalf of the funds
against UBS entities, non-UBS entities and certain individuals in-
cluding current and former UBS employees. The amounts claimed
are approximately EUR 890 million and EUR 305 million, respec-
tively. The liquidators have filed supplementary claims for amounts
that the funds may possibly be held liable to pay the BMIS Trustee.
These amounts claimed by the liquidator are approximately EUR
564 million and EUR 370 million, respectively. In addition, a large
number of alleged beneficiaries have filed claims against UBS enti-
ties (and non-UBS entities) for purported losses relating to the
Madoff scheme. The majority of these cases are pending in Lux-
626
embourg, where appeals were filed by the claimants against the
2010 decisions of the court in which the claims in a number of test
cases were held to be inadmissible. In the US, the BMIS Trustee
filed claims in 2010 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 billion. Following a motion by UBS, in 2011,
the US District Court for the Southern District of New York dis-
missed all of the BMIS Trustee’s claims other than claims for recov-
ery of fraudulent conveyances and preference payments that were
allegedly transferred to UBS on the ground that the BMIS Trustee
lacks standing to bring such claims. In 2013, the Second Circuit
affirmed the District Court’s decision and, in June 2014, the US
Supreme Court denied the BMIS Trustee’s petition seeking review
of the Second Circuit ruling. In December 2014, several claims,
including a purported class action, were filed in the US by BMIS
customers against UBS entities, asserting claims similar to the ones
made by the BMIS Trustee, seeking unspecified damages. In Ger-
many, certain clients of UBS are exposed to Madoff-managed po-
sitions through third-party funds and funds administered by UBS
entities in Germany. A small number of claims have been filed with
respect to such funds. In January 2015, a court of appeal reversed
a lower court decision in favor of UBS in one such case and or-
dered UBS to pay EUR 49 million, plus interest. UBS has filed an
application for leave to appeal the decision.
5. Kommunale Wasserwerke Leipzig GmbH (KWL)
In 2006, KWL entered into a single-tranche collateralized debt
obligation/credit default swap (STCDO / CDS) transaction with
UBS, with latter legs being intermediated in 2006 and 2007 by
Landesbank Baden-Württemberg (LBBW) and Depfa Bank plc
(Depfa). KWL retained UBS Global Asset Management to act as
portfolio manager under the STCDO / CDS. UBS and the interme-
diating banks terminated the STCDO / CDS following non-payment
by KWL under the STCDOs. UBS claimed payment of approxi-
mately USD 319.8 million, plus interest, from KWL, Depfa and
LBBW.
In 2010, UBS (UBS AG, UBS Limited and UBS Global AM) issued
proceedings in the English High Court against KWL, Depfa and
LBBW seeking declarations and / or to enforce the terms of the
STCDO / CDS contracts, and each of KWL, Depfa and LBBW filed
counterclaims. Judgment was given in November 2014, following
a three-month trial. The Court ruled that UBS cannot enforce the
STCDO / CDS entered into with KWL, LBBW or Depfa, which have
been rescinded, granted the fraudulent misrepresentation claims
of LBBW and Depfa against UBS, and ruled that UBS Global Asset
Management breached its duty in the management of the under-
lying portfolios. The Court dismissed KWL’s monetary counterclaim
against UBS. The majority of the premiums paid to KWL and the
fees paid to LBBW and Depfa under the transactions have been
returned to UBS and UBS has returned monies received under the
transaction from Depfa. UBS has been ordered to pay part of the
Note 22 Provisions and contingent liabilities (continued)
other parties’ costs in the proceedings. The Court of Appeal has
denied UBS’s application for permission to appeal the judgment on
written submission. UBS has requested an oral hearing to recon-
sider the refusal of its application.
In separate proceedings brought by KWL against LBBW in
Leipzig, Germany, the court ruled in LBBW’s favor in June 2013
and upheld the validity of the STCDO as between LBBW and
KWL. KWL has appealed against that ruling and, in December
2014, the appeal court stayed the appeal proceedings following
the judgment and UBS’s request for permission to appeal in the
proceedings in England. KWL and LBBW have been given per-
mission by the English trial judge to make applications to re-
cover their costs in the German proceedings as damages from
UBS in the English proceedings after the German proceedings
conclude.
In 2011 and 2013, the former managing director of KWL and
two financial advisers were convicted in Germany on criminal
charges related to certain KWL transactions, including swap trans-
actions with UBS. All three have lodged appeals.
Since 2011, the SEC has been conducting an investigation fo-
cused on, among other things, the suitability of the KWL transac-
tion, and information provided by UBS to KWL. UBS has provided
documents and testimony to the SEC and is continuing to cooper-
ate with the SEC.
Our balance sheet at 31 December 2014 reflected provisions
with respect to matters described in this item 5 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 es-
tablished provisions, the future outflow of resources in respect of
such matters cannot be determined with certainty based on cur-
rently available information, and accordingly may ultimately prove
to be substantially greater (or may be less) than the provision that
we have recognized.
6. Puerto Rico
Declines since August 2013 in the market prices of Puerto Rico
municipal bonds and of closed-end funds (the funds) that are
sole-managed and co-managed by UBS Trust Co. of Puerto Rico
and distributed by UBS Financial Services Inc. of Puerto Rico (UBS
PR) have led to multiple regulatory inquiries, as well as customer
complaints and arbitrations with aggregate claimed damages ex-
ceeding USD 1.1 billion. The claims are filed by clients in Puerto
Rico who own the funds or Puerto Rico municipal bonds and/or
who used their UBS account assets as collateral for UBS non-pur-
pose loans; customer complaint and arbitration allegations in-
clude fraud, misrepresentation and unsuitability of the funds and
of the loans. A shareholder derivative action also was filed in Feb-
ruary 2014 against various UBS entities and current and certain
former directors of the funds, alleging hundreds of millions in
losses in the funds. In May 2014, a federal class action complaint
was filed against various UBS entities, certain members of UBS PR
senior management, and the co-manager of certain of the funds
seeking damages for investor losses in the funds during the pe-
riod from May 2008 through May 2014.
An internal review also disclosed that certain clients, many of
whom acted at the recommendation of one financial advisor, in-
vested proceeds of non-purpose loans in closed-end fund securi-
ties in contravention of their loan agreements.
In October 2014 UBS reached a settlement with the Office of
the Commissioner of Financial Institutions for the Commonwealth
of Puerto Rico (OCFI) in connection with OCFI’s examination of
UBS’s operations from January 2006 through September 2013.
Pursuant to the settlement, UBS contributed USD 3.5 million to an
investor education fund, offered USD 1.68 million in restitution to
certain investors and, among other things, committed to under-
take an additional review of certain client accounts to determine
if additional restitution would be appropriate.
In 2011, a purported derivative action was filed on behalf of
the Employee Retirement System of the Commonwealth of Puerto
Rico (System) against over 40 defendants, including UBS PR and
other consultants and underwriters, trustees of the System, and
the President and Board of the Government Development Bank of
Puerto Rico. The plaintiffs alleged that defendants violated their
purported fiduciary duties and contractual obligations in connec-
tion with the issuance and underwriting of approximately USD 3
billion of bonds by the System in 2008 and sought damages of
over USD 800 million. UBS is named in connection with its under-
writing and consulting services. In 2013, the case was dismissed
by the Puerto Rico Court of First Instance on the grounds that
plaintiffs did not have standing to bring the claim. That dismissal
was subsequently overturned by the Puerto Rico Court of Ap-
peals. UBS’s petitions for appeal and reconsideration have been
denied by the Supreme Court of Puerto Rico.
Also, in 2013, an SEC Administrative Law Judge dismissed a
case brought by the SEC against two UBS executives, finding no
violations. The charges had stemmed from the SEC’s investigation
of UBS’s sale of closed-end funds in 2008 and 2009, which UBS
settled in 2012. Beginning in 2012 two federal class action com-
plaints, which were subsequently consolidated, were filed against
various UBS entities, certain of the funds, and certain members of
UBS PR senior management, seeking damages for investor losses in
the funds during the period from January 2008 through May 2012
based on allegations similar to those in the SEC action. Plaintiffs in
that action and the federal class action filed in May 2014 described
above are now seeking to have those two actions consolidated.
Our balance sheet at 31 December 2014 reflected provisions
with respect to matters described in this item 6 in amounts 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 provi-
sions that we have recognized.
627
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
7. Foreign exchange, LIBOR, and benchmark rates
Foreign exchange-related regulatory matters: Following an initial
media report in 2013 of widespread irregularities in the foreign
exchange markets, UBS immediately commenced an internal re-
view of its foreign exchange business, which includes our precious
metals and related structured products businesses. Since then,
various authorities have commenced investigations concerning
possible manipulation of foreign exchange markets, including
FINMA, the Swiss Competition Commission (WEKO), the DOJ, the
US Commodity Futures Trading Commission (CFTC), the Federal
Reserve Board, the UK Financial Conduct Authority (FCA) (to
which certain responsibilities of the UK Financial Services Author-
ity (FSA) have passed), the UK Serious Fraud Office (SFO), the Aus-
tralian Securities and Investments Commission (ASIC) and the
Hong Kong Monetary Authority (HKMA). WEKO stated in March
2014 that it had reason to believe that certain banks may have
colluded to manipulate foreign exchange rates. A number of au-
thorities also reportedly are investigating potential manipulation
of precious metals prices. UBS and other financial institutions
have received requests from various authorities relating to their
foreign exchange businesses, and UBS is cooperating with the au-
thorities. UBS has taken and will take appropriate action with re-
spect to certain personnel as a result of its ongoing review.
In November 2014, UBS reached settlements with the FCA and
the CFTC in connection with their foreign exchange investigations,
and FINMA issued an order concluding its formal proceedings with
respect to UBS relating to its foreign exchange and precious metals
businesses. UBS has paid a total of approximately CHF 774 million
to these authorities, including GBP 234 million in fines to the FCA,
USD 290 million in fines to the CFTC, and CHF 134 million to
FINMA representing confiscation of costs avoided and profits. The
conduct described in the settlements and the FINMA order in-
cludes certain UBS personnel: engaging in efforts, alone or in co-
operation/collusion with traders at other banks, to manipulate FX
benchmark rates involving multiple currencies, attempts to trigger
client stop-loss orders for the benefit of the bank, and inappropri-
ate sharing of confidential client information. We have ongoing
obligations to cooperate with these authorities and to undertake
certain remediation, including actions to improve processes and
controls and requirements imposed by FINMA to apply compensa-
tion restrictions for certain employees and to automate at least
95% of our global foreign exchange and precious metals trading
by 31 December 2016. Investigations by numerous authorities, in-
cluding the DOJ, the Federal Reserve Board and the CFTC, remain
ongoing notwithstanding these resolutions.
In December 2014, the HKMA announced the conclusion of its
investigation into foreign exchange trading operations of banks in
Hong Kong. The HKMA found no evidence of collusion among
the banks or of manipulation of foreign exchange benchmark
rates in Hong Kong. The HKMA also found that banks had inter-
nal control deficiencies with respect to their foreign exchange
trading operations.
628
Some other investigating authorities have initiated discus-
sions of possible terms of a resolution of their investigations.
Resolutions may include findings that UBS engaged in at-
tempted or actual misconduct and failed to have controls in
relation to its foreign exchange business that were adequate to
prevent misconduct. Authorities may impose material monetary
penalties, require remedial action plans or impose other non-
monetary penalties. In connection with discussions of a possible
resolution of investigations relating to our foreign exchange
business with the Antitrust and Criminal Divisions of the DOJ,
UBS and the DOJ have extended the term of the NPA by one
year to 18 December 2015. No agreement has been reached on
the form of a resolution with the Antitrust or Criminal Divisions
of the DOJ. It is possible that other investigating authorities may
seek to commence discussions of potential resolutions in the
near future. We are not able to predict whether any such dis-
cussion will result in a resolution of these matters, whether any
resolution will be on terms similar to those described above, or
the monetary, remedial and other terms on which any such
resolution may be achieved.
Foreign exchange-related civil litigation: Putative class actions
have been filed since November 2013 in US federal courts against
UBS and other banks. These actions are on behalf of putative
classes of persons who engaged in foreign currency transactions
with any of the defendant banks. They allege collusion by the
defendants and assert claims under the antitrust laws and for un-
just enrichment. In March 2015, UBS entered into a settlement
agreement to resolve those actions. The settlement, which is sub-
ject to court approval, requires among other things that UBS pay
USD 135 million and provide cooperation to the settlement class.
In January 2015, UBS was added to an ongoing putative class ac-
tion against other banks in federal court in New York on behalf of
a putative class of persons that transacted in physical silver or a
silver financial instrument priced, benchmarked, and/or settled to
the London silver fix at any time from January 1, 1999 to an un-
specified date. The complaint asserts claims under the antitrust
laws and the Commodity Exchange Act and for unjust enrich-
ment. In February 2015, a putative class action was filed in federal
court in New York against UBS and other banks on behalf of a
putative class of persons who entered into any standardized FX
futures contracts and options on FX futures contracts on an ex-
change since January 1, 2008. The complaint asserts claims under
the Commodity Exchange Act and the antitrust laws.
LIBOR and other benchmark-related regulatory matters: Nu-
merous government agencies, including the SEC, the CFTC, the
DOJ, the FCA, the SFO, the Monetary Authority of Singapore
(MAS), the HKMA, FINMA, the various state attorneys general in
the US, and competition authorities in various jurisdictions have
conducted or are continuing to conduct investigations regarding
submissions with respect to LIBOR and other benchmark rates,
including HIBOR (Hong Kong Interbank Offered Rate) and ISDAFIX,
a benchmark rate used for various interest rate derivatives and
Note 22 Provisions and contingent liabilities (continued)
other financial instruments. These investigations focus on whether
there were improper attempts by UBS (among others), either act-
ing on our own or together with others, to manipulate LIBOR and
other benchmark rates at certain times.
In 2012, UBS reached settlements with the FSA, the CFTC
and the Criminal Division of the DOJ in connection with their
investigations of benchmark interest rates. At the same time
FINMA issued an order concluding its formal proceedings with
respect to UBS relating to benchmark interest rates. UBS has
paid a total of approximately CHF 1.4 billion in fines and dis-
gorgement – including GBP 160 million in fines to the FSA, USD
700 million in fines to the CFTC, USD 500 million in fines to the
DOJ, and CHF 59 million in disgorgement to FINMA. UBS Securi-
ties Japan Co. Ltd. (UBSSJ) entered into a plea agreement with
the DOJ under which it entered a plea to one count of wire
fraud relating to the manipulation of certain benchmark interest
rates, including Yen LIBOR. UBS entered into an NPA with the
DOJ, which (along with the plea agreement) covered conduct
beyond the scope of the conditional leniency / immunity grants
described below, required UBS to pay the USD 500 million fine
to DOJ after the sentencing of UBSSJ, and provided that any
criminal penalties imposed on UBSSJ at sentencing be deducted
from the USD 500 million fine. The conduct described in the
various settlements and the FINMA order includes certain UBS
personnel: engaging in efforts to manipulate submissions for
certain benchmark rates to benefit trading positions; colluding
with employees at other banks and cash brokers to influence
certain benchmark rates to benefit their trading positions; and
giving inappropriate directions to UBS submitters that were in
part motivated by a desire to avoid unfair and negative market
and media perceptions during the financial crisis. The bench-
mark interest rates encompassed by one or more of these reso-
lutions include Yen LIBOR, GBP LIBOR, CHF LIBOR, Euro LIBOR,
USD LIBOR, EURIBOR (Euro Interbank Offered Rate) and Euroyen
TIBOR (Tokyo Interbank Offered Rate). We have ongoing obliga-
tions to cooperate with authorities with which we have reached
resolutions and to undertake certain remediation with respect
to benchmark interest rate submissions. In addition, under the
NPA, we have agreed, among other things, that for two years
from 18 December 2012 UBS would not commit any US crime,
and we would advise DOJ of any potentially criminal conduct by
UBS or any of its employees relating to violations of US laws
concerning fraud or securities and commodities markets. As
noted above, the term of the NPA has been extended by one
year to 18 December 2015. Any failure to comply with these
obligations could result in termination of the NPA and potential
criminal prosecution in relation to the matters covered by the
NPA. The MAS, HKMA, ASIC and the Japan Financial Services
Agency have all resolved investigations of UBS (and in some
cases other banks). The orders or undertakings in connection
with these investigations generally require UBS to take remedial
actions to improve its processes and controls, impose monetary
penalties or other measures. Investigations by the CFTC, ASIC
and other governmental authorities remain ongoing notwith-
standing these resolutions. In October 2014, UBS reached a
settlement with the European Commission (EC) regarding its
investigation of bid-ask spreads in connection with Swiss franc
interest rate derivatives and has paid a EUR 12.7 million fine,
which was reduced to this level based in part on UBS’s coope-
ration with the EC.
UBS has been granted conditional leniency or conditional im-
munity from authorities in certain jurisdictions, including the Anti-
trust Division of the DOJ, WEKO and the EC, in connection with
potential antitrust or competition law violations related to submis-
sions for Yen LIBOR and Euroyen TIBOR. WEKO has also granted
UBS conditional immunity in connection with potential competition
law violations related to submissions for Swiss franc LIBOR and cer-
tain transactions related to Swiss franc LIBOR. The Canadian Com-
petition Bureau (Bureau) had granted UBS conditional immunity in
connection with potential competition law violations related to
submissions for Yen LIBOR, but in January 2014, the Bureau discon-
tinued its investigation into Yen LIBOR for lack of sufficient evidence
to justify prosecution under applicable laws. As a result of these
conditional grants, we will not be subject to prosecutions, fines or
other sanctions for antitrust or competition law violations in the
jurisdictions where we have conditional immunity or leniency in
connection with the matters covered by the conditional grants,
subject to our continuing cooperation. However, the conditional
leniency and conditional immunity grants we have received do not
bar government agencies from asserting other claims and imposing
sanctions against us, as evidenced by the settlements and ongoing
investigations referred to above. In addition, as a result of the con-
ditional leniency agreement with the DOJ, we are eligible for a limit
on liability to actual rather than treble damages were damages to
be awarded in any civil antitrust action under US law based on
conduct covered by the agreement and for relief from potential
joint and several liability in connection with such civil antitrust ac-
tion, subject to our satisfying the DOJ and the court presiding over
the civil litigation of our cooperation. The conditional leniency and
conditional immunity grants do not otherwise affect the ability of
private parties to assert civil claims against us.
LIBOR and other benchmark-related civil litigation: A number
of putative class actions and other actions are pending in, or ex-
pected to be transferred to, the federal courts in New York against
UBS and numerous other banks on behalf of parties who trans-
acted in certain interest rate benchmark-based derivatives linked
directly or indirectly to US dollar LIBOR, Yen LIBOR, Euroyen
TIBOR, EURIBOR and US Dollar ISDAFIX. Also pending are actions
asserting losses related to various products whose interest rate
was linked to US dollar LIBOR, including adjustable rate mort-
gages, preferred and debt securities, bonds pledged as collateral,
loans, depository accounts, investments and other interest-bear-
ing instruments. All of the complaints allege manipulation,
through various means, of various benchmark interest rates, in-
629
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
cluding LIBOR, Euroyen TIBOR, EURIBOR or US Dollar ISDAFIX
rates and seek unspecified compensatory and other damages,
including treble and punitive damages, under varying legal theo-
ries that include violations of the CEA, the federal racketeering
statute, federal and state antitrust and securities laws and other
state laws. In February 2015, a putative class action was filed in
federal court in New York against UBS and other financial institu-
tions on behalf of parties who entered into interest rate deriva-
tives linked to Swiss franc (CHF) LIBOR. Plaintiffs allege that de-
fendants conspired to manipulate CHF LIBOR and the prices of
CHF LIBOR-based derivatives from 1 January 2005 through
31 December 2009 in violation of US antitrust laws and the CEA,
among other theories, and seek unspecified compensatory dam-
ages, including treble damages. In 2013, a federal court in New
York dismissed the federal antitrust and racketeering claims of
certain US dollar LIBOR plaintiffs and a portion of their claims
brought under the CEA and state common law. The court has
granted certain plaintiffs permission to assert claims for unjust
enrichment and breach of contract against UBS and other defen-
dants, and limited the CEA claims to contracts purchased be-
tween 15 April 2009 and May 2010. Certain plaintiffs have also
appealed the dismissal of their antitrust claims. UBS and other
defendants in other lawsuits including the one related to Euroyen
TIBOR have filed motions to dismiss. In March 2014, the court in
the Euroyen TIBOR lawsuit dismissed the plaintiff’s federal anti-
trust and state unfair enrichment claims, and dismissed a portion
of the plaintiff’s CEA claims. Discovery is currently stayed.
Since September 2014, putative class actions have been filed in
federal court in New York and New Jersey against UBS and other
financial institutions, among others, on behalf of parties who en-
tered into interest rate derivative transactions linked to ISDAFIX.
The complaints, which have since been consolidated into an
amended complaint, allege that the defendants conspired to ma-
nipulate ISDAFIX rates from 1 January 2006 through January
2014, in violation of US antitrust laws and the CEA, among other
theories, and seeks unspecified compensatory damages, includ-
ing treble damages.
With respect to additional matters and jurisdictions not en-
compassed by the settlements and order referred to above, our
balance sheet at 31 December 2014 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 re-
spect 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 provi-
sion that we have recognized.
8. Swiss retrocessions
The Swiss Supreme Court ruled in 2012, in a test case against
UBS, that distribution fees paid to a bank for distributing third
630
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 bank, absent a
valid waiver.
FINMA has issued a supervisory note to all Swiss banks in re-
sponse to the Supreme Court decision. The note sets forth the mea-
sures Swiss banks are to adopt, which include informing all affected
clients about the Supreme Court decision and directing them to an
internal bank contact for further details. UBS has met the FINMA
requirements and has notified all potentially affected clients.
The Supreme Court decision has resulted, and may continue to
result, in a number of client requests for UBS to disclose and po-
tentially surrender retrocessions. Client requests are assessed on a
case-by-case basis. Considerations taken into account when as-
sessing these cases include, among others, the existence of a dis-
cretionary mandate and whether or not the client documentation
contained a valid waiver with respect to distribution fees.
Our balance sheet at 31 December 2014 reflected a provision
with respect to matters described in this item 8 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 provi-
sion that we have recognized.
9. Banco UBS Pactual tax indemnity
Pursuant to the 2009 sale of Banco UBS Pactual S.A. (Pactual) by
UBS to BTG Investments, LP (BTG), BTG has submitted contractual
indemnification claims that UBS estimates amount to approxi-
mately BRL 2.3 billion, including interest and penalties, which is net
of liabilities retained by BTG. The claims pertain principally to sev-
eral tax assessments issued by the Brazilian tax authorities against
Pactual relating to the period from December 2006 through March
2009, when UBS owned Pactual. The majority of these assessments
relate to the deductibility of goodwill amortization in connection
with UBS’s 2006 acquisition of Pactual and payments made to Pac-
tual employees through various profit sharing plans. These assess-
ments are being challenged in administrative proceedings. In May
2014, UBS was notified that the administrative court had rendered
a decision in favor of the taxpayer, Pactual, in connection with a
profit-sharing plan assessment relating to an affiliate company.
That decision became final in October 2014. In August 2014, UBS
was notified that the administrative court had rendered a decision
that was largely in favor of the tax authority with respect to the
goodwill amortization assessment. We are awaiting a written deci-
sion from the administrative court for this matter, at which time an
appeal will be taken. In 2013 and 2014, approximately BRL 163
Note 22 Provisions and contingent liabilities (continued)
million in tax claims relating to the period for which UBS has indem-
nification obligations were submitted for settlement through
amnesty programs announced by the Brazilian government.
10. Matters relating to the CDS market
In 2013, the EC issued a Statement of Objections against thir-
teen credit default swap (CDS) dealers including UBS, as well as
data service provider Markit and the International Swaps and
Derivatives Association (ISDA). The Statement of Objections
broadly alleges that the dealers infringed European Union anti-
trust rules by colluding to prevent exchanges from entering the
credit derivatives market between 2006 and 2009. We submit-
ted our response to the Statement of Objections in January 2014
and presented our position in an oral hearing in May 2014.
Since mid-2009, the Antitrust Division of the DOJ has also been
investigating whether multiple dealers, including UBS, conspired
with each other and with Markit to restrain competition in the
markets for CDS trading, clearing and other services. In January
and April 2014, putative class action plaintiffs filed consolidated
amended complaints in the Southern District of New York
against twelve dealers, including UBS, as well as Markit and
ISDA, alleging violations of the US Sherman Antitrust Act and
common law. Plaintiffs allege that the defendants unlawfully
conspired to restrain competition in and / or monopolize the
market for CDS trading in the US in order to protect the dealers’
profits from trading CDS in the over-the-counter market. Plain-
tiffs assert claims on behalf of all purchasers and sellers of CDS
that transacted directly with any of the dealer defendants since
1 January 2008, and seek unspecified trebled compensatory
damages and other relief. In September 2014, the court granted
in part and denied in part defendants’ motions to dismiss the
complaint.
11. Equities trading systems and practices
UBS is responding to inquiries concerning the operation of UBS’s
alternative trading system (ATS) (also referred to as a dark pool)
and its securities order routing and execution practices from vari-
ous authorities, including the SEC, the NYAG and the Financial
Industry Regulatory Authority, who reportedly are pursuing similar
investigations industry-wide. In January 2015, the SEC announced
the resolution of its investigation concerning the operation of
UBS’s ATS between 2008 and 2012, which focused on certain
order types and disclosure practices that were discontinued two
years ago. Under the SEC settlement order, which charges UBS
with, among other things, violations of Section 17(a)(2) of the
Securities Act of 1933 and Rule 612 of Regulation NMS (known
as the sub-penny rule), UBS has paid a total of USD 14.5 million,
which includes a fine of USD 12 million and disgorgement of USD
2.4 million. UBS is cooperating in the ongoing regulatory matters,
including by the SEC.
631
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 23 Other liabilities
CHF million
Prime brokerage payables 1
Amounts due under unit-linked investment contracts
Compensation-related liabilities
of which: accrued expenses 2
of which: deferred contingent capital plans 2
of which: other deferred compensation plans 2
of which: net defined benefit pension and post-employment liabilities 3
Third-party interest in consolidated investment funds
Settlement and clearing accounts
Current and deferred tax liabilities 4
VAT and other tax payables
Deferred income
Accrued interest expenses
Other accrued expenses
Other
Total other liabilities
31.12.14
38,633
17,643
5,414
2,583
0
1,457
1,374
707
1,054
642
420
259
1,327
2,472
1,820
70,392
31.12.13
32,543
16,155
5,598
2,480
402
1,668
1,048
953
946
667
570
264
1,199
2,465
1,417
62,777
1 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading across multiple asset classes. This balance is mainly comprised of client securities
financing and deposit liabilities. 2 In 2014, changes in the presentation of this Note were made. The liabilities related to the deferred contingent capital plans, which were previously presented within the Accrued expenses
and Deferred compensation plans reporting lines, are now presented separately. Prior periods have been restated for this change. 3 Refer to Note 28 for more information. 4 Deferred tax liabilities were CHF 80 million
and CHF 59 million as of 31 December 2014 and 31 December 2013, respectively. Refer to Note 8 for more information.
632
Note 24 Fair value measurement
This note provides fair value measurement information for both fi-
nancial and non-financial instruments and is structured as follows:
a) Valuation principles
b) Valuation governance
c) Valuation techniques
d) Valuation adjustments
e) Fair value measurements and classification within the
f) Transfers between Level 1 and Level 2 in the fair value
hierarchy
g) Movements of Level 3 instruments
h) Valuation of assets and liabilities classified as Level 3
i) Sensitivity of fair value measurements to changes in
unobservable input assumptions
j) Financial instruments not measured at fair value
fair value hierarchy
a) Valuation principles
Fair value is defined as the price that would be received for the
sale of an asset or paid to transfer a liability in an orderly transac-
tion between market participants in the principal market (or most
advantageous market, in the absence of a principal market) as of
the measurement date. In measuring fair value, UBS AG utilizes
various valuation approaches and applies a hierarchy for prices
and inputs that maximizes the use of observable market data, if
available.
All financial and non-financial assets and liabilities measured or
disclosed at fair value are categorized into one of three fair value
hierarchy levels. In certain cases, the inputs used to measure fair
value may fall within different levels of the fair value hierarchy. For
disclosure purposes, the level in the hierarchy within which the
instrument is classified in its entirety is based on the lowest level
input that is significant to the position’s fair value measurement:
– Level 1 – quoted prices (unadjusted) in active markets for iden-
tical assets and liabilities;
– Level 2 – valuation techniques for which all significant inputs
are, or are based on, observable market data or
– Level 3 – valuation techniques for which significant inputs are
not based on observable market data.
If available, fair values are determined using quoted prices in
active markets for identical assets or liabilities. An active market is
one in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing data on an
ongoing basis. Assets and liabilities that are quoted and traded in
an active market are valued at the currently quoted price multi-
plied by the number of units of the instrument held.
Where the market for a financial instrument or non-financial
asset or liability is not active, fair value is established using a valu-
ation technique, including pricing models. Valuation techniques
involve the use of estimates, the extent of which depends on the
complexity of the instrument and the availability of market-based
data. Valuation adjustments may be made to allow for additional
factors including model, liquidity and credit risks, which are not
explicitly captured within the valuation technique, but which
would nevertheless be considered by market participants when
forming a price. The limitations inherent in a particular valuation
technique are considered in the determination of an asset or lia-
bility’s classification within the fair value hierarchy.
Many cash instruments and over-the-counter (OTC) derivative
contracts have bid and offer prices that can be observed in the
marketplace. Bid prices reflect the highest price that a party is will-
ing to pay for an asset. Offer prices represent the lowest price that
a party is willing to accept for an asset. In general, long positions
are measured at a bid price and short positions at an offer price,
reflecting the prices at which the instruments could be transferred
under normal market conditions. Offsetting positions in the same
financial instrument are marked at the mid-price within the bid-
offer spread.
Generally, the unit of account for a financial instrument is the
individual instrument, and UBS AG applies valuation adjustments
at an individual instrument level, consistent with that unit of ac-
count. However, if certain conditions are met, UBS AG may esti-
mate the fair value of a portfolio of financial assets and liabilities
with substantially similar and offsetting risk exposures on the ba-
sis of the net open risks.
For transactions where the valuation technique used to mea-
sure fair value requires significant inputs that are not based on
observable market data, the financial instrument is initially recog-
nized at the transaction price. This initial recognition amount may
differ from the fair value obtained using the valuation technique.
Any such difference is deferred and not recognized in the income
statement and referred to as deferred day-1 profit or loss.
➔ Refer to Note 24d for more information
633
Financial informationAdditional information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
b) Valuation governance
UBS AG’s fair value measurement and model governance frame-
work includes numerous controls and other procedural safe-
guards that are intended to maximize the quality of fair value
measurements reported in the financial statements. New prod-
ucts and valuation techniques must be reviewed and approved by
key stakeholders from risk and finance control functions. Respon-
sibility for the ongoing measurement of financial and non-finan-
cial instruments at fair value resides with the business divisions,
but is validated by risk and finance control functions, which are
independent of the business divisions. In carrying out their valua-
tion responsibilities, the businesses are required to consider the
availability and quality of external market data and to provide jus-
tification and rationale for their fair value estimates.
Independent price verification is performed by the finance
function to evaluate the business divisions’ pricing input assump-
tions and modeling approaches. By benchmarking the business
divisions’ fair value estimates with observable market prices and
other independent sources, the degree of valuation uncertainty
embedded in these measurements is assessed and managed as
required in the governance framework. Fair value measurement
models are assessed for their ability to value specific products in
the principal market of the product itself, as well as the principal
market for the main valuation input parameters to the model.
An independent model review group evaluates UBS AG’s valua-
tion models on a regular basis, or when established triggers occur,
and approves them for valuation of specific products. As a result of
the valuation controls employed, valuation adjustments may be
made to the business divisions’ estimates of fair value to align with
independent market data and the relevant accounting standard.
➔ Refer to Note 24d for more information
c) Valuation techniques
Valuation techniques are used to value positions for which a mar-
ket price is not available from market sources. This includes certain
less liquid debt and equity instruments, certain exchange-traded
derivatives and all derivatives transacted in the OTC market. UBS
AG uses widely recognized valuation techniques for determining
the fair value of financial and non-financial instruments that are
not actively traded and quoted. The most frequently applied valu-
ation techniques include discounted value of expected cash flows,
relative value and option pricing methodologies.
Discounted value of expected cash flows is a valuation tech-
nique that measures fair value using estimated expected future
cash flows from assets or liabilities and then discounts these cash
flows using a discount rate or discount margin that reflects the
credit and / or funding spreads required by the market for instru-
ments with similar risk and liquidity profiles to produce a present
value. When using such valuation techniques, expected future
cash flows are estimated using an observed or implied market
price for the future cash flows or by using industry standard cash
flow projection models. The discount factors within the calcula-
tion are generated using industry standard yield curve modeling
techniques and models.
Relative value models measure fair value based on the market
prices of equivalent or comparable assets or liabilities, making ad-
justments for differences between the characteristics of the ob-
served instrument and the instrument being valued.
Option pricing models incorporate assumptions regarding the
behavior of future price movements of an underlying referenced
asset or assets to generate a probability-weighted future expected
payoff for the option. The resulting probability-weighted expected
payoff is then discounted using discount factors generated from
industry standard yield curve modeling techniques and models.
The option pricing model may be implemented using a closed-
form analytical formula or other mathematical techniques (e.g.,
binomial tree or Monte Carlo simulation).
Where available, valuation techniques use market-observable
assumptions and inputs. If such data is not available, inputs may
be derived by reference to similar assets in active markets, from
recent prices for comparable transactions or from other observ-
able market data. When measuring fair value, UBS AG selects the
non-market-observable inputs to be used in its valuation tech-
niques, based on a combination of historical experience, deriva-
tion of input levels based on similar products with observable
price levels and knowledge of current market conditions and valu-
ation approaches.
For more complex instruments and instruments not traded in
an active market, fair values may be estimated using a combina-
tion of observed transaction prices, consensus pricing services and
relevant quotes. Consideration is given to the nature of the quotes
(e.g., indicative or firm) and the relationship of recently evidenced
market activity to the prices provided by consensus pricing ser-
vices. UBS AG also uses internally developed models, which are
typically based on valuation methods and techniques recognized
as standard within the industry.
Assumptions and inputs used in valuation techniques include
benchmark interest rate curves, credit and funding spreads used
in estimating discount rates, bond and equity prices, equity index
prices, foreign exchange rates, levels of market volatility and cor-
relation. Refer to Notes 24e and 24h for more information. The
discount curves used by UBS AG incorporate the funding and
credit characteristics of the instruments to which they are applied.
634
Note 24 Fair value measurement (continued)
d) Valuation adjustments
The output of a valuation technique is always an estimate or ap-
proximation of a fair value that cannot be measured with com-
plete certainty. As a result, valuations are adjusted, where appro-
priate, to reflect close-out costs, credit exposure, model-driven
valuation uncertainty, funding costs and benefits, trading restric-
tions and other factors, when such factors would be considered
by market participants in estimating fair value. Valuation adjust-
ments are an important component of fair value for assets and
liabilities that are measured using valuation techniques. Such ad-
justments are applied to reflect uncertainties within the fair value
measurement process, to adjust for an identified model simplifica-
tion or to incorporate an aspect of fair value that requires an over-
all portfolio assessment rather than an evaluation based on an
individual instrument level characteristic.
The major classes of valuation adjustments are discussed in fur-
Day-1 reserves
For new transactions where the valuation technique used to mea-
sure fair value requires significant inputs that are not based on
observable market data, the financial instrument is initially recog-
nized at the transaction price. The transaction price may differ
from the fair value obtained using a valuation technique, and any
such difference is deferred and not recognized in the income
statement. These day-1 profit or loss reserves are reflected, where
appropriate, as valuation adjustments.
The table below provides the changes in deferred day-1
profit or loss reserves during the respective period. Amounts
deferred are released and gains or losses are recorded in Net
trading income when pricing of equivalent products or the
underlying parameters become observable or when the trans-
action is closed out.
ther detail below.
Deferred day-1 profit or loss
CHF million
Balance at the beginning of the year
Profit / (loss) deferred on new transactions
(Profit) / loss recognized in the income statement
Foreign currency translation
Balance at the end of the year
For the year ended
31.12.14
31.12.13
31.12.12
486
344
(384)
35
480
474
694
(653)
(29)
486
433
424
(367)
(16)
474
Credit valuation adjustments
In order to measure the fair value of OTC derivative instruments,
including funded derivative instruments which are classified as
Financial assets designated at fair value, credit valuation adjust-
ments (CVA) are necessary to reflect the credit risk of the coun-
terparty inherent in these instruments. This amount represents
the estimated fair value of protection required to hedge the
counterparty credit risk of such instruments. The CVA is deter-
mined for each counterparty, considering all exposures to that
counterparty, and is dependent on the expected future value of
exposures, default probabilities and recovery rates, applicable
collateral or netting arrangements, break clauses and other con-
tractual factors.
Funding valuation adjustments
Funding valuation adjustments (FVA) reflect the costs and benefits
of funding associated with uncollateralized and partially collater-
alized derivative receivables and payables and are calculated as
the valuation impact from moving the discounting of the uncol-
lateralized derivative cash flows from LIBOR to a funds transfer
price (FTP) curve using the existing CVA infrastructure and frame-
work. FVA are also applied to collateralized derivative assets in
cases where the collateral cannot be sold or repledged.
FVA were incorporated into the UBS AG’s fair value measure-
ments in 2014, resulting in a net loss of CHF 267 million when the
change was adopted on 30 September 2014, of which CHF 124
million resulted from the life-to-date FVA loss attributable to both
derivative assets and liabilities with the remainder primarily re-
lated to the partial reversal of life-to-date debit valuation adjust-
ment (DVA) gains on derivative liabilities to remove the overlap
existing between FVA and DVA (DVA previously incorporated the
full UBS AG credit spread including a funding component which
is now captured in FVA).
Implementation of FVA had no impact on the fair value hierar-
chy classification of the associated derivatives given the FVA did
not have a significant effect on valuations.
➔ Refer to Note 1b for more information
Debit valuation adjustments
DVA are estimated to incorporate own credit in the valuation of de-
rivatives, effectively consistent with the CVA infrastructure and
framework. DVA is determined for each counterparty, considering all
exposures with that counterparty and taking into account collateral
netting agreements, expected future mark-to-market movements
and UBS AG’s credit default spreads. Upon the implementation of
FVA, DVA were reversed to the extent DVA overlapped with FVA.
635
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
Other valuation adjustments
Instruments that are measured as part of a portfolio of combined
long and short positions are valued at mid-market levels to ensure
consistent valuation of the long and short component risks. A bid-
offer valuation adjustment is then made to the overall net long or
short exposure to move the fair value to bid or offer as appropri-
ate, reflecting current levels of market liquidity. The bid-offer
spreads used in the calculation of this valuation adjustment are
obtained from market transactions and other relevant sources
and are updated periodically.
Uncertainties associated with the use of model-based valua-
tions are incorporated into the measurement of fair value through
the use of model reserves. These reserves reflect the amounts
that UBS AG estimates should be deducted from valuations pro-
duced directly by models to incorporate uncertainties in the rel-
evant modeling assumptions, in the model and market inputs
used, or in the calibration of the model output to adjust for
known model deficiencies. In arriving at these estimates, UBS AG
considers a range of market practices, including how it believes
market participants would assess these uncertainties. Model re-
serves are reassessed periodically in light of data from market
transactions, consensus pricing services and other relevant
sources.
In 2014, UBS AG enhanced its quantitative valuation adjust-
ments disclosures. In the table below, Other valuation adjust-
ments were added to align with market practices and increase
transparency.
Valuation adjustments on financial instruments
Life-to-date gain / (loss), CHF billion
Credit valuation adjustments 1
Funding valuation adjustments
Debit valuation adjustments
Other valuation adjustments
of which: bid-offer
of which: model uncertainty
1 Amounts do not include reserves against defaulted counterparties.
As of
31.12.14
31.12.13
(0.5)
(0.1)
0.0
(0.9)
(0.5)
(0.4)
(0.5)
0.3
(1.1)
(0.6)
(0.5)
Own credit adjustments on financial liabilities designated
at fair value
In addition to considering the valuation of the derivative risk com-
ponent, the valuation of fair value option liabilities also requires
consideration of the funded component and specifically the own
credit component of fair value. Own credit risk is reflected if this
component would be considered for valuation purposes by mar-
ket participants. Consequently, own credit risk is not reflected for
those contracts that are fully collateralized and for other contracts
for which it is established market practice not to include an own
credit component. The own credit component is estimated using
a funds transfer price (FTP) curve to derive a single, market-based
level of discounting for uncollateralized funded instruments.
UBS AG senior debt curve spreads are discounted in order to ar-
rive at the FTP curve, with the discount primarily reflecting the
differences between the spreads in the senior unsecured debt
market for UBS AG debt and the levels at which UBS AG medium-
term notes are currently issued. The FTP curve is generally a Level 2
pricing input. However, certain long-dated exposures that are be-
yond the tenors that are actively traded are classified as Level 3.
The effects of own credit adjustments related to financial liabil-
ities designated at fair value (predominantly issued structured
products) as of 31 December 2014 and 2013, respectively, are
summarized in the table below.
Year-to-date amounts represent the change during the year,
and life-to-date amounts reflect the cumulative change since ini-
tial recognition. The change in own credit for the period consists
of changes in fair value that are attributable to the change in
UBS AG’s credit spreads as well as the effect of changes in fair
values attributable to factors other than credit spreads, such as
redemptions, effects from time decay and changes in interest and
other market rates.
Own credit adjustments on financial liabilities designated at fair value
CHF million
Gain / (loss) for the year ended
Life-to-date gain / (loss)
636
As of or for the year ended
31.12.14
31.12.13
31.12.12
292
(302)
(283)
(577)
(2,202)
(292)
Note 24 Fair value measurement (continued)
e) Fair value measurements and classification within the fair value hierarchy
The classification in the fair value hierarchy of the UBS AG’s finan-
cial and non-financial assets and liabilities measured at fair value
is summarized in the table below. The narrative that follows de-
scribes the significant valuation inputs and assumptions for each
class of assets and liabilities measured at fair value, the valuation
techniques, where applicable, used in measuring their fair value,
and the factors determining their classification within the fair
value hierarchy.
Determination of fair values from quoted market prices or valuation techniques 1
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.14
31.12.135
Assets measured at fair value on a recurring basis
Financial assets held for trading 2
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Loans
Investment fund units
Asset-backed securities
Equity instruments
Financial assets for unit-linked investment contracts
Positive replacement values
of which:
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Commodity contracts
Financial assets designated at fair value
of which:
Loans (including structured loans)
Structured reverse repurchase and securities
borrowing agreements
Other
Financial investments available-for-sale
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Investment fund units
Asset-backed securities
Equity instruments
Non-financial assets
Precious metals and other physical commodities
Assets measured at fair value on a non-recurring basis
Other assets 3
Total assets measured at fair value
101.7
8.8
0.6
0.0
6.7
0.0
68.8
16.8
1.0
0.0
0.0
0.7
0.0
0.0
0.1
0.0
0.0
0.1
32.7
30.3
2.2
0.0
0.0
0.2
5.8
27.2
4.7
11.0
2.2
6.4
1.5
0.8
0.6
251.6
123.4
9.8
97.0
17.7
3.6
0.9
0.8
0.1
0.0
23.9
2.8
16.9
0.1
4.0
0.1
0.0
3.5
0.0
1.4
1.1
0.3
0.6
0.1
0.1
4.4
0.2
1.7
0.6
1.9
0.0
3.5
1.0
2.4
0.1
0.6
0.0
0.0
0.2
0.0
0.4
0.0
132.4
79.9
13.6
12.9
3.2
13.4
2.1
69.8
17.4
257.0
123.7
11.5
98.4
19.5
3.6
4.5
1.7
2.5
0.3
57.2
33.1
19.1
0.3
4.0
0.7
5.8
7.9
1.1
0.0
4.8
0.0
50.7
15.4
0.7
0.0
0.0
0.5
0.0 4
0.0
0.1
0.0
0.0
0.1
39.7
38.0
1.6
0.0
0.0
0.1
8.6
30.1
5.1
13.3
2.0
6.0
2.3
1.0
0.4
247.9
130.4
20.1
74.6
19.3 4
3.5
2.9
1.4
1.1
0.5
19.0
1.2
13.6
0.0
4.0
0.1
0.0
4.3
0.0
1.7
1.0
0.3
1.0
0.2
0.1
5.5
0.3
3.0
0.9
1.2
0.0
4.4
1.1
3.1
0.2
0.8
0.0
0.1
0.2
0.0
0.4
0.0
114.2
13.1
16.0
3.0
11.1
3.3
51.9
15.8
254.1
130.7
23.1
76.0
20.6
3.5
7.4
2.5
4.2
0.7
59.5
39.2
15.3
0.3
4.0
0.6
8.6
0.0
141.4
0.1
303.5
0.2
12.2
0.2
457.1
0.0
129.1
0.1
299.9
0.1
15.0
0.1
444.0
637
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques 1 (continued)
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.14
31.12.13 5
Liabilities measured at fair value on a recurring basis
Trading portfolio liabilities
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Investment fund units
Asset-backed securities
Equity instruments
Negative replacement values
of which:
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Commodity contracts
Financial liabilities designated at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt instruments
Structured repurchase agreements
Loan commitments and guarantees
Other liabilities – amounts due under unit-linked
investment contracts
Total liabilities measured at fair value
23.9
7.0
0.1
1.1
0.0
15.7
1.1
0.0
0.0
0.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.9
1.2
2.4
0.1
0.0
0.1
248.1
117.3
10.0
96.6
20.9
3.2
63.4
2.3
56.6
4.1
0.3
0.1
0.0
25.0
17.6
333.0
0.1
0.0
0.1
0.0
0.0
0.0
5.0
0.6
1.7
0.3
2.4
0.0
11.9
2.2
7.3
1.5
0.9
0.0
0.0
17.0
28.0
22.5
8.2
2.6
1.2
0.0
15.9
254.1
117.9
11.7
97.6
23.3
3.2
75.3
4.5
63.9
5.7
1.2
0.1
6.9
0.3
0.4
0.0
15.0
0.8
0.0
0.0
0.5
0.0 4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.9
0.5
3.2
0.1
0.0
0.2
242.9
118.0
19.5
79.3
22.9 4
3.2
57.8
2.4
48.4
6.5
0.4
0.0
17.6
375.0
0.0
23.3
16.2
320.7
0.2
0.0
0.2
0.0
0.0
0.0
4.4
0.4
2.0
0.5
1.5
0.0
12.1
1.2
7.9
1.8
1.2
0.0
0.0
16.8
26.6
7.3
3.6
0.5
0.0
15.1
248.1
118.4
21.5
80.3
24.4
3.2
69.9
3.7
56.3
8.3
1.6
0.0
16.2
360.7
1 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are excluded from this table. As of 31 December 2014, net bifurcated embedded derivative liabilities held at
fair value, totaling CHF 0.0 billion (of which CHF 0.3 billion were net Level 2 assets and CHF 0.3 billion net Level 2 liabilities) were recognized on the balance sheet within Debt issued. As of 31 December 2013, net
bifurcated embedded derivative liabilities held at fair value, totaling CHF 0.2 billion (of which CHF 0.2 billion were net Level 2 assets and CHF 0.4 billion net Level 2 liabilities) were recognized on the balance sheet within
Debt issued. 2 Financial assets held for trading do not include precious metals and commodities. 3 Other assets primarily consist of assets held for sale, which are measured at the lower of their net carrying amount
or fair value less costs to sell. 4 In 2014, UBS AG has reclassified listed equity option contracts, with all now classified in Level 2. The prior period fair value hierarchy was restated for this change, reducing Level 1 Eq-
uity / index contracts in both PRV and NRV by approximately CHF 2 billion, with corresponding increases to Level 2. 5 In 2014, certain figures for 31 December 2013 were restated upon the adoption of the amendments
to IAS 32. Both PRV and NRV for Level 2 Interest rate contracts, Credit derivative contracts and Equity / index contracts were increased by approximately CHF 1 billion, CHF 5 billion and CHF 3 billion, respectively. Refer
to Note 1b for more information on the adoption of the amendments to IAS 32.
638
Note 24 Fair value measurement (continued)
Financial assets and liabilities held for trading, financial
assets designated at fair value and financial investments
available-for-sale
Government bills and bonds
Government bills and bonds include fixed-rate, floating-rate and
inflation-linked bills and bonds issued by sovereign governments,
as well as interest and principal strips based on these bonds. Such
instruments are generally traded in active markets and prices can
be obtained directly from these markets, resulting in classification
as Level 1, while the majority of the remaining positions are clas-
sified as Level 2. Instruments that cannot be priced directly using
active market data are valued using discounted cash flow valua-
tion techniques that incorporate market data for similar govern-
ment instruments converted into yield curves. These yield curves
are used to project future index levels, and to discount expected
future cash flows. The main inputs to valuation techniques for
these instruments are bond prices and inputs to estimate the fu-
ture index levels for floating or inflation index-linked instruments.
Instruments classified as Level 3 are limited and are generally clas-
sified as such due to the requirement to extrapolate yield curve
inputs outside the range of active market trading.
Corporate and municipal bonds
Corporate bonds include senior, junior and subordinated debt is-
sued by corporate entities. Municipal bonds are issued by state
and local governments. While most instruments are standard
fixed or floating-rate securities, some may have more complex
coupon or embedded option features. Corporate and municipal
bonds are generally valued using prices obtained directly from the
market. In cases where no directly comparable price is available,
instruments may be valued using yields derived from other securi-
ties by the same issuer or benchmarked against similar securities,
adjusted for seniority, maturity and liquidity. Instruments that can-
not be priced directly using active market data are valued using
discounted cash flow valuation techniques incorporating the
credit spread of the issuer, which may be derived from other issu-
ances or CDS data for the issuer, estimated with reference to
other equivalent issuer price observations or from credit modeling
techniques. Corporate bonds are typically classified as Level 2 be-
cause, although market data is readily available, there is often in-
sufficient third-party trading transaction data to justify an active
market and corresponding Level 1 classification. Municipal bonds
are generally classified as Level 1 or Level 2 depending on the
depth of trading activity behind price sources. Level 3 instruments
have no suitable price available for the security held or by refer-
ence to other securities issued by the same issuer. Therefore, these
instruments are measured based on price levels for similar issuers
adjusted for relative tenor and issuer quality.
Convertible bonds are generally valued using prices obtained
directly from market sources. In cases where no directly compa-
rable price is available, issuances may be priced using a convert-
ible bond model, which values the embedded equity option and
debt components and discounts these amounts using a curve that
incorporates the credit spread of the issuer. Although market data
is readily available, convertible bonds are typically classified as
Level 2 because there is insufficient third-party trading transaction
data to justify a Level 1 classification.
Traded loans and loans designated at fair value
Traded loans and loans designated at fair value are valued di-
rectly using market prices that reflect recent transactions or
quoted dealer prices where available. For illiquid loans where no
market price data is available, alternative valuation techniques
are used, which include relative value benchmarking using pric-
ing derived from debt instruments in comparable entities or dif-
ferent products in the same entity. The corporate lending port-
folio is valued using either directly observed market prices
typically from consensus providers or by using a credit default
swap valuation technique, which requires inputs for credit
spreads, credit recovery rates and interest rates. The market for
these instruments is not actively traded and even though price
data is available it may not be directly observable, and therefore
corporate loans typically do not meet Level 1 classification. In-
struments with suitably deep and liquid price data available will
be classified as Level 2, while any positions requiring the use of
valuation techniques or for which the price sources have insuf-
ficient trading depth are classified as Level 3. Recently originated
commercial real estate loans which are classified as Level 3 are
measured using a securitization approach based on rating
agency guidelines. Future profit and loss from the securitization
is not recognized, but overall spread moves are captured in the
loan valuation.
Included within loans are various contingent lending trans-
actions for which valuations are dependent on actuarial mortality
levels and actuarial life insurance policy lapse rates. Mortality and
lapse rate assumptions are based on external actuarial estima-
tions for large homogeneous pools, and contingencies are de-
rived from a range relative to the actuarially expected amount. In
addition, the pricing technique uses volatility of mortality as an
input.
Investment fund units
Investment fund units are predominantly exchange-traded, with
readily available quoted prices in liquid markets. Where market
prices are not available, fair value may be measured using net as-
set values (NAV), taking into account any restrictions imposed
upon redemption. Listed units are classified as Level 1, provided
there is sufficient trading to justify active market classification,
while other positions are classified as Level 2. Positions where
NAV is not available or which are not redeemable at the measure-
ment date or in the near future are classified as Level 3.
639
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
Asset-backed securities
Residential mortgage-backed securities (RMBS), commercial
mortgage-backed securities (CMBS), other asset-backed
securities (ABS) and collateralized debt obligations (CDO)
RMBS, CMBS, ABS and CDO are instruments generally issued
through the process of securitization of underlying interest-bear-
ing assets. The underlying collateral for RMBS is residential mort-
gages, for CMBS, commercial mortgages, for ABS, other assets
such as credit card, car or student loans and leases and for CDO,
other securitized positions of RMBS, CMBS or ABS. The market
for these securities is not active, and therefore a variety of valua-
tion techniques are used to measure fair value. For more liquid
securities, trade data or quoted prices may be obtained periodi-
cally for the instrument held, and the valuation process will use
this trade and price data, updated for movements in market levels
between the time of trading and the time of valuation. Less liquid
instruments are measured using discounted expected cash flows
incorporating price data for instruments or indices with similar
risk profiles. Expected cash flow estimation involves the modeling
of the expected collateral cash flows using input assumptions de-
rived from proprietary models, fundamental analysis and / or mar-
ket research based on management’s quantitative and qualitative
assessment of current and future economic conditions. The ex-
pected collateral cash flows estimated are then converted into the
securities’ projected performance under such conditions based on
the credit enhancement and subordination terms of the securiti-
zation. Expected cash flow schedules are discounted using a rate
or discount margin that reflects the discount levels required by the
market for instruments with similar risk and liquidity profiles. In-
puts to discounted expected cash flow techniques include asset
prepayment rates, discount margin or discount yields, asset de-
fault rates and asset loss on default severity, which may in turn be
estimated using more fundamental loan and economic drivers
such as, but not limited to, loan-to-value data, house price ap-
preciation, foreclosure costs, rental income levels, void periods
and employment rates. RMBS, CMBS and ABS are generally clas-
sified as Level 2. However, if significant inputs are unobservable,
or if market or fundamental data is not available for instruments
or collateral with a sufficiently similar risk profile to the positions
held, they are classified as Level 3.
Equity instruments
The majority of equity securities are actively traded on public stock
exchanges where quoted prices are readily and regularly available,
resulting in their classification as Level 1. Units held in hedge
funds are also classified as equity instruments. Fair value for these
units is measured based on their published NAV, taking into ac-
count any restrictions imposed upon the redemption. These units
are classified as Level 2, except for positions where published NAV
is not available or which are not redeemable at the measurement
date or in the near future, which are classified as Level 3.
640
Unlisted equity holdings, including private equity positions, are
initially marked at their transaction price and are periodically re-
valued to the extent reliable evidence of price movements be-
comes available or the position is deemed to be impaired.
Financial assets underlying unit-linked investments
Unit-linked investment contracts allow investors to invest in a
pool of assets through issued investment units. The unit holders
are exposed to all risks and rewards associated with the reference
asset pool. Assets held under unit-linked investment contracts are
presented as Trading portfolio assets. The majority of assets are
listed on exchanges and are classified as Level 1 if actively traded,
or Level 2 if trading is not active. However, instruments for which
prices are not readily available are classified as Level 3.
Structured repurchase agreements and structured reverse
repurchase agreements
Structured repurchase agreements and structured reverse repur-
chase agreements designated at fair value are measured using
discounted expected cash flow techniques. The discount rate ap-
plied is based on funding curves that are specific to the collateral
eligibility terms for the contract in question. Collateral terms for
these positions are not standard and therefore funding spread
levels used for valuation purposes cannot be observed in the mar-
ket. As a result, these positions are mostly classified as Level 3.
Replacement values
Collateralized and uncollateralized instruments
The curves used for discounting expected cash flows in the valua-
tion of collateralized derivatives reflect the funding terms associ-
ated with the relevant collateral arrangement for the instrument
being valued. These collateral arrangements differ across counter-
parties with respect to the eligible currency and interest terms of
the collateral. The majority of collateralized derivatives are mea-
sured using a discount curve that is based on funding rates de-
rived from overnight interest in the cheapest eligible currency for
the respective counterparty collateral agreement.
Uncollateralized and partially collateralized derivatives are dis-
counted using the LIBOR (or equivalent) curve for the currency of
the instrument. As described in Note 24d, the fair value of uncol-
lateralized and partially collateralized derivatives is then adjusted
by CVA, DVA and FVA as applicable, to reflect an estimation of
the impact of counterparty credit risk, UBS AG’s own credit risk
and funding costs and benefits.
Interest rate contracts
Interest rate swap contracts include interest rate swaps, basis
swaps, cross-currency swaps, inflation swaps and interest rate for-
wards, often referred to as forward-rate agreements (FRA). These
products are valued by estimating future interest cash flows and
discounting those cash flows using a rate that reflects the appro-
Note 24 Fair value measurement (continued)
priate funding rate for the position being measured. The yield
curves used to estimate future index levels and discount rates are
generated using market standard yield curve models using inter-
est rates associated with current market activity. The key inputs to
the models are interest rate swap rates, FRA rates, short-term in-
terest rate futures prices, basis swap spreads and inflation swap
rates. In most cases, the standard market contracts that form the
inputs for yield curve models are traded in active and observable
markets, resulting in the majority of these financial instruments
being classified as Level 2.
Interest rate option contracts include caps and floors, swap-
tions, swaps with complex payoff profiles and other more com-
plex interest rate options. These contracts are valued using various
market standard option models, using inputs that include interest
rate yield curves, inflation curves, volatilities and correlations. The
volatility and correlation inputs within the models are implied
from market data based on market observed prices for standard
option instruments trading within the market. Option models
used to value more exotic products have a number of model pa-
rameter inputs that require calibration to enable the exotic model
to price standard option instruments to the price levels observed
in the market. Although these inputs cannot be directly observed,
they are generally treated as Level 2, as the calibration process
enables the model output to be validated to active market levels.
Models calibrated in this way are then used to revalue the portfo-
lio of both standard options as well as more exotic products. In
most cases, there are active and observable markets for the stan-
dard market instruments that form the inputs for yield curve mod-
els as well as the financial instruments from which volatility and
correlation inputs are derived, resulting in the majority of these
products being classified as Level 2. Within interest rate option
contracts, exotic options for which appropriate volatility or corre-
lation input levels cannot be implied from observable market data
are classified as Level 3. These options are valued using volatility
and correlation levels derived from non-market sources.
Interest rate swap and option contracts are classified as Level 3
when the maturity of the contract exceeds the term for which
standard market quotes are observable for a significant input pa-
rameter. Such positions are valued by extrapolation from the last
observable point using standard assumptions or by reference to
another observable comparable input parameter to represent a
suitable proxy for that portion of the term.
Balance guaranteed swaps (BGS) are interest rate or currency
swaps that have a notional schedule based on a securitization
vehicle, requiring the valuation to incorporate an adjustment for
the unknown future variability of the notional schedule. Inputs to
value BGS are those used to value the standard market risk on the
swap and those used to estimate the notional schedule of the
underlying securitization pool (i.e., prepayment, default and inter-
est rates). BGS are classified as Level 3, as the correlation between
unscheduled notional changes and the underlying market risk of
the BGS does not have an active market and cannot be observed.
Credit derivative contracts
Credit derivative contracts based on a single credit name include
credit default swaps (CDS) based on corporate and sovereign
single names, CDS on loans and certain total return swaps (TRS).
These contracts are valued by estimating future default probabili-
ties using industry standard models based on market credit
spreads, upfront pricing points and implied recovery rates. These
default and recovery assumptions are used to generate future ex-
pected cash flows that are then discounted using market standard
discounted cash flow models and a discount rate that reflects the
appropriate funding rate for that portion of the portfolio. TRS and
certain single-name CDS contracts for which a derivative-based
credit spread is not directly available are valued using a credit
spread derived from the price of the cash bond that is referenced
in the credit derivative, adjusted for any funding differences be-
tween the cash and synthetic product. Loan CDS for which a
credit spread cannot be observed directly may be valued, where
possible, using the corporate debt curve for the entity, adjusted
for differences between loan and debt default definitions and re-
covery rate assumptions. Inputs to the valuation models used to
value single-name and loan CDS include single-name credit
spreads and upfront pricing points, recovery rates and funding
curves. In addition, corporate bond prices are used as inputs to
the valuation model for TRS and certain single-name or loan CDS
as described. Many single-name credit default swaps are classified
as Level 2 because the credit spreads and recovery rates used to
value these contracts are actively traded and observable market
data is available. Where the underlying reference name is not ac-
tively traded, these contracts are classified as Level 3.
Credit derivative contracts based on a portfolio of credit names
include credit default swaps on a credit index, credit default swaps
based on a bespoke portfolio or first to default swaps (FTD). The
valuation of these contracts is similar to that described above for
single-name CDS and includes an estimation of future default
probabilities using industry standard models based on market
credit spreads, upfront pricing points and implied recovery rates.
These default and recovery assumptions are used to generate fu-
ture expected cash flows that are then discounted using market
standard discounted cash flow models based on an estimation of
the funding rate for that portion of the portfolio. Tranche prod-
ucts and FTD are valued using industry standard models that, in
addition to default and recovery assumptions as above, incorpo-
rate implied correlations to be applied to the credits within the
portfolio in order to apportion the expected credit loss at a port-
folio level across the different tranches or names within the over-
all structure. These correlation assumptions are derived from
prices of actively traded index tranches or other FTD baskets. In-
puts to the valuation models used for all portfolio credit default
swaps include single-name or index credit spreads and upfront
pricing points, recovery rates and funding curves. In addition,
models used for tranche and FTD products have implied credit
correlations as inputs. Credit derivative contracts based on a port-
641
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
folio of credit names are classified as Level 2 when credit spreads
and recovery rates are determined from actively traded observable
market data, and when the correlation data used to value be-
spoke and index tranches is based on actively traded index tranche
instruments. This correlation data undergoes a mapping process
that takes into account both the relative tranche attachment / de-
tachment points in the overall capital structure of the portfolio
and portfolio composition. Where the mapping process requires
extrapolation beyond the range of available and active market
data, the position is classified as Level 3. This relates to a small
number of index and all bespoke tranche contracts. FTD are clas-
sified as Level 3, as the correlations between specific names in the
FTD portfolio are not actively traded. Also classified as Level 3 are
several older credit index positions, referred to as off-the-run indi-
ces, due to the lack of any active market for the index credit
spread.
Credit derivative contracts on securitized products have an un-
derlying reference asset that is a securitized product (RMBS,
CMBS, ABS or CDO) and include credit default swaps and certain
TRS. These credit default swaps (typically referred to as pay-as-
you-go (PAYG) CDS)) and TRS are valued using a similar valuation
technique to the underlying security (by reference to equivalent
securities trading in the market, or through cash flow estimation
and discounted cash flow techniques as described in the Asset-
backed securities section above), with an adjustment made to re-
flect the funding differences between cash and synthetic form.
Inputs to the PAYG CDS and TRS are those used to value the un-
derlying security (prepayment rates, default rates, loss severity,
discount margin / rate and other inputs) and those used to capture
the funding basis differential between cash and synthetic form.
The classification of PAYG CDS and these TRS follow the charac-
teristics of the underlying security and are therefore distributed
across Level 2 and Level 3.
Foreign exchange (FX) contracts
Open spot FX contracts are valued using the FX spot rate observed
in the market. Forward FX contracts are valued using the FX spot
rate adjusted for forward pricing points observed from standard
market-based sources. As the markets for both FX spot and FX
forward pricing points are both actively traded and observable, FX
contracts are generally classified as Level 2.
OTC FX option contracts include standard call and put options,
options with multiple exercise dates, path-dependent options, op-
tions with averaging features, options with discontinuous pay-off
characteristics and options on a number of underlying FX rates.
OTC FX option contracts are valued using market standard option
valuation models. The models used for shorter-dated options (i.e.,
maturities of five years or less) tend to be different than those
used for longer-dated options because the models needed for
longer-dated OTC FX contracts require additional consideration of
interest rate and FX rate interdependency. Inputs to the option
642
valuation models include spot FX rates, FX forward points, FX
volatilities, interest rate yield curves, interest rate volatilities and
correlations. The inputs for volatility and correlation are implied
through the calibration of observed prices for standard option
contracts trading within the market.
As inputs are derived mostly from standard market contracts
traded in active and observable markets, a significant proportion
of OTC FX option contracts are classified as Level 2. OTC FX op-
tion contracts classified as Level 3 include long-dated FX exotic
option contracts for which there is no active market from which
to derive volatility or correlation inputs. The inputs used to value
these OTC FX option contracts are calculated using consensus
pricing services without an underlying principal market, historical
asset prices or by extrapolation.
Cross-currency balance guaranteed swaps are classified as for-
eign exchange contracts. Details of the fair value classification can
be found under the interest rate contracts section above.
Equity / index contracts
Equity / index contracts include equity forward contracts and eq-
uity option contracts. Equity forward contracts have a single stock
or index underlying and are valued using market standard models.
The key inputs to the models are stock prices, estimated dividend
rates and equity funding rates (which are implied from prices of
forward contracts observed in the market). Estimated cash flows
are then discounted using market standard discounted cash flow
models using a rate that reflects the appropriate funding rate for
that portion of the portfolio. As inputs are derived mostly from
standard market contracts traded in active and observable mar-
kets, a significant proportion of equity forward contracts are clas-
sified as Level 2. Positions classified as Level 3 have no market
data available for the instrument maturity and are valued by some
form of extrapolation of available data, use of historical dividend
data, or use of data for a related equity.
Equity option contracts include market standard single or
basket stock or index call and put options as well as equity op-
tion contracts with more complex features including option con-
tracts with multiple or continuous exercise dates, option con-
tracts for which the payoff is based on the relative or average
performance of components of a basket, option contracts with
discontinuous payoff profiles, path-dependent options and op-
tion contracts with a payoff calculated directly upon equity fea-
tures other than price (i.e., dividend rates, volatility or correla-
tion). Equity option contracts are valued using market standard
models that estimate the equity forward level as described above
for equity forward contracts and incorporate inputs for stock
volatility and for correlation between stocks within a basket. The
probability-weighted expected option payoff generated is then
discounted using market standard discounted cash flow models
using a rate that reflects the appropriate funding rate for that
portion of the portfolio. Positions for which inputs are derived
Note 24 Fair value measurement (continued)
from standard market contracts traded in active and observable
markets are classified as Level 2. Level 3 positions are those for
which volatility, forward or correlation inputs are not observable
and are therefore valued using extrapolation of available data,
historical dividend, correlation or volatility data or the equivalent
data for a related equity.
Commodity derivative contracts
Commodity derivative contracts include forward, swap and op-
tion contracts on individual commodities and on commodity indi-
ces. Commodity forward and swap contracts are measured using
market standard models that use market forward levels on stan-
dard instruments. Commodity option contracts are measured us-
ing market standard option models that estimate the commodity
forward level as described above for commodity forward and
swap contracts, incorporating inputs for the volatility of the un-
derlying index or commodity. The option model produces a prob-
ability-weighted expected option payoff that is then discounted
using market standard discounted cash flow models using a rate
that reflects the appropriate funding rate for that portion of the
portfolio. For commodity options on baskets of commodities or
bespoke commodity indices, the valuation technique also incor-
porates inputs for the correlation between different commodities
or commodity indices. Individual commodity contracts are typi-
cally classified as Level 2 because active forward and volatility
market data is available.
Financial liabilities designated at fair value
Structured and OTC debt instruments issued
Structured debt instruments issued are comprised of medium-
term notes (MTN), which are held at fair value under the fair value
option. These MTN are tailored specifically to the holder’s risk or
investment appetite with structured coupons or payoffs. The risk
management and the valuation approaches for these MTN are
closely aligned to the equivalent derivatives business and the un-
derlying risk, and the valuation techniques used for this compo-
nent are the same as the relevant valuation techniques described
above. For example, equity-linked notes should be referenced to
equity / index contracts in the replacement value section and
credit-linked notes should be referenced to credit derivative con-
tacts.
Other liabilities – amounts due under unit-linked contracts
Unit-linked investment contracts allow investors to invest in a pool
of assets through issued investment units. The unit holders receive
all rewards and bear all risks associated with the reference asset
pool. The financial liability represents the amounts due to unit
holders and is equal to the fair value of the reference asset pool.
The fair values of investment contract liabilities are determined by
reference to the fair value of the corresponding assets. The liabili-
ties themselves are not actively traded, but are mainly referenced
to instruments that are and are therefore classified as Level 2.
f) Transfers between Level 1 and Level 2 in the fair value hierarchy
The amounts disclosed reflect transfers between Level 1 and
Level 2 for instruments which were held for the entire reporting
period.
Assets totaling approximately CHF 0.6 billion, which were
mainly comprised of financial investments available-for-sale, were
transferred from Level 2 to Level 1 during 2014, generally due to
increased levels of trading activity observed within the market.
Transfers of financial liabilities from Level 2 to Level 1 during 2014
were not significant.
Assets totaling approximately CHF 0.4 billion, which were
mainly comprised of financial investments available-for-sale and
financial assets held for trading, and liabilities totaling approxi-
mately CHF 0.2 billion were transferred from Level 1 to Level 2
during 2014, generally due to diminished levels of trading activity
observed within the market.
643
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
g) Movements of Level 3 instruments
Significant changes in Level 3 instruments
The table on the following pages presents additional information
about Level 3 assets and liabilities measured at fair value on a re-
curring basis. Level 3 assets and liabilities may be hedged with
instruments classified as Level 1 or Level 2 in the fair value hierar-
chy and, as a result, realized and unrealized gains and losses in-
cluded in the table may not include the effect of related hedging
activity. Further, the realized and unrealized gains and losses pre-
sented within the table are not limited solely to those arising from
Level 3 inputs, as valuations are generally derived from both ob-
servable and unobservable parameters.
Assets and liabilities transferred into or out of Level 3 are pre-
sented as if those assets or liabilities had been transferred at the
beginning of the year.
As of 31 December 2014, financial instruments measured with
valuation techniques using significant non-market-observable in-
puts (Level 3) were mainly comprised of:
– structured reverse repurchase and securities borrowing agree-
ments;
– credit derivative contracts;
– equity / index contracts;
– non-structured fixed-rate bonds and
– structured debt instruments issued (equity- and credit-linked).
Financial assets held for trading
Financial assets held for trading decreased to CHF 3.5 billion from
CHF 4.3 billion during the year. Issuances of CHF 5.2 billion and
purchases of CHF 1.4 billion, mainly comprised of loans and cor-
porate bonds, were more than offset by sales of CHF 6.5 billion,
primarily comprised of loans and corporate bonds, and net losses
included in comprehensive income totaling CHF 1.6 billion. Trans-
fers into Level 3 during the year amounted to CHF 1.0 billion and
were mainly comprised of mortgage-backed securities and cor-
porate bonds due to decreased observability of the respective
credit spread inputs. Transfers out of Level 3 amounted to CHF 0.5
billion and were primarily comprised of asset-backed securities
and corporate bonds, reflecting increased observability of the
respective credit spread inputs.
Financial assets designated at fair value
Financial assets designated at fair value decreased to CHF 3.5 bil-
lion from CHF 4.4 billion during the year, mainly reflecting net
losses of CHF 0.8 billion included in comprehensive income and
transfers out of Level 3 totaling CHF 0.3 billion. Issuances amount-
ing to CHF 1.3 billion were mostly offset by settlements totaling
CHF 1.2 billion.
Significant movements in Level 3 instruments during the year
ended 31 December 2014 were as described below.
Financial investments available-for-sale
Financial investments available-for-sale decreased to CHF 0.6 bil-
lion from CHF 0.8 billion during the year, mainly reflecting sales of
644
Note 24 Fair value measurement (continued)
CHF 0.2 billion, which were mostly offset by purchases totaling
CHF 0.1 billion.
Positive replacement values
Positive replacement values decreased to CHF 4.4 billion from
CHF 5.5 billion during the year. Settlements of CHF 5.1 billion
were partly offset by issuances totaling CHF 2.6 billion and net
gains included in comprehensive income totaling CHF 1.1 billion,
all of which were primarily related to credit derivative contracts
and equity / index contracts. Transfers into Level 3 amounted to
CHF 1.1 billion and were mainly comprised of credit derivative
contracts and interest rate contracts, primarily resulting from
changes in the correlation between the portfolios held and the
representative market portfolio used to independently verify mar-
ket data. Transfers out of Level 3 amounted to CHF 0.5 billion and
were mainly comprised of credit derivative contracts and eq-
uity / index contracts, primarily resulting from both changes in the
availability of the respective observable inputs for credit spreads,
as well as changes in the correlation between the portfolios held
and the representative market portfolio used to independently
verify market data.
Negative replacement values
Negative replacement values increased to CHF 5.0 billion from
CHF 4.4 billion during the year. Settlements and issuances
amounted to CHF 3.7 billion and CHF 2.5 billion, respectively,
and were primarily comprised of credit derivative contracts and
equity / index contracts. Transfers into and out of Level 3
amounted to CHF 1.4 billion and CHF 0.5 billion, respectively,
and were also mainly comprised of credit derivative contracts and
equity / index contracts, resulting from both changes in the avail-
ability of the respective observable inputs for credit spreads, as
well as changes in the correlation between the portfolios held
and the representative market portfolio used to independently
verify market data.
Financial liabilities designated at fair value
Financial liabilities designated at fair value decreased to CHF 11.9
billion from CHF 12.1 billion during the year. Issuances of CHF 7.4
billion, primarily comprised of equity-linked structured debt in-
struments issued, non-structured fixed-rate bonds and structured
over-the-counter debt instruments, as well as net losses of CHF
0.5 billion included in comprehensive income, were mostly offset
by settlements of CHF 7.4 billion, mainly comprised of equity-
linked structured debt instruments issued, structured over-the-
counter debt instruments and non-structured fixed-rate bonds.
Transfers into and out of Level 3 amounted to CHF 2.0 billion and
CHF 3.2 billion, respectively. Transfers into Level 3 were primarily
comprised of equity and credit-linked structured debt instruments
issued and non-structured fixed-rate bonds and mainly resulted
from a reduction in observable equity volatility inputs and respec-
tive credit spreads which affected the embedded options in these
structures. Transfers out of Level 3 were mainly comprised of eq-
uity- and rates-linked structured debt instruments issued and non-
structured fixed-rate bonds and mainly resulted from changes in
the availability of observable credit spread and equity volatility
inputs and changes in rates correlation used to determine the fair
value of the embedded options in these structures.
645
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
CHF billion
Financial assets held
for trading 1
of which:
Corporate bonds and municipal
bonds, including bonds issued
by financial institutions
Loans
Asset-backed securities
Other
Financial assets designated
at fair value
of which:
Loans (including structured loans)
Structured reverse repurchase and
securities borrowing agreements
Other
Financial investments
available-for-sale
Positive replacement values
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
Financial liabilities designated
at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt
instruments
Structured repurchase agreements
1.4
3.3
0.2
0.7
8.1
3.6
1.2
2.9
0.4
(0.6)
(0.6)
0.8
0.0
2.1
0.0
0.0
0.0
(0.8)
(0.5)
(0.8)
(0.2)
0.4
(0.2)
(0.6)
0.0
0.4
(0.3)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.3
1.5
1.3
0.4
(0.8)
(0.1)
0.5
(0.1)
(0.3)
(0.1)
0.4
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.2
1.3
0.0
(0.8)
(2.4)
(0.1)
0.1
(0.2)
0.0
0.0
0.0
(0.1)
2.2
(4.7)
0.0
0.0
0.0
0.0
0.0
0.0
(0.1)
0.0
1.9
0.0
0.0
0.3
(3.8)
(0.4)
(0.1)
(0.4)
0.1
0.2
0.0
0.1
3.8
2.4
0.6
0.4
0.4
(0.2)
0.0
0.0
0.0
(0.1)
0.0
(0.1)
0.0
(2.7)
(0.3)
(0.2)
(0.1)
(2.3)
(0.1)
(0.1)
(0.2)
0.0
0.0
0.0
0.0
0.0
1.4
(4.6)
3.0
(1.0)
(0.4)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.4
0.0
0.7
0.3
(3.3)
(0.5)
(0.7)
(0.1)
2.7
0.0
0.1
0.2
(0.3)
0.0
(0.5)
(0.2)
0.0
(0.3)
0.0
(0.1)
Negative replacement values
6.5
(0.5)
(0.1)
0.0
1 Includes assets pledged as collateral which may be sold or repledged by counterparties. 2 Total Level 3 assets as of 31 December 2014 were CHF 12.2 billion (31 December 2013: CHF 15.0 billion). Total Level
3 liabilities as of 31 December 2014 were CHF 17.0 billion (31 December 2013: CHF 16.8 billion).
646
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Other
com-
prehen-
sive
income
Balance
as of
31 Decem-
ber 2012
Net
trading
income
Pur-
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
fers
out of
Level 3
Foreign
currency
trans-
lation
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Other
com-
prehen-
sive
income
Balance
as of
31 Decem-
ber 2013
Net
trading
income
Pur-
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
fers
out of
Level 3
Foreign
currency
trans-
lation
Balance
as of
31 Decem-
ber 2014 2
5.7
(2.4)
(1.3)
0.0
0.0
0.0
2.1
(6.8)
5.0
0.0
2.2
(1.2)
(0.2)
4.3
(1.6)
(0.9)
0.0
0.0
0.0
1.4
(6.5)
5.2
0.0
1.0
(0.5)
0.1
3.5
1.6
2.0
1.5
0.6
0.0
(2.1)
(0.1)
(0.2)
0.0
(1.2)
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.7
0.2
0.3
(0.8)
(4.9)
(0.7)
(0.4)
0.0
5.0
0.0
0.0
0.0
0.0
0.0
0.0
0.3
0.6
0.6
0.6
(0.2)
(0.2)
(0.5)
(0.2)
0.0
0.0
(0.2)
0.0
4.9
0.2
1.5
0.0
0.0
0.0
0.0
0.0
2.6
(3.3)
0.2
(0.2)
(0.1)
4.4
(0.8)
(0.3)
0.0
1.3
(1.2)
0.0
(0.3)
0.2
1.7
1.0
1.0
0.6
1.1
3.1
0.2
0.8
5.5
3.0
0.9
1.2
0.3
4.4
2.0
0.5
1.5
0.5
12.1
1.2
7.9
1.8
1.2
(0.1)
(1.4)
0.0
(0.1)
(0.3)
(0.5)
0.0
0.0
1.1
0.3
0.1
0.6
0.0
0.7
0.1
0.0
0.4
0.2
0.5
0.3
0.9
(0.4)
(0.3)
(0.1)
(0.8)
0.0
0.0
(0.2)
0.0
0.0
0.0
0.0
(0.8)
0.1
0.5
0.1
(0.6)
(1.2)
0.0
0.4
0.3
1.3
0.2
0.4
(0.1)
0.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.2
0.1
0.2
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.2)
(1.2)
(4.1)
(0.7)
(0.5)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.2
0.0
0.0
0.6
0.7
0.0
0.0
2.6
1.1
0.1
1.3
0.2
2.5
1.0
0.0
1.5
0.0
1.9
3.7
1.4
0.5
0.0
0.0
0.0
0.0
(0.2)
(1.0)
0.0
0.0
(5.1)
(3.2)
(0.2)
(1.3)
(0.4)
(3.7)
(2.4)
0.0
(1.2)
(0.1)
(1.4)
(4.2)
(1.5)
(0.4)
0.2
0.2
0.5
0.1
0.0
0.0
0.0
0.0
1.1
0.5
0.0
0.3
0.3
1.4
1.0
0.0
0.3
0.1
0.4
1.2
0.4
0.0
0.0
0.0
(0.5)
(0.2)
(0.5)
0.2
(0.2)
(0.1)
(0.3)
0.0
(0.3)
0.0
0.0
(0.2)
(0.1)
(0.2)
(0.1)
(0.2)
(0.1)
(0.1)
0.0
(0.4)
(2.6)
(0.2)
0.0
0.1
0.1
0.0
0.0
0.0
0.1
0.0
0.1
(0.3)
0.0
0.0
0.3
0.0
0.0
(0.1)
0.1
0.4
0.0
0.0
1.4
1.1
0.6
0.5
3.5
1.0
2.4
0.1
0.6
4.4
1.7
0.6
1.9
0.3
5.0
1.7
0.3
2.4
0.6
2.2
7.3
1.5
0.9
14.7
(0.4)
1.0
0.0
0.0
0.0
0.0
0.0
6.4
(9.4)
2.9
(1.7)
(0.2)
0.0
0.0
0.0
0.0
7.4
(7.4)
2.0
(3.2)
0.5
11.9
0.8
10.0
2.2
1.7
(0.1)
1.2
(0.4)
(1.0)
(0.1)
0.6
(0.3)
0.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.1
3.2
1.0
1.1
(0.8)
(6.7)
(1.3)
(0.6)
0.5
1.9
0.5
0.0
(0.1)
(1.4)
(0.1)
0.0
0.0
(0.1)
(0.1)
0.0
Movements of Level 3 instruments
CHF billion
Financial assets held
for trading 1
of which:
Corporate bonds and municipal
bonds, including bonds issued
by financial institutions
Loans
Other
Asset-backed securities
Financial assets designated
at fair value
of which:
Loans (including structured loans)
Structured reverse repurchase and
securities borrowing agreements
Other
Financial investments
available-for-sale
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
Financial liabilities designated
at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt
instruments
Structured repurchase agreements
Positive replacement values
(0.8)
(0.5)
0.0
(0.1)
2.2
(4.7)
(2.7)
(0.3)
0.0
0.0
0.1
(0.2)
0.0
0.0
(0.1)
0.0
Negative replacement values
6.5
(0.5)
(0.1)
0.0
0.0
0.0
0.0
1.4
(4.6)
3.0
(1.0)
(0.4)
1.6
2.0
1.5
0.6
1.4
3.3
0.2
0.7
8.1
3.6
1.2
2.9
0.4
3.3
1.5
1.3
0.4
0.8
10.0
2.2
1.7
0.0
(2.1)
(0.1)
(0.2)
0.0
(1.2)
(0.1)
0.0
(0.6)
(0.6)
0.8
0.0
2.1
0.0
(0.8)
(0.2)
0.4
(0.2)
(0.8)
(0.1)
0.5
(0.1)
(0.1)
1.2
(0.4)
(1.0)
(0.6)
0.0
0.4
(0.3)
(0.3)
(0.1)
0.4
(0.1)
(0.1)
0.6
(0.3)
0.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.7
0.2
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.8)
(4.9)
(0.7)
(0.4)
0.0
0.0
0.0
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.0
0.0
0.0
1.2
1.3
0.0
1.9
0.0
0.0
0.3
0.4
0.0
0.7
0.3
1.1
3.2
1.0
1.1
0.0
0.0
0.0
0.0
(0.8)
(2.4)
(0.1)
(3.8)
(0.4)
(0.1)
(0.4)
(3.3)
(0.5)
(0.7)
(0.1)
(0.8)
(6.7)
(1.3)
(0.6)
0.3
0.6
0.6
0.6
0.1
0.2
0.0
0.1
3.8
2.4
0.6
0.4
0.4
2.7
0.0
0.1
0.2
0.5
1.9
0.5
0.0
(0.2)
(0.2)
(0.5)
(0.2)
0.0
0.0
(0.2)
0.0
(0.2)
0.0
0.0
0.0
(0.1)
0.0
(0.2)
(0.1)
(2.3)
(0.1)
(0.3)
0.0
(0.5)
(0.2)
(0.1)
(1.4)
(0.1)
0.0
(0.1)
(0.2)
0.0
0.0
0.0
(0.3)
0.0
(0.1)
0.0
(0.1)
(0.1)
0.0
14.7
(0.4)
1.0
0.0
0.0
0.0
0.0
0.0
6.4
(9.4)
2.9
(1.7)
(0.2)
1 Includes assets pledged as collateral which may be sold or repledged by counterparties. 2 Total Level 3 assets as of 31 December 2014 were CHF 12.2 billion (31 December 2013: CHF 15.0 billion). Total Level
3 liabilities as of 31 December 2014 were CHF 17.0 billion (31 December 2013: CHF 16.8 billion).
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
Balance
as of
Net
the end of
31 Decem-
trading
the report-
and other
ber 2012
income
ing period
income
Net
interest
income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Other
com-
prehen-
sive
Pur-
income
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
Foreign
fers
currency
out of
Level 3
trans-
lation
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Other
com-
prehen-
sive
income
Balance
as of
31 Decem-
ber 2013
Net
trading
income
Pur-
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
fers
out of
Level 3
Foreign
currency
trans-
lation
Balance
as of
31 Decem-
ber 2014 2
5.7
(2.4)
(1.3)
0.0
0.0
0.0
2.1
(6.8)
5.0
0.0
2.2
(1.2)
(0.2)
4.3
(1.6)
(0.9)
0.0
0.0
0.0
1.4
(6.5)
5.2
0.0
1.0
(0.5)
0.1
3.5
4.9
0.2
1.5
0.0
0.0
0.0
0.0
0.0
2.6
(3.3)
0.2
(0.2)
(0.1)
4.4
(0.8)
(0.3)
0.0
1.7
1.0
1.0
0.6
(0.1)
(1.4)
0.0
(0.1)
(0.1)
(0.8)
0.0
0.0
0.0
0.0
0.0
0.0
1.1
3.1
0.2
0.8
5.5
3.0
0.9
1.2
0.3
4.4
2.0
0.5
1.5
0.5
12.1
1.2
7.9
1.8
1.2
(0.3)
(0.5)
0.0
0.0
1.1
0.3
0.1
0.6
0.0
0.7
0.1
0.0
0.4
0.2
0.5
0.3
0.9
(0.4)
(0.3)
(0.2)
0.0
0.0
0.0
0.0
(0.8)
0.1
0.5
0.1
(0.6)
(1.2)
0.0
0.4
0.3
1.3
0.2
0.4
(0.1)
0.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.2
0.1
0.2
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(1.2)
(4.1)
(0.7)
(0.5)
0.0
0.0
0.0
0.0
(0.2)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.2
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.2
0.5
0.1
(0.2)
(0.1)
(0.3)
0.0
0.1
0.1
0.0
0.0
1.3
(1.2)
0.0
(0.3)
0.2
0.6
0.7
0.0
0.0
2.6
1.1
0.1
1.3
0.2
2.5
1.0
0.0
1.5
0.0
(0.2)
(1.0)
0.0
0.0
(5.1)
(3.2)
(0.2)
(1.3)
(0.4)
(3.7)
(2.4)
0.0
(1.2)
(0.1)
0.0
0.0
0.0
0.0
1.1
0.5
0.0
0.3
0.3
1.4
1.0
0.0
0.3
0.1
(0.3)
0.0
0.0
0.0
0.1
0.0
0.0
0.0
(0.5)
(0.2)
(0.2)
(0.1)
(0.2)
(0.1)
0.1
(0.3)
0.0
0.0
(0.5)
0.2
(0.2)
(0.1)
(0.1)
0.0
0.3
0.0
0.0
(0.1)
1.4
1.1
0.6
0.5
3.5
1.0
2.4
0.1
0.6
4.4
1.7
0.6
1.9
0.3
5.0
1.7
0.3
2.4
0.6
0.0
0.0
0.0
0.0
7.4
(7.4)
2.0
(3.2)
0.5
11.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.9
3.7
1.4
0.5
(1.4)
(4.2)
(1.5)
(0.4)
0.4
1.2
0.4
0.0
(0.4)
(2.6)
(0.2)
0.0
0.1
0.4
0.0
0.0
2.2
7.3
1.5
0.9
647
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
h) Valuation of assets and liabilities classified as Level 3
The table on the following pages presents UBS AG’s assets and
liabilities recognized at fair value and classified as Level 3, to-
gether with the valuation techniques used to measure fair value,
the significant inputs used in the valuation technique that are
considered unobservable and a range of values for those unob-
servable inputs.
The range of values represents the highest and lowest level
input used in the valuation techniques. Therefore, the range does
not reflect the level of uncertainty regarding a particular input,
but rather the different underlying characteristics of the relevant
assets and liabilities. The ranges will therefore vary from period to
period and parameter to parameter based on characteristics of
the instruments held at each balance sheet date. Further, the
ranges of unobservable inputs may differ across other financial
institutions due to the diversity of the products in each firm’s in-
ventory.
Significant unobservable inputs in Level 3 positions
This section discusses the significant unobservable inputs identi-
fied in the table on the following pages and assesses the potential
effect that a change in each unobservable input in isolation may
have on a fair value measurement, including information to facili-
tate an understanding of factors that give rise to the input ranges
shown. Relationships between observable and unobservable in-
puts have not been included in the summary below.
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities
CHF billion
31.12.14
31.12.13
31.12.14
31.12.13
Valuation technique(s)
Fair value
Assets
Liabilities
Significant
unobservable input(s) 1
Range of inputs
31.12.14
31.12.13
low
high
low
high
unit 1
Financial assets held for
trading / Trading portfolio
liabilities, Financial
assets / liabilities desig-
nated at fair value and
Financial investments
available-for-sale
Corporate bonds and munici-
pal bonds, including bonds
issued by financial institutions
Traded loans, loans desig-
nated at fair value and loan
commitments
Investment fund units 2
Asset-backed securities
Equity instruments 2
Structured (reverse)
repurchase agreements
Financial assets for unit-linked
investment contracts 2
Structured debt instruments
and non-structured fixed-rate
bonds 4
648
1.4
1.8
0.1
2.2
2.2
0.0
0.5
0.6
0.5
2.4
0.1
0.6
1.0
0.6
3.1
0.1
0.0
0.0
0.0
0.9
0.2
0.0
0.0
0.0
0.0
1.2
Relative value to
market comparable
Relative value to
market comparable
Discounted expected
cash flows
Market comparable and
securitization model
Mortality dependent
cash flow
Relative value to
market comparable
Discounted cash flow
projection
Relative value to
market comparable
Relative value to
market comparable
Discounted expected
cash flows
Relative value to
market comparable
11.0
11.0
Bond price equivalent
8
144
Loan price equivalent
Credit spread
Discount margin / spread
80
37
0
0
0
127
points
102
points
101
138
65
125
basis
points
13
1
15
Volatility of mortality
270
280
21
128
Net asset value
Constant prepayment rate
Constant default rate 3
Loss severity 3
Discount margin / spread
Bond price equivalent
Price
0
0
0
18
22
102
0
0
0
1
0
Funding spread
10
163
10
163
basis
points
Price
%
%
%
%
%
%
18
10
100
39
102
points
Note 24 Fair value measurement (continued)
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities (continued)
CHF billion
31.12.14
31.12.13
31.12.14
31.12.13 Valuation technique(s)
Fair value
Assets
Liabilities
Significant
unobservable input(s) 1
Range of inputs
31.12.14
31.12.13
low
high
low
high
unit 1
Replacement values
Interest rate contracts
0.2
0.3
0.6
0.4
Option model
Volatility of interest rates
Credit derivative contracts
1.7
3.0
1.7
2.0
Discounted expected
cash flows
Discounted expected cash
flow based on modeled
defaults and recoveries
Discounted cash flow
projection on
underlying bond
Foreign exchange contracts
0.6
0.9
0.3
0.5
Option model
Discounted expected
cash flows
Rate-to-rate correlation
Intra-curve correlation
Constant prepayment rate
Credit spreads
Upfront price points
Recovery rates
Credit index correlation
Discount margin / spread
Credit pair correlation
Constant prepayment rate
Constant default rate
Loss severity
Discount margin / spread
Bond price equivalent
Volatility of foreign
exchange 3
Rate-to-FX correlation
FX-to-FX correlation
Constant prepayment rate
Equity / index contracts
1.9
1.2
2.4
1.5
Option model
Equity dividend yields
Volatility of equity stocks,
equity and other indices
Equity-to-FX correlation
Equity-to-equity correlation
Non-financial assets 2, 5
0.2
0.1
Relative value to market
comparable
Price
Discounted cash flow
projection
Projection of cost and
income related to the
particular property
Discount rate
Assessment of the parti-
cular property’s condition
13
84
50
0
0
15
0
10
0
57
1
0
0
1
12
(57)
(70)
0
0
1
(55)
18
94
94
94
3
13
84
50
0
73
94
84
3
%
%
%
%
963
2
1,407
basis
points
83
95
85
32
94
16
9
100
33
100
60
80
13
15
130
84
99
(12)
0
10
0
42
0
0
0
0
0
7
(71)
(83)
0
0
1
(52)
17
68
95
90
39
92
15
12
100
38
%
%
%
%
%
%
%
%
%
100
points
20
60
80
13
10
88
77
99
%
%
%
%
%
%
%
%
1 The ranges of significant unobservable inputs are represented in points, percentages and basis points. Points are a percentage of par. For example, 100 points would be 100% of par. 2 The range of inputs is not
disclosed due to the dispersion of possible values given the diverse nature of the investments. 3 The range of inputs is not disclosed for 31 December 2014 because this unobservable input parameter was not significant
to the respective valuation technique as of that date. 4 Valuation techniques, significant unobservable inputs and the respective input ranges for structured debt instruments and non-structured fixed-rate bonds are the
same as the equivalent derivative or structured financing instruments presented elsewhere in this table. 5 Non-financial assets include investment properties at fair value and other assets which primarily consist of
assets held for sale.
Bond price equivalent: Where market prices are not available for
a bond, fair value is measured by comparison with observable
pricing data from similar instruments. Factors considered when
selecting comparable instruments include credit quality, maturity
and industry of the issuer. Fair value may be measured either by a
direct price comparison or by conversion of an instrument price
into a yield (either as an outright yield or as a spread to LIBOR).
Bond prices are expressed as points of the nominal, where 100
represents a fair value equal to the nominal value (i.e., par).
For corporate and municipal bonds, the range of 8–144 repre-
sents the range of prices from reference issuances used in deter-
mining fair value. Bonds priced at 0 are distressed to the point that
no recovery is expected, while prices significantly in excess of 100
or par relate to inflation-linked or structured issuances that pay a
649
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
coupon in excess of the market benchmark as of the measure-
ment date. The weighted average price is approximately 100
points, with a majority of positions concentrated around this price.
For asset-backed securities, the bond price range of 0–102
points represents the range of prices for reference securities used
in determining fair value. An instrument priced at 0 is not ex-
pected to pay any principal or interest, while an instrument priced
close to 100 points is expected to be repaid in full as well as pay a
yield close to the market yield. More than 94% of the portfolio is
priced at 80 points or higher, and the weighted average price for
Level 3 assets within this portion of the Level 3 portfolio is 89
points.
For credit derivatives, the bond price range of 12–100 points
disclosed represents the range of prices used for reference instru-
ments that are typically converted to an equivalent yield or credit
spread as part of the valuation process. The range is comparable
to that for corporate and asset-backed issuances described above.
Loan price equivalent: Where market prices are not available for a
traded loan, fair value is measured by comparison with observable
pricing data for similar instruments. Factors considered when se-
lecting comparable instruments include industry segment, collat-
eral quality, maturity and issuer-specific covenants. Fair value may
be measured either by a direct price comparison or by conversion
of an instrument price into a yield. The range of 80–101 points
represents the range of prices derived from reference issuances of
a similar credit quality used in measuring fair value for loans clas-
sified as Level 3. Loans priced at 0 are distressed to the point that
no recovery is expected, while a current price of 100 represents a
loan that is expected to be repaid in full, and also pays a yield
marginally higher than market yield. The weighted average is ap-
proximately 95 points.
Credit spread: Valuation models for many credit derivatives re-
quire an input for the credit spread, which is a reflection of the
credit quality of the associated referenced underlying. The credit
spread of a particular security is quoted in relation to the yield on
a benchmark security or reference rate, typically either US Trea-
sury or LIBOR, and is generally expressed in terms of basis points.
An increase / (decrease) in credit spread will increase / (decrease)
the value of credit protection offered by CDS and other credit
derivative products. The impact on the results of UBS AG of such
changes depends on the nature and direction of the positions
held. Credit spreads may be negative where the asset is more
creditworthy than the benchmark against which the spread is
calculated. A wider credit spread represents decreasing credit-
worthiness. The ranges of 37–138 basis points in loans and
0–963 basis points in credit derivatives represents a diverse set
of underlyings, with the lower end of the range representing
credits of the highest quality (e.g., approximating the risk of
LIBOR) and the upper end of the range representing greater
levels of credit risk.
650
Constant prepayment rate: A prepayment rate represents the
amount of unscheduled principal repayment for a pool of loans. The
prepayment estimate is based on a number of factors, such as his-
torical prepayment rates for previous loans that are similar pool loans
and the future economic outlook, considering factors including, but
not limited to, future interest rates. In general, a significant increase /
(decrease) in this unobservable input in isolation would result in a
significantly higher / (lower) fair value for bonds trading at a discount.
For bonds trading at a premium the reverse would apply, with a
decrease in fair value when the constant prepayment rate increases.
However, in certain cases the effect of a change in prepayment
speed upon instrument price is more complicated and is dependent
upon both the precise terms of the securitization and the position of
the instrument within the securitization capital structure.
For asset-backed securities, the range of 0–18% represents in-
puts across various classes of asset-backed securities. Securities
with an input of 0% typically reflect no current prepayment be-
havior within their underlying collateral with no expectation of
this changing in the immediate future, while the high range of
18% relates to securities that are currently experiencing high pre-
payments. Different classes of asset-backed securities typically
show different ranges of prepayment characteristics depending
on a combination of factors, including the borrowers’ ability to
refinance, prevailing refinancing rates, and the quality or charac-
teristics of the underlying loan collateral pools. The weighted av-
erage constant prepayment rate for the portfolio is 9%.
For credit derivatives, the range of 1–16% represents the in-
put assumption for credit derivatives on asset-backed securities.
The range is driven in a similar manner to that for asset-backed
securities.
For FX contracts and interest rate contracts, the ranges of
0–13% and 0–3%, respectively, represent the prepayment as-
sumptions on securitizations underlying the BGS portfolio. This
portfolio is less diverse than other asset-backed securities portfo-
lios and the range of prepayment speed is therefore narrower.
Constant default rate (CDR): The CDR represents the percentage
of outstanding principal balances in the pool that are projected to
default and liquidate and is the annualized rate of default for a
group of mortgages or loans. The CDR estimate is based on a
number of factors, such as collateral delinquency rates in the pool
and the future economic outlook. In general, a significant increase /
(decrease) in this unobservable input in isolation would result in
significantly lower / (higher) cash flows for the deal (and thus
lower / (higher) valuations). However, different instruments within
the capital structure can react differently to changes in the CDR
rate. Generally, subordinated bonds will decrease in value as CDR
increases, but for well protected senior bonds an increase in CDR
may cause an increase in price. In addition, the presence of a
guarantor wrap on the collateral pool of a security may result in
notes at the junior end of the capital structure experiencing a
price increase with an increase in the default rate.
Note 24 Fair value measurement (continued)
The range of 0–9% for credit derivatives represents the ex-
pected default percentage across the individual instruments’ un-
derlying collateral pools.
Loss severity / recovery rate: The projected loss severity / recovery
rate reflects the estimated loss that will be realized given expected
defaults. Loss severity is generally applied to collateral within as-
set-backed securities while the recovery rate is the analogous pric-
ing input for corporate or sovereign credits. Recovery is the re-
verse of loss severity, so a 100% recovery rate is the equivalent of
a 0% loss severity. Increases in loss severity levels / decreases in
recovery rates will result in lower expected cash flows into the
structure upon the default of the instruments. In general, a sig-
nificant decrease / (increase) in the loss severity in isolation would
result in significantly higher / (lower) fair value for the respective
asset-backed securities. The impact of a change in recovery rate
on a credit derivative position will depend upon whether credit
protection has been bought or sold.
Loss severity is ultimately driven by the value recoverable from
collateral held after foreclosure occurs relative to the loan princi-
pal and possibly unpaid interest accrued at that point. For credit
derivatives, the loss severity range of 0–100% applies to deriva-
tives on asset-backed securities. The recovery rate range of
0–95% represents a wide range of expected recovery levels on
credit derivative contracts within the Level 3 portfolio.
Discount margin (DM) spread: The DM spread represents the dis-
count rates used to present value cash flows of an asset to reflect
the market return required for uncertainty in the estimated cash
flows. DM spreads are a rate or rates applied on top of a floating
index (e.g., LIBOR) to discount expected cash flows. Generally, a
decrease / (increase) in the unobservable input in isolation would
result in a significantly higher / (lower) fair value.
The different ranges represent the different discount rates
across loans (0–13%), asset-backed securities (0–22%) and credit
derivatives (0–32%). The high end of the range relates to securi-
ties that are priced very low within the market relative to the
expected cash flow schedule and there is significant discounting
relative to the expected cash flow schedule. This indicates that
the market is pricing an increased risk of credit loss into the secu-
rity that is greater than what is being captured by the expected
cash flow generation process. The low ends of the ranges are
typical of funding rates on better quality instruments. For asset-
backed securities, the weighted average DM is 5%. For loans, the
average effective DM is 1.71% compared with the disclosed
range of 0–13%.
Equity dividend yields: The derivation of a forward price for an
individual stock or index is important both for measuring fair
value for forward or swap contracts and for measuring fair value
using option pricing models. The relationship between the current
stock price and the forward price is based on a combination of
expected future dividend levels and payment timings, and, to a
lesser extent, the relevant funding rates applicable to the stock in
question. Dividend yields are generally expressed as an annualized
percentage of share price with the lowest limit of 0% represent-
ing a stock that is not expected to pay any dividend. The dividend
yield and timing represents the most significant parameter in de-
termining fair value for instruments that are sensitive to an equity
forward price. The range of 0–15% reflects the expected range of
dividend rates for the portfolio.
Volatility: Volatility measures the variability of future prices for a
particular instrument and is generally expressed as a percentage,
where a higher number reflects a more volatile instrument for
which future price movements are more likely to occur. The mini-
mum level of volatility is 0% and there is no theoretical maximum.
Volatility is a key input into option models, where it is used to
derive a probability-based distribution of future prices for the un-
derlying instrument. The effect of volatility on individual positions
within the portfolio is driven primarily by whether the option con-
tract is a long or short position. In most cases, the fair value of an
option increases as a result of an increase in volatility and is re-
duced by a decrease in volatility. Generally, volatility used in the
measurement of fair value is derived from active market option
prices (referred to as implied volatility). A key feature of implied
volatility is the volatility “smile” or “skew,” which represents the
effect of pricing options of different option strikes at different
implied volatility levels.
– Volatility of interest rates – the range of 13–94% reflects the
range of unobservable volatilities across different currencies
and related underlying interest rate levels. Volatilities of low
interest rates tend to be much higher than volatilities of high
interest rates. In addition, different currencies may have sig-
nificantly different implied volatilities.
– Volatility of equity stocks, equity and other indices – the range
of 1–130% is reflective of the range of underlying stock vola-
tilities.
– Volatility of mortality – the range of 270–280% represents
mortality volatility assumptions for different components of
the mortality contingent loan portfolio. The range in volatility
inputs is driven by different characteristics of contracts within
the portfolio. An increase in volatility will cause an increase in
loan value as the notional drawn will tend to increase.
Correlation: Correlation measures the inter-relationship between
the movements of two variables. It is expressed as a percentage
between (100)% and +100%, where +100% are perfectly corre-
lated variables (meaning a movement of one variable is associated
with a movement of the other variable in the same direction), and
(100)% are inversely correlated variables (meaning a movement
of one variable is associated with a movement of the other vari-
able in the opposite direction). The effect of correlation on the
measurement of fair value is dependent on the specific terms of
651
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
the instruments being valued, due to the range of different payoff
features within such instruments.
– Rate-to-rate correlation – the correlation between interest
rates of two separate currencies. The range of 84–94% results
from the different pairs of currency involved.
– Intra-curve correlation – the correlation between different
tenor points of the same yield curve. Correlations are typically
fairly high, as reflected by the range of 50–94%.
– Credit index correlation of 10–85% reflects the implied corre-
lation derived from different indices across different parts of
the benchmark index capital structure. The input is particularly
important for bespoke and Level 3 index tranches.
– Credit pair correlation is particularly important for first to default
credit structures. The range of 57–94% reflects the difference
between credits with low correlation and similar highly corre-
lated credits.
– Rate-to-FX correlation – captures the correlation between in-
terest rates and FX rates. The range for the portfolio is (57)–
60%, which represents the relationship between interest rates
and foreign exchange levels. The signage on such correlations
is dependent on the quotation basis of the underlying FX rate
(e.g., EUR / USD and USD / EUR correlations to the same interest
rate will have opposite signs).
– FX-to-FX correlation is particularly important for complex op-
tions that incorporate different FX rates in the projected pay-
off. The range of (70)–80% reflects the underlying characteris-
tics across the main FX pairs to which UBS AG has exposures.
– Equity-to-equity correlation is particularly important for com-
plex options that incorporate, in some manner, different equi-
ties in the projected payoff. The closer the correlation is to
100%, the more related one equity is to another. For example,
equities with a very high correlation could be from different
parts of the same corporate structure. The range of 18–99% is
reflective of this.
– Equity-to-FX correlation is important for equity options based on
a currency different than the currency of the underlying stock.
The range of (55)–84% represents the range of the relationship
between underlying stock and foreign exchange volatilities.
Funding spread: Structured financing transactions are valued us-
ing synthetic funding curves that best represent the assets that
are pledged as collateral to the transactions. They are not repre-
sentative of where UBS AG can fund itself on an unsecured basis,
but provide an estimate of where UBS AG can source and deploy
secured funding with counterparties for a given type of collateral.
The funding spreads are expressed in terms of basis points over or
under LIBOR and if funding spreads widen this increases the im-
pact of discounting. The range of 10–163 basis points for both
structured repurchase agreements and structured reverse repur-
chase agreements represents the range of asset funding curves,
where wider spreads are due to a reduction in liquidity of underly-
ing collateral for funding purposes.
A small proportion of structured debt instruments and non-
structured fixed-rate bonds within financial liabilities designated
at fair value had an exposure to funding spreads that is longer in
duration than the actively traded market. Such positions are
within the range of 10–163 basis points reported above.
Upfront price points: A component in the price quotation of credit
derivative contracts, whereby the overall fair value price level is
split between the credit spread (basis points running over the life
of the contract as described above) and a component that is
quoted and settled upfront on transacting a new contract. This
latter component is referred to as upfront price points and repre-
sents the difference between the credit spread paid as protection
premium on a current contract versus a small number of standard
contracts defined by the market. Distressed credit names fre-
quently trade and quote CDS protection only in upfront points
rather than as a running credit spread. An increase / (decrease) in
upfront points will increase / (decrease) the value of credit protec-
tion offered by CDS and other credit derivative products. The
effect on the results of UBS AG of increases or decreases in
upfront price points depends on the nature and direction of the
positions held. Upfront pricing points may be negative where a
contract is quoting for a narrower premium than the market stan-
dard, but are generally positive, reflecting an increase in credit
premium required by the market as creditworthiness deteriorates.
The range of 15–83% within the table above represents the vari-
ety of current market credit spread levels relative to the bench-
marks used as a quotation basis. Upfront points of 83% represent
a distressed credit.
652
Note 24 Fair value measurement (continued)
i) Sensitivity of fair value measurements 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 as-
sumptions would change fair value significantly, and the esti-
mated effect thereof. As of 31 December 2014, the total favor-
able and unfavorable effects of changing one or more of the
unobservable inputs to reflect reasonably possible alternative as-
sumptions for financial instruments classified as Level 3 were CHF
1.0 billion and CHF 0.8 billion, respectively (31 December 2013:
CHF 1.4 billion and CHF 1.1 billion, respectively).
The table shown presents the favorable and unfavorable ef-
fects for each class of financial assets and liabilities for which the
potential change in fair value is considered significant. The sensi-
tivity data presented represents an estimation of valuation uncer-
tainty based on reasonably possible alternative values for Level 3
inputs at the balance sheet date and does not represent the esti-
mated 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
Levels 1–2 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. Further, direct inter-relationships between the Level 3 pa-
rameters discussed below are not a significant element of the
valuation uncertainty.
Sensitivity data is estimated using a number of techniques in-
cluding the estimation of price dispersion among different market
participants, variation in modeling approaches and reasonably
possible changes to assumptions used within the fair value mea-
surement process. The sensitivity ranges are not always symmetri-
cal around the fair values as the inputs used in valuations are not
always precisely in the middle of the favorable and unfavorable
range.
Sensitivity data is determined at a product or parameter level
and then aggregated assuming no diversification benefit. The cal-
culated sensitivity is applied to both the outright position and any
related Level 3 hedges. The main interdependencies across differ-
ent Level 3 products to a single unobservable input parameter
have been included in the basis of netting exposures within the
calculation. Aggregation without allowing for diversification in-
volves the simple summation of individual results with the total
sensitivity, therefore representing the impact of all unobservable
inputs which, if moved to a reasonably possible favorable or unfa-
vorable level at the same time, would result in a significant change
in the valuation. Diversification would incorporate estimated cor-
relations across different sensitivity results and, as such, would re-
sult in an overall sensitivity that would be less than the sum of the
individual component sensitivities. The Group believes that, while
there are diversification benefits within the portfolios representing
these sensitivity numbers, they are not significant to this analysis.
Sensitivity of fair value measurements to changes in unobservable input assumptions
CHF million
Government bills / bonds
Corporate bonds and municipal bonds, including bonds issued by financial institutions
Traded loans, loans designated at fair value and loan commitments
Asset-backed securities
Equity instruments
Interest rate derivative contracts, net
Credit derivative contracts, net
Foreign exchange derivative contracts, net
Equity / index derivative contracts, net
Structured debt instruments issued and non-structured fixed-rate bonds
Other
Total
31.12.14
31.12.13
Favorable
changes 1
10
Unfavorable
changes 1
(1)
Favorable
changes 1
17
Unfavorable
changes 1
(4)
33
103
16
105
106
248
35
82
202
23
965
(41)
(63)
(12)
(42)
(58)
(277)
(32)
(83)
(199)
(17)
(824)
35
148
54
137
127
503 2
57
41
184
63
(76)
(70)
(46)
(84)
(91)
(471) 2
(56)
(43)
(151)
(54)
1,366
(1,146)
1 Of the total favorable change, CHF 116 million as of 31 December 2014 (31 December 2013: CHF 154 million) related to financial investments available-for-sale. Of the total unfavorable change, CHF 56 million as of
31 December 2014 (31 December 2013: CHF 159 million) related to financial investments available-for-sale. 2 In 2014, comparative period figures for 31 December 2013 related to credit derivative contracts were cor-
rected. As a result, favorable and unfavorable changes related to credit derivative contracts as of 31 December 2013 were increased by CHF 137 million and CHF 52 million, respectively.
653
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
j) Financial instruments not measured at fair value
The following table reflects the estimated fair values for financial instruments not measured at fair value.
Financial instruments not measured at fair value
CHF billion
Assets
Carrying
value
31.12.14
Fair value
Carrying
value
31.12.13
Fair value
Total
Total
Level 1
Level 2
Level 3
Total
Total
Level 1
Level 2
Level 3
Cash and balances with central banks
104.1
104.1
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments
Loans
Other assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Cash collateral payables on derivative instruments
Due to customers
Debt issued
Other liabilities
Guarantees / Loan commitments
Guarantees 1
Loan commitments 2
13.3
24.1
68.4
31.0
316.0
21.3
10.5
9.2
11.8
42.4
13.3
24.1
68.4
31.0
318.6
21.2
10.5
9.2
11.8
42.4
411.0
411.0
91.2
46.0
0.0
0.0
94.3
46.0
(0.1)
0.0
104.1
12.6
0.0
0.0
0.0
0.0
0.0
9.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.7
24.1
66.5
31.0
186.6
21.2
0.9
9.2
11.6
42.4
411.0
88.5
46.0
0.0
0.0
0.0
0.0
0.0
2.0
0.0
131.9
0.0
0.0
0.0
0.2
0.0
0.0
5.8
0.0
(0.1)
0.0
80.9
13.9
27.5
91.6
26.5
287.0
17.6
12.9
9.5
13.8
44.5
390.8
81.4
39.5
0.1
0.0
80.9
13.9
27.5
91.6
26.5
289.3
17.4
12.9
9.5
13.8
44.5
390.8
84.0
39.5
(0.1)
0.1
80.9
11.4
0.0
0.0
0.0
0.0
0.0
10.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2.4
27.5
91.2
26.5
165.5
17.4
2.1
9.5
13.8
44.5
390.8
79.3
39.5
0.0
0.1
0.0
0.0
0.0
0.4
0.0
123.8
0.0
0.0
0.0
0.0
0.0
0.0
4.7
0.0
(0.1)
0.0
1 The carrying value of guarantees represented a liability of CHF 0.0 billion as of 31 December 2014 (31 December 2013: CHF 0.1 billion). The estimated fair value of guarantees represented an asset of CHF 0.1 billion
as of 31 December 2014 (31 December 2013: CHF 0.1 billion). 2 The fair value of loan commitments represented a liability of CHF 0.1 billion as of 31 December 2013.
654
Note 24 Fair value measurement (continued)
The fair values included in the table on the previous page were
calculated for disclosure purposes only. The fair value valuation
techniques and assumptions described below relate only to the
fair value of UBS AG’s financial instruments not measured at fair
value. Other institutions may use different methods and assump-
tions for their fair value estimation, and therefore such fair value
disclosures cannot necessarily be compared from one financial
institution to another. UBS AG applies significant judgments and
assumptions to arrive at these fair values, which are more holistic
and less sophisticated than UBS AG’s established fair value and
model governance policies and processes applied to financial in-
struments accounted for at fair value whose fair values impact
UBS AG’s balance sheet and net profit. The following principles
were applied when determining fair value estimates for financial
instruments not measured at fair value:
– For financial instruments with remaining maturities greater
than three months, the fair value was determined from quoted
market prices, if available.
– Where quoted market prices were not available, the fair values
were estimated by discounting contractual cash flows using
current market interest rates or appropriate yield curves for in-
struments with similar credit risk and maturity. These estimates
generally include adjustments for counterparty credit or
UBS AG’s own credit.
– For short-term financial instruments with remaining maturities
of three months or less, the carrying amount, which is net of
credit loss allowances, is generally considered a reasonable es-
timate of fair value. The following financial instruments not
measured at fair value have remaining maturities of three
months or less as of 31 December 2014: 100% of cash and
balances with central banks, 94% of amounts due from banks,
100% of cash collateral on securities borrowed, 88% of re-
verse repurchase agreements, 100% of cash collateral receiv-
ables on derivatives, 53% of loans, 91% of amounts due to
banks, 87% of cash collateral on securities lent, 90% of repur-
chase agreements, 100% of cash collateral payable on deriva-
tives, 99% of amount due to customers and 24% of debt is-
sued.
– The fair value estimates for repurchase and reverse repurchase
agreements with variable and fixed interest rates, for all ma-
turities, include the valuation of the interest rate component of
these instruments. Credit and debit valuation adjustments
have not been included in the valuation due to the short-term
nature of these instruments.
– The estimated fair values of off-balance sheet financial instru-
ments are based on market prices for similar facilities and guar-
antees. Where this information is not available, fair value is
estimated using discounted cash flow analysis.
655
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 25 Restricted and transferred financial assets
This Note provides information on restricted financial assets (Note 25a), transfers of financial assets (Note 25b and 25c) and financial
assets which are received as collateral with the right to resell or repledge these assets (Note 25d).
a) Restricted financial assets
Restricted financial assets consist of assets pledged as collateral
against an existing liability or contingent liability and other assets
which are otherwise explicitly restricted such that they cannot be
used to secure funding. In addition, UBS AG including its branches
and its subsidiaries are generally not subject to significant restric-
tions that would prevent the transfer of dividends and capital within
the Group, other than UBS AG’s regulated subsidiaries which are
required to maintain capital to comply with local regulations, with a
certain level of capital being not available for distribution or transfer.
Non-regulated subsidiaries are generally not subject to dividend or
capital transfer restrictions. However, exceptions may exist when re-
strictions are imposed as a result of a contractual-, entity- or coun-
try-specific arrangement or requirement.
Financial assets are mainly pledged as collateral in securities
lending transactions, in repurchase transactions, against loans
from Swiss mortgage institutions and in connection with the issu-
ance of covered bonds. UBS AG generally enters into repurchase
and securities lending arrangements under standard market
agreements, with a market-based haircut applied to the collateral,
which results in the associated liabilities having a carrying value
below the carrying value of the assets. Pledged mortgage loans
serve as collateral for existing liabilities against Swiss central
mortgage institutions and for existing covered bond issuances of
CHF 21,644 million as of 31 December 2014 (31 December 2013:
CHF 22,634 million).
Other restricted financial assets include assets protected under
client asset segregation rules, assets held by UBS AG’s insurance
entities to back related liabilities to the policy holders, assets held
in certain jurisdictions to comply with explicit minimum local asset
maintenance requirements and assets held in consolidated bank-
ruptcy remote entities such as certain investment funds and other
structured entities. The carrying value of the liabilities associated
with these other restricted financial assets is generally equal to the
carrying value of the assets, with the exception of assets held to
comply with local asset maintenance requirements for which the
associated liabilities are greater.
Restricted financial assets
CHF million
Financial assets pledged as collateral
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Loans
of which: mortgage loans 1
Financial investments available-for-sale
of which: assets pledged as collateral which may be sold or repledged by counterparties
Total financial assets pledged as collateral 2
Other restricted financial assets
Due from banks
Reverse repurchase agreements
Trading portfolio assets
Cash collateral receivables on derivative insruments
Financial assets designated at fair value
Financial investments available-for-sale
Other
Total other restricted financial assets
Total financial assets pledged and other restricted financial assets
Carrying amount
31.12.14
31.12.13
61,304
56,018
27,973
27,973
2,868
2,662
92,144
3,511
1,896
25,567
6,135
458
1,209
221
38,997
131,142
48,368
42,449
33,632
33,632
0
0
82,000
3,274
1,989
24,252
6,216
581
44
169
36,525
118,525
1 These pledged mortgage loans serve as collateral for existing liabilities against Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately
CHF 4.5 billion for 31 December 2014 (31 December 2013: approximately CHF 5.8 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements.
2 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2014: CHF 6.1 billion, 31 December 2013: CHF 4.3 billion).
656
Note 25 Restricted and transferred financial assets (continued)
b) Transferred financial assets that are not derecognized in their entirety
The table below presents information for financial assets, which have been transferred but are subject to continued recognition in full,
as well as recognized liabilities associated with those transferred assets.
Transferred financial assets subject to continued recognition in full
CHF million
Trading portfolio assets transferred which may be sold or repledged by counterparties
relating to securities lending and repurchase agreements in exchange for cash received
relating to securities lending agreements in exchange for securities received
relating to other financial asset transfers
Financial investments available-for-sale transferred which may be sold or
repledged by counterparties
Total financial assets transferred
31.12.14
31.12.13
Carrying value
of transferred
assets
Carrying value of
associated liabilities
recognized
on-balance sheet
Carrying value of
transferred assets
Carrying value of
associated liabilities
recognized
on-balance sheet
19,366
35,557
1,095
2,662
58,680
18,147
0
142
2,584
20,873
16,296
25,349
804
0
42,449
15,026
0
442
0
15,468
Transactions whereby financial assets are transferred, but con-
tinue to be recognized in their entirety on UBS AG’s balance sheet
include securities lending and repurchase agreements as well as
other financial asset transfers. Repurchase agreements and securi-
ties lending agreements are discussed in Note 1a items 13 and 14.
Repurchase and securities lending arrangements are, for the most
part, conducted under standard market agreements, and are un-
dertaken with counterparties subject to UBS AG’s normal credit
risk control processes. Other financial asset transfers include secu-
rities transferred to collateralize derivative transactions.
As of 31 December 2014, approximately one-third of the
transferred financial assets were trading portfolio assets trans-
ferred in exchange for cash, in which case the associated recog-
nized liability represents the amount to be repaid to counterpar-
ties. For securities lending and repurchase agreements, a haircut
between 0% and 15% is generally applied to the collateral, which
results in associated liabilities having a carrying value below the
carrying value of the transferred assets. The counterparties to the
associated liabilities presented in the table above have full re-
course to UBS AG.
In securities lending arrangements entered into in exchange
for the receipt of other securities as collateral, neither the securi-
ties received nor the obligation to return them are recognized on
UBS AG’s balance sheet as the risks and rewards of ownership are
not transferred to UBS AG. In cases where such financial assets
received are subsequently sold or repledged in another transaction,
this is not considered to be a transfer of financial assets.
Transferred assets other than trading portfolio assets and fi-
nancial investments available-for-sale which may be sold or re-
pledged by counterparties were not material in 2014. Transferred
assets other than trading portfolio assets which may be sold or
repledged by counterparties were not material in 2013.
Transferred financial assets that are not subject to derecogni-
tion in full, but which remain on the balance sheet to the extent
of UBS AG’s continuing involvement, were not material in 2014
and 2013.
657
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 25 Restricted and transferred financial assets (continued)
Transferred financial assets that are derecognized in their entirety with continuing involvement
Continuing involvement in a transferred and fully derecognized
financial asset may result from contractual provisions in the
transfer agreement or in a separate agreement with the counter-
party or a third party entered into in connection with the transfer.
The table below provides information on UBS AG’s continuing
involvement in transferred and fully derecognized financial assets.
There are a limited number of specific transactions for which UBS
AG has continuing involvement in derecognized financial assets,
as detailed below.
Transferred financial assets that are derecognized in their entirety with continuing involvement
CHF million
31.12.14
Type of continuing involvement
Purchased and retained interest
in securitization structures
Total
CHF million
Type of continuing involvement
Lending arrangements
Purchased and retained interest
in securitization structures
Other
Total
Balance sheet
Carrying
amount of
continuing
line item
involvement
Gain / (loss)
recognized at
the date of
transfer of the
financial assets 2
Gain / (loss) from continuing
involvement in transferred and
derecognized financial assets
For the year
ended 31.12.14
Life-to-date
31.12.14
Fair value of
continuing
involvement
Trading portfolio assets /
Replacement values 1
(22)
(22)
(22)
(22)
31.12.13
22
22
13
13
(1,582)
(1,582)
Balance sheet
line item
Carrying
amount of
continuing
involvement
Fair value of
continuing
involvement
Gain / (loss)
recognized at
the date of
transfer of the
financial assets
Gain / (loss) from continuing
involvement in transferred and
derecognized financial assets
For the year
ended 31.12.13
Life-to-date
31.12.13
Loans
Trading portfolio assets /
Replacement values 1
2,408
(34)
2,374
2,384
(34)
2,350
0
1
6
8
43
6
49
694
(1,596)
(902)
1 As of 31 December 2014, total purchased and retained interest in securitization structures consisted of trading portfolio assets of CHF 29 million and negative replacement values of CHF 51 million. As of 31 December 2013,
total purchased and retained interest in securitization structures consisted of trading portfolio assets of CHF 34 million and negative replacement values of CHF 68 million. Represents gains / (losses) recognized on the
date of transfer during the respective reporting period.
Purchased and retained interests in securitization vehicles
In cases where UBS AG has transferred assets into securitization
vehicles and retained or purchased interests therein, UBS AG has
a continuing involvement in those transferred assets. The majority
of the retained continuing involvement securitization positions
held in the trading portfolio are collateralized debt obligations, US
commercial mortgage-backed securities and residential mort-
gage-backed securities. As a result of losses incurred in previous
years, the majority of these continuing involvement positions
have a carrying amount of zero as of 31 December 2014. As of
31 December 2014, the maximum exposure to loss related to pur-
chased and retained interests in securitization structures was CHF
48 million, compared with CHF 49 million as of 31 December
2013, both mainly related to trading portfolio assets. Undis-
counted cash outflows of CHF 71 million may be payable to the
transferee in future periods as a consequence of holding the pur-
chased and retained interests. The earliest period in which pay-
ment may be required is less than 1 month. Life-to-date losses
presented in the table above only relate to retained interests held
as of 31 December 2014.
Lending arrangements: loan to BlackRock fund
In 2008, UBS AG sold a portfolio of US RMBSs for proceeds of
USD 15 billion to the RMBS Opportunities Master Fund, LP (the
RMBS fund), an entity managed by BlackRock, Inc. The RMBS
fund was capitalized with approximately USD 3.75 billion in eq-
uity raised by BlackRock from third-party investors and an eight-
year amortizing USD 11.25 billion senior secured loan provided by
UBS AG, which represented a continuing involvement in the as-
sets transferred to the fund. In 2014, the remaining amount of
the loan was fully repaid. Thus, as of 31 December 2014 UBS AG
no longer had a continuing involvement.
658
Note 25 Restricted and transferred financial assets (continued)
d) Off-balance-sheet assets received
The table below presents assets received from third parties that can be sold or repledged, that are not recognized on the balance sheet,
but that are held as collateral, including amounts that have been sold or repledged.
Off-balance-sheet assets received
CHF million
Fair value of assets received which can be sold or repledged
received as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative transactions and other transactions 1
received in unsecured borrowings
thereof sold or repledged 2
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions 1
31.12.14
388,855
383,354
5,502
271,963
227,515
27,958
16,491
31.12.13
351,712
348,205
3,507
240,176
193,879
26,609
19,688
1 Includes securities received as initial margin from its clients that UBS AG is required to remit to CCPs, brokers and deposit banks through its exchange-traded derivative (ETD) clearing and execution services. 2 Does
not include off-balance sheet securities (31 December 2014: CHF 37.6 billion, 31 December 2013: CHF 38.4 billion) placed with central banks related to undrawn credit lines and for payment, clearing and settlement
purposes for which there are no associated liabilities or contingent liabilities.
Note 26 Offsetting financial assets and financial liabilities
UBS AG enters into netting agreements with counterparties to
manage the credit risks associated primarily with repurchase and
reverse repurchase transactions, securities borrowing and lending
and over-the-counter and exchange-traded derivatives. These
netting agreements and similar arrangements generally enable
the counterparties to set-off liabilities against available assets re-
ceived in the ordinary course of business and / or in the event that
the counterparty to the transaction is unable to fulfill its contrac-
tual obligations. The right of set-off is a legal right to settle or
otherwise eliminate all or a portion of an amount due by applying
an amount receivable from the same counterparty against it, thus
reducing credit exposure.
On 1 January 2014, UBS AG adopted Offsetting Financial As-
sets and Financial Liabilities (Amendments to IAS 32, Financial
Instruments: Presentation). Under the revised rules, UBS AG is no
longer able to offset certain derivative arrangements. Refer to
Note 1b for more information. The prior period offsetting disclo-
sure as of 31 December 2013 presented on the following pages
was restated to reflect the effects of adopting these amend-
ments.
The table on the following page provides a summary of finan-
cial assets subject to offsetting, enforceable master netting ar-
rangements and similar agreements, as well as financial collateral
received to mitigate credit exposures for these financial assets.
The gross financial assets of UBS AG that are subject to offsetting,
enforceable netting arrangements and similar agreements are
reconciled to the net amounts presented within the associated
balance sheet line, after giving effect to financial liabilities with
the same counterparties that have been offset on the balance
sheet and other financial assets not subject to an enforceable net-
ting arrangement or similar agreement. Further, related amounts
for financial liabilities and collateral received that are not offset on
the balance sheet are shown to arrive at financial assets after con-
sideration of netting potential.
UBS AG engages in a variety of counterparty credit mitigation
strategies in addition to netting and collateral arrangements.
Therefore, the net amounts presented in the tables on the next
pages do not purport to represent the UBS AG’s actual credit
exposure.
659
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 26 Offsetting financial assets and financial liabilities (continued)
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
Assets subject to netting arrangements
31.12.14
Netting recognized on the balance sheet
Netting potential not recognized on
the balance sheet 3
Gross assets
before netting
Netting with
gross liabilities 2
Net assets
recognized
on the
balance
sheet
Financial
liabilities
Collateral
received
Assets after
consid-
eration of
netting
potential
Assets not
subject to
netting ar-
rangements 4
Assets
recognized
on the
balance
sheet
Total assets
Total assets
after consid-
eration of
netting
potential
Total assets
recognized
on the
balance
sheet
22.7
99.2
249.9
245.7
3.1
620.5
0.0
(42.8)
(3.1)
22.7
56.4
246.8
(1.9)
(3.4)
(198.7)
(218.4)
27.4
(18.8)
(20.8)
(52.8)
(30.8)
(1.6)
0.0
(264.2)
3.1
356.3
0.0
(222.9)
(3.0)
(108.9)
0.0
0.1
17.3
7.0
0.1
24.5
1.4
12.1
10.1
3.6
1.4
28.6
1.4
12.2
27.4
10.6
1.5
53.1
24.1
68.4
257.0
31.0
4.5
384.9
Assets subject to netting arrangements
31.12.13
Netting recognized on the balance sheet
Netting potential not recognized on
the balance sheet 3
Gross assets
before netting
Netting with
gross liabilities 2
Net assets
recognized
on the
balance
sheet
Financial
liabilities
Collateral
received
Assets after
consid-
eration of
netting
potential
Assets not
subject to
netting ar-
rangements 4
Assets
recognized
on the
balance
sheet
Total assets
Total assets
after consid-
eration of
netting
potential
Total assets
recognized
on the
balance
sheet
26.5
111.5
244.5
219.2
3.9
605.6
0.0
(25.4)
(2.8)
26.5
86.1
241.8
(1.2)
(5.4)
(194.9)
(196.1)
23.1
(14.4)
(25.2)
(80.7)
(33.5)
(1.1)
0.0
(224.3)
3.9
381.3
0.0
(215.9)
(3.9)
(144.3)
0.2
0.0
13.3
7.5
0.1
21.0
1.0
5.5
12.3
3.5
3.4
25.8
1.2
5.5
25.6
11.0
3.5
46.8
27.5
91.6
254.1
26.5
7.4
407.1
CHF billion
Cash collateral on securities
borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on
derivative instruments 1
Financial assets designated at
fair value
Total assets
CHF billion
Cash collateral on securities
borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on
derivative instruments 1
Financial assets designated at
fair value
Total assets
1 The net amount of Cash collateral receivables on derivative instruments recognized on the balance sheet includes certain OTC derivatives which are in substance net settled on a daily basis under IAS 32 and ETD
derivatives which are economically settled on a daily basis. In addition, this balance includes OTC and ETD cash collateral balances which correspond with the cash portion of collateral pledged, reflected on the Negative
replacement values line in the table presented on the following page. 2 The logic of the table results in amounts presented in the “Netting with gross liabilities” column corresponding directly to the amounts
presented in the “Netting with gross assets” column in the liabilities table presented on the following page. 3 For the purpose of this disclosure, the amounts of financial instruments and cash collateral not set off
in the balance sheet have been capped by relevant netting agreement so as not to exceed the net amount of financial assets presented on the balance sheet, i.e., over-collateralization, where it exists, is not reflected
in the table. 4 Includes assets not subject to enforceable netting arrangements and other out-of-scope items.
660
Note 26 Offsetting financial assets and financial liabilities (continued)
The table below provides a summary of financial liabilities subject
to offsetting, enforceable master netting arrangements and simi-
lar agreements, as well as financial collateral pledged to mitigate
credit exposures for these financial liabilities. The gross financial
liabilities of UBS AG that are subject to offsetting, enforceable
netting arrangements and similar agreements are reconciled to
the net amounts presented within the associated balance sheet
line, after giving effect to financial assets with the same counter-
parties that have been offset on the balance sheet and other fi-
nancial liabilities not subject to an enforceable netting arrange-
ment or similar agreement. Further, related amounts for financial
assets and collateral pledged that are not offset on the balance
sheet are shown to arrive at financial liabilities after consideration
of netting potential.
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Liabilities subject to netting arrangements
31.12.14
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet 3
Liabilities
not subject
to netting
arrange-
ments 4
Gross
liabilities
before
netting
8.4
51.5
243.3
256.1
3.8
563.1
Netting with
gross assets 2
0.0
(42.8)
(3.1)
(218.4)
0.0
(264.2)
Net
liabilities
recognized
on the
balance
sheet
Liabilities
after
consider-
ation of
netting
potential
Liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
8.4
8.7
240.2
37.7
3.8
(1.9)
(3.4)
(198.7)
(25.1)
0.0
(6.5)
(5.2)
(21.8)
(2.3)
(1.4)
298.8
(229.2)
(37.3)
0.0
0.0
19.7
10.3
2.4
32.4
0.7
3.2
13.9
4.6
71.5
93.9
Liabilities subject to netting arrangements
31.12.13
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet 3
Liabilities
not subject
to netting
arrange-
ments 4
Gross
liabilities
before
netting
8.5
34.2
235.5
233.9
6.6
518.7
Netting with
gross assets 2
0.0
(25.4)
(2.8)
(196.1)
0.0
(224.3)
Net
liabilities
recognized
on the
balance
sheet
Liabilities
after
consider-
ation of
netting
potential
Liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
8.5
8.8
232.7
37.8
6.6
(1.2)
(5.4)
(194.9)
(28.3)
0.0
(7.3)
(3.4)
(18.9)
(3.6)
(2.1)
294.3
(229.8)
(35.2)
0.0
0.0
18.8
5.8
4.6
29.3
1.0
5.0
15.4
6.8
63.3
91.5
Total liabilities
Total
liabilities
after
consider-
ation of
netting
potential
Total
liabilities
recognized
on the
balance
sheet
0.8
3.2
33.5
14.9
73.9
126.3
9.2
11.8
254.1
42.4
75.3
392.8
Total liabilities
Total
liabilities
after
consider-
ation of
netting
potential
Total
liabilities
recognized
on the
balance
sheet
1.0
5.0
34.2
12.6
67.8
120.7
9.5
13.8
248.1
44.5
69.9
385.8
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on derivative instruments 1
Financial liabilities designated at fair value
Total liabilities
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on derivative instruments 1
Financial liabilities designated at fair value
Total liabilities
1 The net amount of Cash collateral payables on derivative instruments recognized on the balance sheet includes certain OTC derivatives which are in substance net settled on a daily basis under IAS 32 and ETD
derivatives which are economically settled on a daily basis. In addition, this balance includes OTC and ETD cash collateral balances which correspond with the cash portion of collateral received reflected on the Positive
replacement values line in the table presented on the previous page. 2 The logic of the table results in amounts presented in the “Netting with gross assets” column corresponding directly to the amounts presented
in the “Netting with gross liabilities” column in the assets table presented on the previous page. 3 For the purpose of this disclosure, the amounts of financial instruments and cash collateral not set off on the balance
sheet have been capped by relevant netting arrangement so as not to exceed the net amount of financial liabilities presented in the balance sheet, i.e., over-collateralization, where it exists, is not reflected in the
table. 4 Includes liabilities not subject to enforceable netting arrangements and other out-of-scope items.
661
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 27 Financial assets and liabilities – additional information
a) Measurement categories of financial assets and liabilities
The table below provides information about the carrying amounts
of individual classes of financial instruments within the measure-
ment categories of financial assets and liabilities as defined in IAS
39 Financial Instruments: Recognition and Measurement. Only
those assets and liabilities which are financial instruments as de-
fined in IAS 32 Financial Instruments: Presentation are included in
the table below, which causes certain balances to differ from
those presented on the balance sheet.
➔ Refer to Note 24 for more information on how the fair value of
financial instruments is determined
Measurement categories of financial assets and financial liabilities
CHF million
Financial assets 1
Held for trading
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Debt issued 2
Positive replacement values
Total
Fair value through profit or loss
Financial assets designated at fair value
Financial assets at amortized cost
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments
Loans 3
Other assets
Total
Available-for-sale
Financial investments available-for-sale
Total financial assets
Financial liabilities
Held for trading
Trading portfolio liabilities
Debt issued 2
Negative replacement values
Total
Fair value through profit or loss, other
Financial liabilities designated at fair value
Amounts due under unit-linked investment contracts
Total
Financial liabilities at amortized cost
Due to banks
Cash collateral on securities lent
Repurchase agreements
Cash collateral payables on derivative instruments
Due to customers
Debt issued
Other liabilities
Total
Total financial liabilities
31.12.14
31.12.13
132,392
56,018
283
256,978
389,653
114,249
42,449
202
254,084
368,535
4,493
7,364
104,073
13,334
24,063
68,414
30,979
315,984
21,332
578,179
57,159
1,029,483
27,958
308
254,101
282,367
75,297
17,643
92,940
10,492
9,180
11,818
42,372
410,979
91,183
46,013
622,036
997,343
80,879
13,874
27,496
91,563
26,548
286,959
17,598
544,918
59,525
980,342
26,609
362
248,079
275,050
69,901
16,155
86,056
12,862
9,491
13,811
44,507
390,825
81,426
39,522
592,444
953,550
1 As of 31 December 2014, CHF 119 billion of Loans, CHF 0 billion of Due from banks, CHF 1 billion of Reverse repurchase agreements, CHF 35 billion of Financial investments available-for-sale and CHF 4 billion of
Financial assets designated at fair value are expected to be recovered or settled after twelve months. As of 31 December 2013, CHF 116 billion of Loans, CHF 0 billion of Due from banks, CHF 0 billion of Reverse
repurchase agreements, CHF 31 billion of Financial investments available-for-sale and CHF 5 billion of Financial assets designated at fair value are expected to be recovered or settled after twelve months. 2 Represents
the embedded derivative component of structured debt issued for which the fair value option has not been applied and which is presented within Debt issued on the balance sheet. 3 Includes finance lease receivables
of CHF 1.1 billion as of 31 December 2014 (31 December 2013: CHF 1.1 billion). Refer to Notes 10 and 33 for more information.
662
Note 27 Financial assets and liabilities – additional information (continued)
b) Maturity analysis of financial liabilities
The contractual maturities for non-derivative and non-trading fi-
nancial liabilities as of 31 December 2014 are based on the earli-
est date on which UBS AG could be contractually required to pay.
The total amounts that contractually mature in each time-band
are also shown for 31 December 2013. Derivative positions and
trading liabilities, predominantly made up of short sale transac-
tions, are assigned to the column Due within 1 month, as this
provides a conservative reflection of the nature of these trading
activities. The contractual maturities may extend over significantly
longer periods.
Maturity analysis of financial liabilities 1
CHF billion
Financial liabilities recognized on balance sheet 2
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities 3, 4
Negative replacement values 3
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value 5
Due to customers
Debt issued
Other liabilities
Total 31.12.14
Total 31.12.13
Guarantees, commitments and forward starting transactions 6
Commitments
Loan commitments
Underwriting commitments
Total commitments
Guarantees
Forward starting transactions
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.14
Total 31.12.13
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
7.5
5.2
9.1
28.0
254.1
42.4
3.0
393.4
7.2
62.5
812.3
791.6
50.4
0.7
51.1
17.4
10.3
0.1
79.0
83.0
2.1
2.8
1.5
13.5
13.1
15.4
48.4
22.9
0.1
0.1
0.0
0.1
0.3
0.5
1.2
1.0
18.4
4.1
14.2
39.4
43.1
0.1
0.1
0.1
0.2
0.2
0.4
0.3
22.5
0.3
37.4
60.9
66.2
0.0
0.0
0.1
0.2
0.3
0.0
21.2
0.1
28.4
49.8
41.3
0.0
0.0
0.0
0.1
Total
10.5
9.2
11.9
28.0
254.1
42.4
78.6
411.0
102.7
62.5
1,010.9
965.1
50.7
0.7
51.4
17.7
10.3
0.1
79.5
83.9
1 Non-financial liabilities such as deferred income, deferred tax liabilities, provisions and liabilities on employee compensation plans are not included in this analysis. 2 Except for trading portfolio liabilities and
negative replacement values (see footnote 3), the amounts presented generally represent undiscounted cash flows of future interest and principal payments. 3 Carrying value is fair value. Management believes that
this best represents the cash flows that would have to be paid if these positions had to be settled or closed out. Refer to Note 14 for undiscounted cash flows of derivatives designated in hedge accounting relation-
ships. 4 Contractual maturities of trading portfolio liabilities are: CHF 26.7 billion due within one month (2013: CHF 24.3 billion), CHF 1.3 billion due between one month and one year (2013: CHF 1.2 billion), and
CHF 0 billion due between 1 and 5 years (2013: CHF 1.1 billion). 5 Future interest payments on variable rate liabilities are determined by reference to the applicable interest rate prevailing as of the reporting date.
Future principal payments which are variable are determined by reference to the conditions existing at the reporting date. 6 Comprises the maximum irrevocable amount of guarantees, commitments and forward
starting transactions.
663
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 27 Financial assets and liabilities – additional information (continued)
c) Reclassification of financial assets
In 2008 and 2009, certain financial assets were reclassified from
Trading portfolio assets to Loans. On their reclassification date,
these assets had fair values of CHF 26 billion and CHF 0.6 billion,
respectively.
The reclassification of financial assets reflected UBS AG’s
change in intent and ability to hold these financial assets for the
foreseeable future rather than for trading in the near term. The
foreseeable future is interpreted to mean a period of approxi-
mately 12 months following the date of reclassification. The finan-
cial assets were reclassified using their fair value on the date of the
reclassification, which became their new cost basis at that date.
Held-for-trading assets reclassified to loans and receivables
CHF billion
Carrying value
Fair value
Pro-forma fair value gain / (loss)
31.12.14
31.12.13
0.7
0.7
0.0
1.5
1.5
0.0
The table below provides notional values, fair values and carrying values by product category for the remaining reclassified financial
assets.
Held-for-trading assets reclassified to loans and receivables
CHF billion
Municipal auction rate securities
Monoline-protected assets
Other assets
Total
31.12.14
Notional value
Fair value
Carrying value
0.2
0.3
0.2
0.7
0.2
0.3
0.2
0.7
0.2
0.3
0.1
0.7
Ratio of carry-
ing to notional
value (%)
97
94
92
94
In 2014, the carrying value of the remaining reclassified financial
assets decreased by CHF 0.8 billion, mainly due to sales and
redemptions of US student loan auction rate securities and mono-
line-protected assets. The overall impact on operating profit be-
fore tax from the financial assets for the year ended 31 December
2014 was a profit of CHF 84 million (see table below). If the finan-
cial assets had not been reclassified, the impact on operating
profit before tax for the year ended 31 December 2014 would
have been a profit of approximately CHF 0.1 billion (2013: CHF
0.2 billion).
Contribution of the reclassified assets to the income statement
CHF million
Net interest income
Credit loss (expense) / recovery
Other income 1
Impact on operating profit before tax
1 Includes net gains/losses on the disposal of reclassified financial assets.
For the year ended
31.12.14
31.12.13
39
2
43
84
74
4
53
132
664
Note 27 Financial assets and liabilities – additional information (continued)
d) Maximum exposure to credit risk of financial assets designated at fair value
Financial assets designated at fair value totaled CHF 4,493 million
as of 31 December 2014 (31 December 2013: CHF 7,364 million).
Maximum exposure to credit risk from financial assets designated
at fair value was CHF 4.3 billion as of 31 December 2014 (31 De-
cember 2013: CHF 6.8 billion). The exposure related to structured
loans and reverse repurchase and securities borrowing agree-
ments was mitigated by securities collateral of CHF 3.3 billion as
of 31 December 2014 (31 December 2013: CHF 5.4 billion).
The maximum exposure to credit risk of loans, but not struc-
tured loans, is generally mitigated by credit derivatives or similar
instruments. Information regarding these instruments and the
exposure which they mitigate is provided in the table below on a
notional basis.
Investment fund units designated at fair value do not have a
direct exposure to credit risk.
➔ Refer to Note 24 for more information on financial assets
designated at fair value, and to the Maximum exposure to credit
risk disclosure in the Credit risk section of this report for more
information on collateral related to financial assets designated
at fair value
Notional amounts of loans designated at fair value and related credit derivatives
CHF million
Loans – notional amount
Credit derivatives related to loans – notional amount 1
Credit derivatives related to loans – fair value 1
1 Credit derivatives contracts include credit default swaps, total return swaps and similar instruments.
31.12.14
31.12.13
667
644
1
1,103
790
(8)
The table below provides the impact on the fair values of loans from changes in credit risk for the periods presented and cumulatively
since inception. Similarly, the change in fair value of credit derivatives and similar instruments which are used to hedge these loans is
also provided.
Changes in fair value of loans and related credit derivatives attributable to changes in credit risk
CHF million
Changes in fair value of loans designated at fair value, attributable to changes in credit risk 1
Changes in fair value of credit derivatives and similar instruments which mitigate the maximum
exposure to credit risk of loans designated at fair value 1
For the year ended
Cumulative from inception
until the year ended
31.12.14
31.12.13
31.12.14
31.12.13
(3)
3
16
(9)
(2)
1
5
(8)
1 Current and cumulative changes in the fair value of loans designated at fair value, attributable to changes in their credit risk are only calculated for those loans outstanding at balance sheet date. Current and cumula-
tive changes in the fair value of credit derivatives hedging such loans include all the derivatives which have been used to mitigate credit risk of these loans since designation at fair value. For loans reported under the fair
value option, changes in fair value due to changes in the credit standing of the borrower are calculated using counterparty credit information obtained from independent market sources.
665
Financial information Financial information
Notes to the UBS AG consolidated financial statements
The table below provides information relating to pension costs for defined benefit plans and defined contribution plans. These costs
are part of Personnel expenses.
Income statement – expenses related to pension and other post-employment benefit plans
CHF million
Net periodic pension cost for defined benefit plans
of which: related to major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans
of which: related to post-retirement medical and life insurance plans 2
of which: related to remaining plans and other costs 3
Pension cost for defined contribution plans 4
Total pension and other post-employment benefit plan expenses 5
31.12.14
31.12.13
31.12.12
467
508
458
50
(36)
(5)
244
711
651
638
555
82
(11)
24
236
887
(222)
(116)
(198)
82
(102)
(3)
240
18
1 Refer to Note 28a for more information. 2 Refer to Note 28b for more information. 3 Other costs include differences between actual and estimated performance award accruals and net accrued pension costs re-
lated to restructuring. 4 Refer to Note 28c for more information. 5 Refer to Note 6.
The table below provides information relating to amounts recognized in other comprehensive income for defined benefit plans.
Other comprehensive income – gains / (losses) on pension and other post-employment benefit plans
CHF million
Major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans
Post-retirement medical and life insurance plans 2
Remaining plans
Gains / (losses) recognized in other comprehensive income, before tax
Tax (expense) / benefit relating to defined benefit plans recognized in other comprehensive income
Gains / (losses) recognized in other comprehensive income, net of tax 3
1 Refer to Note 28a for more information. 2 Refer to Note 28b for more information. 3 Refer to the “Statement of comprehensive income.”
31.12.14
31.12.13
31.12.12
(1,456)
(1,032)
(424)
(5)
7
(1,454)
247
(1,208)
1,168
1,119
49
3
7
1,178
(239)
939
1,053
1,095
(42)
(26)
(5)
1,023
(413)
609
666
Note 28 Pension and other post-employment benefit plans The tables below provide information on UBS AG’s assets and liabilities with respect to pension and post-employment benefit plans.
These are recognized on the balance sheet within Other assets and Other liabilities. All major plans are currently in a deficit situation.
Balance sheet – net defined benefit pension and post-employment asset
CHF million
Major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans
Post-retirement medical and life insurance plans
Remaining plans
Total net defined benefit pension and post-employment asset 2
1 Refer to Note 28a for more information. 2 Refer to Note 18.
Balance sheet – net defined benefit pension and post-employment liability
CHF million
Major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans 2
Post-retirement medical and life insurance plans 3
Remaining plans
Total net defined benefit pension and post-employment liability 4
31.12.14
31.12.13
0
0
0
0
0
0
952
952
0
0
0
952
31.12.14
31.12.13
1,256
25
1,231
85
32
1,374
903
0
903
114
31
1,048
1 Refer to Note 28a for more information. 2 Liability consists of: UK plan CHF 568 million, US plans CHF 297 million and German plans CHF 367 million (31 December 2013: UK plan CHF 433 million, US plans CHF
186 million and German plans CHF 284 million). 3 Refer to Note 28b for more information. 4 Refer to Note 23.
667
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
a) Defined benefit pension plans
UBS AG has established pension plans for its employees in various
locations. The major plans are located in Switzerland, the UK, the
US and Germany. Independent actuarial valuations for the plans
in these countries are performed as required.
The overall investment policy and strategy for UBS AG’s de-
fined benefit pension plans is guided by the objective of achieving
an investment return which, together with contributions, ensures
that there will be sufficient assets to pay pension benefits as they
fall due while also mitigating the various risks of the plans. For the
plans with assets (i.e., funded plans), the investment strategies for
the plans are managed under local laws and regulations in each
jurisdiction. The actual asset allocation is determined by the
governance body with reference to the prevailing current and
expected economic and market conditions and in consideration
of specific asset class risk in the risk profile. Within this frame-
work, UBS AG ensures that the fiduciaries consider how the asset
investment strategy correlates with the maturity profile of the
plan liabilities and the respective potential impact on the funded
status of the plans, including potential short term liquidity
requirements.
The defined benefit obligation for all of UBS AG’s defined ben-
efit pension plans are directly impacted by changes in yields of
high-quality corporate bonds in the respective country, as the ap-
plicable discount rate to determine the defined benefit obligation
is based on these yields. For the funded plans, the pension assets
are invested in a diversified portfolio of financial assets including
real estate, bonds, investment funds and cash across geographic
regions to ensure a balance of risk and return to the extent allowed
under local pension laws. The market value of these financial
assets is not fully correlated to changes in high-quality corporate
bond yields. This results in volatility in the net asset / liability posi-
tion for each plan. Specific asset-liability matching strategies for
each pension plan are independently determined by the responsi-
ble governance body in each country. The net asset / liability volatil-
ity for each plan is dependent on the specific financial assets cho-
sen by each plan’s fiduciaries. For certain pension plans, a liability-
driven investment approach is applied to a portion of the plan as-
sets to reduce potential volatility.
Swiss pension plan
The Swiss pension plan covers employees of UBS AG and its affili-
ated companies in Switzerland and exceeds the minimum benefit
requirements under Swiss pension law. The pension fund must
provide the minimum mandatory benefits in accordance with
Swiss pension law.
Contributions to the pension plan are paid by the employees
and the employer. The Swiss pension plan allows employees a
choice with regard to the level of contributions paid by the em-
ployee. Employee contributions are calculated as a percentage of
contributory salary and are deducted monthly. The percentages
668
deducted from salary depend on age and choice of contribution
category and vary between 1% and 13.5% of contributory base
salary and between 0% and 9% of contributory variable compen-
sation. Depending on the age of the employee, UBS AG pays a
contribution that ranges between 6.5% and 27.5% of contribu-
tory base salary and between 3.6% and 9% of contributory vari-
able compensation. UBS AG also pays risk contributions which are
used to finance benefits paid out in the event of death and dis-
ability, as well as to finance bridging pensions.
The benefits include retirement benefits and disability, death
and survivor pensions. The pension plan offers to members at the
normal retirement age of 64 a choice between a lifetime pension
with or without full restitution and a partial or full lump sum pay-
ment. Members can draw retirement benefits early from the age
of 58. The amount of pension payable is a result of the conversion
rate applied on the accumulated balance of the individual plan
participant’s pension account at the retirement date. The accumu-
lated balance of each individual plan participant’s pension ac-
count is based on credited vested benefits transferred from previ-
ous employers, purchases of benefits and the employee and
employer contributions that have been made to the pension ac-
count of each individual plan participant, as well as the interest
accrued on the accumulated balance. The interest rate accrued is
defined annually by the Pension Foundation Board.
Although the Swiss pension plan is based on a defined contri-
bution promise under Swiss pension law, it is accounted for as a
defined benefit plan under IAS 19, primarily because of the obli-
gation to accrue interest on the pension accounts and the pay-
ment of lifetime pensions. The actuarial assumptions used for the
Swiss pension plan are based on the local economic environ-
ment.
➔ Refer to Note 1a item 24 for a description of the accounting
policy for defined benefit pension plans
The Swiss pension plan is governed by the Pension Foundation
Board as required by the Swiss pension law. The responsibilities
of the Pension Foundation Board are defined by Swiss pension
law and by the plan rules. According to Swiss pension law, a
temporary limited underfunding is permitted. However, the Pen-
sion Foundation Board is required to take the necessary measures
to ensure that full funding can be expected to be restored within
a period up to a maximum of ten years. Under Swiss pension law,
if the Swiss pension plan became significantly underfunded on a
Swiss pension law basis, additional employer and employee con-
tributions could be required. In these situations, the risk is shared
between employer and employees, and the employer is not le-
gally obliged to cover more than 50% of the additional contribu-
tions required. The Swiss pension plan has a technical funding
ratio under Swiss pension law of 123.7% as of 31 December
2014 (31 December 2013: 127.0%).
Note 28 Pension and other post-employment benefit plans (continued) The investment strategy of the Swiss plan is implemented
based on a multi-level investment and risk management process
and is in line with Swiss pension law, including the rules and regu-
lations relating to diversification of plan assets. These rules,
among others, specify restrictions to the composition of plan as-
sets (e.g., limit of 50% for investments in equities). The invest-
ment strategy of the Swiss plan is aligned to the defined risk bud-
get set out by the Pension Foundation Board. The risk budget is
determined based on regularly performed asset and liability man-
agement analyses. In order to implement the risk budget, the
Swiss plan may use direct investments, investment funds and de-
rivatives. To mitigate foreign currency risk, a specific currency
hedging strategy was implemented. The Pension Foundation
Board strives for a medium and long-term balance between assets
and liabilities. Under IAS 19, volatility arises in the Swiss pension
plan net asset / liability because the fair value of the plan assets is
not directly correlated to movements in the value of the plan’s
defined benefit obligation in the short term.
The employer contributions expected to be made to the Swiss
pension plan in 2015 are estimated to be CHF 486 million.
As of 31 December 2014, the Swiss pension plan was in a deficit
situation on an IFRS measurement basis, as the defined benefit ob-
ligation exceeded the fair value of plan assets by CHF 25 million.
On the same measurement basis, as of 31 December 2013, the
Swiss pension plan had a surplus of CHF 1,760 million. A surplus
can only be recognized on the balance sheet to the extent that it
does not exceed the estimated future economic benefit, which is
the difference between the estimated future net service cost and
the estimated future employer contributions. As of 31 December
2013, the estimated future economic benefit was CHF 952 million
and hence, this was the amount recognized as net defined benefit
asset on the balance sheet. The difference of CHF 808 million be-
tween the pension plan surplus and the estimated future economic
benefit, the so-called asset ceiling effect, was recognized as a loss
in other comprehensive income in 2013, which was reversed in
2014.
Non-Swiss pension plans
The non-Swiss locations of UBS AG offer various pension plans in
accordance with local regulations and practices. The locations
with significant defined benefit plans are the UK, the US and Ger-
many. The remaining non-major plans are located mainly in Asia
Pacific, Europe and the Americas. As these other plans are not
significant to the financial results of UBS AG, no specific disclo-
sure is provided.
The non-Swiss pension plans provide benefits in the event of re-
tirement, death or disability. The level of benefits provided depends
on the specific rate of benefit accrual and the level of employee
compensation. The amounts shown for the non-Swiss pension
plans reflect the net funded positions of the significant non-Swiss
pension plans. UBS AG’s general principle is to ensure that the plans
are appropriately funded under local pension regulations in each
country and this is the primary driver for determining when addi-
tional contributions are required. Similar to the Swiss pension plan,
volatility arises in the non-Swiss pension plans’ net asset / liability
because the fair value of the plan assets is not directly correlated to
movements in the value of the plans’ defined benefit obligation.
The employer contributions expected to be made to these pen-
sion plans in 2015 are estimated to be CHF 107 million. The fund-
ing policy for these plans is consistent with local government
regulations and tax requirements. The actuarial assumptions used
for the non-Swiss pension plans are based on the local economic
environment.
➔ Refer to Note 1a item 24 for a description of the accounting
policy for defined benefit pension plans
UK
The UK plan is a career average revalued earnings scheme and
benefits increase automatically based on UK price inflation. Nor-
mal retirement age for participants in the UK plan is 60. The plan
is closed to new entrants, who instead can participate in a de-
fined contribution plan. On 1 July 2013, UBS AG closed the UK
defined benefit pension plan for future service. After that date,
UBS AG no longer recognizes current service costs for this plan.
The closure of the plan for future service did not have a financial
impact since the UK plan is a career average plan and past service
benefits are indexed to UK price inflation. Plan participants who
were active employees under the defined benefit plan were eli-
gible to become participants of the defined contribution plan for
any service after the plan was closed for future service.
The responsibility for governance of the UK plan lies jointly
with the Pension Trustee Board, which is required under local
pension laws, and UBS AG. The employer contributions to the
pension fund included regular contributions and specific deficit
funding contributions up to the date of the closure of the UK
plan for future service and thereafter represent agreed deficit
funding contributions. The employer contributions are deter-
mined based on the most recent actuarial valuation which is con-
ducted based on assumptions agreed by the Pension Trustee
Board and UBS AG. In the event of an underfunding, UBS AG
must agree to a deficit recovery plan with the Pension Trustee
Board within statutory deadlines. As the plan’s obligation is to pro-
vide guaranteed lifetime pension benefits to plan participants
upon retirement, increases in life expectancy will result in an in-
crease in the plan’s liabilities. This is particularly significant in the
UK plan where inflationary increases result in higher sensitivity to
changes in the life expectancy.
The plan assets are invested in a diversified class of assets and
a portion of the plan assets are invested in a liability-driven invest-
ment approach focusing on the investment in inflation-indexed
bonds which provide a partial hedge against price inflation. If
price inflation increases, the defined benefit obligation will likely
increase more significantly than any change in the fair value of
plan assets. This would result in an increase in the net defined
669
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
benefit liability. However, based on the plan rules and due to local
pension legislation, there are caps on the level of inflationary in-
crease applied to plan benefits.
US
There are two distinct major defined benefit pension plans in the
US. Normal retirement age for participants in the US plans is 65.
The plans are closed to new entrants, who instead can participate
in defined contribution plans.
One defined benefit pension plan is a contribution-based plan
where each participant accrues a percentage of salary in a pen-
sion account. The pension account is credited annually with inter-
est based on a rate that is linked to the yield on a US government
bond. Upon retirement, the plan participant can elect to receive
the retirement benefit as a lump sum or a lifetime pension. The
other plan provides a lifetime pension which is based on the ca-
reer average earnings of each individual plan participant.
There are pension plan fiduciaries for both defined benefit
pension plans as required under local state pension laws. The fi-
duciaries, jointly with UBS AG are responsible for the governance
of the plans. Actuarial valuations are regularly completed for the
plans and UBS AG has historically elected to make contributions
to the plans in order to at least maintain a funded ratio of 80% as
calculated under local pension regulations. The annual employer
contributions are equal to the present value of benefits accrued
each year plus a rolling amortization of any prior underfunding. If
the employer contributes more than the minimum or the plan has
assets exceeding the liabilities, the excess can be used to offset
minimum funding requirements.
ability position. Derivative instruments may be employed to
manage volatility, including (but not limited to) interest rate fu-
tures, equity futures and swaps (including credit default and
interest rate swaps).
In 2013, UBS AG offered to certain deferred vested members of
the US pension plans the option to receive a lump sum payment
(or early annuity payments) instead of a lifetime pension. This re-
sulted in a reduction of the defined benefit obligation of CHF 196
million, a reduction of fair value of plan assets of CHF 216 million
and a charge to the income statement of CHF 20 million in 2013.
Germany
There are two different defined benefit pension plans in Germany
and both are contribution-based plans. No plan assets are set
aside to fund these plans and benefits are directly paid by UBS AG.
Normal retirement age for the participants in the German plans
is 65. Within the larger of the two pension plans, each participant
accrues a percentage of salary in a pension account. On an annual
basis the accumulated account balance of the plan participant is
credited with guaranteed interest at a rate of 5%. The other plan
is a deferred compensation plan in which amounts are accrued
annually based on employee elections. For the deferred compen-
sation plan, the accumulated account balance is credited on an
annual basis with a guaranteed interest rate of 4% for amounts
accrued after 2009. Both German plans are regulated under Ger-
man pension law under which the responsibility to pay pension
benefits when they are due is entirely the responsibility of UBS
AG. For the German plans, a portion of the pension payments is
directly increased in line with price inflation.
The plan assets are invested in a diversified portfolio of fi-
nancial assets. Each pension plan’s fiduciaries are responsible
for the investment decisions with respect to the plan assets. A
liability-driven investment approach is applied for one of the US
plans to support the volatility management in the net asset / li-
The table on the following pages provides an analysis of the
movement in the net asset / liability recognized on the balance
sheet for defined benefit pension plans from the beginning to the
end of the year, as well as an analysis of amounts recognized in
net profit and in other comprehensive income.
670
Note 28 Pension and other post-employment benefit plans (continued) Note 28 Pension and other post-employment benefit plans (continued)
Defined benefit pension plans
CHF million
For the year ended
Swiss
Non-Swiss
Total
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
Defined benefit obligation at the beginning of the year
20,738
21,901
4,670
4,773
25,408
26,674
Current service cost
Interest expense
Plan participant contributions
Remeasurements of defined benefit obligation
of which: actuarial (gains) / losses arising from changes in demographic assumptions
of which: actuarial (gains) / losses arising from changes in financial assumptions
of which: experience (gains) / losses 1
Past service cost related to plan amendments
Curtailments
Benefit payments
Termination benefits
Foreign currency translation
Defined benefit obligation at the end of the year
of which: amounts owing to active members
of which: amounts owing to deferred members
of which: amounts owing to retirees
Fair value of plan assets at the beginning of the year
Return on plan assets excluding amounts included in interest income
Interest income
Employer contributions – excluding termination benefits
Employer contributions – termination benefits
Plan participant contributions
Benefit payments
Administration expenses, taxes and premiums paid
Payments related to plan amendments
Foreign currency translation
Fair value of plan assets at the end of the year
Asset ceiling effect
Net defined benefit asset / (liability)
Movement in the net asset / (liability) recognized on the balance sheet
Net asset / (liability) recognized on the balance sheet at the beginning of the year
Net periodic pension cost
Amounts recognized in other comprehensive income
Employer contributions – excluding termination benefits
Employer contributions – termination benefits
Foreign currency translation
Net asset / (liability) recognized on the balance sheet at the end of the year
Funded and unfunded plans
Defined benefit obligation from funded plans
Defined benefit obligation from unfunded plans
Plan assets
Surplus / (deficit)
Asset ceiling effect
Net defined benefit asset / (liability)
496
465
202
3,120
66
2,705
349
0
(54)
549
399
197
(1,124)
0
(1,114)
(10)
0
(37)
(1,045)
(1,183)
34
0
23,956
11,480
0
12,477
22,498
1,262
513
478
34
202
(1,045)
(10)
0
0
36
0
20,738
9,841
0
10,897
21,783
803
403
470
36
197
(1,183)
(11)
0
0
23,931
22,498
0
(25)
808
952
952
(458)
(1,032)
478
34
0
(25)
(118)
(555)
1,119
470
36
0
952
10
217
0
619
70
669
(121)
0
0
(172)
0
297
5,642
624
2,756
2,261
3,768
195
183
181
0
0
(172)
(6)
0
261
4,410
0
(1,231)
(903)
(50)
(424)
181
0
(36)
21
199
0
105
(23)
3
125
(196)
0
(204)
0
(26)
4,670
710
2,249
1,711
3,783
154
162
125
0
0
(204)
(5)
(216)
(31)
3,768
0
(903)
(990)
(82)
49
125
0
(5)
(1,231)
(903)
(1,256)
23,956
20,738
0
23,931
(25)
0
(25)
0
22,498
1,760
808
952
5,249
392
4,410
(1,231)
0
(1,231)
4,365
306
3,768
(903)
0
(903)
29,205
392
28,341
(1,256)
0
(1,256)
506
682
202
3,739
136
3,374
228
0
(54)
569
597
197
(1,019)
(23)
(1,111)
115
(196)
(37)
(1,218)
(1,388)
34
297
29,598
12,104
2,756
14,738
26,266
1,457
697
659
34
202
36
(26)
25,408
10,551
2,249
12,608
25,566
957
565
595
36
197
(1,218)
(1,388)
(16)
0
261
(16)
(216)
(31)
28,341
26,266
0
(1,256)
50
(508)
(1,456)
659
34
(36)
808
50
(1,108)
(638)
1,168
595
36
(5)
50
25,102
306
26,266
857
808
50
1 Experience (gains) / losses are a component of actuarial remeasurements of the defined benefit obligation which reflect the effects of differences between the previous actuarial assumptions and what has actually
occurred.
671
Financial information Financial information
Notes to the UBS AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
Analysis of amounts recognized in net profit
CHF million
For the year ended
Current service cost
Interest expense related to defined benefit obligation
Interest income related to plan assets
Interest expense on asset ceiling effect
Administration expenses, taxes and premiums paid
Plan amendments
Curtailments
Termination benefits
Net periodic pension cost
Analysis of amounts recognized in other comprehensive income
CHF million
For the year ended
Remeasurement of defined benefit obligation
Return on plan assets excluding amounts included in interest income
Asset ceiling effect excluding interest expense on asset ceiling effect
Interest expense on asset ceiling effect
Swiss
Non-Swiss
Total
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
496
465
(513)
19
10
0
(54)
34
458
549
399
(403)
0
11
0
(37)
36
555
10
217
(183)
0
6
0
0
0
50
21
199
(162)
0
5
20
0
0
82
506
682
(697)
19
16
0
(54)
34
508
569
597
(565)
0
16
20
(37)
36
638
Swiss
Non-Swiss
Total
31.12.14
31.12.13
31.12.14
31.12.13
31.12.14
31.12.13
(3,120)
1,262
808
19
1,124
803
(808)
0
(619)
195
0
0
(105)
154
0
0
49
(3,739)
1,457
808
19
1,019
957
(808)
0
(1,456)
1,168
Total gains / (losses) recognized in other comprehensive income, before tax
(1,032)
1,119
(424)
The table below provides information on the duration of the defined benefit pension obligations and the distribution of the timing of
benefit payments.
Swiss
Non-Swiss 1
Duration of the defined benefit obligation (in years)
Maturity analysis of benefits expected to be paid
CHF million
Benefits expected to be paid within 12 months
Benefits expected to be paid between 1 to 3 years
Benefits expected to be paid between 3 to 6 years
Benefits expected to be paid between 6 to 11 years
Benefits expected to be paid between 11 to 16 years
Benefits expected to be paid in more than 16 years
1 The duration of the defined benefit obligation represents a weighted average across non-Swiss plans.
31.12.14
16.7
31.12.13
15.1
31.12.14
17.9
31.12.13
18.9
1,033
2,023
3,035
5,394
5,571
26,613
1,033
2,051
3,008
5,630
5,874
28,915
165
344
596
1,253
1,510
9,289
151
321
555
1,168
1,422
8,970
The tables below show the principal actuarial assumptions used in calculating the defined benefit obligations.
Principal actuarial assumptions used (%)
Assumptions used to determine defined benefit obligations at the end of the year
Discount rate
Rate of salary increase
Rate of pension increase
Rate of interest credit on retirement savings
1 Represents weighted average assumptions across non-Swiss plans.
Swiss
Non-Swiss1
31.12.14
31.12.13
31.12.14
31.12.13
1.15
2.40
0.00
1.40
2.30
2.50
0.00
2.55
3.66
3.01
2.97
1.13
4.64
3.15
3.30
1.12
672
Mortality tables and life expectancies for major plans
Country
Switzerland
UK
US
Germany
Country
Switzerland
UK
US
Germany
Mortality table
BVG 2010 G
S1NA_L CMI 2014 G, with projections 1
RP2014 G, with MP2014 projection scale 2
Dr. K. Heubeck 2005 G
Mortality table
BVG 2010 G
S1NA_L CMI 2014 G, with projections 1
RP2014 G, with MP2014 projection scale 2
Dr. K. Heubeck 2005 G
Life expectancy at age 65 for a male member currently
aged 65
aged 45
31.12.14
31.12.13
31.12.14
31.12.13
21.4
24.4
21.7
19.9
21.3
24.4
19.3
19.7
23.2
27.2
23.4
22.5
23.1
27.3
19.3
22.4
Life expectancy at age 65 for a female member currently
aged 65
aged 45
31.12.14
31.12.13
31.12.14
31.12.13
23.9
25.7
23.9
23.9
23.8
25.5
21.1
23.8
25.6
28.0
25.6
26.5
25.5
27.8
21.1
26.3
1 In 2013 the mortality table S1NA_L CMI 2010 G, with projections was used. 2 In 2013 the mortality table PPA mandated mortality table per IRC 1.430(h)(3) was used.
Volatility arises in the defined benefit obligation for each of the
pension plans due to the following actuarial assumptions applied
in the measurement of the defined benefit obligation:
– Discount rate: the discount rate is based on the yield of high-
quality corporate bonds of the market in the respective pen-
sion plan country. Consequently, a decrease in the yield of
high-quality corporate bonds will increase the defined benefit
obligation of the pension plans. Conversely, an increase in the
yield of high-quality corporate bonds will decrease the defined
benefit obligation of the pension plans.
– Rate of salary increase: an increase in the salary of plan partici-
pants will generally increase the defined benefit obligation,
specifically for the Swiss and German plans. For the UK plan, as
the plan is closed for future service, UBS AG employees are not
accruing future service benefits and thus salary increases have
no impact on the defined benefit obligation. For the US plans,
only a small percentage of the total population continues to
accrue benefits for future service thus the impact of a salary
increase on the defined benefit obligation is minimal.
– Rate of pension increase: for the Swiss plan, there is no auto-
matic indexing of pensions. Any increase would be decided by
the Pension Foundation Board. Similarly, for the US plans, there
is no automatic indexing of pensions. For the UK plan, pensions
are automatically indexed to price inflation as per plan rules
and local pension legislation. Similarly, the German defined
benefit pension plans are automatically indexed and a portion
of the pensions are directly increased by price inflation. An
increase in price inflation in the UK and Germany will increase
the plan’s defined benefit obligation.
– Rate of interest credit on retirement savings: the plan in Swit-
zerland and one of the plans in the US have retirement saving
balances which are increased annually by an interest credit
rate. For these plans, an increase in the interest credit rate
would increase the plan’s defined benefit obligation.
– Life expectancy: for most of UBS’s defined benefit pension
plans, the pension plan’s obligation is to provide guaranteed
lifetime pension benefits. The defined benefit obligation for all
plans are calculated using an underlying best estimate of the life
expectancy of plan participants. An increase in the life expec-
tancy of plan participants will increase the plan’s defined benefit
obligation.
The table on the following page presents a sensitivity analysis
for each significant actuarial assumption showing how the de-
fined benefit obligation would be affected by changes in the rel-
evant actuarial assumption that were reasonably possible at the
balance sheet date. Unforeseen circumstances may arise, which
could result in variations that are outside the range of alternatives
deemed reasonably possible. This sensitivity analysis applies to the
defined benefit obligation only and not to the net defined benefit
asset / (liability) in its entirety. Caution should be used in extrapo-
lating the sensitivities below to the overall impact on the defined
benefit obligation as the sensitivities may not be linear.
673
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
Sensitivity analysis of significant actuarial assumptions 1
CHF million
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Rate of salary increase
Increase by 50 basis points
Decrease by 50 basis points
Rate of pension increase
Increase by 50 basis points
Decrease by 50 basis points
Rate of interest credit on retirement savings
Increase by 50 basis points
Decrease by 50 basis points
Life expectancy
Increase in longevity by one additional year
Swiss plan: increase / (decrease)
in defined benefit obligation
Non-Swiss plans: increase / (decrease)
in defined benefit obligation
31.12.14
31.12.13
31.12.14
31.12.13
(1,688)
1,936
210
(198)
1,315
– 2
334
(315)
755
(1,301)
1,471
142
(138)
1,007
– 2
270
(259)
561
(470)
535
2
(2)
422
(370)
9
(8)
180
(411)
472
1
(1)
391
(340)
7
(6)
132
1 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded. 2 As the assumed rate of pension
increase was 0% as of 31 December 2014 and as of 31 December 2013, a downward change in assumption is not applicable.
674
Note 28 Pension and other post-employment benefit plans (continued) The table below provides information on the composition and fair value of plan assets of the Swiss pension plan and the non-Swiss
pension plans.
Composition and fair value of plan assets
Swiss plan
31.12.14
31.12.13
Plan asset
allocation %
Fair value
Plan asset
allocation %
CHF million
Cash and cash equivalents
Real estate / property
Domestic
Investment funds
Equity
Domestic
Foreign
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Foreign
Other
Other investments
Total
Total fair value of plan assets
of which:
Bank accounts at UBS AG and UBS AG debt instruments
UBS shares
Securities lent to UBS AG 2
Property occupied by UBS AG
Derivative financial instruments, counterparty UBS AG 2
Structured products, counterparty UBS AG
Fair value
Quoted in
an active
market
829
Other
0
Total
829
0
2,582
2,582
798
6,245
2,591
0
6,418
104
0
2,513
0
19,499
0
994
0
0
0
0
104
736
17
798
7,239
2,591
0
6,418
104
104
3,249
17
4,432
23,931
100
31.12.14
23,931
385
38
921
87
(357)
42
Quoted in
an active
market
113
Other
0
Total
113
0
2,523
2,523
617
5,935
3,018
0
6,867
752
0
1,220
0
18,523
0
827
0
0
0
0
124
486
15
617
6,761
3,018
0
6,867
752
124
1,707
15
3
11
3
30
11
0
27
0
0
14
0
1
11
3
30
13
0
31
3
1
8
0
3,975
22,498
100
31.12.13
22,498
119
32
1,001
143
287
122
1 The bond credit ratings are primarily based on Standard & Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit
ratings from other rating agencies were used, these were converted to the equivalent rating in the Standard & Poor’s rating classification. 2 Securities lent to UBS AG and derivative financial instruments are presented
gross of any collateral. Net of collateral, derivative financial instruments amounted to CHF (123) million as of 31 December 2014 (31 December 2013: CHF 14 million). Securities lent to UBS AG were fully covered by
collateral as of 31 December 2014 and 31 December 2013.
675
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
Non-Swiss plans
31.12.14
31.12.13
Fair value
Quoted in
an active
market
Other
224
104
10
24
3
0
372
1,300
1,486
193
123
157
43
33
0
17
5
4,094
0
0
0
0
0
0
0
0
0
0
0
0
112
178
17
0
10
317
Weighted
average
plan asset
allocation %
5
2
0
1
0
0
8
29
34
4
3
4
4
5
0
0
0
Total
224
104
10
24
3
0
372
1,300
1,486
193
123
157
155
211
17
17
14
Fair value
Quoted in
an active
market
173
66
42
10
7
1
639
1,012
1,061
208
100
62
0
45
0
0
0
4,410
100
3,426
Weighted
average
plan asset
allocation %
5
2
1
0
0
0
17
27
28
6
4
2
3
5
0
0
0
Total
173
66
42
10
7
1
641
1,012
1,061
208
135
83
103
205
15
0
5
3,768
100
Other
0
0
0
0
0
0
3
0
0
0
35
21
103
160
15
0
5
342
CHF million
Cash and cash equivalents
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Private equity
Investment funds
Equity
Domestic
Foreign
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Other
Insurance contracts
Asset-backed securities
Other investments
Total fair value of plan assets
1 The bond credit ratings are primarily based on Standard & Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit
ratings from other rating agencies were used, these were converted to the equivalent rating in the Standard & Poor’s rating classification.
676
b) Post-retirement medical and life insurance plans
In the US and the UK, UBS AG offers post-retirement medical
benefits that contribute to the health care coverage of certain
employees and their beneficiaries after retirement. The UK post-
retirement medical plan is closed to new entrants. In the US, in
addition to post-retirement medical benefits, UBS AG also pro-
vides post-retirement life insurance benefits to certain employees.
The post-retirement medical benefits in the UK and the US cover
all types of medical expenses including, but not limited to, cost of
doctor visits, hospitalization, surgery and pharmaceuticals. These
plans are not pre-funded plans and costs are incurred as amounts
are paid. In the US, the retirees contribute to the cost of the post-
retirement medical benefits.
In 2014, UBS AG announced changes to the US post-retirement
medical plans in relation to a reduction or elimination of the subsidy
provided for medical benefits. This change reduced the post-retire-
ment benefit obligation by CHF 33 million, resulting in a corre-
sponding gain recognized in the income statement in 2014.
Further in 2014, UBS AG announced changes to the US post-
retirement life insurance plans in relation to an elimination of the
US post-retirement life insurance policy. This change reduced the
post-retirement benefit obligation by CHF 8 million, resulting in a
corresponding gain recognized in the income statement in 2014.
In 2013, UBS AG announced changes to one of the US post-
retirement medical plans in relation to the eligibility criteria and
cost sharing. This change reduced the post-retirement benefit
obligation by CHF 9 million, resulting in a corresponding gain
recognized in the income statement in 2013.
Further in 2013, UBS AG announced a change to the other US
post-retirement medical plan in relation to coverage for prescrip-
tion drugs. This plan change reduced the post-retirement benefit
obligation by CHF 8 million, resulting in a corresponding gain
recognized in the income statement in 2013.
The employer contributions expected to be made to the post-
retirement medical and life insurance plans in 2015 are estimated
to be CHF 9 million.
The table on the following page provides an analysis of the
net asset / liability recognized on the balance sheet for post-retire-
ment medical and life insurance plans from the beginning to the
end of the year, as well as an analysis of amounts recognized in
net profit and in other comprehensive income.
677
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
Post-retirement medical and life insurance plans
CHF million
For the year ended
Post-retirement benefit obligation at the beginning of the year
Current service cost
Interest expense
Plan participant contributions
Remeasurements of post-retirement benefit obligation
of which: actuarial (gains) / losses arising from changes in demographic assumptions
of which: actuarial (gains) / losses arising from changes in financial assumptions
of which: experience (gains) / losses 1
Past service cost related to plan amendments
Benefit payments 2
Foreign currency translation
Post-retirement benefit obligation at the end of the year
of which: amounts owing to active members
of which: amounts owing to deferred members
of which: amounts owing to retirees
Fair value of plan assets at the end of the year
Net post-retirement benefit asset / (liability)
Analysis of amounts recognized in net profit
Current service cost
Interest expense related to post-retirement benefit obligation
Past service cost related to plan amendments
Net periodic cost
Analysis of gains / (losses) recognized in other comprehensive income
Remeasurement of post-retirement benefit obligation
Total gains / (losses) recognized in other comprehensive income, before tax
31.12.14
114
31.12.13
136
0
5
2
5
4
8
(7)
(41)
(10)
10
85
12
0
74
0
(85)
0
5
(41)
(36)
(5)
(5)
1
6
2
(3)
(1)
(10)
8
(17)
(9)
(2)
114
15
0
99
0
(114)
1
6
(17)
(11)
3
3
1 Experience (gains) / losses are a component of actuarial remeasurements of the post-retirement benefit obligation which reflect the effects of differences between the previous actuarial assumptions and what has
actually occurred. 2 Benefits payments are funded by employer contribution and plan participant contributions.
678
Note 28 Pension and other post-employment benefit plans (continued) The post-retirement benefit obligation is determined by using the
assumed average health care cost trend rate, the discount rate
and the life expectancy. On a country-by-country basis, the same
discount rate is used for the calculation of the post-retirement
benefit obligation from medical and life insurance plans as for the
defined benefit obligations arising from pension plans.
The discount rate and the assumed average health care cost
trend rates are presented in the table below. The basis for life ex-
pectancy assumptions is the same as provided for defined benefit
pension plans in Note 28a.
Principal weighted average actuarial assumptions used (%) 1
Assumptions used to determine post-retirement benefit obligations at the end of the year
For the year ended
Discount rate
Average health care cost trend rate – initial
Average health care cost trend rate – ultimate
1 The assumptions for life expectancies are provided within Note 28a.
31.12.14
31.12.13
3.84
6.44
5.19
4.77
6.81
5.12
Volatility arises in the post-retirement benefit obligation for each
of the post-retirement medical and life insurance plans due to the
following actuarial assumptions applied in the measurement of
the post-retirement benefit obligation:
– Discount rate: similar as for defined benefit pension plans, a
decrease in the yield of high-quality corporate bonds will in-
crease the post-retirement benefit obligation for these plans.
Conversely, an increase in the yield of high-quality corporate
bonds will decrease the post-retirement benefit obligation for
these plans.
– Average health care cost trend rate: an increase in health care
costs would generally increase the post-retirement benefit
obligation.
Sensitivity analysis of significant actuarial assumptions 1
CHF million
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Average health care cost trend rate
Increase by 100 basis points
Decrease by 100 basis points
Life expectancy
Increase in longevity by one additional year
– Life expectancy: as some plan participants have lifetime bene-
fits under these plans, an increase in life expectancy would in-
crease the post- retirement benefit obligation.
The table below presents a sensitivity analysis for each signifi-
cant actuarial assumption showing how the post-retirement ben-
efit obligation would have been affected by changes in the rele-
vant actuarial assumption that were reasonably possible at the
balance sheet date.
Increase / (decrease) in
post-retirement benefit obligation
31.12.14
31.12.13
(4)
4
3
(2)
7
(6)
7
9
(8)
7
1 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded.
c) Defined contribution plans
UBS AG also sponsors a number of defined contribution plans in
its non-Swiss locations. The locations with significant defined
contribution plans are the UK and the US. Certain plans permit
employees to make contributions and earn matching or other
contributions from UBS AG. The employer contributions to these
plans are recognized as an expense which, for the years ended
31 December 2014, 2013 and 2012, amounted to CHF 244 mil-
lion, CHF 236 million and CHF 240 million, respectively.
679
Financial informationNote 28 Pension and other post-employment benefit plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
d) Related party disclosure
UBS AG is the principal bank for the pension fund of UBS AG in
Switzerland. In this function, UBS is engaged to execute most of
the pension fund’s banking activities. These activities can include,
but are not limited to, trading and securities lending and borrow-
ing. All transactions have been executed under arm’s length con-
ditions. The non-Swiss UBS pension funds do not have a similar
banking relationship with UBS AG.
In 2008, UBS sold certain bank-occupied properties to the
Swiss pension fund. Simultaneously, UBS AG and the Swiss pen-
sion fund entered into lease-back arrangements for some of the
properties with 25-year lease terms and two renewal options for
10 years each. During 2009, UBS renegotiated one of the lease
contracts, which reduced UBS AG’s remaining lease commitment.
In 2013, after the first five years, the early break options for most
of the leases were not exercised, which resulted in an increase in
the minimum commitment for an additional five years. As of
31 December 2014, the minimum commitment toward the Swiss
pension fund under the related leases is approximately CHF 14
million (31 December 2013: CHF 19 million).
The following amounts have been received or paid by UBS AG
from and to the pension funds in respect of these banking activi-
ties and arrangements.
Related party disclosure
CHF million
Received by UBS AG
Fees
Paid by UBS AG
Rent
Interest
Dividends and capital repayments
The transaction volumes in UBS shares and other UBS securities are as follows.
Transaction volumes – related parties
Financial instruments bought by pension funds
UBS shares 1 (in thousands of shares)
UBS AG debt instruments (par values in CHF million)
Financial instruments sold by pension funds or matured
UBS shares 1 (in thousands of shares)
UBS AG debt instruments (par values in CHF million)
For the year ended
31.12.14
31.12.13
31.12.12
33
6
0
4
33
8
1
2
31
9
1
0
For the year ended
31.12.14
31.12.13
2,092
4
1,735
4
1,459
5
2,293
8
1 Represents purchases / sales of UBS AG shares up to 28 November 2014 and purchases / sales of UBS Group AG shares thereafter. Refer to Note 32 for more information.
Details of the fair value of the plan assets of the defined pension
plans are disclosed in Note 28a. In addition, UBS AG defined
contribution pension funds held 16,253,804 UBS Group AG
shares with a fair value of CHF 276 million as of 31 December
2014 (31 December 2013: 16,192,501 UBS AG shares with a fair
value of CHF 278 million).
680
Note 28 Pension and other post-employment benefit plans (continued) a) Plans offered
UBS AG operates several equity participation and other compensa-
tion plans to align the interests of executives, managers and staff
with the interests of shareholders. Some plans (e.g., Equity Plus
and Equity Ownership Plan) are granted to eligible employees in
approximately 50 countries and are designed to meet the legal, tax
and regulatory requirements of each country in which they are of-
fered. Certain plans are used in specific countries, business areas
(e.g., awards granted within Wealth Management Americas), or
are offered to members of the Group Executive Board (GEB) only.
UBS AG operates compensation plans on a mandatory, discretion-
ary and voluntary basis. The explanations below provide a general
description of the terms of the most significant plans which relate
to the performance year 2014 (awards granted in 2015) and those
from prior years that are partly expensed in 2014.
➔ Refer to Note 1a item 25 for a description of the accounting policy
related to equity participation and other compensation plans
Transfer of deferred compensation plans
As part of the Group reorganization, in the fourth quarter 2014,
UBS Group AG assumed obligations of UBS AG as grantor in con-
nection with outstanding awards under employee share, option,
notional fund and deferred cash plans. At the same time, UBS
Group AG acquired the beneficial ownership of the financial as-
sets and 90.5 million treasury shares of UBS Group AG held to
hedge the economic exposure arising from these plans. Obliga-
tions relating to these deferred compensation awards, which are
required to be, and have been, granted by a separate UBS AG
subsidiary or local employing UBS AG branches, have not been
assumed by UBS Group AG and will continue on this basis. Fur-
thermore, obligations related to other compensation vehicles,
such as defined benefit pension plans and other local awards,
have not been assumed by UBS Group AG and are retained by the
relevant employing and / or sponsoring subsidiaries or UBS AG
branches. For the purpose of this Note, references to shares, per-
formance shares, notional shares and options refer to UBS Group
AG instruments for the period after the transfer and to UBS AG
instruments for the period before the transfer.
Mandatory share-based compensation plans
Equity Ownership Plan (EOP): Selected employees receive a portion
of their annual performance-related compensation above a certain
threshold in the form of an EOP award in UBS shares, notional
shares or UBS performance shares (notional shares which are sub-
ject to performance conditions). From February 2014 onwards, in
general, only notional shares and UBS performance shares are
granted. Since 2011 (for the performance year 2010), performance
shares have been granted to EOP participants who are risk-takers,
Group Managing Directors or employees whose incentive exceeds a
certain threshold. The performance shares granted in 2011 and
2012 will only vest in full if certain performance targets are met, i.e.,
if the participant’s business division is profitable (for Corporate Cen-
ter participants, the Group as a whole needs to be profitable) in the
financial year preceding the relevant vesting date. To determine if a
business division is profitable in this context, adjustments to re-
ported profitability may be made based on considerations relating
to risk, quality and reliability of earnings. For performance shares
granted in respect of the performance years 2012, 2013 and 2014,
the performance conditions are based on the Group return on tan-
gible equity and the divisional return on attributed equity (for Cor-
porate Center participants, the return on attributed equity of the
Group excluding Corporate Center). Awards issued outside the nor-
mal performance year cycle, such as replacement awards or sign-on
awards, may be offered in deferred cash under the EOP plan rules.
Awards in UBS shares allow for voting and dividend rights dur-
ing the vesting period, whereas notional and performance shares
represent a promise to receive UBS shares at vesting and do not
allow for voting rights during the vesting period. Notional and
performance shares granted before February 2014 have no rights
to dividends, whereas for awards granted since February 2014
employees are entitled to receive a dividend equivalent which may
be paid in notional shares and / or cash, and which will vest on the
same terms and conditions as the award. Awards granted in the
form of UBS shares, notional shares and performance shares are
settled by delivering UBS shares at vesting, except in countries
where this is not permitted for legal or tax reasons. EOP awards
granted until 2012 generally vest in three equal increments over a
three-year vesting period and awards granted since March 2013
generally vest in equal increments two and three years following
grant. The awards are generally forfeitable upon, among other
circumstances, voluntary termination of employment with UBS
AG. Compensation expense is recognized in the performance
year if the employee meets the retirement eligibility requirements
at the date of grant. Otherwise, compensation expense is recog-
nized from the grant date to the earlier of the vesting date or the
retirement eligibility date of the employee, on a tiered basis.
Senior Executive Equity Ownership Plan (SEEOP): Up to 2012
(performance year 2011), GEB members received a portion of
their mandatory deferral in UBS shares or notional shares, which
vest in one-fifth increments over a five-year vesting period and are
forfeitable if certain conditions are not met. Awards granted in
2011 and 2012 are subject to the same performance conditions as
performance shares granted under the EOP. They will only vest in
full if the participant’s business division is profitable (for Corporate
Center participants, the Group as a whole must be profitable) in
the financial year preceding scheduled vesting. Awards granted
under SEEOP are settled by delivering UBS shares at vesting. Com-
pensation expense is recognized on the same basis as for share-
settled EOP awards. From 2013 (performance year 2012), GEB
members have received EOP awards. No SEEOP awards were
granted for the performance years 2012, 2013 and 2014.
681
Financial informationNote 29 Equity participation and other compensation plans Financial information
Notes to the UBS AG consolidated financial statements
Incentive Performance Plan (IPP): In 2010, GEB members and
certain other senior employees received part of their annual in-
centive in the form of performance shares granted under the IPP.
Each performance share granted is a contingent right to receive
between one and three UBS shares at vesting, depending on the
achievement of share price targets. The IPP awards vest in full af-
ter five years (i.e., in 2015) and are subject to continued employ-
ment with UBS AG. Compensation expense is recognized on a
tiered basis from the grant date to the earlier of the vesting date
or the retirement eligibility date of the employee. IPP was a one-
time plan granted in 2010 only.
Performance Equity Plan (PEP): From 2010 to 2012, GEB mem-
bers received part of their annual incentive in the form of perfor-
mance shares granted under the PEP. Each performance share is a
contingent right to receive between zero and two UBS shares at
vesting, depending on the achievement of Economic Profit (EP)
and Total Shareholder Return (TSR) targets. PEP awards vest in full
after three years. EP is a risk-adjusted profit measure that takes
into account the cost of risk capital. TSR measures the total return
to UBS shareholders (in the form of share price appreciation and
dividends) as compared to the constituents of a banking index.
Vesting is subject to continued employment with UBS AG. Com-
pensation expense is recognized on a tiered basis from the grant
date to the earlier of the vesting date or the retirement eligibility
date of the employee. No PEP awards were granted for the per-
formance years 2012, 2013 and 2014.
Special Plan Award Program for the Investment Bank 2012
(SPAP): In April 2012, certain Managing Directors and Group
Managing Directors of the Investment Bank were granted an
award of UBS shares which will vest three years after grant. Vest-
ing is subject to performance conditions, continued employment
with UBS AG and certain other conditions. The vesting of Special
Plan awards is subject to performance conditions based on the
level of reduction in risk-weighted assets achieved and the aver-
age return on risk-weighted assets in the Investment Bank for
2012, 2013 and 2014. Compensation expense is recognized from
the grant date to the earlier of the vesting date or the retirement
eligibility date of the employee.
Role-based allowances (RBA): In line with market practice, in
certain countries, employees are entitled to receive a role-based
allowance in addition to their base salary. This allowance reflects
the market value of a specific role and is only paid as long as the
employee is within such a role. The allowance consists of a cash
portion which is paid in December and, if applicable, a deferred
UBS notional share award. The deferred portion vests in equal
portions in year 2 and year 3 respectively. Compensation expense
is recognized in the performance year if the employee meets the
retirement eligibility requirements at the date of grant. Otherwise,
compensation expense is recognized from the grant date to the
earlier of the vesting date or the retirement eligibility date of the
employee.
Mandatory deferred cash compensation plans
Deferred Contingent Capital Plan (DCCP): The DCCP is a manda-
tory performance award deferral plan for all employees whose to-
tal compensation exceeds a certain threshold. For awards granted
up to January 2015, employees received part of their annual incen-
tive in the form of notional bonds, which are a right to receive a
cash payment at vesting. For awards granted for the performance
year 2014 (granted in 2015), employees are awarded notional ad-
ditional tier 1 (AT1) instruments, which at the discretion of UBS
Group AG (consolidated) can either be settled in the form of a
cash payment or a perpetual, marketable AT1 instrument. Awards
vest in full after five years, subject to there being no trigger event.
Awards granted under the DCCP forfeit if UBS Group AG’s con-
solidated phase-in tier 1 capital ratio falls below 10% for GEB
members and 7% for all other employees. In addition, awards are
also forfeited if a viability event occurs, that is, if FINMA provides a
written notice to UBS Group AG that the DCCP must be written
down to prevent an insolvency, bankruptcy or failure of UBS Group
AG (consolidated), or if UBS Group AG (consolidated) receives a
commitment of extraordinary support from the public sector that
is necessary to prevent such an event. For GEB members, an addi-
tional performance condition applies. If UBS Group AG (consoli-
dated) does not achieve an adjusted profit before tax for any year
during the vesting period, GEB members forfeit 20% of their
award for each loss-making year. For awards granted up to Janu-
ary 2015, interest on the awards is paid annually for performance
years in which the firm generates an adjusted profit before tax. For
awards granted in 2015 for the performance year 2014, discre-
tionary interest may be paid annually on awards that vest after 5
years. The awards are subject to standard forfeiture and harmful
acts provisions, including voluntary termination of employment
with UBS AG. Compensation expense is recognized in the perfor-
mance year if the employee meets the retirement eligibility re-
quirements at the date of grant. Otherwise, compensation ex-
pense is recognized ratably from the grant date to the earlier of
the vesting date or the retirement eligibility date of the employee.
Incentive Scheme
(LTDRSIS): Awards granted under the LTDRSIS are granted to em-
ployees in Australia and represent a profit share amount based on
the profitability of the Australian business. Awards vest after three
years and include an arrangement which allows for unpaid install-
ments to be reduced if the business has a loss during the calendar
year preceding vesting. The awards are generally forfeitable upon
voluntary termination of employment with UBS AG. Compensa-
tion expense is recognized in the performance year if the em-
ployee meets the retirement eligibility requirements at the date of
the grant. Otherwise, compensation expense is recognized ratably
from the grant date to the earlier of the vesting date or the retire-
ment eligibility date of the employee.
Long-Term Deferred Retention Senior
Global Asset Management Equity Ownership Plan: In order to
align their compensation with the performance of the funds they
682
Note 29 Equity participation and other compensation plans (continued) manage, Global Asset Management employees receiving EOP
awards receive them in the form of cash-settled notional funds
since 2012. The amount depends on the value of the relevant
underlying Global Asset Management funds at the time of vest-
ing. In prior years, certain Global Asset Management employees
received EOP awards in a combination of shares and cash-settled
notional funds, with the amount depending on the value of the
underlying Global Asset Management funds at the time of vest-
ing. The awards are generally forfeitable upon, among other cir-
cumstances, voluntary termination of employment with UBS AG.
Compensation expense is recognized in the performance year if
the employee meets the retirement eligibility requirements at the
date of grant. Otherwise, compensation expense is recognized
from the grant date to the earlier of the vesting date or the retire-
ment eligibility date of the employee, on a tiered basis.
Wealth Management Americas financial advisor compensation
Financial advisor compensation plans generally provide for cash
payments and deferred awards that are formula driven and fluc-
tuate in proportion to the level of business activity.
UBS AG also may enter into compensation commitments with
certain new financial advisors primarily as a recruitment incentive
and to incentivize certain eligible active financial advisors to
achieve specified revenue production and other performance
thresholds. The compensation may be earned and paid to the
employee during a period of continued employment and may be
forfeited under certain circumstances.
GrowthPlus is a program for selected financial advisors whose
revenue production and length of service exceeds defined thresh-
olds from 2010 through 2017. Compensation arrangements were
granted in 2010 and 2011 with potential arrangements to be
granted in 2015 and 2018. The awards vest ratably over seven
years from grant with the exception of the 2018 arrangement,
which vests over five years.
PartnerPlus is a mandatory deferred cash compensation plan
for certain eligible financial advisors. Awards (UBS AG company
contributions) are based on a predefined formula during the per-
formance year. Participants are also allowed to voluntarily contrib-
ute additional amounts otherwise payable during the year, up to a
percentage of their pay, which are vested upon contribution. Com-
pany contributions and voluntary contributions are credited with
interest in accordance with the terms of the plan. Rather than be-
ing credited with interest, a participant may elect to have voluntary
contributions, along with vested company contributions, credited
with notional earnings based on the performance of various mu-
tual funds. Company contributions and interest on both company
and voluntary contributions ratably vest in 20% increments six to
ten years following grant date. Company contributions and inter-
est / notional earnings on both company and voluntary contribu-
tions are forfeitable under certain circumstances. Compensation
expense for awards is recognized in the performance year if the
employee meets the qualifying separation eligibility requirements
at the date of grant. Otherwise, compensation expense for awards
is recognized ratably commencing in the performance year to the
earlier of the vesting date or the qualifying separation eligibility
date of the employee. Compensation expense for voluntary contri-
butions is recognized in the year of deferral.
Discretionary share-based compensation plans
Key Employee Stock Appreciation Rights Plan (KESAP) and Key Em-
ployee Stock Option Plan (KESOP): Until 2009, key and high po-
tential employees were granted discretionary share-settled stock
appreciation rights (SARs) or UBS options with a strike price not
less than the fair market value of a UBS share on the date the SAR
or option was granted. A SAR gives employees the right to receive
a number of UBS shares equal to the value of any appreciation in
the market price of a UBS share between the grant date and the
exercise date. One option gives the right to acquire one registered
UBS share at the option’s strike price. SARs and options are settled
by delivering UBS shares, except in countries where this is not per-
mitted for legal reasons. These awards are generally forfeitable
upon termination of employment with UBS AG. Compensation
expense is recognized from the grant date to the earlier of the
vesting date or the retirement eligibility date of the employee. No
options or SARs awards have been granted since 2009.
Voluntary share-based compensation plans
Equity Plus Plan (Equity Plus): Equity Plus is a voluntary plan that
provides eligible employees with the opportunity to purchase UBS
shares at market value and receive, at no additional cost, one free
notional UBS share for every three shares purchased, up to a max-
imum annual limit. Share purchases may be made annually from
the performance award and / or monthly through regular deduc-
tions from salary. Shares purchased under Equity Plus are restricted
from sale for a maximum of three years from the time of pur-
chase. Equity Plus awards vest after up to three years. Prior to
2010, instead of notional shares participants received two UBS
options for each share they purchased under this plan. The op-
tions had a strike price equal to the fair market value of a UBS
share on the grant date, a two-year vesting period and generally
expired ten years from the grant date. The options are forfeitable
in certain circumstances and are settled by delivering UBS shares,
except in countries where this is not permitted for legal reasons.
Compensation expense for Equity Plus is recognized from the
grant date to the earlier of the vesting date or the retirement eli-
gibility date of the employee. For awards granted from April 2014
onwards, employees are entitled to receive a dividend equivalent
which may be paid in either notional shares and / or cash.
683
Financial informationNote 29 Equity participation and other compensation plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
b) Effect on the income statement
Effect on the income statement for the financial year and future
periods
The following table summarizes the compensation expenses rec-
ognized for the year ended 31 December 2014 and deferred com-
pensation expenses that will be recognized as an expense in the
income statements of 2015 and later. The deferred compensation
expenses in the table also include vested and non-vested awards
granted mainly in February 2015, which relate to the performance
year 2014.
Personnel expenses – Recognized and deferred1
Personnel expenses for the year ended 2014
Personnel expenses deferred to 2015 and later
CHF million
Performance awards
Cash performance awards
Deferred Contingent Capital Plan (DCCP)
Deferred cash plans (DCP and other cash plans)
Equity Ownership Plan (EOP / SEEOP) – UBS shares
Incentive Performance Plan (IPP)
Total UBS share plans
Equity Ownership Plan (EOP) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 5
Total
Expenses
relating to
awards for
2014
Expenses
relating to
awards for
prior years
Relating to
awards for
2014
Relating to
awards for
prior years
Total
1,822
(108)
1,714
155
0
215
0
215
24
2,216
260
2,396
39
81
23
2,539
5,015
194
12
444
21
465
41
604
206
0
636
153
57
846
1,656
349
12
659
21
680
65
2,820
466 2
2,396
675
234
80
3,385
6,671
0
312
0
459
0
459
36
807
307 3
0
524
189
41
754
1,868
0
386
8
367
0
367
33
794
340 4
0
2,058
528
143
2,729
3,863
Total
0
698
8
826
0
826
69
1,601
647
0
2,582
717
184
3,483
5,731
1 Total share-based personnel expenses recognized for the year ended 31 December 2014 were CHF 999 million and were comprised of UBS share plans of CHF 800 million, Equity Ownership Plan – notional funds of
CHF 65 million, related social security costs of CHF 41 million and other compensation plans (reported within Variable compensation – other) of CHF 93 million. 2 Includes replacement payments of CHF 81 million (of
which CHF 70 million related to prior years), forfeiture credits of CHF 70 million (all related to prior years), severance payments of CHF 162 million (all related to current year) and retention plan and other payments of
CHF 292 million (of which CHF 206 million related to prior years). 3 Includes DCCP interest expense of CHF 121 million for DCCP awards 2014 (granted in 2015). 4 Includes DCCP interest expense of CHF 161 mil-
lion for DCCP awards 2013 and 2012 (granted in 2014 and 2013). 5 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and
supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes charges related to compensation commitments with financial advisors entered into
at the time of recruitment which are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date.
684
Note 29 Equity participation and other compensation plans (continued) Personnel expenses – Recognized and deferred1
Personnel expenses for the year ended 2013
Personnel expenses deferred to 2014 and later
CHF million
Performance awards
Cash performance awards
Deferred Contingent Capital Plan (DCCP)
Deferred cash plans (DCP and other cash plans)
Equity Ownership Plan (EOP / SEEOP) – UBS shares
Performance Equity Plan (PEP)
Incentive Performance Plan (IPP)
Total UBS share plans
Equity Ownership Plan (EOP) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 5
Total
Expenses
relating to
awards for
2013
Expenses
relating to
awards for
prior years
1,942
152
2
190
0
0
190
19
2,305
152
2,219
33
62
20
2,334
4,791
(30)
96
53
466
3
33
502
60
681
136
0
605
132
69
806
1,623
Relating to
awards for
2013
Relating to
awards for
prior years
0
348
7
520
0
0
520
37
912
340 3
0
440
107
45
592
1,844
0
230
12
307
0
21
328
36
606
398 4
0
2,098
564
165
2,827
3,831
Total
1,912
248
55
656
3
33
692
79
2,986
288 2
2,219
638
194
89
3,140
6,414
Total
0
578
19
827
0
21
848
73
1,518
738
0
2,538
671
210
3,419
5,675
1 Total share-based personnel expenses recognized for the year ended 31 December 2013 were CHF 1,042 million and were comprised of UBS share plans of CHF 787 million, Equity Ownership Plan – notional funds of
CHF 79 million, related social security costs of CHF 65 million and other compensation plans (reported within Variable compensation – other) of CHF 111 million. 2 Includes replacement payments of CHF 78 million
(of which CHF 72 million related to prior years), forfeiture credits of CHF 146 million (all related to prior years), severance payments of CHF 114 million (all related to current year) and retention plan and other payments
of CHF 242 million (of which CHF 210 million related to prior years). 3 Includes DCCP interest expense of CHF 101 million for DCCP awards 2013 (granted in 2014). 4 Includes DCCP interest expense of CHF 109 mil-
lion for DCCP awards 2012 (granted in 2013). 5 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental com-
pensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes charges related to compensation commitments with financial advisors entered into at the time of re-
cruitment which are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date.
During 2014 and 2013, UBS AG accelerated the recognition of
expenses for certain deferred compensation arrangements relating
to employees that were affected by restructuring programs. Based
on the redundancy provisions of the plan rules, these employees
retain their deferred compensation awards. However, as the em-
ployees are not required to provide future service, compensation
expense relating to these awards was accelerated to the termi-
nation date based on the shortened service period. The amounts
accelerated and recognized relating to share-based payment
awards in 2014 and 2013 were CHF 38 million and CHF 62 million
respectively, and the amounts related to deferred cash awards
were CHF 29 million and CHF 9 million, respectively.
UBS AG also shortened the service period for certain employees
in accordance with the mutually agreed termination provisions of
their deferred compensation awards. Expense recognition was
accelerated to the termination date. The amounts accelerated and
recognized relating to share-based payment awards in 2014 and
2013 were CHF 11 million and CHF 11 million, respectively, and
the amounts related to deferred cash awards were CHF 8 million
and CHF 3 million, respectively.
685
Financial informationNote 29 Equity participation and other compensation plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
Personnel expenses – Recognized and deferred 1
CHF million
Performance awards
Cash performance awards
Deferred Contingent Capital Plan (DCCP)
Deferred cash plans (CBP, DCP and other cash plans)
Equity Ownership Plan (EOP / SEEOP) – UBS shares
Performance Equity Plan (PEP)
Incentive Performance Plan (IPP)
Total UBS share plans
UBS share option plans (KESAP / KESOP)
Equity Ownership Plan (EOP) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 4
Total
Personnel expenses for the year ended 2012
Personnel expenses deferred to 2013 and later
Expenses relating
to awards for
2012
Expenses relating
to awards for pri-
or years
1,411
145
5
135
0
0
135
0
28
1,724
424
1,957
54
54
21
2,087
4,235
(38)
0
149
995
10
62
1,067
14
84
1,276
(57)
0
579
129
78
786
2,005
Relating
to awards
for 2012
Relating
to awards
for prior years
0
361
10
383
0
0
383
0
20
774
494 3
0
587
54
66
706
1,974
0
0
87
495
4
82
581
0
46
714
71
0
2,115
620
216
2,951
3,736
Total
1,373
145
154
1,130
10
62
1,202
14
112
3,000
367 2
1,957
634
183
99
2,873
6,240
Total
0
361
97
878
4
82
964
0
66
1,488
565
0
2,702
674
282
3,657
5,710
1 Total share-based personnel expenses recognized for the year ended 31 December 2012 were CHF 1,584 million and were comprised of UBS share plans of CHF 1,261 million, UBS share option plans of CHF 14 mil-
lion, Equity Ownership Plan – AIVs of CHF 112 million, related social security costs of CHF 89 million and other compensation plans (reported within Variable compensation – other) of CHF 108 million. 2 Includes re-
placement payments of CHF 109 million (of which CHF 94 million related to prior year), forfeiture credits of CHF 174 million (prior year), severance payments of CHF 303 million (current year) and retention plan and
other payments of CHF 128 million (of which CHF 21 million related to prior year). 3 Includes DCCP interest expense of CHF 137 million. 4 Financial advisor compensation consists of grid-based compensation based
directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes charges related
to compensation commitments with financial advisors entered into at the time of recruitment which are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred expo-
sure as of the balance sheet date.
Additional disclosures on mandatory, discretionary and voluntary
share-based compensation plans (including notional funds
granted under EOP)
The total share-based personnel expenses recognized for the
years ended 31 December 2014, 2013 and 2012 were CHF 999
million, CHF 1,042 million and CHF 1,584 million, respectively.
This includes the current period expense, amortization and related
social security costs for awards issued in prior periods and perfor-
mance year expensing for awards granted to retirement-eligible
employees where the terms of the awards do not require the em-
ployee to provide future services.
The total compensation expenses for non-vested share-based
awards granted up to 31 December 2014 relating to prior years to
be recognized in future periods is CHF 634 million and will be
recognized as personnel expenses over a weighted average period
of 1.9 years. This includes UBS share plans, the Equity Ownership
Plan (notional funds), other variable compensation and the Equity
Plus Plan. Total deferred compensation amounts included in the
2014 table differ from this amount as the deferred compensation
amounts also include non-vested awards granted in February
2015 related to the performance year 2014.
Actual payments to participants in cash-settled share-based
plans, including amounts granted as notional funds issued under
the EOP, for the years ended 31 December 2014 and 2013 were
CHF 90 million and CHF 157 million, respectively. The total carry-
ing amount of the liability related to these plans was CHF 3 million
as of 31 December 2014 and CHF 164 million as of 31 December
2013.
686
Note 29 Equity participation and other compensation plans (continued) c) Movements during the year
UBS share and performance share awards
Movements in UBS share and notional share awards were as follows:
UBS share awards
Outstanding, at the beginning of the year
Shares awarded during the year
Distributions during the year
Forfeited during the year
Transfer to UBS Group AG
Outstanding, at the end of the year
of which: shares vested for accounting purposes
Weighted
average grant
date fair
value (CHF)
15
18
16
16
15
15
Number of
shares 2014
186,633,491
56,851,628
(69,921,325)
(6,859,017)
(166,704,777)
467,848
26,946
Number of
shares 2013
249,059,529
50,270,660
(99,955,951)
(12,740,747)
186,633,491
48,096,537
Weighted
average grant
date fair
value (CHF)
15
15
15
15
15
The fair value of shares that became legally vested and were distributed (i.e., all restrictions were fulfilled) during the years ended
31 December 2014 and 2013 was CHF 1,269 million and CHF 1,398 million, respectively.
Movements in performance shares granted under the IPP are as follows:
Incentive Performance Plan
Forfeitable, at the beginning of the year
Vested during the year
Forfeited during the year
Transfer to UBS Group AG
Forfeitable, at the end of the year
Forfeitable, at the end of the year
Vested during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
2014
Number of
performance
shares
2014
13,151,023
Weighted average
fair value of IPP
performance shares
at grant date (CHF) 1
22
(240,064) 2
(168,791)
(12,742,168)
0
2013
14,231,831
(8,690)
(1,072,118)
13,151,023 3
10,248,071
22
22
22
22
22
22
22
1 The weighted average fair value takes into account the applicable performance conditions and the range of possible outcomes. 2 The corresponding number of UBS shares distributed in 2014 was 240,064. In 2013
it amounted to 8,690. 3 As of 31 December 2013, the number of deliverable UBS shares was equal to the number of forfeitable performance shares.
687
Financial informationNote 29 Equity participation and other compensation plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
Movements in performance shares granted under the PEP are as follows:
Performance Equity Plan
Forfeitable, at the beginning of the year
Vested during the year
Forfeited during the year
Transfer to UBS Group AG
Forfeitable, at the end of the year
Forfeitable, at the beginning of the year
Vested during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
2014
Weighted average
fair value of PEP
performance shares
at grant date (CHF) 1
16
19
19
13
16
16
17
16
Number of
performance
shares 2014
1,380,958
(613,427) 2
0
(767,531)
0
2013
1,825,199
(359,613)
(84,628)
1,380,958 3
1,041,901
1 The weighted average fair value takes into account the applicable performance conditions and the range of possible outcomes. 2 The corresponding number of UBS shares distributed in 2014 was 245,371. In 2013
it amounted to 186,999. 3 As of 31 December 2013, the number of deliverable UBS shares was 629,136 based on the applicable performance conditions.
UBS option awards
Movements in option awards were as follows:
UBS option awards
Outstanding, at the beginning of the year
Exercised during the year
Forfeited during the year
Expired unexercised
Transfer to UBS Group AG
Outstanding and exercisable, at the end of the year
Number of options
2014
133,170,139
(1,383,488)
(71,376)
(22,186,253)
(109,529,022)
0
Weighted average
exercise price (CHF) 1
45
13
41
48
45
Number of options
2013
158,090,564
(3,430,697)
(177,272)
(21,312,456)
133,170,139
Weighted average
exercise price (CHF) 1
43
12
45
36
45
1 Some of the options in this table have exercise prices denominated in USD which have been converted into CHF at the year-end spot exchange rate for the purposes of this table.
The following table provides additional information about option exercises and intrinsic values:
For the year ended
Weighted average share price of options exercised (CHF)
Intrinsic value of options exercised during the year (CHF million)
31.12.14
31.12.13
18
7.5
17
17.5
688
Note 29 Equity participation and other compensation plans (continued) UBS SAR awards
Movements in SAR awards were as follows:
UBS SARs awards
Outstanding, at the beginning of the year
Exercised during the year
Forfeited during the year
Expired unexercised
Transfer to UBS Group AG
Outstanding and exercisable, at the end of the year
Number of SARs
2014
Weighted
average exercise
price (CHF)
Number of SARs
2013
Weighted
average exercise
price (CHF)
21,444,016
(3,307,727)
(14,500)
(162,000)
(17,959,789)
0
12
11
11
12
12
33,118,335
(10,427,263)
(57,500)
(1,189,556)
21,444,016
12
11
11
33
12
The following table provides additional information about SARs exercises and intrinsic values:
For the year ended
Weighted average share price of SARs exercised (CHF)
Intrinsic value of SARs exercised during the year (CHF million)
31.12.14
31.12.13
18
21.0
17
57.0
689
Financial informationNote 29 Equity participation and other compensation plans (continued) Financial information
Notes to the UBS AG consolidated financial statements
d) Valuation
UBS share awards
UBS AG measures compensation expense based on the average
market price of the UBS share on the grant date as quoted on the
SIX Swiss Exchange, taking into consideration post-vesting sale
and hedge restrictions, non-vesting conditions and market condi-
tions, where applicable. The fair value of the share awards subject
to post-vesting sale and hedge restrictions is discounted based
upon the duration of the post-vesting restriction and is referenced
to the cost of purchasing an at-the-money European put option
for the term of the transfer restriction. The weighted average dis-
count for share and performance share awards granted during
2014 is approximately 12.9% (2013: 13.4%) of the market price
of the UBS share. The grant date fair value of notional UBS shares
without dividend entitlements also includes a deduction for the
present value of future expected dividends to be paid between
the grant date and distribution.
UBS options and SARs awards
The fair values of options and SARs have been determined using
a standard closed-formula option valuation model. The expected
term of each instrument is calculated based on historical em-
ployee exercise behavior patterns, taking into account the share
price, strike price, vesting period and the contractual life of the
instrument. The term structure of volatility is derived from the
implied volatilities of traded UBS options in combination with the
observed long-term historical share price volatility. Expected fu-
ture dividends are derived from traded UBS options or from the
historical dividend pattern. No options or SARs have been granted
since 2009.
690
Note 29 Equity participation and other compensation plans (continued) a) Interests in subsidiaries
UBS AG defines its significant subsidiaries as those entities that,
either individually or in aggregate, contribute significantly to
UBS AG’s financial position or results of operations, based on a
number of criteria, including the subsidiaries’ equity and their
contribution to UBS AG’s total assets and profit / (loss) before tax,
in accordance with the requirements set by IFRS 12, Swiss regu-
lations and the regulations of the US Securities and Exchange
Commission (SEC).
Individually significant subsidiaries
The table below lists UBS AG’s individually significant subsidiaries
as of 31 December 2014. Unless otherwise stated, the subsidiar-
ies listed below have share capital consisting solely of ordinary
shares, which are held fully by UBS AG, and the proportion of
ownership interest held is equal to the voting rights held by
UBS AG. The country where the respective registered office is lo-
cated is also generally the principal place of business.
Individually significant subsidiaries as of 31 December 2014
Company
UBS Americas Inc.
UBS Bank USA
UBS Financial Services Inc.
UBS Limited
UBS Securities LLC
Registered office
Primary business division
Share capital in million
Wilmington, Delaware, USA
Investment Bank
Salt Lake City, Utah, USA
Wealth Management Americas
Wilmington, Delaware, USA
Wealth Management Americas
London, United Kingdom
Investment Bank
Wilmington, Delaware, USA
Investment Bank
USD
USD
USD
GBP
USD
0.0
0.0
0.0
226.6
1,283.1 1
Equity interest
accumulated in %
100.0
100.0
100.0
100.0
100.0
1 Mainly comprised on non-voting preferred shares held by UBS Americas Inc.
UBS Limited and UBS Americas Inc. are fully held by UBS AG. UBS Bank USA and UBS Financial Services Inc. are fully held by UBS
Americas Inc. 30% of UBS Securities LLC is held by UBS AG and 70% by UBS Americas Inc. (after consideration of preferred shares).
691
Financial informationNote 30 Interests in subsidiaries and other entities Financial information
Notes to the UBS AG consolidated financial statements
Other subsidiaries
The table below lists other subsidiaries that are not individually significant but that contribute to UBS AG’s total assets and aggregated
profit before tax thresholds and are thereby disclosed in accordance with the requirements set by the US SEC.
Registered office
Primary business division
Share capital in million
Equity interest
accumulated in %
CHF
EUR
EUR
CHF
USD
AUD
EUR
CHF
USD
EUR
USD
CHF
EUR
USD
USD
JPY
SGD
USD
USD
USD
USD
THB
AUD
CAD
EUR
INR
JPY
SGD
USD
USD
0.2
95.0
15.1
150.0
0.1
46.7
568.8
0.1
0.0
176.0
0.0
1.0
13.0
5.6
0.0
2,200.0
4.0
0.1
1.0
0.0
9.0
500.0
0.3 1
10.0
15.0
140.0
46,450.0
420.4
0.0
0.1
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Other subsidiaries as of 31 December 2014
Company
Topcard Service AG
UBS (Italia) SpA
UBS Italia SIM SpA
UBS (Luxembourg) S.A.
Glattbrugg, Switzerland
Retail & Corporate
Milan, Italy
Milan, Italy
Wealth Management
Investment Bank
Luxembourg, Luxembourg
Wealth Management
UBS Alternative and Quantitative Investments LLC
Wilmington, Delaware, USA
Global Asset Management
UBS Australia Holdings Pty Ltd
UBS Beteiligungs-GmbH & Co. KG
UBS Card Center AG
UBS Credit Corp.
UBS Deutschland AG
UBS Fund Advisor, L.L.C.
Sydney, Australia
Frankfurt, Germany
Investment Bank
Wealth Management
Glattbrugg, Switzerland
Retail & Corporate
Wilmington, Delaware, USA
Wealth Management Americas
Frankfurt, Germany
Wealth Management
Wilmington, Delaware, USA
Wealth Management Americas
UBS Fund Management (Switzerland) AG
Basel, Switzerland
Global Asset Management
UBS Fund Management (Luxembourg) S.A.
Luxembourg, Luxembourg
Global Asset Management
UBS Fund Services (Cayman) Ltd
George Town, Cayman Islands Global Asset Management
UBS Global Asset Management (Americas) Inc.
Wilmington, Delaware, USA
Global Asset Management
UBS Global Asset Management (Japan) Ltd
Tokyo, Japan
Global Asset Management
UBS Global Asset Management (Singapore) Ltd
Singapore, Singapore
Global Asset Management
UBS Loan Finance LLC
UBS O’Connor LLC
UBS Real Estate Securities Inc.
UBS Realty Investors LLC
UBS Securities (Thailand) Ltd
UBS Securities Australia Ltd
UBS Securities Canada Inc.
UBS Securities España Sociedad de Valores SA
UBS Securities India Private Limited
UBS Securities Japan Co., Ltd.
UBS Securities Pte. Ltd.
UBS Services LLC
Wilmington, Delaware, USA
Investment Bank
Dover, Delaware, USA
Global Asset Management
Wilmington, Delaware, USA
Investment Bank
Boston, Massachusetts, USA
Global Asset Management
Bangkok, Thailand
Sydney, Australia
Toronto, Canada
Madrid, Spain
Mumbai, India
Tokyo, Japan
Singapore, Singapore
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Wilmington, Delaware, USA
Investment Bank
UBS Trust Company of Puerto Rico
Hato Rey, Puerto Rico
Wealth Management Americas
1 Includes a nominal amount relating to redeemable preference shares.
692
Note 30 Interests in subsidiaries and other entities (continued) Changes in consolidation scope
There were no material changes in the scope of consolidation in
2014.
Non-controlling interests
As of 31 December 2014 and 31 December 2013, non-controlling
interests were not material to UBS AG. In addition, as of these
dates there were no significant restrictions on UBS AG’s ability to
access or use the assets and settle the liabilities of UBS AG result-
ing from protective rights of non-controlling interests.
➔ Refer to the “Statement of changes in equity” for more
information
Consolidated structured entities
UBS AG consolidates a structured entity (SE) if it has power over
the relevant activities of the entity, exposure to variable returns
and the ability to use its power to affect its returns. Consolidated
SEs include certain investment funds, securitization vehicles, and
client investment vehicles. UBS AG has no individually significant
subsidiaries that are SEs.
Investment fund SEs are generally consolidated when UBS AG’s
aggregate exposure combined with its decision making rights in-
dicate the ability to use such power in a principal capacity. Typi-
cally UBS AG will have decision making rights as fund manager,
earning a management fee, and will provide seed capital at the
inception of the fund or hold a significant percentage of the fund
units. Where other investors do not have the substantive ability to
remove UBS AG as decision maker, UBS AG is deemed to control
the fund and consolidates.
Securitization SEs are generally consolidated when UBS AG
holds a significant percentage of the asset backed securities is-
sued by the SE and has the power to remove without cause the
servicer of the asset portfolio.
Client investment SEs are generally consolidated when UBS AG
has a substantive liquidation right over the SE or a decision right
over the assets held by the SE and has exposure to variable returns
through derivatives traded with the SE or holding notes issued by
the SE.
In 2014 and 2013, UBS AG has not entered into any contrac-
tual obligation that could require UBS AG to provide financial sup-
port to a consolidated SE. In addition, UBS AG did not provide
support, financial or otherwise, to a consolidated SE when the
UBS AG was not contractually obligated to do so, nor has UBS AG
an intention to do so in the future. Further, UBS AG did not pro-
vide support, financial or otherwise, to a previously unconsoli-
dated SE which resulted in UBS AG controlling the SE during the
reporting period.
693
Financial informationNote 30 Interests in subsidiaries and other entities (continued) Financial information
Notes to the UBS AG consolidated financial statements
b) Interests in associates and joint ventures
As of 31 December 2014 and 2013, no associate or joint venture
was individually material to UBS AG. In addition, there were no sig-
nificant restrictions on the ability of associates or joint ventures to
transfer funds to UBS AG or its subsidiaries in the form of cash divi-
dends or to repay loans or advances made. There were no quoted
market prices for any associates or joint ventures of UBS AG.
Investments in associates and joint ventures
CHF million
Carrying amount at the beginning of the year
Additions
Disposals
Share of comprehensive income
of which: share of net profit 1
of which: share of other comprehensive income 2
Dividends received
Foreign currency translation
Carrying amount at the end of the year
of which: associates
of which: UBS Securities Co. Limited, Beijing 3
of which: SIX Group AG, Zurich 4
of which: other associates
of which: joint ventures
31.12.14
31.12.13
842
1
(2)
103
94
9
(54)
38
927
900
404
406
90
27
858
0
(2)
59
49
10
(69)
(4)
842
815
369
367
78
27
1 For 2014, consists of CHF 83 million from associates and CHF 11 million from joint ventures. For 2013, consists of CHF 37 million from associates and CHF 12 million from joint ventures. 2 For 2014, consists of
CHF 8 million from associates and CHF 0.1 million from joint ventures. For 2013, consists of CHF 9 million from associates and CHF 1 million from joint ventures. 3 UBS AG’s equity interest amounts to 20.0%. 4 UBS AG’s
equity interest amounts to 17.3%. UBS AG is represented on the Board of Directors.
694
Note 30 Interests in subsidiaries and other entities (continued) c) Interests in unconsolidated structured entities
During 2014, the UBS AG sponsored the creation of various SEs
and interacted with a number of non-sponsored SEs, including
securitization vehicles, client vehicles as well as certain invest-
ment funds, which UBS did not consolidate as of 31 December
2014 because it did not control these entities.
➔ Refer to Note 1a item 3 for more information on the nature,
purpose, activities and financing structure of these entities
The table below presents UBS AG’s interests in and maximum
exposure to loss from unconsolidated SEs as of 31 December
2014. In addition, the total assets held by the SE in which UBS AG
had an interest as of 31 December 2014 are provided, except for
investment funds sponsored by third parties, for which the carry-
ing value of UBS AG’s interest as of 31 December 2014 has been
disclosed.
Interests in unconsolidated structured entities
CHF million, except where indicated
Trading portfolio assets
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Other assets
Total assets
Negative replacement values
Total liabilities
Assets held by the unconsolidated structured entities
in which UBS AG had an interest (CHF billion)
CHF million, except where indicated
Trading portfolio assets
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Other assets
Total assets
Negative replacement values
Total liabilities
Assets held by the unconsolidated structured entities
in which UBS AG had an interest (CHF billion)
Securitization
vehicles
Client vehicles
1,955
26
466
2,447 3
245 4
245 5
355 6
676
83
115 2
40
4,029
52 2
4,996
27
27
113 7
Securitization
vehicles
Client vehicles
3,298
26
1,878
5,202 3
1,263 4
1,263 5
390 6
544
16
124 2
4,020
53 2
4,756
96 7
31.12.14
Investment
funds
8,079
2
102
206
94
8,482
75
75
304 8
31.12.13
Investment
funds
6,509
0
91
366
77
6
7,048
0
0
266 8
Maximum
exposure to loss 1
10,711
111
2,422
712
4,123
1,248
21
Maximum
exposure to loss 1
10,350
42
2,449
2,244
4,096
933
16
Total
10,711
111
217
712
4,123
52
15,925
347
347
Total
10,350
42
215
2,244
4,096
58
17,005
1,263
1,263
1 For purposes of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other credit enhancements. 2 Represents the carrying value of loan commitments, both
designated at fair value and held at amortized cost. The maximum exposure to loss for these instruments is equal to the notional amount. 3 As of 31 December 2014, CHF 2.2 billion of the CHF 2.4 billion, or 90%,
was held in Corporate Center – Non-core and Legacy Portfolio. As of 31 December 2013, CHF 5.0 billion of the CHF 5.2 billion, or 96%, was held in Corporate Center – Non-core and Legacy Portfolio. 4 Comprised of
credit default swap (CDS) liabilities and other swap liabilities. The maximum exposure to loss for CDS is equal to the sum of the negative carrying value and the notional amount. For other swap liabilities, no maximum
exposure to loss is reported. 5 Entirely held by Corporate Center – Non-core and Legacy Portfolio. 6 Represents principal amount outstanding. 7 Represents the market value of total assets. 8 Represents the net
asset value of the investment funds sponsored by UBS AG (31 December 2014: CHF 296 billion, 31 December 2013: CHF 260 billion) and the carrying value of UBS AG’s interest in the investment funds not sponsored
by UBS AG (31 December 2014: CHF 8 billion, 31 December 2013: CHF 7 billion).
695
Financial informationNote 30 Interests in subsidiaries and other entities (continued) Financial information
Notes to the UBS AG consolidated financial statements
UBS AG retains or purchases interests in unconsolidated SEs in the
form of direct investments, financing, guarantees, letters of credit,
derivatives and through management contracts.
For retained interests, UBS AG’s maximum exposure to loss is
generally equal to the carrying value of UBS AG’s interest in the SE,
with the exception of guarantees, letters of credit and credit de-
rivatives for which the contract’s notional amount, adjusted for
losses already incurred, represents the maximum loss that UBS AG
is exposed to. In addition, the current fair value of derivative swap
instruments with a positive replacement value only, such as total
return swaps, is presented as UBS AG’s maximum exposure to loss.
Risk exposure for these swap instruments could change over time
with market movements.
The maximum exposure to loss disclosed in the table on the
previous page does not reflect UBS AG’s risk management activi-
ties, including effects from financial instruments that UBS AG may
utilize to economically hedge the risks inherent in the unconsoli-
dated SE or the risk-reducing effects of collateral or other credit
enhancements.
In 2014 and 2013, UBS AG did not provide support, financial
or otherwise, to an unconsolidated SE when UBS AG was not
contractually obligated to do so, nor has UBS AG an intention to
do so in the future.
In 2014 and 2013, income earned from interests in unconsoli-
dated SEs primarily resulted from mark-to-market movements
recognized in net trading income as well as fee and commission
income received from UBS AG sponsored funds.
Interests in securitization vehicles
As of 31 December 2014 and 31 December 2013, UBS AG re-
tained interests in securitization vehicles related to financing, un-
derwriting, secondary market and derivative trading activities. In
some cases UBS AG may be required to absorb losses from an
unconsolidated SE before other parties because UBS AG’s interest
is subordinated to others in the ownership structure. An overview
of the UBS AG’s interests in unconsolidated securitization vehicles
and the relative ranking and external credit rating of those inter-
ests as of 31 December 2014 and 31 December 2013 is presented
in the table on the following page.
➔ Refer to Note 1a items 3 and 12 for more information on when
UBS AG is viewed as the sponsor of an SE and for UBS AG’s
accounting policies regarding securitization vehicles established
by UBS AG
Interests in client vehicles
As of 31 December 2014 and 31 December 2013, UBS AG re-
tained interests in client vehicles sponsored by UBS AG and third
parties that relate to financing and derivative activities and to
hedge structured product offerings. Included within these invest-
ments are securities guaranteed by US government agencies.
Interests in investment funds
UBS AG holds interests in a number of investment funds, primarily
resulting from seed investments or to hedge structured product
offerings. In addition to the interests disclosed in the table on the
previous page, UBS AG manages the assets of various pooled in-
vestment funds and receives fees which are based, in whole or
part, on the net asset value of the fund and / or the performance
of the fund. The specific fee structure is determined based on
various market factors and considers the nature of the fund, the
jurisdiction of incorporation as well as fee schedules negotiated
with clients. These fee contracts represent an interest in the fund
as they align UBS AG’s exposure to investors, providing a variable
return which is based on the performance of the entity. Depend-
ing on the structure of the fund, these fees may be collected di-
rectly from the fund assets and / or from the investors. Any
amounts due are collected on a regular basis and are generally
backed by the assets of the fund. UBS AG did not have any mate-
rial exposure to loss from these interests as of 31 December 2014
or as of 31 December 2013.
696
Note 30 Interests in subsidiaries and other entities (continued) Interests in unconsolidated securitization vehicles 1
CHF million, except where indicated
Sponsored by UBS AG
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
Interests in mezzanine tranches
of which rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in junior tranches
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS AG had an interest (CHF billion)
Not sponsored by UBS AG
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in junior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS AG had an interest (CHF billion)
31.12.14
Residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
Other
asset-backed
securities 2
Re-securiti-
zation 3
0
0
1
1
1
1
1
376
369
6
0
0
154
134
15
5
68
56
4
0
8
598
598
115
59
59
16
7
1
8
75
75
14
293
286
6
143
105
37
1
0
18
11
6
0
1
453
453
0
115
1
1
0
1
1
3
454
452
2
0
172
164
8
1
1
627
588
39
88
389
381
8
6
6
0
395
14
381
2
207
205
1
0
62
54
8
0
2
2
271
225
46
12
1 This table excludes derivative transactions with securitization vehicles. 2 Includes credit card, car and student loan structures. 3 Includes collateralized debt obligations.
Total
450
442
0
8
22
13
0
2
8
0
472
91
381
20
1,329
1,313
15
0
0
531
457
69
5
0
89
67
10
1
11
1,949
1,865
85
331
697
Financial informationNote 30 Interests in subsidiaries and other entities (continued) Financial information
Notes to the UBS AG consolidated financial statements
Interests in unconsolidated securitization vehicles 1 (continued)
CHF million, except where indicated
Sponsored by UBS AG
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in mezzanine tranches
of which rated investment grade
of which: rated sub-investment grade
of which: defaulted
Interests in junior tranches
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS AG had an interest (CHF billion)
Not sponsored by UBS AG
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in junior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS AG had an interest (CHF billion)
Residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
31.12.13
Other
asset-backed
securities 2
Re-securiti-
zation 3
24
23
1
4
4
0
0
28
28
1
391
332
57
2
0
218
135
79
5
0
88
57
21
0
11
698
698
0
103
103
103
0
27
20
6
1
130
130
26
745
575
170
350
212
133
5
0
8
4
4
0
1,103
1,103
0
149
96
90
6
8
8
104
57
47
2
1,263
1,112
148
3
0
369
332
23
14
134
133
1
0
1,766
763
1,002
70
627
624
1
1
33
33
0
0
660
21
639
4
449
412
37
0
237
211
25
0
2
2
688
498
190
27
Total
849
839
1
7
1
73
61
10
2
0
922
237
686
32
2,848
2,431
412
5
0
1,173
890
260
10
14
234
194
26
1
13
4,254
3,062
1,192
349
1 This table excludes derivative transactions with securitization vehicles. 2 Includes credit card, car and student loan structures. 3 Includes collateralized debt obligations.
698
Note 30 Interests in subsidiaries and other entities (continued) Sponsored unconsolidated structured entities in which UBS AG
did not have an interest
For several sponsored SEs, no interest was held by UBS AG as of
31 December 2014 or as of 31 December 2013. However, during
the respective reporting period UBS AG transferred assets, provided
services and held instruments which did not qualify as an interest
with these sponsored SEs, and accordingly earned income or in-
curred expenses from these entities. The table below presents the
income earned and expenses incurred directly from these entities
during 2014 and 2013 as well as corresponding asset information.
The table does not include income earned and expenses incurred
from risk management activities, including income and expenses
from financial instruments that UBS AG may utilize to economically
hedge instruments transacted with the unconsolidated SE.
Sponsored Unconsolidated Structured Entities in which UBS AG did not have an interest at year end 1
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Total income
Asset information (CHF billion)
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Total income
Asset information (CHF billion)
As of or for the year ended
31.12.14
Securitization
vehicles
Client vehicles
Investment
funds
6
63
69
4 2
(51)
(158)
(208)
1 3
54
10
64
14 4
As of or for the year ended
31.12.13
Securitization
vehicles
Client vehicles
Investment funds
1
(271)
(270)
2 2
(48)
(368)
(416)
0 3
(19)
64
113
159
13 4
Total
(44)
54
(85)
(75)
Total
(66)
64
(525)
(527)
1 These tables exclude profit attributable to preferred noteholders of CHF 142 million for the year ended 31 December 2014 and CHF 204 million for the year ended 31 December 2013. 2 Represents the amount of
assets transferred to the respective securitization vehicles. Of the total amount transferred, CHF 1 billion was transferred by UBS AG (31 December 2013: CHF 1 billion) and CHF 3 billion was transferred by third parties
(31 December 2013: CHF 1 billion). 3 Represents total assets transferred to the respective client vehicles. Of the total amount transferred, CHF 1 billion was transferred by UBS AG (31 December 2013: CHF 0 billion)
and CHF 1 billion was transferred by third parties (31 December 2013: CHF 0 billion). 4 Represents the total net asset value of the respective investment funds.
During 2014 and 2013, UBS AG primarily earned fees and in-
curred net trading losses from sponsored SEs in which UBS AG did
not hold an interest. The majority of the fee income arose from
investment funds which are sponsored and administrated by
UBS AG, but managed by third parties. As UBS AG does not pro-
vide any active management services, UBS AG was not exposed to
risk from the performance of these entities and was therefore
deemed not to have an interest in them.
In certain structures, the fees receivable for administrative pur-
poses may be collected directly from the investors and have there-
fore not been included in the table above.
In addition, UBS AG incurred net trading losses from mark-to-
market movements arising primarily from derivatives, such as in-
terest rate swaps and credit derivatives, in which UBS AG pur-
chases protection, and financial liabilities designated at fair value,
which do not qualify as interests because UBS AG does not absorb
variability from the performance of the entity. The net losses re-
ported do not reflect economic hedges or other mitigating effects
from UBS AG’s risk management activities.
During 2014, UBS AG and third parties transferred assets total-
ing CHF 6 billion (2013: CHF 3 billion) into sponsored securitiza-
tion and client vehicles created in 2014. For sponsored investment
funds, transfers arose during the period as investors invested and
redeemed positions, thereby changing the overall size of the funds
alongside market movements, resulting in a total closing net asset
value of CHF 14 billion (31 December 2013: CHF 13 billion).
699
Financial informationNote 30 Interests in subsidiaries and other entities (continued) Financial information
Notes to the UBS AG consolidated financial statements
Business combinations in 2014
Business combinations in 2013
In 2014, no significant business combinations were completed.
In 2013, UBS AG completed the acquisition of all voting and own-
ership interests in Link Investimentos, a Brazilian financial services
firm that was integrated into the Investment Bank. The acquisi-
tion cost was CHF 90 million, of which CHF 55 million related to
goodwill, CHF 21 million to intangible assets, primarily related to
customer relationships, and CHF 14 million to other net assets.
The acquisition costs included a cash payment of CHF 35 million
and deferred consideration of CHF 55 million.
700
Note 31 Business combinations Establishment of UBS Group AG as the holding company
of the UBS Group
Restructuring charges
During 2014, UBS Group AG was established as the holding com-
pany of the Group. This change is intended, along with other
measures already announced, to substantially improve the resolv-
ability of the UBS Group in response to evolving too big to fail
regulatory requirements.
UBS Group AG was incorporated on 10 June 2014 as a wholly
owned subsidiary of UBS AG. On 29 September 2014, UBS Group
AG launched an offer to acquire all the issued ordinary shares of
UBS AG in exchange for registered shares of UBS Group AG on a
one-for-one basis. Following the exchange offer and subsequent
private exchanges on a one-for-one basis with various shareholders
and banks in Switzerland and elsewhere outside the United
States, UBS Group AG acquired 96.68% of UBS AG shares by
31 December 2014, becoming the holding company of the UBS
Group and the parent company of UBS AG.
Restructuring charges arise from programs that materially change
either the scope of business undertaken by UBS AG or the man-
ner in which such business is conducted. Restructuring charges
are temporary costs that are necessary to effect such programs
and include items such as severance and other personnel-related
charges, duplicate headcount costs, impairment and accelerated
depreciation of assets, contract termination costs, consulting fees,
and related infrastructure and system costs. These costs are pre-
sented in the income statement according to the underlying na-
ture of the expense. As the costs associated with restructuring
programs are temporary in nature, and in order to provide a more
thorough understanding of business performance, such costs are
separately presented in this Note.
701
Financial informationNote 32 Changes in organization Financial information
Notes to the UBS AG consolidated financial statements
Net restructuring charges by business division and Corporate Center
CHF million
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
of which: Core Functions
of which: Non-core and Legacy Portfolio
Total net restructuring charges
of which: personnel expenses
of which: general and administrative expenses
of which: depreciation and impairment of property and equipment
of which: amortization and impairment of intangible assets
Net restructuring charges by personnel expense category
CHF million
Salaries
Variable compensation – performance awards
Variable compensation – other
Contractors
Social security
Pension and other post-employment benefit plans
Other personnel expenses
Total net restructuring charges: personnel expenses
Net restructuring charges by general and administrative expense category
CHF million
Occupancy
Rent and maintenance of IT and other equipment
Administration
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Other 1
Total net restructuring charges: general and administrative expenses
1 Mainly comprised of onerous real estate lease contracts.
702
For the year ended
31.12.14
31.12.13
31.12.12
185
55
64
50
261
61
30
31
677
327
319
29
2
178
59
54
43
210
229
(6)
235
772
156
548
68
0
26
(1)
3
20
273
51
(8)
58
371
358
0
14
0
For the year ended
31.12.14
31.12.13
31.12.12
145
35
138
28
4
(29)
6
327
65
(15)
88
3
5
8
3
156
64
115
247
0
(10)
(56)
(1)
358
For the year ended
31.12.14
31.12.13
31.12.12
49
23
3
11
148
82
2
319
35
8
2
4
76
59
364
548
(1)
4
0
0
1
0
(5)
0
Note 32 Changes in organization (continued) In 2014, this Note was expanded to also cover finance lease receivables. Information on lease contracts classified as operating leases where
UBS AG is the lessee is provided in Note 33a and information on finance leases where UBS AG acts as a lessor is provided in Note 33b.
a) Operating lease commitments
As of 31 December 2014, UBS AG was obligated under a number
of non-cancellable operating leases for premises and equipment
used primarily for banking purposes. The significant premises
leases usually include renewal options and escalation clauses in
line with general office rental market conditions, as well as rent
adjustments based on price indices. However, the lease agree-
ments do not contain contingent rent payment clauses and pur-
chase options, nor do they impose any restrictions on UBS AG’s
ability to pay dividends, engage in debt financing transactions or
enter into further lease agreements.
The minimum commitments for non-cancellable leases of
premises and equipment are presented as follows.
CHF million
Expenses for operating leases to be recognized in:
2015
2016
2017
2018
2019
2020 and thereafter
Subtotal commitments for minimum payments under operating leases
Less: sublease rental income commitments
Net commitments for minimum payments under operating leases
CHF million
Gross operating lease expense recognized in the income statement
Sublease rental income
Net operating lease expense recognized in the income statement
b) Finance lease receivables
31.12.14
766
719
655
522
427
2,080
5,170
403
4,767
31.12.14
31.12.13
31.12.12
759
73
686
792
74
718
860
87
773
UBS AG leases a variety of assets to third parties under finance
leases, such as commercial vehicles, production lines, medical
equipment, construction equipment and aircrafts. At the end of
the respective leases, assets may be sold to third parties or be
leased further. Lessees may participate in any sales proceeds
achieved. Leasing charges cover the cost of the assets less their
residual value as well as financing costs.
The minimum receivables for non-cancellable finance leases are presented in the following table:
As of 31 December 2014, unguaranteed residual values of CHF 187 million had been accrued, and the accumulated allowance
for uncollectible minimum lease payments receivable amounted to CHF 19 million. No contingent rents were received in 2014.
703
Financial informationNote 33 Operating leases and finance leasesLease receivablesCHF million31.12.14Total minimum lease paymentsUnearned finance incomePresent value2015388233652016–2019618355832020 and thereafter1618153Total 1,167661,101 Financial information
Notes to the UBS AG consolidated financial statements
UBS AG defines related parties as associates (entities which are
significantly influenced by UBS AG), post-employment benefit
plans for the benefit of UBS AG employees, key management
personnel, close family members of key management personnel
and entities which are, directly or indirectly, controlled or jointly
controlled by key management personnel or their close family
members. Key management personnel is defined as members of
the Board of Directors (BoD) and Group Executive Board (GEB).
a) Remuneration of key management personnel
The non-independent members of the BoD have top manage-
ment employment contracts and receive pension benefits upon
retirement. Total remuneration of the non-independent members
of the BoD and GEB members, including those who stepped
down during 2014, is provided in the table below.
Remuneration of key management personnel
CHF million
Base salaries and other cash payments
Incentive awards – cash 2
Annual incentive award under DCCP
Employer’s contributions to retirement benefit plans
Benefits in kind, fringe benefits (at market value)
Equity-based compensation 3
Total
31.12.14
221
8
18
2
1
35
86
31.12.13
31.12.12
19
10
19
2
2
38
89
20
0
21
1
1
34
76
1 Includes role-based allowances that have been made in line with market practice in response to the EU Capital Requirements Directive of 2013 (CRD IV). 2 Includes immediate and deferred cash. 3 Expenses for
shares granted is measured at grant date and allocated over the vesting period, generally for 5 years. In 2014, 2013 and 2012, equity-based compensation was entirely comprised of EOP awards.
The independent members of the BoD do not have employment or service contracts with UBS, and thus are not entitled to benefits
upon termination of their service on the BoD. Payments to these individuals for their services as external board members amounted to
CHF 7.1 million in 2014, CHF 7.6 million in 2013 and CHF 7.6 million in 2012.
b) Equity holdings of key management personnel
Number of stock options from equity participation plans held by non-independent members of the BoD and the GEB members 2
Number of shares held by members of the BoD, GEB and parties closely linked to them 3
31.12.14 1
1,738,598
3,716,957
31.12.13 1
2,865,603
3,951,869
1 Entirely comprised of UBS Group AG shares and options on UBS Group AG shares as of 31 December 2014. Entirely comprised of UBS AG shares and options on UBS AG shares as of 31 December 2013, which were ex-
changed into UBS Group AG shares and options on UBS Group AG shares during 2014. 2 Refer to Note 29 for more information. 3 Excludes shares granted under variable compensation plans with forfeiture provisions.
Of the share totals above, 95,597 shares were held by close family
members of key management personnel on 31 December 2014
and 5,597 on 31 December 2013. No shares were held by entities
that are directly or indirectly controlled or jointly controlled by key
management personnel or their close family members on 31 De-
cember 2014 and 31 December 2013. Refer to Note 29 for more
information. As of 31 December 2014, no member of the BoD or
GEB was the beneficial owner of more than 1% of UBS Group
AG’s shares.
704
Note 34 Related parties c) Loans, advances and mortgages to key management personnel
Non-independent members of the BoD and GEB members have
been granted loans, fixed advances and mortgages on the same
terms and conditions that are available to other employees, which
are based on terms and conditions granted to third parties but are
adjusted for differing credit risk. Independent BoD members are
granted loans and mortgages under general market conditions.
Movements in the loan, advances and mortgage balances are
as follows.
Loans, advances and mortgages to key management personnel 1
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year
1 Loans are granted by UBS AG. All loans are secured loans.
2014
2013
20
10
(3)
27
19
2
(1)
20
d) Other related party transactions with entities controlled by key management personnel
During 2014 and 2013, UBS AG entered into transactions at
arm’s length with entities which are directly or indirectly con-
trolled or jointly controlled by UBS’s key management personnel
or their close family members. In 2014, these entities included
Immo Heudorf AG (Switzerland). In 2013, these entities included
H21 Macro Fund Ltd (Cayman Islands), DKSH Holding Ltd. (Swit-
zerland) and Immo Heudorf AG (Switzerland).
Other related party transactions
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year 1
1 Comprised of loans.
Other transactions with these related parties include:
CHF million
Goods sold and services provided to UBS AG
Fees received for services provided by UBS AG
2014
2013
10
0
10
0
2014
0
0
11
0
1
10
2013
0
2
705
Financial informationNote 34 Related parties (continued) Financial information
Notes to the UBS AG consolidated financial statements
e) Transactions with associates and joint ventures
All transactions with associates and joint ventures are conducted at arm’s length.
Loans and outstanding receivables to associates and joint ventures
CHF million
Carrying value at the beginning of the year
Additions
Reductions
Impairment
Foreign currency translation
Carrying value at the end of the year
of which: unsecured loans
includes allowances for credit losses
Other transactions with associates and joint ventures
CHF million
Payments to associates and joint ventures for goods and services received
Fees received for services provided to associates and joint ventures
Commitments and contingent liabilities to associates and joint ventures
➔ Refer to Note 30 for an overview of investments in associates and joint ventures
f) Receivables and payables from / to UBS Group AG and other subsidiaries of UBS Group AG
CHF million
Receivables
Loans
Other assets
Payables
Due to customers
Other liabilities
706
2014
288
313
(1)
(51)
3
552
539
1
2013
450
2
(163)
0
0
288
271
1
As of or for the year ended
31.12.14
31.12.13
169
1
2
163
2
2
31.12.14
227
80
772
511
Note 34 Related parties (continued) Invested assets
Net new money
Invested assets include all client assets managed by or deposited
with UBS AG for investment purposes. Invested assets include
managed fund assets, managed institutional assets, discretionary
and advisory wealth management portfolios, fiduciary deposits,
time deposits, savings accounts and wealth management securi-
ties or brokerage accounts. All assets held for purely transactional
purposes and custody-only assets, including corporate client as-
sets held for cash management and transactional purposes, are
excluded from invested assets as the Group only administers the
assets and does not offer advice on how the assets should be in-
vested. Also excluded are non-bankable assets (e.g., art collec-
tions) and deposits from third-party banks for funding or trading
purposes.
Discretionary assets are defined as client assets that UBS AG
decides how to invest. Other invested assets are those where the
client ultimately decides how the assets are invested. When a
single product is created in one business division and sold in an-
other, it is counted in both the business division that manages the
investment and the one that distributes it. This results in double
counting within UBS AG total invested assets, as both business
divisions are providing a service independently to their respective
clients, and both add value and generate revenue.
Net new money in a reporting period is the amount of invested
assets that are entrusted to UBS AG by new and existing clients,
less those withdrawn by existing clients and clients who termi-
nated their relationship with UBS AG.
Net new money is calculated using the direct method, under
which inflows and outflows to / from invested assets are deter-
mined at the client level based on transactions. Interest and divi-
dend income from invested assets are not counted as net new
money inflows. Market and currency movements as well as fees,
commissions and interest on loans charged are excluded from net
new money, as are the effects resulting from any acquisition or
divestment of a UBS AG subsidiary or business. Reclassifications
between invested assets and custody-only assets as a result of a
change in the service level delivered are generally treated as net
new money flows; however, where such change in service level
directly results from a new externally-imposed regulation, the
one-time net effect of the implementation is reported as an asset
reclassification without net new money impact.
The Investment Bank does not track invested assets and net
new money. However, when a client is transferred from the In-
vestment Bank to another business division, this produces net
new money even though client assets were already with UBS AG.
Net new money resulting from such transfers between business
divisions was zero in 2014 and 2013.
Invested assets and net new money
CHF billion
Fund assets managed by UBS AG
Discretionary assets
Other invested assets
Total invested assets (double counts included)
of which: double count
of which: acquisitions (divestments)
Net new money (double counts included)
For the year ended
31.12.14
31.12.13
270
854
1,610
2,734
173
0.0
58.9
244
714
1,432
2,390
156
(6.6)
32.3
707
Financial informationNote 35 Invested assets and net new money Financial information
Notes to the UBS AG consolidated financial statements
Note 36 Currency translation rates
The following table shows the rates of the main currencies used to translate the financial information of foreign operations into Swiss francs.
1 USD
1 EUR
1 GBP
100 JPY
Spot rate
As of
Average rate 1
Year ended
31.12.14
31.12.13
31.12.14
31.12.13
31.12.12
0.99
1.20
1.55
0.83
0.89
1.23
1.48
0.85
0.92
1.21
1.51
0.86
0.92
1.23
1.45
0.95
0.93
1.20
1.49
1.12
1 Monthly income statement items of foreign operations with a functional currency other than Swiss franc are translated with month-end rates into Swiss francs. Disclosed average rates for a year represent an average
of twelve month-end rates, weighted according to the income and expense volumes of all foreign operations of the Group with the same functional currency for each month. Weighted average rates for individual busi-
ness divisions may deviate from the weighted average rates for UBS AG.
708
Adjustments to 2014 results
After the issuance of the unaudited fourth quarter 2014 financial
report on 10 February 2015, management adjusted the 2014 re-
sults to account for subsequent events. The net impact of these
adjustments on net profit attributable to UBS AG shareholders
was a loss of CHF 112 million, which decreased basic and diluted
earnings per share by CHF 0.03. The principal change arose due
to an increase in charges for provisions for litigation, regulatory
and similar matters of CHF 134 million. The other adjustment
made to the income statement in 2014 was an increase in the net
tax benefit of CHF 22 million.
Impact of Swiss National Bank actions
On 15 January 2015, the Swiss National Bank (SNB) discontinued
the minimum targeted exchange rate for the Swiss franc versus
the euro, which had been in place since September 2011. At the
same time, the SNB lowered the interest rate on deposit account
balances at the SNB that exceed a given exemption threshold by
50 basis points to negative 0.75%. It also moved the target range
for three-month LIBOR to between negative 1.25% and negative
0.25%, (previously negative 0.75% to positive 0.25%). These de-
cisions resulted in a considerable strengthening of the Swiss franc
against the euro, US dollar, British pound, Japanese yen and sev-
eral other currencies, as well as a reduction in Swiss franc interest
rates. As of 28 February 2015, the Swiss franc exchange rate was
0.95 to the US dollar, 1.07 to the euro, 1.47 to the British pound
and 0.80 to 100 Japanese yen. Volatility levels in foreign currency
exchange and interest rates also increased.
A significant portion of the equity of UBS’s foreign operations
is denominated in US dollars, euros, British pounds and other for-
eign currencies. The appreciation of the Swiss franc would have
led to an estimated decline in total equity of approximately CHF
1.2 billion or 2% when applying currency translation rates as of
28 February 2015 to the reported balances as of 31 December
2014. This includes a reduction in recognized deferred tax assets,
mainly related to the US, of approximately CHF 0.4 billion (of
which CHF 0.2 billion relates to temporary differences deferred
tax assets), which would be recognized in Other comprehensive
income.
On a fully applied basis for Swiss systemically relevant banks
(SRB), UBS AG would have experienced the following approxi-
mate declines in its capital balances when applying currency
translation rates as of 28 February 2015 to the reported balances
as of 31 December 2014: CHF 0.5 billion or 2% in fully applied
common equity tier 1 (CET1) capital and CHF 0.8 billion or 2% in
fully applied total capital.
In aggregate, UBS AG did not experience negative revenues in
its trading businesses in connection with the SNB announcement.
However, the portion of operating income denominated in non-
Swiss franc currencies is greater than the portion of operating
expenses denominated in non-Swiss franc currencies. Therefore,
appreciation of the Swiss franc against other currencies generally
has an adverse effect on earnings in the absence of any mitigating
actions.
In addition to the estimated effects from changes in foreign
currency exchange rates, UBS AG’s equity and capital are affected
by changes in interest rates. In particular, the calculation of its net
defined benefit assets and liabilities is sensitive to the assumptions
applied. Specifically, the changes in applicable discount rate and
interest rate related assumptions for its Swiss pension plan during
January and February would have reduced equity and fully applied
Swiss SRB CET1 capital by around CHF 0.7 billion. Also, the persis-
tently low interest rate environment would continue to have an
adverse effect on replication portfolios, and net interest income
would further decrease.
Furthermore, the stronger Swiss franc may have a negative im-
pact on the Swiss economy, which, given its reliance on exports,
could impact some of the counterparties within UBS AG’s domes-
tic lending portfolio and lead to an increase in the level of credit
loss expenses in future periods.
Sale of real estate
In January 2015, UBS AG sold a real estate property in Geneva,
Switzerland for CHF 535 million, resulting in a gain on sale of CHF
377 million, which will be recognized in the income statement
within Corporate Center in the first quarter of 2015. As of 31 De-
cember 2014, the property was classified on the balance sheet as
property held-for-sale, which is measured at the lower of carrying
value or fair value less costs to sell.
709
Financial informationNote 37 Events after the reporting period Financial information
Notes to the UBS AG consolidated financial statements
The consolidated financial statements of UBS AG are prepared in
accordance with International Financial Reporting Standards (IFRS).
The Swiss Financial Market Supervisory Authority (FINMA) requires
financial groups which present their financial statements under IFRS
to provide a narrative explanation of the main differences between
IFRS and Swiss GAAP (FINMA Circular 2008 / 2 and the Banking
Ordinance). Included in this note are the significant differences in
regard to recognition and measurement between IFRS and the pro-
visions of the Banking Ordinance and the guidelines of the FINMA
governing true and fair view financial statement reporting pursuant
to Article 23 through Article 27 of the Banking Ordinance. The dif-
ferences outlined in points two through nine also apply to the UBS
AG standalone financial statements.
➔ Refer to Note 2c to the UBS AG standalone financial statements
for an outlook on the Swiss GAAP revision which will be
tent and debt instruments are classified as Financial investments
and measured at the lower of (amortized) cost or market value.
Market value adjustments up to the original cost amount and
realized gains or losses upon disposal of the investment are re-
corded in the income statement as Other income from ordinary
activities. Equity instruments with a permanent holding intent
are classified as participations in Investments in subsidiaries and
other participations and measured at cost less impairment. Im-
pairment losses are recorded in the income statement as Impair-
ment of investments in subsidiaries and other participations.
Reversal of impairments up to the original cost amount as well
as realized gains or losses upon disposal of the investment are
recorded as Extraordinary income / Extraordinary expenses in the
income statement.
effective for 2015 annual financial statements
3. Cash flow hedges
1. Consolidation
Under IFRS, all entities which are controlled by the holding entity
are consolidated.
Under Swiss GAAP, only entities that are active in the field of
banking and finance and real estate entities are subject to con-
solidation. Entities which are held temporarily are generally re-
corded as financial investments.
2. Financial investments available-for-sale
Under IFRS, financial investments available-for-sale are carried at
fair value. Changes in fair value are recorded directly in equity
until an investment is sold, collected or otherwise disposed of, or
until an investment is determined to be impaired. At the time an
available-for-sale investment is determined to be impaired, the
cumulative unrealized loss previously recognized in equity is in-
cluded in net profit or loss for the period. On disposal of a finan-
cial investment available-for-sale, the cumulative unrecognized
gain or loss previously recognized in equity is recognized in the
income statement.
Under Swiss GAAP, classification and measurement of finan-
cial investments available-for-sale depends on the nature of the
investment. Equity instruments with no permanent holding in-
UBS AG designates derivative instruments in cash flow hedge
accounting relationships. Under IFRS, when hedge accounting is
applied, the fair value gain or loss on the effective portion of the
derivative designated as a cash flow hedge is recognized in eq-
uity. When the hedged cash flows materialize, the accumulated
unrecognized gain or loss is reclassified to the income statement.
Under Swiss GAAP, the effective portion of the fair value
change of the derivative instrument used to hedge cash flow ex-
posures is deferred on the balance sheet as Other assets or Other
liabilities. The deferred amounts are released to the income state-
ment when the hedged cash flows materialize.
4. Fair value option
Under IFRS, UBS AG applies the fair value option to certain finan-
cial assets and financial liabilities not held for trading. Instruments
for which the fair value option is applied are accounted for at fair
value with changes in fair value reflected in Net trading income.
The fair value option is applied primarily to structured debt instru-
ments, certain non-structured debt instruments, structured
reverse repurchase and repurchase agreements and securities
borrowing agreements, certain structured and non-structured
loans as well as loan commitments.
710
Note 38 Swiss GAAP requirements Under Swiss GAAP, the fair value option can only be applied to
structured products issued that consist of a debt host contract and
one or more embedded derivatives that require bifurcation. Changes
in fair value attributable to changes in unrealized own credit are not
recognized in the income statement and the balance sheet.
5. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is not
amortized but tested annually for impairment. Intangible assets
acquired in a business combination with an indefinite useful life
are also not amortized but tested annually for impairment.
Under Swiss GAAP, goodwill and intangible assets with indefi-
nite useful lives are amortized over a period not exceeding five
years, unless a longer useful life, which may not exceed 20 years,
can be justified.
6. Pension and other post-employment benefit plans
Swiss GAAP permits the use of IFRS or Swiss accounting standards
for pension and other post-employment benefit plans, with the
election made on a plan-by-plan basis.
UBS AG has elected to apply IFRS (IAS 19) for its non-Swiss
defined benefit plans and Swiss GAAP (FER 16) for the Swiss pen-
sion plan in UBS AG standalone financial statements. The require-
ments of FER 16 are better aligned with the specific nature of
Swiss pension plans, which are hybrid in that they combine ele-
ments of defined contribution and defined benefit plans, but are
treated as defined benefit plans under IFRS. Key differences be-
tween Swiss GAAP and IAS 19 include the treatment of dynamic
elements, such as future salary increases and future interest credits
on retirement savings, which are not considered under the static
method used in accordance with Swiss GAAP. Also, the discount
rate used to determine the defined benefit obligation in accor-
dance with IAS 19 is based on the yield of high quality corporate
bonds of the market in the respective pension plan country. The
discount rate used in accordance with Swiss GAAP (i.e., the techni-
cal interest rate) is determined by the Pension Foundation Board
based on the expected returns of the Board’s investment strategy.
For defined benefit plans, IFRS requires the full defined benefit
obligation net of the plan assets to be recorded on the balance
sheet, with changes resulting from remeasurements recognized
directly in equity. However, for plans for which IFRS is elected,
Swiss GAAP requires that changes due to remeasurements are
recognized in the income statement.
Swiss GAAP require that employer contributions to the pen-
sion fund are recognized as personnel expenses in the income
statement. Further, FER 16 requires an assessment as to whether,
based on the financial statements of the pension fund prepared in
accordance with Swiss accounting standards (FER 26), an eco-
nomic benefit or obligation for the employer arises from the pen-
sion fund and is recognized in the balance sheet when conditions
are met. Conditions for recording a pension asset or liability would
be met if, for example, an employer contribution reserve is avail-
able or the employer is required to contribute to the reduction of
a pension deficit (on a FER 26 basis).
7. Netting of replacement values
Under IFRS, replacement values are reported on a gross basis un-
less certain restrictive requirements are met which then allow for
the replacement values, and in certain cases the related cash col-
lateral, to be reported on a net basis. Under Swiss GAAP, replace-
ment values and the related cash collateral are generally reported
on a net basis, provided the master netting and the related col-
lateral agreements are legally enforceable.
8. Extraordinary income and expense
Certain items of non-recurring and non-operating income and ex-
pense are classified as extraordinary items under Swiss GAAP. This
distinction is not available under IFRS.
9. Other presentational differences
Under IFRS, financial statements are comprised of an Income
statement, Statement of comprehensive income, Balance sheet,
Statement of changes in equity, Statement of cash flows and
Notes to the financial statements. Under Swiss GAAP, no State-
ment of comprehensive income is required and the Statement of
changes in equity is part of the Notes to the financial statements.
In addition, various other presentational differences exist.
711
Financial informationNote 38 Swiss GAAP requirements (continued) Financial information
Notes to the UBS AG consolidated financial statements
Guarantee of PaineWebber securities
Following the acquisition of Paine Webber Group Inc. (PaineWeb-
ber), UBS AG entered into a full and unconditional guarantee of
the senior notes (Debt Securities) issued by PaineWebber. Prior to
the acquisition, PaineWebber was an SEC registrant. Upon acqui-
sition, PaineWebber was merged into UBS Americas Inc., a wholly
owned subsidiary of UBS AG.
Under the guarantee, if UBS Americas Inc. fails to make any
timely payment under the Debt Securities agreements, the hold-
ers of the Debt Securities or the Debt Securities trustee may de-
mand payment from UBS AG without first proceeding against
UBS Americas Inc.
As of 31 December 2014, the amount of outstanding senior
notes of UBS Americas Inc. which are fully and unconditionally
guaranteed by UBS AG was approximately CHF 150 million. These
senior notes mature between 2017 and 2018.
Amounts presented for UBS AG in the income statement, state-
ment of comprehensive income and balance sheet represent IFRS-
standalone information. Previously, amounts which served as a
basis for preparing UBS AG consolidated financial statements un-
der IFRS, were presented for UBS AG.
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2014
UBS AG
(standalone) 1
UBS
Americas Inc. 2
Other
subsidiaries 2
Consolidating
entries
UBS AG
(consolidated)
Operating income
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss expense
Net fee and commission income
Net trading income
Other income
Total operating income
Operating expenses
Personnel expenses
General and administrative expenses
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS AG shareholders
11,585
(6,287)
5,298
(108)
5,190
6,111
2,750
5,584
19,636
7,991
5,621
595
7
14,214
5,421
949
4,472
142
0
4,330
1,591
(597)
995
9
1,003
7,288
438
95
8,825
5,806
2,415
139
59
8,420
404
(2,375)
2,779
0
0
1,160
(898)
262
9
270
3,799
237
(46)
4,261
1,483
1,341
83
16
2,922
1,339
248
1,091
0
5
(1,143)
1,143
0
13
13
(122)
416
(5,002)
(4,695)
0
0
0
0
0
(4,695)
(2)
(4,693)
0
0
2,779
1,086
(4,693)
13,194
(6,639)
6,555
(78)
6,477
17,076
3,841
632
28,026
15,280
9,377
817
83
25,557
2,469
(1,180)
3,649
142
5
3,502
1 Amounts presented for UBS AG (standalone) represents IFRS-standalone information. Refer to the UBS AG (standalone) audited financial statements for information prepared in accordance with Swiss GAAP.
2 Amounts presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS.
712
Note 39 Supplemental guarantor information required under SEC regulations Supplemental guarantor consolidated statement of comprehensive income
CHF million
For the year ended 31 December 2014
UBS AG
(standalone) 1
UBS
Americas Inc. 2
Other
subsidiaries 2
Consolidating
entries
UBS AG
(consolidated)
Comprehensive income attributable to UBS AG shareholders
Net profit / (loss)
4,330
2,779
1,086
(4,693)
3,502
Other comprehensive income
Other comprehensive income that may be reclassified
to the income statement
Foreign currency translation, net of tax
Financial investments available-for-sale, net of tax
Cash flow hedges, net of tax
Total other comprehensive income that may be reclassified
to the income statement, net of tax
Other comprehensive income that will not be reclassified
to the income statement
Defined benefit plans, net of tax
Property revaluation surplus, net of tax
Total other comprehensive income that will not be reclassified
to the income statement, net of tax
Total other comprehensive income
Total comprehensive income attributable to UBS AG shareholders
Total comprehensive income attributable to preferred noteholders
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
325
32
693
928
78
0
1,050
1,006
(999)
0
(999)
51
4,381
260
0
4,641
(167)
0
(167)
838
3,617
0
0
1,500
37
0
1,537
(56)
0
(56)
1,481
2,567
0
7
(920)
(6)
0
(926)
14
0
14
(912)
(5,605)
0
0
1,834
140
693
2,667
(1,208)
0
(1,208)
1,459
4,961
260
7
5,229
3,617
2,575
(5,605)
1 Amounts presented for UBS AG (standalone) represents IFRS-standalone information. Refer to the UBS AG (standalone) audited financial statements for information prepared in accordance with Swiss GAAP. 2 Amounts
presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS.
713
Financial informationNote 39 Supplemental guarantor information required under SEC regulations (continued) Financial information
Notes to the UBS AG consolidated financial statements
Supplemental guarantor consolidated balance sheet
CHF million
As of 31 December 2014
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: assets pledged as collateral which may be sold
or repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Investments in subsidiaries and associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Provisions
Other liabilities
Total liabilities
Equity attributable to UBS AG shareholders
Equity attributable to preferred noteholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
UBS AG
(standalone) 1
UBS
Americas Inc. 2
Other
subsidiaries 2
Consolidating
entries
UBS AG
(consolidated)
95,711
32,448
33,676
64,496
101,922
51,476
262,073
25,501
4,691
299,032
42,580
27,163
5,792
354
4,290
14,649
1,014,379
38,461
33,284
22,087
18,936
258,680
32,106
73,857
362,564
86,894
2,725
33,699
963,293
49,073
2,013
0
51,085
1,014,379
6,440
7,099
36,033
24,417
6,697
3,310
19,597
5,503
481
43,566
5,403
2
823
5,381
6,479
9,021
1,923
52,637
5,181
30,328
34,479
6,969
51,327
14,487
2,882
16,553
9,175
1
238
1,051
349
2,256
0
(78,850)
(50,827)
(50,827)
(4,943)
(5,737)
(76,020)
(14,512)
(3,562)
(43,168)
0
(26,239)
0
0
(57)
(2,857)
104,073
13,334
24,063
68,414
138,156
56,018
256,978
30,979
4,493
315,984
57,159
927
6,854
6,785
11,060
23,069
176,942
222,867
(351,860)
1,062,327
38,269
22,961
12,548
4,856
19,448
5,926
130
48,236
157
1,268
17,615
171,415
5,527
0
0
5,527
176,942
12,611
3,761
28,010
8,234
51,993
18,852
5,598
43,474
4,312
372
21,985
199,201
23,621
0
45
23,666
222,867
(78,850)
(50,827)
(50,827)
(4,068)
(76,020)
(14,512)
(4,288)
(43,294)
(156)
0
(2,907)
(325,748)
(26,113)
0
0
(26,113)
(351,860)
10,492
9,180
11,818
27,958
254,101
42,372
75,297
410,979
91,207
4,366
70,392
1,008,162
52,108
2,013
45
54,165
1,062,327
1 Amounts presented for UBS AG (standalone) represents IFRS-standalone information. Refer to the UBS AG (standalone) audited financial statements for information prepared in accordance with Swiss GAAP.
2 Amounts presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS.
714
Note 39 Supplemental guarantor information required under SEC regulations (continued) Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2014
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets 2
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale
Net cash flow from / (used in) investing activities
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Distributions paid on UBS shares
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Dividends paid and repayments of preferred notes
Net changes of non-controlling interests
Net activity in investments in subsidiaries
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise: 3
Cash and balances with central banks
Due from banks 4
Money market paper 5
Total
UBS AG
(standalone) 1
7,747
UBS
Americas Inc. 1
(1,970)
Other
subsidiaries 1
2,650
(18)
41
(1,521)
313
7,774
6,589
(3,984)
(719)
(938)
40,272
(32,083)
(110)
0
(319)
2,118
7,506
23,960
83,970
107,930
95,711
11,387
832
107,930
0
9
(300)
14
(568)
(845)
0
0
0
24
(494)
0
0
0
(470)
840
(2,445)
11,425
8,980
6,440
2,509
31
8,980
0
20
(94)
23
(3,098)
(3,149)
1,064
0
0
686
(1,632)
0
(3)
319
434
265
199
9,870
10,069
1,923
8,141
6
10,069
UBS AG
(consolidated)
8,426
(18)
70
(1,915)
350
4,108
2,596
(2,921)
(719)
(938)
40,982
(34,210)
(110)
(3)
0
2,081
8,611
21,714
105,266
126,980
104,073
22,037
869
126,980 6
1 Amounts presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS. 2 Includes dividends received from associates. 3 Balances represent third party
view from an UBS AG (consolidated) perspective. 4 Includes positions recognized in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments. 5 Money market paper is
included in the balance sheet under Trading portfolio assets and Financial investments available-for-sale. 6 CHF 4,593 million of cash and cash equivalents were restricted.
715
Financial informationNote 39 Supplemental guarantor information required under SEC regulations (continued) Financial information
Notes to the UBS AG consolidated financial statements
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2013
UBS AG
(standalone) 1
UBS
Americas Inc. 2
Other
subsidiaries 2
Consolidating
entries
UBS AG
(consolidated)
Operating income
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss expense
Net fee and commission income
Net trading income
Other income
Total operating income
Operating expenses
Personnel expenses
General and administrative expenses
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS AG shareholders
11,308
(7,093)
4,215
(19)
4,196
6,430
4,922
499
16,046
8,099
3,959
575
6
12,639
3,408
570
2,837
204
0
2,634
1,984
(695)
1,290
(33)
1,257
6,781
379
416
8,833
5,584
3,364
133
60
9,141
(307)
(937)
630
0
0
630
1,204
(930)
275
(3)
271
3,079
159
(909)
2,600
1,499
1,058
107
17
2,681
(81)
261
(342)
0
5
(347)
(1,359)
1,366
6
5
11
(4)
(329)
574
252
0
0
0
0
0
252
(3)
256
0
0
256
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
580
27,732
15,182
8,380
816
83
24,461
3,272
(110)
3,381
204
5
3,172
1 Amounts presented for UBS AG (standalone) represents IFRS-standalone information. Refer to the UBS AG (standalone) audited financial statements for information prepared in accordance with Swiss GAAP.
2 Amounts presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS.
716
Note 39 Supplemental guarantor information required under SEC regulations (continued) Supplemental guarantor consolidated statement of comprehensive income
CHF million
For the year ended 31 December 2013
UBS AG
(standalone) 1
UBS
Americas Inc. 2
Other
subsidiaries 2
Consolidating
entries
UBS AG
(consolidated)
Comprehensive income attributable to UBS AG shareholders
Net profit / (loss)
2,634
630
(347)
256
3,172
Other comprehensive income
Other comprehensive income that may be reclassified
to the income statement
Foreign currency translation, net of tax
Financial investments available-for-sale, net of tax
Cash flow hedges, net of tax
Total other comprehensive income that may be reclassified
to the income statement, net of tax
Other comprehensive income that will not be reclassified
to the income statement
Defined benefit plans, net of tax
Property revaluation surplus, net of tax
Total other comprehensive income that will not be reclassified
to the income statement, net of tax
Total other comprehensive income
Total comprehensive income attributable to UBS AG shareholders
Total comprehensive income attributable to preferred noteholders
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
392
17
(1,520)
(1,112)
824
(6)
818
(294)
2,340
559
0
2,899
(348)
(163)
0
(510)
110
0
110
(401)
229
0
0
229
(311)
(16)
0
(327)
6
0
6
(321)
(668)
0
4
(664)
(204)
8
0
(196)
0
0
0
(196)
60
0
0
60
(471)
(154)
(1,520)
(2,145)
939
(6)
933
(1,211)
1,961
559
4
2,524
1 Amounts presented for UBS AG (standalone) represents IFRS-standalone information. Refer to the UBS AG (standalone) audited financial statements for information prepared in accordance with Swiss GAAP. 2 Amounts
presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS.
717
Financial informationNote 39 Supplemental guarantor information required under SEC regulations (continued) Financial information
Notes to the UBS AG consolidated financial statements
Supplemental guarantor consolidated balance sheet
CHF million
As of 31 December 2013
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: assets pledged as collateral which may be sold
or repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Investments in subsidiaries and associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Provisions
Other liabilities
Total liabilities
Equity attributable to UBS AG shareholders
Equity attributable to preferred noteholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
UBS AG
(standalone) 1
UBS
Americas Inc. 2
Other
subsidiaries 2
Consolidating
entries
UBS AG
(consolidated)
69,808
27,677
28,304
77,647
94,971
44,602
249,179
24,047
6,519
274,520
47,800
21,741
5,149
326
4,998
13,506
946,189
39,988
23,823
10,039
22,142
242,081
37,445
67,912
346,246
78,441
1,681
28,781
898,579
45,717
1,893
0
47,610
946,189
8,893
7,009
33,385
28,757
7,848
1,862
8,769
6,147
1,880
36,807
4,169
1
603
4,906
3,658
7,572
2,178
50,531
2,097
47,122
27,194
1,853
60,384
18,254
3,257
15,231
5,343
1
254
1,061
241
2,047
160,404
235,195
39,449
19,261
19,333
3,603
9,130
8,106
440
41,029
341
938
16,244
157,875
2,530
0
0
2,530
160,404
4,768
2,696
46,402
5,480
61,115
20,855
6,084
43,245
2,866
408
20,648
214,569
20,585
0
41
20,626
235,195
0
(71,342)
(36,290)
(61,963)
(7,165)
(5,869)
(64,248)
(21,899)
(4,292)
(39,599)
2,214
(20,901)
0
0
(52)
(2,896)
(328,434)
(71,342)
(36,290)
(61,963)
(4,617)
(64,248)
(21,899)
(4,536)
(39,695)
(61)
(56)
(2,896)
(307,604)
(20,830)
0
0
(20,830)
(328,434)
80,879
13,874
27,496
91,563
122,848
42,449
254,084
26,548
7,364
286,959
59,525
842
6,006
6,293
8,845
20,228
1,013,355
12,862
9,491
13,811
26,609
248,079
44,507
69,901
390,825
81,586
2,971
62,777
963,419
48,002
1,893
41
49,936
1,013,355
1 Amounts presented for UBS AG (standalone) represent IFRS-standalone information. Refer to the UBS AG (standalone) audited financial statements for information prepared in accordance with Swiss GAAP. 2 Amounts
presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS.
718
Note 39 Supplemental guarantor information required under SEC regulations (continued) Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2013
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets 2
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale
Net cash flow from / (used in) investing activities
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Capital issuance
Distributions paid on UBS shares
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Dividends paid and repayments of preferred notes
Net changes of non-controlling interests
Net activity in investments in subsidiaries
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise: 3
Cash and balances with central banks
Due from banks 4
Money market paper 5
Total
UBS AG
(standalone)1
55,469
UBS
Americas Inc. 1
(8,159)
Other
subsidiaries 1
3,649
UBS AG
(consolidated)
50,959
(49)
136
(1,032)
545
751
351
(1,400)
(341)
1
(564)
27,442
(65,112)
(1,415)
0
12
(41,377)
(2,330)
12,112
71,858
83,970
69,808
9,938
4,224
83,970
0
0
(160)
5
6,076
5,922
0
0
0
0
59
(486)
0
0
32
(396)
(207)
(2,841)
14,266
11,425
8,893
2,503
28
11,425
0
0
(44)
91
(861)
(815)
(2,890)
0
0
0
513
(3,356)
0
(6)
(45)
(5,784)
(165)
(3,115)
12,985
9,870
2,178
7,658
35
9,870
(49)
136
(1,236)
639
5,966
5,457
(4,290)
(341)
1
(564)
28,014
(68,954)
(1,415)
(6)
0
(47,555)
(2,702)
6,158
99,108
105,266
80,879
20,099
4,288
105,266 6
1 Amounts presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS. 2 Includes dividends received from associates. 3 Balances represent third party
view from an UBS AG (consolidated) perspective. 4 Includes positions recognized in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments. 5 Money market paper is
included in the balance sheet under Trading portfolio assets and Financial investments available-for-sale. 6 CHF 4,966 million of cash and cash equivalents were restricted.
719
Financial informationNote 39 Supplemental guarantor information required under SEC regulations (continued) Financial information
Notes to the UBS AG consolidated financial statements
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2012
UBS AG
(standalone) 1
UBS
Americas Inc. 2
Other
subsidiaries 2
Consolidating
entries
UBS AG
(consolidated)
Operating income
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss expense
Net fee and commission income
Net trading income
Other income
Total operating income
Operating expenses
Personnel expenses
General and administrative expenses
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS AG shareholders
13,376
(9,403)
3,973
(90)
3,883
5,979
3,142
(2,684)
10,320
7,682
4,647
501
14
3
12,847
(2,527)
(65)
(2,462)
220
0
(2,682)
2,774
(1,153)
1,622
(112)
1,510
6,333
250
783
8,876
5,369
2,618
104
2,860
84
11,034
(2,158)
165
(2,323)
0
0
1,882
(1,507)
375
1
375
3,130
157
(1,687)
1,976
1,686
1,393
84
156
20
3,339
(1,363)
290
(1,653)
0
5
(2,065)
2,073
8
83
91
(45)
(23)
4,228
4,251
0
(4)
0
0
0
(4)
4,255
71
4,184
0
0
(2,323)
(1,658)
4,183
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
641
25,423
14,737
8,653
689
3,030
106
27,216
(1,794)
461
(2,255)
220
5
(2,480)
1 Amounts presented for UBS AG (standalone) represents IFRS-standalone information. Refer to the UBS AG (standalone) audited financial statements for information prepared in accordance with Swiss GAAP.
2 Amounts presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS.
720
Note 39 Supplemental guarantor information required under SEC regulations (continued) Supplemental guarantor consolidated statement of comprehensive income
CHF million
For the year ended 31 December 2012
UBS AG
(standalone) 1
UBS
Americas Inc. 2
Other
subsidiaries 2
Consolidating
entries
UBS AG
(consolidated)
Comprehensive income attributable to UBS AG shareholders
Net profit / (loss)
Other comprehensive income
Other comprehensive income that may be reclassified
to the income statement
Foreign currency translation, net of tax
Financial investments available-for-sale, net of tax
Cash flow hedges, net of tax
Total other comprehensive income that may be reclassified
to the income statement, net of tax
Other comprehensive income that will not be reclassified
to the income statement
Defined benefit plans, net of tax
Property revaluation surplus, net of tax
Total other comprehensive income that will not be reclassified
to the income statement, net of tax
Total other comprehensive income
Total comprehensive income attributable to UBS AG shareholders
Total comprehensive income attributable to preferred noteholders
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
(2,682)
(2,323)
(1,658)
4,183
(2,480)
2,080
39
384
2,503
718
6
724
3,227
545
0
0
545
148
(6)
0
142
(771)
0
(771)
(629)
(2,952)
0
0
(2,952)
(701)
(7)
0
(708)
662
0
662
(46)
(1,704)
179
20
(1,505)
(2,039)
0
0
(2,039)
0
0
0
(2,039)
2,144
0
0
2,144
(511)
26
384
(102)
609
6
615
514
(1,966)
179
20
(1,767)
1 Amounts presented for UBS AG (standalone) represents IFRS-standalone information. Refer to the UBS AG (standalone) audited financial statements for information prepared in accordance with Swiss GAAP. 2 Amounts
presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS.
721
Financial informationNote 39 Supplemental guarantor information required under SEC regulations (continued) Financial information
Notes to the UBS AG consolidated financial statements
Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2012
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets 2
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale
Net cash flow from / (used in) investing activities
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Distributions paid on UBS shares
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Dividends paid and repayments of preferred notes
Net changes of non-controlling interests
Net activity in investments in subsidiaries
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise: 3
Cash and balances with central banks
Due from banks 4
Money market paper 5
Total
UBS AG
(standalone) 1
49,291
UBS
Americas Inc. 1
10,795
Other
subsidiaries 1
7,075
UBS AG
(consolidated)
67,160
(11)
41
(878)
194
(12,429)
(13,082)
(26,177)
(1,159)
(379)
49,885
(49,981)
(221)
0
(2,600)
(30,631)
(200)
5,377
66,481
71,858
54,192
13,387
4,279
71,858
0
0
(189)
5
(780)
(965)
0
0
0
575
(23)
0
0
(99)
452
(352)
9,930
4,336
14,266
11,395
2,824
47
14,266
0
0
(50)
3
(785)
(832)
(11,790)
0
0
5,430
(4,254)
0
(16)
2,698
(7,932)
(121)
(1,808)
14,793
12,985
796
12,133
56
12,985
(11)
41
(1,118)
202
(13,994)
(14,879)
(37,967)
(1,159)
(379)
55,890
(54,259)
(221)
(16)
0
(38,110)
(673)
13,500
85,609
99,108
66,383
28,344
4,381
99,108 6
1 Amounts presented in these columns serve as a basis for preparing UBS AG consolidated financial statements in accordance with IFRS. 2 Includes dividends received from associates. 3 Balances represent third party
view from an UBS AG (consolidated) perspective. 4 Includes positions recognized in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments. 5 Money market paper is
included in the balance sheet under Trading portfolio assets and Financial investments available-for-sale. 6 CHF 10,109 million of cash and cash equivalents were restricted.
722
Note 39 Supplemental guarantor information required under SEC regulations (continued) Guarantee of other securities
The table below provides information on outstanding trust pre-
ferred securities which are registered under the US Securities Act
and issued by US-domiciled entities that are 100% legally owned
by UBS AG. These entities are not consolidated as UBS AG does
not absorb any variability from the performance of these entities.
However, UBS AG has fully and unconditionally guaranteed these
securities. UBS AG’s obligations under the guarantee are subordi-
nated to the prior payment in full of the deposit liabilities of UBS
AG and all other liabilities of UBS AG. As of 31 December 2014,
the amount of senior liabilities of UBS AG to which the holders of
the subordinated debt securities would be subordinated was ap-
proximately CHF 991 billion.
Guarantee of other securities
USD billion, unless otherwise indicated
As of 31.12.14
Amount
Issuing entity
Type of security
Date issued
Interest (%)
outstanding
UBS Preferred Funding Trust IV
UBS Preferred Funding Trust V
Non-cumulative trust preferred securities
Non-cumulative trust preferred securities
May 2003
May 2006
one-month USD
LIBOR + 0.7
6.243
0.3
1.0
Guarantee to UBS Limited
UBS AG has issued a guarantee for the benefit of each counter-
party of UBS Limited. Under this guarantee, UBS AG irrevocably
and unconditionally guarantees each and every obligation that
UBS Limited entered into. UBS AG promises to pay to that coun-
terparty on demand any unpaid balance of such liabilities under
the terms of the guarantee. ▲
723
Financial informationNote 39 Supplemental guarantor information required under SEC regulations (continued) UBS Group AG standalone
financial statements
Audited | Income statement
in CHF thousand
Dividend income from the investment in UBS AG
Other operating income
Operating income
Personnel expenses
Other operating expenses
Financial expenses
Operating expenses
Profit / (loss) before income taxes
Tax expense / (benefit)
Net profit / (loss) for the period
For the period ended
Note
31.12.14
3
4
5
6
0
7,527
7,527
249
9,874
7,307
17,429
(9,903)
0
(9,903)
As UBS Group AG was incorporated on 10 June 2014, the Income statement and corresponding Notes presented only include income
and expenses for the period from 10 June to 31 December 2014.
725
Financial information Financial information
UBS Group AG standalone financial statements
Balance sheet
in CHF thousand
Assets
Liquid assets
Marketable securities
Other short-term receivables
Accrued income and prepaid expenses
Total current assets
Investment in UBS AG
Financial assets
Prepaid assets
Total non-current assets
Total assets
of which: amounts due from subsidiaries
Liabilities
Current interest-bearing liabilities
Accrued expenses and deferred income
Total short-term liabilities
Other long-term liabilities
Total long-term liabilities
Total liabilities
of which: amounts due to subsidiaries
Equity
Share capital
General reserve
of which: statutory capital reserve
of which: capital contribution reserve
of which: other capital reserve
of which: statutory earnings reserve
Voluntary earnings reserve
of which: retained earnings before appropriation
of which: profit / (loss) for the period
Treasury shares
Reserve for own shares held by subsidiaries
Equity attributable to shareholders
Total liabilities and equity
726
Note
31.12.14
7
8
9
10
11
12
13
14
15
16
17
742,017
112,505
511,297
91,036
1,456,855
38,690,748
319,663
63,927
39,074,338
40,531,193
1,239,168
226,762
837,957
1,064,719
2,312,588
2,312,588
3,377,307
227,273
371,713
38,320,594
38,320,594
39,427,908
(1,107,313)
0
(9,903)
0
(9,903)
18
(1,528,519)
0
37,153,886
40,531,193
The Board of Directors proposes that the Annual General Meeting of Shareholders (AGM) on 7 May 2015 approves the following
appropriation of retained earnings.
Proposed appropriation of retained earnings
CHF thousand
Net profit for the period
Total available for appropriation
Appropriation to voluntary earnings reserve
Total appropriation
Proposed distribution of capital contribution reserve
For the period ended
31.12.14
(9,903)
(9,903)
(9,903)
(9,903)
The Board of Directors proposes that the Annual General Meeting
of Shareholders (AGM) on 7 May 2015 approves a dividend of
CHF 0.50 in cash per share of CHF 0.10 par value payable out of
the capital contribution reserve.
In addition, the Board of Directors proposes the distribution of
a dividend of CHF 0.25 per share of CHF 0.10 par value (Supple-
mentary Dividend) out of the capital contribution reserve under
the conditions precedent that:
(i) UBS Group AG has, directly or indirectly, acquired all of the
outstanding shares of UBS AG (be it through a share cancella-
tion procedure under art. 33 of the Swiss Stock Exchange Act,
through a triangular merger of UBS AG into a fully owned sub-
sidiary of UBS Group AG, or otherwise) (Acquisition Condition);
and
(ii) at the time the Acquisition Condition is met, UBS AG and UBS
Group AG each meet the minimum regulatory capital require-
ments under Swiss law on a consolidated basis as well as UBS
AG on a standalone basis after giving effect to the payment of
the Supplementary Dividend (Regulatory Condition).
The record and payment date of this Supplementary Dividend
shall be determined by the Board of Directors. The resolution shall
expire if the Acquisition Condition and the Regulatory Condition
are not met before the date of UBS Group AG’s AGM 2016.
CHF thousand, except where indicated
Total statutory capital reserve: capital contribution reserve before proposed distribution 1, 2
Proposed ordinary distribution of capital contribution reserve within statutory capital reserve: CHF 0.50 per dividend-bearing share 3
Proposed supplementary distribution of capital contribution reserve within statutory capital reserve: CHF 0.25 per dividend-bearing share 3
Total statutory capital reserve: capital contribution reserve after proposed distribution
31.12.14
39,427,908
(1,858,564)
(929,282)
36,640,062
1 As presented on the balance sheet, the capital contribution reserve of CHF 39,427,908 thousand is a component of the statutory capital reserve of CHF 38,320,594 thousand after taking into account negative other
capital reserve of CHF 1,107,313 thousand. 2 The Swiss Federal tax authorities have confirmed that UBS Group AG would be able to repay to shareholders a maximum amount of CHF 25.6 billion of disclosed capital
contribution reserve (status as of 31 December 2014) without being subject to withholding tax deduction that applies to dividends paid out of retained earnings. This assessment reflects the qualification of the capital
contribution reserve of UBS AG as a consequence of the reorganization implemented by a share-for-share exchange. 3 Dividend-bearing shares are all shares issued except for treasury shares held by UBS Group AG as
of the record date. The CHF 1,858,564 thousand and CHF 929,282 thousand presented are based on the total number of shares issued as of 31 December 2014.
727
Financial informationStatement of appropriation of retained earnings and proposed distribution of capital contribution reserve Financial information
Notes to the UBS Group AG standalone financial statements
Note 1 Corporate information
UBS Group AG is incorporated and domiciled in Switzerland. Its
registered office is at Bahnhofstrasse 45, CH-8001 Zurich, Swit-
zerland. UBS Group AG operates under the Swiss Code of Obliga-
tions as a stock corporation (Aktiengesellschaft), a corporation
that has issued shares of common stock to investors.
UBS Group AG was incorporated on 10 June 2014 as a wholly
owned subsidiary of UBS AG. On 29 September 2014, UBS Group
AG launched an offer to acquire all issued ordinary shares of UBS
AG in exchange for registered shares of UBS Group AG on a one-
for-one basis. Following the exchange offer and subsequent pri-
vate exchanges on a one-for-one basis with various shareholders
and banks in Switzerland and elsewhere outside the United
States, UBS Group AG acquired 96.68% of UBS AG shares by
31 December 2014.
On 28 November 2014, the first settlement of the exchange
offer was carried out and UBS Group AG became the holding
company of UBS Group and the parent company of UBS AG. As
part of this Group reorganization, UBS Group AG assumed obli-
gations of UBS AG as grantor in connection with outstanding
awards under employee share, option, notional fund and deferred
cash plans. At the same time, UBS Group AG acquired the benefi-
cial ownership of the financial assets and 90.5 million treasury
shares of UBS Group AG held to hedge the economic exposure
arising from these plans. As a result of the transfer, UBS Group AG
assumed all responsibilities / rights associated with the grantor role
for the plans from UBS AG, including the right of recharge to
employing subsidiaries of the Group.
Obligations relating to these deferred compensation plans’
awards, which are required to be, and have been, granted by a
separate UBS subsidiary or local employing UBS AG branches,
have not been assumed by UBS Group AG and will continue on
this basis. Furthermore, obligations related to other compen sation
vehicles, such as defined benefit pension plans and other local
awards, have not been assumed by UBS Group AG and are re-
tained by the relevant employing and/or sponsoring subsidiaries
or UBS AG branches.
Note 2 Accounting policies
The UBS Group AG standalone financial statements are prepared
in accordance with the principles of the Swiss Law on Accounting
and Financial Reporting (32nd title of the Swiss Code of Obliga-
tions). The Swiss Law on Accounting and Financial Reporting was
revised in 2011 and became effective on 1 January 2013 with a
transition period of two years (i.e., is effective for annual periods
beginning on or after 1 January 2015 with early application per-
mitted). As UBS Group AG was incorporated on 10 June 2014, it
has opted for application of the revised Swiss Law on Accounting
and Financial Reporting to its first annual financial statements, for
the short business year from 10 June to 31 December 2014. There-
fore, the income statement represents the period from 10 June to
31 December 2014, and no comparative periods are presented.
The functional currency of UBS Group AG is the Swiss franc.
Where not prescribed by law, the significant accounting and valu-
ation principles applied are described below.
Marketable securities
sheet date. Gains and losses resulting from fair value changes are
recognized in Financial income and Financial expenses, respectively.
Financial assets
Financial assets include investments in AIV with a long-term
holding period. The holding period is deemed long-term if the
vesting of the awards hedged by the AIV is more than 12 months
after the balance sheet date. These are equity instruments and
are measured at fair value based on their quoted market prices
or other observable market prices as of the balance sheet date.
Gains and losses resulting from fair value changes are recog-
nized in Financial income and Financial expenses, respectively.
Investments in AIV that have no quoted market price or no
other observable market price are recognized as Financial assets
and are measured at their acquisition cost adjusted for impair-
ment losses.
Investments in subsidiaries
Marketable securities include investments in alternative investment
vehicles (AIV) with a short-term holding period. The holding period
is deemed short-term if the vesting of the awards hedged by the
AIV is within 12 months after the balance sheet date. These are
equity instruments and are measured at fair value based on quoted
market prices or other observable market prices as of the balance
Investments in subsidiaries are equity interests which are held for
the purpose of UBS Group AG’s business activities and strategic
reasons. They include all directly held subsidiaries through which
UBS conducts its business on a global basis. The investments are
measured individually and carried at cost less impairment.
728
Notes to the UBS Group AG standalone financial statements UBS Group AG currently only holds a direct investment in UBS
AG. Headquartered in Zurich and Basel, Switzerland, and having
offices (branches and subsidiaries) in more than 50 countries, UBS
AG serves private, institutional and corporate clients worldwide,
as well as retail clients in Switzerland.
➔ Refer to Note 2 to the consolidated financial statements for a
description of the businesses of UBS Group AG
➔ Refer to Note 32 to the consolidated financial statements
Treasury shares
Treasury shares acquired by UBS Group AG are recognized at
acquisition cost and are presented as a deduction from share-
holders’ equity. Upon disposition or settlement of related share
awards, the realized gain or loss is recognized through the
income statement as Financial income and Financial expenses,
respectively. For settlement of related share awards, the realized
gain or loss on treasury shares is the difference between the
market price of the treasury shares at settlement and their ac-
quisition cost.
For shares of UBS Group AG acquired by a direct or indirect
subsidiary and not held in their trading portfolio, a reserve for
own shares held by subsidiaries is created in UBS Group AG’s
equity. Shares of UBS Group AG held in the trading portfolio of
UBS AG and UBS Limited, however, are not included in the reserve
for own shares held by subsidiaries. All treasury shares held by
UBS Group AG and its subsidiaries are disclosed in Note 18.
Equity participation and other compensation plans
Transfer from UBS AG to UBS Group AG
The transfer of the deferred compensation plans and related
hedging assets was conducted on an arm’s length basis, with a
step-up of the plan obligation to fair value. This step-up resulted
in a net liability which was recorded in the standalone financial
statements of UBS AG and transferred to UBS Group AG (net lia-
bility related to deferred compensation plan transfer). The fair
value of this net liability is amortized to the income statement
over the average vesting period (for share awards) or upon exer-
cise / expiry (for option awards) as Other operating income. Upon
exercise of option awards that are settled using conditional capi-
tal, the fair value of this net liability is recorded in statutory capital
reserve. The difference between the fair value of the hedging as-
sets and the fair value of the obligations on the plans transferred
has been compensated by a loan from UBS AG to UBS Group AG,
which was granted on an arm’s length basis.
Equity participation plans
The grant date fair value of equity-settled share-based payment
awards granted to employees is generally recognized over the
vesting period of the awards. Awards granted in the form of
UBS Group AG shares, notional shares and performance shares
are settled by delivering UBS Group AG shares at vesting and are
recognized as Other long-term liabilities if vesting is more than
12 months after the balance sheet date or as Accruals and
729
Financial informationNote 2 Accounting policies (continued) Financial information
Notes to the UBS Group AG standalone financial statements
deferred income if vesting is within 12 months from the balance
sheet date. The amount recognized is adjusted for forfeiture
assumptions, such that the amount ultimately recognized is
based on the number of awards that meet the related service
conditions at the vesting date. The grant date fair value is based
on the UBS Group AG share price, taking into consideration
post-vesting sale and hedge restrictions, non-vesting conditions
and market conditions, where applicable.
Upon settlement of the share awards, any realized gain or loss
is recognized in the income statement as Other operating income
and Other operating expense, respectively. Realized gain or loss
on share awards is the difference between the market price of the
treasury shares at settlement and the grant date fair value of the
share awards.
For certain awards, employees receive beneficial and legal
ownership of the underlying UBS Group AG shares at the grant
date (prepaid awards). Such prepaid awards are recognized as
Prepaid assets if vesting is more than 12 months after the balance
sheet date or as Accrued income and prepaid expenses if vesting
is within 12 months from the balance sheet date.
Shares awarded to employees that are settled using condi-
tional capital are accounted for as follows at settlement: the
amount paid by the employees for the nominal value of the shares
awarded is recorded in Share capital, while the paid amount ex-
ceeding the nominal value is considered to be a share premium
and is recorded in statutory capital reserve.
Other compensation plans
Deferred compensation plans that are not share-based, including
the Deferred Contingent Capital Plan (DCCP) and awards in the
form of alternative investment vehicles, are accounted for as cash
settled awards. The fair value of the amount payable to employ-
ees that are settled in cash is recognized as a liability generally
over the vesting period (Other long-term liabilities if vesting is
more than 12 months after the balance sheet date or as Accruals
and deferred income if vesting is within 12 months from the bal-
ance sheet date). The liabilities are remeasured at each balance
sheet date at the fair value of the corresponding award and in-
vestments in AIV, respectively. Gains and losses resulting from fair
value changes in the liabilities are recognized in Other operating
income and Other operating expenses, respectively.
Recharge of compensation expenses
UBS Group AG recharges expenses related to the equity participa-
tion and other compensation plans to the respective Group enti-
ties employing the personnel. UBS Group AG recognizes a corre-
sponding receivable and credits a liability toward the employees.
Dispensations in the standalone financial statements
As UBS Group AG prepares consolidated financial statements in
accordance with IFRS, UBS Group AG (standalone) is exempt from
various disclosures in the standalone financial statements.
730
Note 2 Accounting policies (continued) Note 3 Other operating income
CHF thousand
Fair value gains on alternative investment vehicle awards
Amortization of net liability related to deferred compensation plan transfer
Total other operating income
Note 4 Personnel expenses
CHF thousand
Recharges from UBS AG related to BoD / GEB
Total personnel expenses
For the period ended
31.12.14
7,044
483
7,527
For the period ended
31.12.14
249
249
The line item personnel expenses includes the compensation paid to the Board of Directors (BoD) and the Group Executive Board (GEB)
of UBS Group AG.
Note 5 Other operating expenses
CHF thousand
Capital tax
Stamp tax
Other
Total other operating expenses
The line item “Other” mainly includes expenses related to audit fees and external reporting expenses.
Note 6 Financial expenses
CHF thousand
Fair value losses on marketable securities and financial assets
Realized losses on disposition of and settlement of equity settled awards with treasury shares
Interest expense on interest-bearing liabilities
Total financial expenses
For the period ended
31.12.14
7,794
1,817
263
9,874
For the period ended
31.12.14
7,011
46
250
7,307
731
Financial informationIncome statement notes Financial information
Notes to the UBS Group AG standalone financial statements
Liquid assets comprise current accounts held at UBS AG.
Note 8 Marketable securities
CHF thousand
Investments in alternative investment vehicles related to awards vesting within 12 months
Total marketable securities
Note 9 Other short-term receivables
CHF thousand
Receivables from employing entities related to compensation awards
Other
Total other short-term receivables
Note 10 Accrued income and prepaid expenses
CHF thousand
Short-term portion of prepaid awards
Total accrued income and prepaid expenses
732
31.12.14
112,505
112,505
31.12.14
510,182
1,115
511,297
31.12.14
91,036
91,036
Balance sheet notesNote 7 Liquid assets Note 11 Investments in subsidiaries
Unless otherwise stated, the subsidiaries listed in the tables below have share capital consisting solely of ordinary shares, which are held
by UBS Group AG or UBS AG, respectively and the proportion of ownership interest held is equal to the voting rights held by UBS Group
AG or UBS AG, respectively. The country where the respective registered office is located is also generally the principal place of business.
Directly held subsidiary as of 31 December 2014
Company
UBS AG
Registered office
Zurich and Basel, Switzerland
Share capital in million
CHF
384.5
Equity interest
accumulated in %
96.7
Individually significant subsidiaries of UBS AG as of 31 December 2014
Company
UBS Americas Inc.
UBS Bank USA
UBS Financial Services Inc.
UBS Limited
UBS Securities LLC
Registered office
Primary business division
Share capital in million
Wilmington, Delaware, USA
Investment Bank
Salt Lake City, Utah, USA
Wealth Management Americas
Wilmington, Delaware, USA
Wealth Management Americas
London, United Kingdom
Investment Bank
Wilmington, Delaware, USA
Investment Bank
USD
USD
USD
GBP
USD
0.0
0.0
0.0
226.6
1,283.1 1
Equity interest
accumulated in %
100.0
100.0
100.0
100.0
100.0
1 Mainly comprised on non-voting preferred shares held by UBS Americas Inc.
UBS Limited and UBS Americas Inc. are fully held by UBS AG. UBS Bank USA and UBS Financial Services Inc. are fully held by UBS
Americas Inc. 30% of UBS Securities LLC is held by UBS AG and 70% by UBS Americas Inc. (after consideration of preferred shares).
Note 12 Financial assets
CHF thousand
Investments in alternative investment vehicles at fair value related to awards vesting after 12 months
Investments in alternative investment vehicles at cost less impairment
Total financial assets
Note 13 Prepaid assets
CHF thousand
Long-term portion of prepaid awards
Total prepaid assets
Note 14 Current interest-bearing liabilities
Overview by contractual maturity
CHF thousand
2015
Total current interest-bearing liabilities
31.12.14
308,963
10,700
319,663
31.12.14
63,927
63,927
31.12.14
226,762
226,762
Current interest-bearing liabilities include a loan from UBS AG in the amount of CHF 205,956 thousand, bearing interest at arms’ length
conditions.
733
Financial information
Financial information
Notes to the UBS Group AG standalone financial statements
Note 15 Accrued expenses and deferred income
CHF thousand
Short-term portion of net liability related to deferred compensation plan transfer
Short-term portion of compensation liabilities
of which: deferred contingent capital plan
of which: other deferred compensation plans
Other 1
Total accrued expenses and deferred income
1 Includes a payable of CHF 100 thousand to the external auditor
Note 16 Other long-term liabilities
CHF thousand
Long-term portion of net liability related to deferred compensation plan transfer
Long-term portion of compensation liabilities
of which: deferred contingent capital plan
of which: other deferred compensation plans
Total other long-term liabilities
31.12.14
5,637
829,650
48,825
780,826
2,669
837,957
31.12.14
14,968
2,297,621
745,175
1,552,445
2,312,588
On 31 December 2014, the issued share capital consisted of 3,717,128,324 registered shares at a par value of CHF 0.10 each.
➔ Refer to “UBS shares”in the “Risk, treasury and capital management” section for more information on UBS Group AG shares
Note 18 Treasury shares
Balance as of 10 June 2014
Share-for-share exchange
Capital reduction
Acquisitions
Dispositions
Delivery of shares to settle equity-settled awards
Balance as of 31 December 2014
of which: treasury shares held by UBS Group AG
of which: short sales of treasury shares held by UBS AG and other subsidiaries
Number of
registered shares
Average price
in CHF
1,000,000
91,453,788
(1,000,000)
641
(3,268,157)
(314,535)
87,871,737
90,176,988
(2,305,251)
0.10
16.95
0.10
15.24
17.31
17.08
16.94
16.95
17.30
The line item Share-for-share exchange includes 90,490,886 UBS
AG treasury shares that were held by UBS AG as a hedge for its
share based compensation plans before the share-for-share ex-
change, exchanged into UBS Group AG and transferred to UBS
Group AG in connection with the transfer of the deferred com-
pensation plans. They have been transferred from UBS AG to UBS
Group AG at the price of CHF 16.95, the fair value at the date of
transfer.
734
Note 17 Share capital Note 19 Personnel
UBS Group AG had no employees as of and during the year ended 31 December 2014. All employees of the consolidated UBS Group,
including the members of the Group Executive Board of UBS AG, were employed by subsidiaries of UBS Group AG.
As of 31 December 2014, personnel of the consolidated UBS Group was 60,155 full-time equivalents.
Note 20 Assets pledged to secure own liabilities
The total investments in alternative investment vehicles amounting to CHF 432,168 thousand are pledged to secure a CHF 205,956
thousand loan granted by UBS AG.
Note 21 Contingent liabilities
UBS Group AG is jointly and severally liable for the value added tax (VAT) liability of Swiss subsidiaries that belong to its VAT group.
Note 22 Significant shareholders
Shareholders registered in the UBS Group AG share register with 3% or more of total share capital
% of share capital
Chase Nominees Ltd., London
GIC Private Limited, Singapore
DTC (Cede & Co.), New York 1
Nortrust Nominees Ltd., London
1 DTC (Cede & Co.), New York, “The Depository Trust Company,” is a US securities clearing organization.
Under the Swiss Federal Act on Stock Exchanges and Securities
Trading of 24 March 1995 as amended (the Swiss Stock Exchange
Act), anyone holding shares in a company listed in Switzerland, or
holding derivative rights related to shares of such a company,
must notify the company and the SIX if the holding reaches, falls
below or exceeds one of the following thresholds: 3, 5, 10, 15,
20, 25, 331∕3, 50, or 662∕3% of voting rights, regardless of whether
or not such rights may be exercised. The detailed disclosure re-
quirements and the methodology for calculating the thresholds
are defined in the FINMA Ordinance on Stock Exchanges and Se-
curities Trading (SESTO-FINMA). In particular, the SESTO-FINMA
sets forth that nominee companies that cannot autonomously
decide how voting rights are exercised are not obligated to notify
us and SIX if they reach, exceed or fall below the threshold per-
centages. In addition, pursuant to the Swiss Code of Obligations,
UBS Group AG must disclose in the notes to the financial state-
ments the identity of any shareholder with a holding of more than
5% of the total share capital of UBS Group AG.
31.12.14
9.05
6.61
5.76
3.52
According to disclosure notifications filed with UBS Group AG
and the SIX under the Swiss Stock Exchange Act and the respective
FINMA Ordinance, on 10 December 2014, GIC Private Limited dis-
closed a holding of 7.07% of the total share capital of UBS Group
AG. The beneficial owner of this holding is the Government of
Singapore. On 10 December 2014, Norges Bank, Oslo, the Central
Bank of Norway, disclosed a holding of 3.30%. On 15 January
2015, BlackRock Inc., New York, disclosed a holding of 4.89%. In
accordance with the Swiss Stock Exchange Act, the percentages
indicated above were calculated in relation to the total share capi-
tal of UBS Group AG reflected in the Articles of Association at the
time of the respective disclosure notification. Information on dis-
closures under the Swiss Stock Exchange Act is available on the SIX
Disclosure Office website at www.six-exchange-regulation.com/
obligations/disclosure/major_shareholders_en.html.
According to the share register, the shareholders (acting in
their own name or in their capacity as nominees for other inves-
tors or beneficial owners) listed in the table above were registered
with 3% or more of the total share capital of UBS Group AG as of
31 December 2014.
735
Financial informationAdditional information Financial information
Notes to the UBS Group AG standalone financial statements
Note 23 Share and option ownership of the members of the Board of Directors and the Group Executive Board
Shares awarded
Awarded to members of the Board of Directors
Awarded to members of the Group Executive Board
Awarded to other UBS Group employees
Total
For the year ended 31.12.14
Number
of shares
473,567
1,888,666
57,036,519
59,398,752
Value of
shares in
CHF million
7
35
1,045
1,087
➔ Refer to the “Corporate Governance “ section in this report for more information on the terms and conditions of the shares and options
awarded to BoD and GEB
Number of shares of BoD members on 31 December 2014 / 2013 1
Name, function
on 31 December
Number of shares held
Voting rights in %
Axel A. Weber, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Reto Francioni, member 2
Rainer-Marc Frey, former member
Ann F. Godbehere, member
Axel P. Lehmann, member
Helmut Panke, member
William G. Parrett, member
Isabelle Romy, member
Beatrice Weder di Mauro, member
Joseph Yam, member
Total
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
333,333
233,333
181,246
150,412
185,181
151,184
11,859
0
–
209,044
139,653
113,562
217,373
185,970
182,009
162,244
100,019
99,914
44,217
24,452
45,424
22,496
66,863
48,679
1,507,177
1,401,290
0.017
0.011
0.009
0.007
0.009
0.007
0.001
0.000
–
0.010
0.007
0.006
0.011
0.009
0.009
0.008
0.005
0.005
0.002
0.001
0.002
0.001
0.003
0.002
0.077
0.068
1 This table includes blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2014 and 2013. 2 Reto Francioni was appointed at the AGM on 2 May 2013.
736
Note 23 Share and option ownership of the members of the Board of Directors and the Group Executive Board (continued)
Share and option ownership / entitlements of GEB members on 31 December 2014 / 2013 1
Name, function
Sergio P. Ermotti,
Group Chief Executive Officer
Markus U. Diethelm,
Group General Counsel
Lukas Gähwiler,
President Retail & Corporate and President Switzerland
Ulrich Körner,
President Global Asset Management and President EMEA
Philip J. Lofts,
Group Chief Risk Officer
Robert J. McCann,
President Wealth Management Americas
and President Americas
Tom Naratil,
Group Chief Financial Officer and Group Chief Operating Officer
Andrea Orcel,
President Investment Bank
Chi-Won Yoon,
President Asia Pacific
Jürg Zeltner,
President Wealth Management
Total
on
31 December
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Number of
unvested
shares / at risk 2
670,935
453,460
528,973
542,417
522,769
504,800
713,051
688,923
611,479
601,553
983,028
892,872
523,751
422,516
915,399
1,209,775
492,093
502,762
675,211
624,415
6,636,689
6,443,493
Number of
vested shares
Total number
of shares
Potentially
conferred voting
rights in %
97,589
69,900
0
108,007
1,052
22,727
292,519
208,887
204,346
157,447
62,901
65,971
288,151
263,027
408,296
0
507,602
441,143
0
13,920
1,862,456
1,351,029
768,524
523,360
528,973
650,424
523,821
527,527
1,005,570
897,810
815,825
759,000
1,045,929
958,843
811,902
685,543
1,323,695
1,209,775
999,695
943,905
675,211
638,335
8,499,145
7,794,522
0.039
0.025
0.027
0.032
0.027
0.026
0.051
0.044
0.042
0.037
0.053
0.046
0.041
0.033
0.068
0.059
0.051
0.046
0.034
0.031
0.434
0.378
Number of
options 3
0
Potentially
conferred voting
rights in % 4
0.000
0
0
0
0
0
0
0
394,172
500,741
0
0
721,125
867,087
0
0
515,180
538,035
108,121
203,093
1,738,598
2,108,956
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.020
0.024
0.000
0.000
0.037
0.042
0.000
0.000
0.026
0.026
0.006
0.010
0.089
0.102
1 This table includes all vested and unvested shares and options of GEB members, including related parties. 2 Includes shares granted under variable compensation plans with forfeiture provisions. The actual number of shares
vesting in the future will be calculated under the terms of the plans. 3 Refer to Note 29 to the consolidated financial statements for more information. 4 No conversion rights are outstanding.
737
Financial information Financial information
Notes to the UBS Group AG standalone financial statements
Note 24 Related parties
Related parties under the Swiss Code of Obligations are defined as
direct and indirect participants with voting rights of 20% or more,
management bodies (Board of Directors and Group Executive
Board), external auditors and direct and indirect investments in
subsidiaries. Payables due to members of the Board of Directors
and Group Executive Board are provided in the table below. Pay-
ables due to the external auditor are provided in Note 15 and
amounts due from and due to subsidiaries are provided on the
face of the balance sheet.
CHF thousand
Payables due to the members of the Board of Directors and Group Executive Board
of which: deferred contingent capital plan
of which: other deferred compensation plans
31.12.14
101,736
28,109
73,626
738
Note 25 Events after the reporting period
Impact of Swiss National Bank actions
On 15 January 2015, the Swiss National Bank (SNB) discontinued
the minimum targeted exchange rate for the Swiss franc versus
the euro, which had been in place since September 2011. At the
same time, the SNB lowered the interest rate on deposit account
balances at the SNB that exceed a given exemption threshold by
50 basis points to negative 0.75%. It also moved the target range
for three-month LIBOR to between negative 1.25% and negative
0.25%, (previously negative 0.75% to positive 0.25%). These de-
cisions resulted in a considerable strengthening of the Swiss franc
against the euro, US dollar, British pound, Japanese yen and sev-
eral other currencies, as well as a reduction in Swiss franc interest
rates. As of 28 February 2015, the Swiss franc exchange rate was
0.95 to the US dollar, 1.07 to the euro, 1.47 to the British pound
and 0.80 to 100 Japanese yen. Volatility levels in foreign currency
exchange and interest rates also increased.
The portion of operating income of subsidiaries of UBS Group
AG denominated in non-Swiss franc currencies is greater than the
portion of operating expenses denominated in non-Swiss franc
currencies. Therefore, appreciation of the Swiss franc against other
currencies generally has an adverse effect on the profitability of
subsidiaries of UBS Group AG, in the absence of any mitigating
actions. Furthermore, the stronger Swiss franc may have a nega-
tive impact on the Swiss economy, which, given its reliance on
exports, could impact some of the counterparties within the do-
mestic lending portfolio of subsidiaries of UBS Group AG and lead
to an increase in the level of credit loss expenses recorded in future
periods.
Issuance of additional tier 1 capital
In February 2015, UBS Group AG issued additional tier 1 (AT1)
capital notes consisting of USD 1.25 billion high-trigger loss-ab-
sorbing notes with a coupon of 7.125%; USD 1.25 billion low-
trigger loss-absorbing notes with a coupon of 7%; and EUR 1.0
billion low-trigger loss-absorbing notes with a coupon of 5.75%.
All tranches include a contingent permanent write-down triggered
at 5.125% (low-trigger loss-absorbing notes) or at 7% (high-
trigger loss-absorbing notes) phase-in CET1 capital ratio and at the
point of non-viability as determined by FINMA. In accordance with
Basel III regulations, all AT1 transactions have fully discretionary
and non- cumulative coupons and a perpetual maturity with em-
bedded call features. ▲
739
Financial information Financial information
740
741
Financial information Financial information
742
743
Financial information Financial information
744
UBS AG standalone financial statements
745
Financial informationNet fee and commission income decreased by CHF 262 million to CHF 6,192 million, mainly as fee and commission income from securities and investment businesses declined by CHF 465 million, primarily reflecting CHF 372 million lower brokerage fees and CHF 192 million lower underwriting fees. This was partly offset by an increase of CHF 168 million in credit-related fees and commis-sions.Net trading income declined by CHF 802 million to CHF 3,407 million, largely driven by lower revenues in the Investment Bank.Other income from ordinary activities increased by CHF 1,361 million to CHF 3,729 million, mainly as sundry ordinary income increased by CHF 760 million to CHF 4,494 million, driven by higher income received from subsidiaries for services rendered. Additionally, sundry ordinary expenses decreased by CHF 676 mil-lion to CHF 1,816 million, mainly as charges from subsidiaries for services received decreased by CHF 324 million. In addition, losses related to the buyback of debt in public tender offers declined by CHF 183 million. Dividend income from investments in subsidiar-ies and other participations decreased by CHF 137 million. ➔Refer to Notes 3 and 4 for more informationOperating expensesOperating expenses decreased by CHF 683 million to CHF 12,514 million.Personnel expenses decreased by CHF 1,369 million to CHF 6,787 million, primarily related to a reassesment of the account-ing for certain equity participation and other deferred compensa-tion plans, resulting in an alignment of the recognition period, as well as measurement, of such plans with IFRS. This alignment re-sulted in a reduction to personnel expenses of CHF 1,355 million. ➔Refer to Note 2b for more informationGeneral and administrative expenses increased by CHF 686 million to CHF 5,727 million, mainly related to higher professional fees and increased expenses for outsourcing of IT and other services. Impairment of investments in subsidiaries and other participationsImpairment of investments in subsidiaries and other participa-tions decreased by CHF 860 million to CHF 415 million, mainly as 2013 was affected by impairments related to certain charges for provisions, updated strategic business outlooks and unfavor-able foreign currency impacts, driven by the weakening of the US dollar.Financial reviewIncome statement: 2014 compared with 2013Net profitUBS AG (standalone) recorded a net profit of CHF 7,849 million in 2014 compared with CHF 2,753 million in 2013. Profit before extraordinary items and tax increased by CHF 1,902 million to CHF 3,267 million, mainly as operating profit in-creased by CHF 2,034 million, reflecting CHF 1,351 million higher operating income, as well as CHF 683 million lower operating ex-penses. In addition, impairments of investments in subsidiaries and other participations declined by CHF 860 million, reflecting re-duced provision charges recorded in subsidiaries, improved operat-ing business results and favorable foreign currency valuation ef-fects compared to 2013, particularly related to the US dollar. These effects were partly offset by higher allowances, provisions and losses, which increased by CHF 954 million, mainly due to higher charges for provisions for litigation, regulatory and similar matters. Extraordinary income increased by CHF 3,183 million to CHF 4,850 million, mainly reflecting higher reversals of impairments and provisions of subsidiaries and other participations of CHF 3,670 million, following significant upward revaluations of de-ferred tax assets recorded in subsidiaries and currency-related gains. The prior year included the release of a reinvestment relief provision of CHF 291 million related to the sale of UBS Pactual.The tax expense in 2014 was CHF 212 million compared with CHF 270 million in 2013.Operating incomeOperating income increased by CHF 1,351 million to CHF 18,425 million.Net interest income increased by CHF 1,053 million to CHF 5,097 million, reflecting a CHF 842 million decline in interest ex-pense and CHF 210 million higher interest income. The CHF 842 million decrease in interest expense was mainly driven by CHF 303 million lower interest on debt issued, as well as lower interest ex-pense on amounts due to banks and customers of CHF 261 mil-lion. Furthermore, interest expense on financial liabilities desig-nated at fair value declined by CHF 190 million. Interest income increased by CHF 210 million, mainly due to a CHF 274 million increase in interest and dividend income from the trading portfo-lio and CHF 63 million higher interest and dividend income from financial investments, partly offset by a decrease in interest and discount income of CHF 127 million. Financial information
UBS AG standalone financial statements
Allowances, provisions and losses
Allowances, provisions and losses increased by CHF 954 million to
CHF 1,613 million, mainly as 2014 included higher charges for
provisions for litigation, regulatory and similar matters. This was
partly offset by a release of CHF 399 million in restructuring provi-
sions related to the effects of a voluntary change in accounting
policy for recognition of restructuring provisions.
➔ Refer to Note 2b for more information
Extraordinary income
Extraordinary income increased by CHF 3,183 million to CHF
4,850 million. Reversals of impairments and provisions of subsid-
iaries and other participations increased by CHF 3,670 million to
CHF 4,646 million, following significant upward revaluations of
deferred tax assets recorded in subsidiaries and favorable foreign
currency effects, mainly on the translation of investments in US
dollar and British pound. Other extraordinary income declined by
CHF 230 million, mainly due to lower gains on sales of real estate.
Extraordinary income in 2013 included the release of a reinvest-
ment relief provision of CHF 291 million related to the sale of UBS
Pactual in 2009.
➔ Refer to Note 5 for more information
Extraordinary expenses
Extraordinary expenses were CHF 57 million compared with CHF 9
million, mainly due to an increase in prior period related expenses.
➔ Refer to Note 5 for more information
Tax expense / benefit
The tax expense in 2014 was CHF 212 million compared with a
tax expense of CHF 270 million in the prior year. This differs from
the UBS AG (consolidated) net income tax benefit of CHF 1,180
million under IFRS, mainly as the net tax benefit for subsidiaries is
not included in UBS AG’s standalone financial statements. This
impact was partially offset by a net decrease in deferred tax assets
for UBS AG which was also not included as deferred tax assets are
not recognized under Swiss GAAP.
746
Balance sheet: 31 December 2014 compared with
31 December 2013
Assets development
Total assets stood at CHF 778 billion as of 31 December 2014, an
increase of CHF 62 billion from 31 December 2013, with the net
increase affected by the strengthening of the US dollar versus the
Swiss franc.
Due from customers increased by CHF 30 billion, primarily re-
flecting increased fixed-term lending, higher reverse repurchase
agreement balances with other corporates and currency effects.
Liquid assets increased by CHF 26 billion as of 31 December 2014,
mainly reflecting higher balances with central banks. Positive re-
placement values, which are reported on a net basis provided the
master netting and / or the related collateral agreements are le-
gally enforceable, increased by CHF 13 billion, mainly driven by
increased interest rate contracts on a net basis. Trading balances
in securities and precious metals increased by CHF 7 billion, pri-
marily reflecting an increase in equity instruments held, partly off-
set by a reduction in precious metal holdings. Investments in sub-
sidiaries and other participations increased by CHF 5 billion,
mainly due to the abovementioned reversals of impairments dur-
ing the year.
These increases were partly offset by a CHF 15 billion decline in
interbank lending (due from banks), mainly resulting from re-
duced reverse repurchase agreements with subsidiaries. Addition-
ally, money market paper held decreased by CHF 11 billion, pri-
marily due to reductions in Japanese, British, French and German
government paper.
Liabilities development
Total liabilities increased by CHF 55 billion to CHF 736 billion as of
31 December 2014, with the net increase affected by the strength-
ening of the US dollar versus the Swiss franc.
Total amounts due to customers increased by CHF 25 billion to
CHF 402 billion, primarily due to an increase in deposit and cur-
rent accounts, combined with currency effects. Due to banks
increased by CHF 16 billion to CHF 95 billion, mainly reflecting
increased repurchase and securities lending activity with subsidia-
ries and currency effects. Money market paper issued increased
by CHF 11 billion to CHF 34 billion as of 31 December 2014, pri-
marily reflecting new extendible money market certificates issued.
Negative replacement values increased by CHF 5 billion to CHF 43 bil-
lion, mainly driven by increased interest rate contracts on a net basis,
partly offset by lower foreign exchange contracts on a net basis.
Equity development
Equity attributable to shareholders amounted to CHF 42,376 mil-
lion as of 31 December 2014, compared with CHF 35,437 million
as of 31 December 2013, with the increase mainly due to the
2014 net profit of CHF 7,849 million.
The general reserve increased by CHF 1,842 million to CHF
28,453 million as of 31 December 2014, mainly reflecting the ap-
propriation of the 2013 net profit of CHF 2,753 million, partly
offset by the distribution of CHF 938 million out of the capital
contribution reserve in May 2014. The reserve for own shares of
CHF 1,020 million as of 31 December 2013 was fully reversed in
2014 as part of the UBS Group reorganization, increasing the
other reserve by the same amount. All UBS AG treasury shares
were exchanged for UBS Group AG treasury shares as part of the
share-for-share exchange. UBS AG shares acquired after the share-
for-share exchange are held for trading purposes and no reserve
for own shares was recognized as of 31 December 2014.
➔ Refer to Note 10 for more information
747
Financial information Financial information
UBS AG standalone financial statements
Audited | Income statement
CHF million
Interest and discount income
Interest and dividend income from trading portfolio
Interest and dividend income from financial investments
Interest expense
Net interest income
Credit-related fees and commissions
Fee and commission income from securities and investment business
Other fee and commission income
Fee and commission expense
Net fee and commission income
Net trading income
Net income from disposal of financial investments
Dividend income from investments in subsidiaries and other participations
Income from real estate holdings
Sundry ordinary income
Sundry ordinary expenses
Other income from ordinary activities
Operating income
Personnel expenses
General and administrative expenses
Operating expenses
Operating profit
Impairment of investments in subsidiaries and other participations
Depreciation of fixed assets
Allowances, provisions and losses
Profit / (loss) before extraordinary items and tax
Extraordinary income
Extraordinary expenses
Tax (expense) / benefit
Net profit / (loss) for the year
748
For the year ended
% change from
Note
31.12.14
31.12.13
31.12.13
8,665
2,683
198
(6,450)
5,097
492
6,248
598
(1,147)
6,192
3,407
147
878
26
4,494
(1,816)
3,729
18,425
6,787
5,727
12,514
5,911
415
616
1,613
3,267
4,850
(57)
(212)
7,849
8,792
2,409
135
(7,292)
4,044
324
6,713
649
(1,231)
6,454
4,209
81
1,015
30
3,734
(2,492)
2,368
17,074
8,156
5,041
13,197
3,877
1,275
579
659
1,365
1,667
(9)
(270)
2,753
3
4
4
5
5
(1)
11
47
(12)
26
52
(7)
(8)
(7)
(4)
(19)
81
(13)
(13)
20
(27)
57
8
(17)
14
(5)
52
(67)
6
145
139
191
533
(21)
185
UBS AG standalone financial statements Balance sheet
CHF million
Assets
Liquid assets
Money market paper
Due from banks
Due from customers
Mortgage loans
Trading balances in securities and precious metals
Financial investments
Investments in subsidiaries and other participations
Fixed assets
Accrued income and prepaid expenses
Positive replacement values
Other assets
Total assets
of which: subordinated assets
of which: amounts due from subsidiaries and qualified shareholders
Liabilities
Money market paper issued
Due to banks
Trading portfolio liabilities
Due to customers on savings and deposit accounts
Other amounts due to customers
Medium-term notes
Bonds issued and loans from central mortgage institutions
Financial liabilities designated at fair value
Accruals and deferred income
Negative replacement values
Other liabilities
Allowances and provisions
Total liabilities
of which: subordinated liabilities
Equity
Share capital
General reserve
of which: capital contribution reserve
of which: retained earnings
Reserve for own shares
of which: retained earnings
Other reserve
Net profit / (loss) for the year
Equity attributable to shareholders
Total liabilities and equity
of which: amounts due to subsidiaries and qualified shareholders
Note
31.12.14
31.12.13
31.12.13
% change from
95,711
10,966
112,649
183,091
155,406
101,820
37,154
27,199
5,932
2,012
42,385
3,568
777,893
4,257
144,031
34,235
94,952
18,965
112,709
289,779
602
77,067
49,803
4,700
42,911
6,962
2,831
735,517
18,840
384
28,453
40,782
(12,329)
0
0
5,689
7,849
42,376
777,893
108,913
69,808
22,159
127,689
153,326
152,479
94,841
34,985
21,758
5,193
2,025
29,085
2,568
715,917
1,776
150,663
22,885
79,207
22,165
106,040
271,339
779
75,585
49,620
6,610
37,415
6,029
2,805
680,480
13,800
384
26,611
41,692
(15,081)
1,020
1,020
4,669
2,753
35,437
715,917
76,339
14
6
14
6
9
10, 11
10
10
10
10
37
(51)
(12)
19
2
7
6
25
14
(1)
46
39
9
140
(4)
50
20
(14)
6
7
(23)
2
0
(29)
15
15
1
8
37
0
7
(2)
(18)
(100)
(100)
22
185
20
9
43
749
Financial information Financial information
UBS AG standalone financial statements
The Board of Directors proposes that the Annual General Meeting of Shareholders (AGM) on 7 May 2015 approves the following
appropriation of retained earnings.
Proposed appropriation of retained earnings
CHF million
Net profit for the year
Total available for appropriation
Appropriation to general reserve: retained earnings
Total appropriation
Proposed distribution of capital contribution reserve
For the year ended
31.12.14
7,849
7,849
7,849
7,849
CHF million, except where indicated
Total capital contribution reserve before proposed distribution 1, 2
Proposed ordinary distribution of capital contribution reserve within general reserve: CHF 0.50 per dividend-bearing share 3
Proposed supplementary distribution of capital contribution reserve within general reserve: CHF 0.25 per dividend-bearing share3
Total capital contribution reserve after proposed distribution
For the year ended
31.12.14
40,782
(1,922)4
(961)
37,899
1 As presented on the balance sheet, the capital contribution reserve of CHF 40,782 million is a component of the general reserve of CHF 28,453 million after taking into account negative retained earnings of
CHF 12,329 million. 2 Effective 1 January 2011, the Swiss withholding tax law provides that payments out of the capital contribution reserve are not subject to withholding tax. This law has led to interpretational
differences between the Swiss Federal Tax Authorities and companies about the qualifying amounts of capital contribution reserve and the disclosure in the financial statements. In view of this, the Swiss Federal Tax
Authorities have confirmed that UBS would be able to repay to shareholders CHF 27.4 billion of disclosed capital contribution reserve (status as of 1 January 2011) without being subject to the withholding tax deduction
that applies to dividends paid out of retained earnings. This amount reduced to CHF 25.6 billion as of 31 December 2014 subsequent to the distributions approved by the AGM 2012, 2013 and 2014. The decision about
the remaining amount has been deferred to a future point in time. 3 Dividend-bearing shares are all shares issued except for treasury shares held by UBS AG as of the record date. The CHF 1,922 million and CHF 961 mil-
lion presented are based on the total number of shares issued as of 31 December 2014. 4 Based on a distribution in cash.
750
Statement of appropriation of retained earnings and proposed distribution of capital contribution reserveThe Board of Directors proposes that the AGM on 7 May 2015 approves a distribution of CHF 0.50 in cash per share of CHF 0.10 par value payable out of the capital contribution reserve. The Board of Directors may, in addition, offer holders of shares an op-tion to receive the dividend in shares (or a share equivalent instru-ment) having a value equal to the CHF 0.50 per share. Should the Board of Directors determine to propose a share equivalent option for the dividend, the details of such proposal and means of mak-ing an election will be set forth in the invitation to the AGM.In addition, the Board of Directors proposes the distribution of a dividend in cash of CHF 0.25 per share of CHF 0.10 par value (Supplementary Dividend) out of the capital contribution reserve under the conditions precedent that:(i) UBS Group AG has, directly or indirectly, acquired all of the outstanding shares of UBS AG (be it through a share cancellation procedure under art. 33 of the Swiss Stock Exchange Act, through a triangular merger of UBS AG into a fully owned subsidiary of UBS Group AG, or otherwise) (Acquisition Condition); and(ii) at the time the Acquisition Condition is met, UBS AG and UBS Group AG each meet the minimum regulatory capital requirements under Swiss law on a consolidated basis as well as UBS AG on a standalone basis after giving effect to the payment of the Supplementary Dividend (Regulatory Condition). The record and payment date of Supplementary Dividend shall be determined by the Board of Directors. The resolution shall expire if the Acquisition Condition and the Regulatory Condition are not met before the date of the AGM in 2016. Note 1 Business activities, risk assessment, outsourcing and personnel
Business activities
Outsourcing
The business activities of UBS AG (standalone) are described in the
context of the description of the activities of the UBS Group in the
“Operating environment and strategy” section of this report.
UBS AG outsources information technology and other services
through agreements with external service providers.
Risk assessment
UBS AG (standalone) is fully integrated into the Group-wide
internal risk assessment process described in the audited part of the
“Risk, treasury and capital management” section of this report.
Personnel
UBS AG employed 32,974 personnel on a full-time equivalent
basis as of 31 December 2014, compared with 33,291 personnel
as of 31 December 2013.
Note 2 Accounting policies
a) Significant accounting policies
UBS AG standalone financial statements are prepared in accor-
dance with Swiss GAAP (FINMA Circular 2008 / 2 and the Bank-
ing Ordinance). The accounting policies are principally the same
as for the consolidated financial statements outlined in Note 1 to
the consolidated financial statements. Major differences be-
tween the Swiss GAAP requirements and International Financial
Reporting Standards are described in Note 38 to the consoli-
dated financial statements. The significant accounting policies
applied for the standalone financial statements of UBS AG are
discussed below.
Foreign currency translation
Assets and liabilities of foreign branches are translated into Swiss
francs at the spot exchange rate at the balance sheet date.
Income and expense items are translated at weighted average
exchange rates for the period. All currency translation effects are
recognized in the income statement.
The main currency translation rates used by UBS AG (stand-
alone) can be found in Note 36 to the consolidated financial
statements.
Investments in subsidiaries and other participations
Investments in subsidiaries and other participations are equity in-
terests which are held for the purpose of UBS AG’s business ac-
tivities or for strategic reasons. They include all directly held sub-
sidiaries through which UBS AG conducts its business on a global
basis. The investments are carried at cost less impairment. The
carrying value is tested for impairment when indications for a de-
crease in value exist, which include incurrence of significant oper-
ating losses or a severe depreciation of the currency in which the
investment is denominated. If an investment in a subsidiary is im-
paired, its value is generally written down to the net asset value.
Subsequent recoveries in value are recognized up to the original
cost value based on either the increased net asset value or a value
above the net asset value if, in the opinion of management, fore-
casts of future profitability provide sufficient evidence that a car-
rying value above net asset value is supported. Management may
exercise its discretion as to what extent and in which period a re-
covery in value is recognized.
Reversals of impairments are presented as Extraordinary in-
come in the income statement. Impairments of investments are
presented in Profit / (loss) before extraordinary items and taxes un-
der Impairment of investments in subsidiaries and other participa-
tions. Impairments and partial or full reversals of impairments for
a subsidiary on a net basis are classified as extraordinary expense
or extraordinary income, respectively, if they relate to prior periods.
751
Financial informationNotes to the UBS AG standalone financial statements Financial information
Notes to the UBS AG standalone financial statements
Note 2 Accounting policies (continued)
Deferred taxes
Deferred tax assets are not recognized in UBS AG’s standalone fi-
nancial statements. However, deferred tax liabilities may be recog-
nized for taxable temporary differences. The change in the de-
ferred tax liability balance is recognized in the income statement.
Sundry income from ordinary activities and sundry
ordinary expenses
Sundry income from ordinary activities mainly includes income
from hard cost and revenue transfers between UBS AG and its
subsidiaries and income from lower of cost or market accounting
of financial investments. Sundry ordinary expenses mainly include
costs for hard revenue transfers between UBS AG and its subsid-
iaries and expenses from lower of cost or market accounting of
financial investments. As a general rule, hard transfers of costs
and revenues are performed on an arm’s length basis and are
settled in cash between UBS AG and its subsidiaries.
➔ Refer to Note 4 for more information
Pension and other post-employment benefit plans
FINMA Circular 2008 / 2 Accounting – banks permits the use of
IAS 19 or Swiss GAAP FER 16 for accounting for pension and
other post-employment benefit plans. Election of the accounting
standard may be done on a plan-by-plan basis.
UBS AG has elected to apply Swiss GAAP FER 16 for the Swiss
pension plan. Swiss GAAP FER 16 requires recognizing the em-
ployer contributions to the pension fund as personnel expenses.
The employer contributions to the Swiss pension fund are deter-
mined as a percentage of contributory compensation. Under
Swiss GAAP FER 16, it is periodically assessed whether, from the
point of view of UBS AG, an economic benefit or obligation arises
from the pension fund which, when conditions are met, is re-
corded on the balance sheet. The financial statements of the pen-
sion fund prepared in accordance with Swiss GAAP FER 26 are
used for the assessment.
Key differences between Swiss GAAP applied for the Swiss
pension plan and IAS 19 include the treatment of dynamic ele-
ments, such as future salary increases and future interest credits
on retirement savings, which are not considered under the static
method used in accordance with Swiss GAAP. Also, the discount
rate used to determine the defined benefit obligation in accor-
dance with IAS 19 is based on the yield of high quality corporate
bonds of the market in the respective pension plan country. The
discount rate used in accordance with Swiss GAAP (i.e., the tech-
nical interest rate) is determined by the Pension Foundation Board
based on the expected returns of the Board’s investment strategy.
➔ Refer to Note 8 for more information
UBS AG has elected to apply IAS 19 to the non-Swiss defined
benefit plans. However, remeasurements of the defined benefit
obligation and the plan assets are recognized in the income state-
ment rather than directly in equity.
Treasury shares
Treasury shares are own equity instruments held by an entity and
recognized on the balance sheet as Trading balances in securities
and precious metals or as Financial investments. Short positions
in treasury shares are presented as Trading portfolio liabilities.
Treasury shares recognized as trading balances and short posi-
tions in treasury shares are measured at fair value with unreal-
ized gains or losses from remeasurement to fair value recognized
in the income statement. As of 31 December 2014, UBS AG only
held treasury shares for trading purposes, and therefore released
its Reserve for own shares to Other reserve.
Dispensations in the standalone financial statements
As UBS AG prepares consolidated financial statements in accor-
dance with IFRS, UBS AG is exempted from various disclosures in
the standalone financial statements. The dispensations include
the statement of cash flows, various note disclosures, as well as
the publication of interim financial statements.
752
Note 2 Accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
Deferred compensation
In relation to the transfer of the grantor role and related liabilities
from UBS AG to UBS Group AG as the ultimate holding company of
the UBS Group, UBS reassessed, in the fourth quarter of 2014, its
accounting for certain equity participation and other deferred com-
pensation plans and has aligned the recognition period as well as
measurement of such plans with IFRS. Accordingly, compensation
expense is recognized over the vesting period and measured at grant
date fair value, which includes certain adjustments such as forfeiture
assumptions or post vesting transfer restrictions. Equity-settled plans
are not remeasured after grant. The alignment resulted in a net
release of Accruals and deferred income of CHF 1,330 million, pre-
sented as a reduction to Personnel expenses of CHF 1,355 million, as
well as a reduction to Net trading income of CHF 25 million.
As a result of the transfer, UBS Group AG assumed all rights / ob-
ligations associated with the grantor role for the employee share,
option, notional fund and deferred cash plans, including the right
of recharge to employing subsidiaries of the Group. Therefore, a
considerable part of the income recognized in 2014 from the
alignment will be compensated in future years by the recognition
of expenses over the vesting period.
Restructuring provisions
In 2014, UBS AG reassessed its accounting policy for recognition
of restructuring provisions, which resulted in an alignment with
IFRS regarding (i) the scope of provisionable charges and (ii) the
timing of recognition of a provision. This voluntary change in ac-
counting policy resulted in a release of CHF 399 million in restruc-
turing provisions which was recognized as a reduction to Allow-
ances, provisions and losses.
c) Accounting policies to be adopted in the future
Amendment of accounting standards applicable to banks and
securities dealers
The Swiss Law on Accounting and Financial Reporting (32nd title
of the Swiss Code of Obligations) was revised in 2011 and be-
came effective on 1 January 2013 with a transition period of two
years (i.e., is effective for annual periods beginning on or after
1 January 2015 with early application permitted). Following this
change, the accounting standards applicable to banks and securi-
ties dealers were amended accordingly. On 30 April 2014, the
Swiss Federal Council passed the amended Banking Ordinance,
and on 3 June 2014 the new FINMA Circular 2015/1 Accounting
– banks was published. Revised Swiss GAAP, in accordance with
the amended Banking Ordinance and the new FINMA Circular, are
effective for annual periods beginning on or after 1 January 2015
with early application permitted. A transition period allows for
interim reporting during 2015 in accordance with previous rules
(i.e., revised Swiss GAAP is applicable for annual financial state-
ments as of 31 December 2015 at the latest). UBS AG will make
use of the transition period and adopt revised Swiss GAAP for
financial information disclosed as part of its fourth quarter 2015
report and the 2015 annual financial statements. Revised Swiss
GAAP will be more closely aligned with IFRS for recognition, mea-
surement and presentation. At the same time, the number of re-
quired note disclosures to the standalone financial statements will
considerably increase. UBS AG expects a limited impact from the
adoption of revised Swiss GAAP on its financial statements. Over-
all, some reduction in income statement volatility is expected from
the increased scope of the fair value option and changes to fair
value hedge accounting.
753
Financial information Financial information
Notes to the UBS AG standalone financial statements
Note 3 Net trading income
CHF million
Investment Bank Corporate Client Solutions 1
Investment Bank Investor Client Services 1
Other business divisions and Corporate Center
Total
For the year ended
% change from
31.12.14
31.12.13
31.12.13
56
3,039
313
3,407
245
3,689
275
4,209
(77)
(18)
14
(19)
1 1 In 2014, comparative period figures were corrected. As a result, net trading income for Investment Bank Corporate Client Solutions decreased by CHF 123 million for 2013, with an equal and offsetting increase for
Investment Bank Investor Client Services.
For the year ended
% change from
31.12.14
31.12.13
31.12.13
47
2,498
1,853
96
4,494
(4)
(1,772)
(40)
(1,816)
26
1,917
1,682
110
3,734
(187)
(2,096)
(209)
(2,492)
81
30
10
(13)
20
(98)
(15)
(81)
(27)
For the year ended
% change from
31.12.14
31.12.13
31.12.13
96
4,646
63
45
0
76
976
49
275
291
4,850
1,667
0
(55)
(2)
(57)
(3)
(7)
0
(9)
26
376
29
(84)
(100)
191
(100)
686
533
Note 4 Sundry ordinary income and expenses
CHF million
Gains from sale of loans and receivables
Income from hard cost transfers
Income from hard revenue transfers
Other
Total sundry ordinary income
Losses from early redemption of UBS debt
Expenses from hard revenue transfers
Other
Total sundry ordinary expenses
Note 5 Extraordinary income and expenses
CHF million
Gains from disposals of subsidiaries and other participations
Reversal of impairments and provisions of subsidiaries and other participations
Prior period related income
Other extraordinary income
Release of reinvestment relief provision related to the sale of Pactual
Total extraordinary income
Losses from disposals of subsidiaries and other participations
Prior period related expenses
Other extraordinary expenses
Total extraordinary expenses
754
Note 6 Other assets and liabilities
Other assets
CHF million
Receivables from subsidiaries and qualified shareholders
Settlement and clearing accounts
VAT and other tax receivables
Other receivables 1
Total other assets
31.12.14
1,344
348
179
1,697
3,568
31.12.13
1,412
394
313
449
2,568
% change from
31.12.13
(5)
(12)
(43)
278
39
1 Balance as of 31 December 2014 includes a bail deposit of CHF 1,323 million. Refer to item 1 in Note 22b to the consolidated financial statements for more information.
Other liabilities
CHF million
Deferral position for hedging instruments
Payables to subsidiaries and qualified shareholders
Settlement and clearing accounts
Net defined benefit liabilities
VAT and other tax payables
Other payables
Total other liabilities
31.12.14
3,597
31.12.13
2,690
538
720
680
232
1,193
6,962
728
655
563
387
1,006
6,029
% change from
31.12.13
34
(26)
10
21
(40)
19
15
Note 7 Pledged assets
CHF million
Money market paper
Mortgage loans 1
Securities
Pledges of precious metals to subsidiaries
Total 2
31.12.14
31.12.13
Change in %
Carrying value of
pledged assets
Associated liability
recognized on the
balance sheet
Carrying value of
pledged assets
Associated liability
recognized on the
balance sheet
Carrying value of
pledged assets
Associated liability
recognized on the
balance sheet
0
27,973
57,846
1,153
86,972
0
21,643
17,237
0
38,880
496
33,632
45,071
4,144
83,343
405
22,634
15,849
0
38,888
(100)
(17)
28
(72)
4
(100)
(4)
9
0
0
1 These pledged mortgage loans serve as collateral for existing liabilities against Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately CHF 4.5 bil-
lion for 31 December 2014 (31 December 2013: approximately CHF 5.8 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements. 2 Does not
include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2014: CHF 4.9 billion, 31 December 2013: CHF 3.3 billion).
UBS AG pledges assets mainly in securities lending transactions,
in repurchase transactions, against loans from Swiss mortgage
institutions, in connection with derivative transactions, as secu-
rity deposits for stock exchanges and clearing house member-
ships, and in connection with the issuance of covered bonds.
755
Financial information Financial information
Notes to the UBS AG standalone financial statements
Note 8 Swiss pension plan and non-Swiss defined benefit plans
a) Liabilities due to Swiss pension plan and non-Swiss defined benefit plans
CHF million
Provision for Swiss pension plan
Net defined benefit liabilities for non-Swiss defined benefit plans
Total provision for Swiss pension plan and net defined benefit liabilities for non-Swiss defined benefit plans
Bank accounts at UBS and UBS debt instruments held by Swiss pension fund
UBS derivative financial instruments held by Swiss pension fund
Total liabilities due to Swiss pension plan and non-Swiss defined benefit plans
b) Swiss pension plan 1
CHF million
Pension plan surplus
Economic benefit / (obligation) of UBS AG
Change in economic benefit / obligation recognized in the income statement
Employer contributions for the period recognized in the income statement
Performance rewards related employer contributions accrued
Total pension expense recognized in the income statement within Personnel expenses
31.12.14
31.12.13
0
680
680
385
102
1,168
0
563
563
119
295
977
As of or for the year ended
31.12.14
4,572
31.12.13
4,772
0
0
444
45
489
0
0
468
49
517
1 The pension plan surplus is determined in accordance with FER 26 and consists of the reserve for the fluctuation in asset value. The surplus did not represent an economic benefit for UBS AG in accordance with FER 16
as of 31 December 2014 or 31 December 2013.
The Swiss pension plan had no employer contribution reserve in 2014 or 2013.
➔ Refer to Note 28 to the consolidated financial statements for more information on the Swiss pension plan and non-Swiss defined
benefit plans
756
Note 9 Allowances and provisions1
CHF million
Default risks
of which: specific allowances for due from customers and mortgage loans
of which: specific allowances for due from banks
of which: collective loan loss allowances 1
of which: provisions for loan commitments and guarantees
of which: other allowances
Operational risks
Litigation risks 2
Restructuring 3
Real estate 4
Employee benefits
Parental support to subsidiaries
Deferred taxes
Other provisions
Total allowances and provisions
Allowances deducted from assets
Total allowances and provisions as per balance sheet
Provisions ap-
plied in
accordance
with their
specified
purpose
Recoveries,
doubtful
interest,
currency
translation
effects and re-
classifications
Balance at
31.12.13
Provisions
released to
income
New
provisions
charged
to income
Balance at
31.12.14
(337)
(172)
(15)
0
(1)
(149)
(7)
(1,119)
(605)
(5)
(5)
0
0
(18)
(2,096)
74
57
0
0
11
5
0
(7)
72
4
8
0
1
2
(190)
(141)
(1)
(13)
(35)
0
(1)
(158)
(717)
(2)
(23)
(1)
0
(8)
402
305
12
0
1
84
14
2,439
124
2
12
13
6
28
153
(1,100)
3,041
747
606
15
18
46
61
21
726
1,455
84
215
85
3
169
3,505
701
2,805
695
655
12
5
23
0
28
1,881
329
83
208
97
10
172
3,504
673
2,831
1 Mainly relates to due from customers. 2 Includes provisions for litigation resulting from security risks. 3 Refer to Note 2b for more information. 4 Includes provisions for onerous lease contracts of CHF 14 million
as of 31 December 2014 (31 December 2013: CHF 16 million) and reinstatement cost provisions for leasehold improvements of CHF 70 million as of 30 December 2014 (31 December 2013: CHF 68 million).
Note 10 Statement of shareholders’ equity
CHF million
Balance as of 31 December 2012 and 1 January 2013
Capital increase
Net profit / (loss) appropriation
Prior year dividend
Net profit / (loss) for the year
Changes in reserve for own shares
Balance as of 31 December 2013 and 1 January 2014
Capital increase
Net profit / (loss) appropriation
Prior year dividend
Net profit / (loss) for the year
Changes in reserve for own shares
Balance as of 31 December 2014
Share
capital
384
1
384
0
General
reserve
31,997
71
(4,894)
(564)
26,611
28
2,753
(938)
Reserve for
own shares
889
Other
reserve
6,551
Net profit / (loss)
for the year
(6,645)
(1,751)
(131)
4,669
131
1,020
384
28,453
(1,020)
0
1,020
5,689
6,645
2,753
2,753
(2,753)
7,849
7,849
Total shareholders’
equity (before
distribution of capital
contribution reserve)
33,176
72
0
(564)
2,753
0
35,437
28
0
(938)
7,849
0
42,376
757
Financial information Financial information
Notes to the UBS AG standalone financial statements
Note 11 Share capital and significant shareholders
Balance as of 31 December 2014
Issued
of which: shares outstanding
of which: treasury shares held by UBS AG (standalone) 1
Conditional share capital
Balance as of 31 December 2013
Issued
of which: shares outstanding
of which: treasury shares held by UBS AG (standalone) 1
of which: treasury shares held by subsidiaries of UBS AG (standalone) 1
Conditional share capital
Par value
Dividend bearing
No. of shares
Capital in CHF
No. of shares
Capital in CHF
3,844,560,913
384,456,091
3,842,445,658
384,244,566
3,842,445,658
384,244,566
3,842,445,658
384,244,566
2,115,255
211,526
516,200,312
51,620,031
3,842,002,069
384,200,207
3,768,225,119
3,768,201,817
376,820,182
3,768,201,817
376,822,512
376,820,182
73,776,950
23,302
7,377,695
2,330
518,759,156
51,875,916
23,302
2,330
1 During 2014, 51 million treasury shares were acquired at market prices and 123 million treasury shares were disposed of, including 91 million shares related to the exchange of UBS AG shares for shares of UBS Group AG.
The remainder mainly related to the delivery of shares under employee share based compensation plans. During 2013, 55 million treasury shares were acquired at market prices and 69 million treasury shares were disposed
of, mainly related to the delivery of shares under employee share based compensation plans.
Conditional share capital
As of 31 December 2014, 136,200,312 additional shares (31 De-
cember 2013: 138,759,156 shares) could have been issued to
fund UBS’s employee share option programs.
On 14 April 2010, the Annual General Meeting of UBS AG
shareholders approved the creation of conditional capital to a
maximum number of 380,000,000 shares for conversion
rights / warrants granted in connection with the issuance of bonds
or similar financial instruments.
In 2013, the conditional capital of up to 100,000,000 shares,
which was available in connection with an arrangement with the
Swiss National Bank (SNB), was removed. The SNB provided a loan
to the SNB StabFund, to which UBS transferred certain illiquid
securities and other positions in 2008 and 2009. As part of this
arrangement, UBS granted warrants on shares to the SNB, which
would have become exercisable if the SNB had incurred a loss on
the loan. In 2013, the loan was repaid in full, the warrants were
terminated and the respective conditional capital was removed.
Significant shareholders
Following the exchange offer and subsequent private exchanges
on a one-for-one basis with various shareholders and banks in
Switzerland and elsewhere outside the United States, UBS Group
AG acquired 96.68% of UBS AG shares by 31 December 2014.
Therefore, UBS Group AG was the only significant shareholder of
UBS AG as of 31 December 2014. The remaining 3.32% of
outstanding UBS AG shares were held by non-controlling share-
holders.
Note 12 Transactions with related parties
Transactions with related parties (such as securities transactions,
payment transfer services, borrowing and compensation for de-
posits) are conducted at internally agreed transfer prices or at
arm’s length, or with respect to loans, fixed advances and mort-
gages to non-independent members of the Board of Directors
and Group Executive Board members on the same terms and con-
ditions that are available to other employees. Refer to the “Com-
pensation” section of this report for information on loans granted
to Group Executive Board and Board of Directors members.
Amounts due from / to subsidiaries and qualified shareholders are
disclosed on the balance sheet.
758
Note 13 Commitments and contingent liabilities
CHF million
Contingent liabilities
of which: guarantees to third parties related to subsidiaries
of which: credit guarantees and similar instruments
of which: performance guarantees and similar instruments
of which: documentary credits
Irrevocable commitments
of which: loan commitments
of which: payment commitment related to deposit insurance
Forward starting transactions 1
of which: reverse repurchase agreements
of which: securities borrowing agreements
of which: repurchase agreements
Liabilities for calls on shares and other equities
1 Cash to be paid in the future by either UBS AG or the counterparty.
31.12.14
31.12.13
31.12.13
% change from
39,080
23,140
7,842
2,555
5,543
53,041
52,172
868
9,931
6,048
125
3,758
45
61,016
44,446
7,816
2,719
6,035
58,712
57,817
893
18,970
10,452
46
8,471
47
(36)
(48)
0
(6)
(8)
(10)
(10)
(3)
(48)
(42)
172
(56)
(4)
The table above includes indemnities and guarantees issued by
UBS AG for the benefit of subsidiaries and creditors of subsidiaries.
UBS AG has issued a guarantee for the benefit of each coun-
terparty of UBS Limited. Under this guarantee, UBS AG irrevocably
and unconditionally guarantees each and every obligation that
UBS Limited entered into. UBS AG promises to pay to that coun-
terparty on demand any unpaid balance of such liabilities under
the terms of the guarantee.
In instances in which the indemnity amount issued by UBS AG
is not specifically defined, the indemnity relates to the solvency or
minimum capitalization of a subsidiary, and therefore no amount
is included in the table above.
In addition, UBS AG is jointly and severally liable for the value
added tax (VAT) liability of Swiss subsidiaries that belong to its VAT
group. This contingent liability is not included in the table above.
Note 14 Derivative instruments 1
CHF million, except where indicated
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Precious metal contracts
Equity / index contracts
Commodity contracts, excluding precious metal contracts
Total before netting 5
Replacement value netting
Total after netting
31.12.14
31.12.13
PRV 2
121,684
10,834
90,952
1,602
16,068
1,053
242,194
199,810
42,385
Notional values
(CHF billion) 4
17,796
503
6,038
50
603
27
25,017
NRV 3
119,550
11,225
90,680
1,327
19,022
917
242,721
199,810
42,911
PRV 2
115,763
16,665
69,224
1,982
14,209
305
218,148
189,063
29,085
Notional values
(CHF billion) 4
23,298
1,290
6,082
49
552
38
31,310
NRV 3
112,033
16,634
75,989
2,001
19,400
421
226,478
189,063
37,415
1 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are excluded from this table. 2 PRV: Positive replacement value. 3 NRV: Negative replacement value.
4 Represents the sum of notional values related to PRV and NRV and other notional values. 5 Replacement values are presented net of cash collateral, where applicable and permitted.
759
Financial informationOff-balance sheet and other information Financial information
Notes to the UBS AG standalone financial statements
Note 15 Fiduciary transactions
CHF million
Deposits:
with third-party banks
with subsidiaries
Total
31.12.14
31.12.13
31.12.13
% change from
5,853
16
5,869
5,153
1,725
6,879
14
(99)
(15)
Fiduciary transactions encompass transactions entered into or
granted by UBS AG that result in holding or placing assets on
behalf of individuals, trusts, defined benefit plans and other
institutions. Unless the recognition criteria for the assets are
satisfied, these assets and the related income are excluded from
UBS AG’s balance sheet and income statement, but disclosed in
this Note as off-balance sheet fiduciary transactions. Client
deposits which are initially placed as fiduciary transactions with
UBS AG may be recognized on UBS AG’s balance sheet in situa-
tions in which the deposit is subsequently placed within UBS
AG. In such cases, these deposits are not reported in the table
above.
Note 16 Events after the reporting period
Adjustments to 2014 results
After the issuance of the unaudited fourth quarter 2014 financial
report on 10 February 2015, management adjusted the 2014 re-
sults to account for subsequent events. The impact of this adjust-
ment on net profit was a loss of CHF 134 million and related to an
increase in charges for provisions for litigation, regulatory and
similar matters.
Impact of Swiss National Bank actions
On 15 January 2015, the Swiss National Bank (SNB) discontinued
the minimum targeted exchange rate for the Swiss franc versus
the euro, which had been in place since September 2011. At the
same time, the SNB lowered the interest rate on deposit account
balances at the SNB that exceed a given exemption threshold by
50 basis points to negative 0.75%. It also moved the target range
for three-month LIBOR to between negative 1.25% and negative
0.25%, (previously negative 0.75% to positive 0.25%). These de-
cisions resulted in a considerable strengthening of the Swiss franc
against the euro, US dollar, British pound, Japanese yen and sev-
eral other currencies, as well as a reduction in Swiss franc interest
rates. As of 28 February 2015, the Swiss franc exchange rate was
0.95 to the US dollar, 1.07 to the euro, 1.47 to the British pound
and 0.80 to 100 Japanese yen. Volatility levels in foreign currency
exchange and interest rates also increased.
It is estimated that foreign currency translation effects related
to foreign branches and subsidiaries of UBS AG would have led to
a loss of around CHF 1 billion on a UBS AG standalone level, when
applying currency translation rates as of 28 February 2015 to the
reported balances as of 31 December 2014. This loss would be
recognized in the standalone income statement of UBS AG. Ad-
ditionally, the portion of operating income of UBS AG and its sub-
sidiaries denominated in non-Swiss franc currencies is greater
than the portion of operating expenses denominated in non-
Swiss franc currencies. Therefore, appreciation of the Swiss franc
against other currencies generally has an adverse effect on the
profitability of UBS AG and its subsidiaries, in the absence of any
mitigating actions. Furthermore, the stronger Swiss franc may
have a negative impact on the Swiss economy, which, given its
reliance on exports, could impact some of the counterparties
within the domestic lending portfolio of UBS AG and its subsidiar-
ies and lead to an increase in the level of credit loss expenses re-
corded in future periods.
Sale of real estate
In January 2015, UBS AG sold a real estate property in Geneva,
Switzerland for CHF 535 million, resulting in a gain on sale of CHF
377 million, which will be recognized in the income statement in
the first quarter of 2015. ▲
760
761
Financial information Financial information
762
763
Financial information 765
Financial informationUBS Group AG consolidated supplemental disclosures required under SEC regulationsA – IntroductionThe following pages contain supplemental UBS Group AG disclo-sures which are required under SEC regulations. UBS Group AG’s consolidated financial statements have been prepared in accor-dance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and are denominated in Swiss francs (CHF), the reporting cur-rency of the Group. Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
The tables below provide information concerning the noon pur-
chase rate for the Swiss franc, expressed in United States dollars,
or USD, per one Swiss franc. The noon purchase rate is the rate
in New York City for cable transfers in foreign currencies as certi-
fied for customs purposes by the Federal Reserve Bank of
New York.
On 27 February 2015, the noon purchase rate was 1.0512 USD
per 1 CHF.
Year ended 31 December
2010
2011
2012
2013
2014
Month
September 2014
October 2014
November 2014
December 2014
January 2015
February 2015
1 The average of the noon purchase rates on the last business day of each full month during the relevant period.
High
1.0673
1.3706
1.1174
1.1292
1.1478
High
1.0886
1.0610
1.0447
1.0412
1.1781
1.0837
Average rate 1
Low (USD per 1 CHF)
At period end
0.9670
1.1398
1.0724
1.0826
1.0893
1.0673
1.0668
1.0923
1.1231
1.0066
0.8610
1.0251
1.0043
1.0190
1.0066
Low
1.0467
1.0341
1.0307
1.0066
0.9809
1.0482
766
B – Selected financial data Key figures
CHF million, except where indicated
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
As of or for the year ended
Group results
Operating income
Operating expenses
Operating profit / (loss) from continuing operations before tax
Net profit / (loss) attributable to UBS Group AG shareholders
Diluted earnings per share (CHF) 1
Key performance indicators 2
Profitability
Return on equity (RoE) (%)
Return on assets, gross (%)
Cost / income ratio (%)
Growth
Net profit growth (%)
Net new money growth for combined wealth management businesses (%)
Resources
Common equity tier 1 capital ratio (%, fully applied) 3
BIS tier 1 capital ratio, Basel 2.5 (%)
BIS total capital ratio, Basel 2.5 (%)
Swiss SRB leverage ratio (phase-in, %)
Additional information
Profitability
Return on tangible equity (%) 4
Return on risk-weighted assets, gross (%) 5
Resources
Total assets
Equity attributable to UBS Group AG shareholders
Common equity tier 1 capital (fully applied) 3
Common equity tier 1 capital (phase-in) 3
Risk-weighted assets (fully applied) 3
Risk-weighted assets (phase-in) 3
Common equity tier 1 capital ratio (%, phase-in) 3
Total capital ratio (%) (fully applied) 3
Total capital ratio (%) (phase-in) 3
Swiss SRB leverage ratio (fully applied, %)
Swiss SRB leverage ratio denominator (fully applied) 6
Swiss SRB leverage ratio denominator (phase-in) 6
BIS tier 1 capital, Basel 2.5
BIS risk-weighted assets, Basel 2.5
Average equity of average assets (%)
28,027
25,567
2,461
3,466
0.91
7.0
2.8
91.0
9.3
2.5
13.4
27,732
24,461
3,272
3,172
0.83
6.7
2.5
88.0
3.4
12.8
5.4
4.7
8.2
12.4
8.0
11.4
25,423
27,216
(1,794)
(2,480)
(0.66)
(5.1)
1.9
106.6
3.2
9.8
21.3
25.2
3.6
1.6
12.0
1,062,478
1,013,355
1,259,797
50,608
28,941
42,863
216,462
220,877
19.4
18.9
25.5
4.1
48,002
28,908
42,179
225,153
228,557
18.5
15.4
22.2
3.4
997,822
1,004,869
1,015,306
1,022,924
4.7
4.0
45,949
25,182
40,032
258,113
261,800
15.3
11.4
18.9
2.4
1,206,214
1,216,561
40,982
192,505
3.4
31,994
24,650
7,345
7,452
1.94
18.0
2.3
76.9
(1.2)
27,788
22,482
5,307
4,138
1.08
9.1
2.1
80.7
(44.5)
2.4
15.9
17.2
11.9
13.7
24.7
15.5
1,416,962
48,530
1,314,813
43,728
38,370
240,962
3.2
2.7
1 Refer to Note 9 to the consolidated financial statements for more information. 2 For the definitions of key performance indicators, refer to the “Measurement of performance” section of this report. 3 Based on the
Basel III framework as applicable for systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the “Capital management” section of this report for more information. 4 Net
profit / (loss) attributable to UBS Group AG shareholders before amortization and impairment of goodwill and intangible assets (annualized as applicable) / average equity attributable to UBS Group AG shareholders less
average goodwill and intangible assets. Goodwill and intangible assets used in the calculation of tangible equity attributable to UBS Group AG shareholders as of 31 December 2014 have been adjusted to reflect the
non-controlling interests in UBS AG as of that date. 5 Based on Basel III risk-weighted assets (phase-in) for 2014 and 2013. Based on Basel 2.5 risk-weighted assets for 2012. Based on Basel II risk-weighted assets for
2011 and 2010. 6 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total
adjusted exposure at the end of the three months preceding the end of the reporting period. Refer to the ”Capital management” section of this report for more information.
767
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Key figures (continued)
CHF million, except where indicated
Other
Invested assets (CHF billion) 1
Personnel (full-time equivalents)
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: United Kingdom
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Market capitalization (CHF billion) 2
Total book value per share (CHF) 2
Tangible book value per share (CHF) 2
Registered ordinary shares (number) 3
Treasury shares (number) 2
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
As of or for the year ended
2,734
60,155
20,951
19,715
7,385
10,254
5,425
4,663
166
21,564
63,526
13.94
12.14
2,390
60,205
21,317
20,037
7,116
10,052
5,595
4,303
153
21,720
65,007
12.74
11.07
2,230
62,628
21,995
20,833
7,426
10,829
6,459
4,202
167
22,378
54,729
12.26
10.54
2,088
64,820
22,924
21,746
7,690
11,019
6,674
4,182
162
23,188
42,843
12.95
10.36
2,075
64,617
23,178
22,031
7,263
10,892
6,634
4,122
137
23,284
58,803
11.53
8.94
3,717,128,324
3,842,002,069
3,835,250,233
3,832,121,899
3,830,840,513
87,871,737
73,800,252
87,879,601
84,955,551
38,892,031
1 Group invested assets includes invested assets for Retail & Corporate. 2 Refer to the “UBS shares” section of this report for more information. 3 Registered ordinary shares as of 31 December 2014 reflect UBS Group AG
shares. Comparative period information relates to UBS AG shares. Refer to the “UBS shares” section of this report for more information.
768
Income statement data
CHF million, except where indicated
31.12.14
31.12.13
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss (expense) / recovery
Net fee and commission income
Net trading income
Other income
Total operating income
Total operating expenses
Operating profit / (loss) from continuing operations before tax
Tax expense / (benefit)
Net profit / (loss) from continuing operations
Net profit / (loss) from discontinued operations
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS Group AG shareholders
Cost / income ratio (%) 1
Per share data (CHF)
Basic 2
Diluted 2
Cash dividends declared per share (CHF) 3, 4
Cash dividends declared per share (USD) 3, 4
Dividend payout ratio (%)
Rates of return (%)
Return on equity attributable to UBS Group AG shareholders 5
Return on average equity
Return on average assets
13,194
(6,639)
6,555
(78)
6,477
17,076
3,842
632
28,027
25,567
2,461
(1,180)
3,640
0
3,640
142
32
3,466
91.0
0.93
0.91
0.50
55
7.0
7.0
0.3
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
580
27,732
24,461
3,272
(110)
3,381
0
3,381
204
5
3,172
88.0
0.84
0.83
0.25
0.28
30
6.7
6.7
0.3
For the year ended
31.12.12
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
641
25,423
27,216
(1,794)
461
(2,255)
0
(2,255)
220
5
(2,480)
106.6
(0.66)
(0.66)
0.15
0.16
(23)
(5.1)
(5.0)
(0.2)
31.12.11
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
1,467
27,788
22,482
5,307
901
4,406
0
4,406
268
4,138
80.7
1.10
1.08
0.10
0.11
9
9.1
9.1
0.3
31.12.10
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
1,214
31,994
24,650
7,345
(409)
7,754
2
7,756
304
7,452
76.9
1.97
1.94
18.0
17.9
0.5
1 Operating expenses / operating income before credit loss expense. 2 Refer to Note 9 to the consolidated financial statements for more information. 3 Dividends and / or distribution of the capital contribution reserve
are normally approved and paid in the year subsequent to the reporting period. 4 Refer to the “Proposed distribution of capital contribution reserve” in the UBS Group AG standalone financial statements for more
information. 5 Net profit attributable to UBS Group AG shareholders / average equity attributable to UBS Group AG shareholders. The calculation excludes expected deductions for dividends and distribution of the
capital contribution reserve.
769
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Balance sheet data 1
CHF million
Assets
Total assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: assets pledged as collateral which may be sold
or repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Loans
Financial investments available-for-sale
Other assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Other liabilities
Equity attributable to UBS Group AG shareholders
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
1,062,478
104,073
13,334
24,063
68,414
138,156
56,018
256,978
30,979
315,757
57,159
22,988
10,492
9,180
11,818
27,958
254,101
42,372
75,297
410,207
91,207
71,112
50,608
1,013,355
1,259,797
1,416,962
1,314,813
80,879
13,874
27,496
91,563
122,848
42,449
254,084
26,548
286,959
59,525
20,228
12,862
9,491
13,811
26,609
248,079
44,507
69,901
390,825
81,586
62,777
48,002
66,383
21,220
37,372
130,941
160,564
44,698
418,957
30,413
279,901
66,230
17,244
23,024
9,203
38,557
34,247
395,260
71,148
91,901
373,459
104,837
66,523
45,949
40,638
23,218
58,763
213,501
181,525
39,936
486,584
41,322
266,604
53,174
15,492
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
140,617
69,633
48,530
26,939
17,133
62,454
142,790
228,815
61,352
401,146
38,071
262,877
74,768
24,973
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
130,271
70,412
43,728
1 In 2014, certain figures for 31 December 2013 were restated upon the adoption of the amendments to IAS 32 and the removal of exchange-traded derivative client cash balances from the balance sheet. Periods prior
to 31 December 2013 were not restated. Refer to Note 1b to the consolidated financial statements for more information.
770
771
Financial informationC – Information on the companyAs of 31 December 2014, UBS operated about 855 business and banking locations worldwide, of which approximately 42% were in Switzerland, 42% in the Americas, 10% in the rest of Europe, Middle East and Africa and 6% in Asia Pacific. Of the business and banking locations in Switzerland, 31% were owned directly Property, plant and equipmentby UBS, with the remainder, along with most of UBS’s offices out-side Switzerland, being held under commercial leases. These premises are subject to continuous maintenance and upgrading and are considered suitable and adequate for current and antici-pated operations. Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
772
D – Information required by industry guide 3Selected statistical informationThe following tables set forth selected statistical information regarding the Group’s banking operations extracted from the financialstatements.Unlessotherwiseindicated,averagebal-ancesfortheyearsended31December2014,31December2013and 31 December 2012 are calculated from monthly data. The distinction between domestic and foreign is generally based on the booking location. For loans, this method is not significantly different from an analysis based on the domicile of the borrower. Average balances and interest rates
The table below sets forth average interest-earning assets and average interest-bearing liabilities, along with the average yield, for the
years ended.
CHF million, except where indicated
Assets
Due from banks
Domestic
Foreign
Cash collateral on securities borrowed and
reverse repurchase agreements
Domestic
Foreign
Trading portfolio assets
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Cash collateral receivables on derivative instruments
Domestic
Foreign
Financial assets designated at fair value
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments available-for-sale
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Other interest-earning assets
Domestic
Foreign
Total interest-earning assets
Net interest income on swaps
Interest income on off-balance sheet securities and other
31.12.14
Average
balance
Interest
income
Average
yield (%)
Average
balance
31.12.13
Interest
income
Average
yield (%)
Average
balance
31.12.12
Interest
income
Average
yield (%)
3,269
16,692
7,374
133,640
5,105
118,038
0
8
95
4
463
209
2,988
0
0.2
0.6
0.1
0.3
4.1
2.5
3,051
16,420
11,479
162,479
5,189
119,894
0
8
82
10
575
177
2,736
0
0.3
0.5
0.1
0.4
3.4
2.3
3,566
24,718
4,884
263,958
6,019
156,581
33
282
4
1,155
235
4,247
118,038
2,988
2.5
119,894
2,736
2.3
156,581
4,247
0.0
0.2
0.0
3.6
2.1
2.4
0.6
0.5
9
36,895
454
8,790
0
143
0
369
185,969
88,246
4,280
2,150
1,572
61,233
8
373
373
113
27,920
729
4,982
1
54
1
207
192,993
109,137
3,780
2,520
2,006
52,642
0
52,642
0
12,024
8
307
0
307
0
477
686,662
11,123
1,613
458
155
29,244
414
10,113
0
70
0
364
189,969
100,027
3,974
2,420
1,980
60,093
0
0
8,953
11
310
0
310
0
430
0.9
0.2
0.1
4.2
2.0
2.3
0.4
0.6
4.0
1.6
0.6
60,093
0.5
61,233
719,460
11,168
1,528
441
4.8
1.6
7,143
439
850,037
13,718
1,804
446
0.9
1.1
0.1
0.4
3.9
2.7
2.7
0.0
0.4
0.0
4.2
2.3
2.4
0.5
0.6
0.6
6.1
1.6
Interest income and average interest-earning assets
686,662
13,194
1.9
719,460
13,137
1.8
850,037
15,968
1.9
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
232,739
6,383
127,799
1,053,584
337,781
6,054
115,921
1,179,216
460,849
5,859
130,902
1,447,647
773
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Average balances and interest rates (continued)
CHF million, except where indicated
Liabilities and equity
Due to banks
Domestic
Foreign
Cash collateral on securities lent and repurchase agreements
Domestic
Foreign
Trading portfolio liabilities
Domestic
Foreign
Cash collateral payables on derivative instruments
Domestic
Foreign
Financial liabilities designated at fair value
Domestic
Foreign
Due to customers
Domestic demand deposits
Domestic savings deposits
Domestic time deposits
Domestic total
Foreign 1
Short-term debt
Domestic
Foreign
Long-term debt
Domestic
Foreign
Other interest-bearing liabilities
Domestic
Foreign
Total interest-bearing liabilities
Interest expense on off-balance sheet securities
Interest expense and average interest-bearing
liabilities
Non-interest-bearing liabilities
Negative replacement values
Other
Total liabilities
Total equity
Total average liabilities and equity
Net interest income
Net yield on interest-earning assets
1 Due to customers in foreign offices consists mainly of time deposits.
31.12.14
Average
balance
Interest
income
Average
yield (%)
Average
balance
31.12.13
Interest
income
Average
yield (%)
Average
balance
31.12.12
Interest
income
Average
yield (%)
8,932
3,691
5,328
58,639
638
28,733
612
42,595
1,747
68,928
130,593
97,825
7,593
236,012
159,170
1,270
26,734
14,937
43,264
0
35,503
736,733
16
14
1
338
14
1,789
0
45
13
906
43
172
12
227
340
2
101
447
1,833
0
58
6,145
495
0.2
0.4
0.0
0.6
2.2
6.2
0.0
0.1
0.7
1.3
0.0
0.2
0.2
0.1
0.2
0.2
0.4
3.0
4.2
0.2
0.8
13,859
4,073
5,344
65,088
628
29,874
540
58,693
1,207
79,182
126,953
95,937
4,379
227,268
155,312
1,703
33,363
11,823
50,053
0
35,706
773,717
37
24
2
344
12
1,834
0
65
9
1,188
60
246
15
321
373
3
170
281
2,131
0
67
6,863
489
0.3
0.6
0.0
0.5
1.9
6.1
0.0
0.1
0.7
1.5
0.0
0.3
0.3
0.1
0.2
0.2
0.5
2.4
4.3
0.2
0.9
25,843
7,709
6,289
148,734
886
47,002
1,131
67,955
1,335
90,007
111,975
90,312
4,821
207,108
153,379
1,776
48,525
11,188
62,053
36,823
917,743
61
65
7
768
18
2,424
0
134
11
1,733
95
356
30
481
594
9
365
264
2,525
98
9,557
433
0.2
0.8
0.1
0.5
2.0
5.2
0.0
0.2
0.8
1.9
0.1
0.4
0.6
0.2
0.4
0.5
0.8
2.4
4.1
0.3
1.0
736,733
6,640
773,717
7,351
917,743
9,990
229,286
35,474
1,001,493
52,091
1,053,584
321,681
34,188
1,129,586
49,630
1,179,216
443,881
33,722
1,395,346
52,301
1,447,647
6,555
5,786
5,978
1.0
0.8
0.7
The percentage of total average interest-earning assets attribut-
able to foreign activities was 69% for 2014 (71% for 2013 and
76% for 2012). The percentage of total average interest-bearing
liabilities attributable to foreign activities was 63% for 2014 (66%
for 2013 and 72% for 2012). All assets and liabilities are trans-
lated into CHF at uniform month-end rates. Interest income and
expense are translated at monthly average rates.
Average rates earned and paid on assets and liabilities can
change from period to period based on the changes in interest
rates in general, but are also affected by changes in the currency
mix included in the assets and liabilities. This is especially true for
foreign assets and liabilities. Tax-exempt income is not recorded
on a tax-equivalent basis. For all three years presented, tax-ex-
empt income is considered to be insignificant and the impact
from such income is therefore negligible.
774
Analysis of changes in interest income and expense
The following tables allocate, by categories of interest-earning
assets and interest-bearing liabilities, the changes in interest
income and expense due to changes in volume and interest rates
for the year ended 31 December 2014 compared with the year
ended 31 December 2013, and for the year ended 31 Decem-
ber 2013 compared with the year ended 31 December 2012.
Volume and rate variances have been calculated on movements
in average balances and changes in interest rates. Changes due
to a combination of volume and rates have been allocated pro-
portionally. Refer to the appropriate section of Industry Guide 3
for a discussion of the treatment of impaired and non-performing
loans.
CHF million
Interest income from interest-earning assets
Due from banks
Domestic
Foreign
Cash collateral on securities borrowed and reverse repurchase agreements
Domestic
Foreign
Trading portfolio assets
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Cash collateral receivables on derivative instruments
Domestic
Foreign
Financial assets designated at fair value
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments available-for-sale
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Other interest-bearing assets
Domestic
Foreign
Interest income
Domestic
Foreign
Total interest income from interest-earning assets
Net interest on swaps
Interest income on off-balance sheet securities and other
Total interest income
2014 compared with 2013
2013 compared with 2012
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
interest rate
Net
change
Average
volume
Average
interest rate
Net
change
1
1
(4)
(115)
(3)
(43)
0
(43)
0
(3)
0
(185)
63
219
0
(37)
0
(37)
0
147
57
(16)
41
(1)
11
(2)
4
35
295
0
295
1
(12)
1
28
(258)
(120)
(3)
34
0
34
0
(99)
(227)
140
(87)
(5)
(91)
7
(406)
(32)
(991)
0
(991)
0
(31)
0
56
92
283
2
(7)
0
(7)
0
110
(20)
(109)
(1)
(174)
(26)
(520)
0
(520)
0
(42)
0
(61)
(398)
(13)
1
(56)
0
(56)
0
(119)
64
(1,077)
(1,013)
(443)
(1,094)
(1,537)
0
12
(6)
(111)
32
252
0
252
0
(15)
1
(157)
(195)
99
(3)
(3)
0
(3)
0
48
(170)
124
(46)
86
17
57
(25)
(200)
6
(580)
(58)
(1,511)
0
(1,511)
0
(73)
0
(5)
(306)
270
3
(63)
0
(63)
0
(9)
(379)
(2,171)
(2,550)
(276)
(5)
(2,831)
775
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Analysis of changes in interest income and expense (continued)
2014 compared with 2013
2013 compared with 2012
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
interest rate
Net
change
Average
volume
Average
interest rate
Net
change
(15)
(2)
0
(32)
0
(70)
0
(16)
4
(154)
0
6
10
16
8
(1)
(33)
75
(292)
0
0
79
(591)
(512)
(6)
(7)
0
26
2
25
0
(4)
0
(128)
(18)
(80)
(13)
(111)
(41)
(1)
(36)
91
(6)
0
(9)
(25)
(181)
(206)
(24)
(29)
(1)
(418)
(5)
(891)
0
(19)
(1)
(206)
15
22
(3)
34
8
0
(121)
15
(492)
0
(3)
18
(2,171)
(2,153)
(21)
(9)
0
(6)
2
(45)
0
(20)
4
(282)
(18)
(74)
(3)
(95)
(33)
(2)
(69)
166
(298)
0
(9)
54
(772)
(718)
6
(712)
0
(12)
(4)
(6)
(1)
301
0
(50)
(1)
(339)
(50)
(132)
(12)
(194)
(229)
(6)
(74)
2
98
0
(28)
(203)
(339)
(541)
(24)
(41)
(5)
(424)
(6)
(590)
0
(69)
(2)
(545)
(35)
(110)
(15)
(160)
(221)
(6)
(195)
17
(394)
0
(31)
(185)
(2,510)
(2,694)
56
(2,639)
CHF million
Interest expense on interest-bearing liabilities
Due to banks
Domestic
Foreign
Cash collateral on securities lent and repurchase agreements
Domestic
Foreign
Trading portfolio liabilities
Domestic
Foreign
Cash collateral payables on derivative instruments
Domestic
Foreign
Financial liabilities designated at fair value
Domestic
Foreign
Due to customers
Domestic demand deposits
Domestic savings deposits
Domestic time deposits
Domestic total
Foreign
Short-term debt
Domestic
Foreign
Long-term debt
Domestic
Foreign
Other interest-bearing liabilities
Domestic
Foreign
Interest expense
Domestic
Foreign
Total interest-bearing liabilities
Interest expense on off-balance sheet securities
Total interest expense
776
Deposits
The table below analyzes average deposits and average rates
on each deposit category listed below for the years ended 31 De-
cember 2014, 2013 and 2012. The geographic allocation is based
on the location of the office or branch where the deposit is made.
Deposits by foreign depositors in domestic offices were CHF
76,362 million, CHF 76,246 million and CHF 74,252 million as of
31 December 2014, 2013 and 2012, respectively.
CHF million, except where indicated
Banks
Domestic offices
Demand deposits
Time deposits
Total domestic offices
Foreign offices
Interest-bearing deposits 1
Total due to banks 2
Customer accounts
Domestic offices
Demand deposits
Savings deposits
Time deposits
Total domestic offices
Foreign offices
Demand deposits
Time and savings deposits 1
Total foreign offices
Total due to customers
31.12.14
31.12.13
31.12.12
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
5,149
3,783
8,932
3,691
12,624
130,593
97,825
7,593
236,012
49,098
110,072
159,170
395,182
(0.1)
0.6
0.2
0.4
0.2
0.0
0.2
0.2
0.1
0.0
0.3
0.2
0.1
8,513
5,346
13,859
3,763
17,622
126,953
95,937
4,379
227,268
43,954
111,358
155,312
382,580
(0.1)
0.8
0.3
0.6
0.3
0.0
0.3
0.3
0.1
0.0
0.3
0.2
0.2
1,270
2,296
3,566
24,718
28,284
111,975
90,312
4,821
207,108
38,707
114,672
153,379
360,487
0.0
0.7
0.5
0.8
0.8
0.1
0.4
0.6
0.2
0.1
0.5
0.4
0.3
1 Mainly time deposits. 2 Due to banks is considered to represent short-term borrowings to the extent that the total Due to banks exceeds total Due from banks, without differentiating between domestic and foreign
offices. The remainder of total Due to banks is considered to represent deposits for the purpose of this disclosure.
As of 31 December 2014, the maturity of time deposits was as follows:
CHF million
Within 3 months
3 to 6 months
6 to 12 months
1 to 5 years
Over 5 years
Total time deposits
Domestic
13,100
876
378
41
4
Foreign
53,251
2,250
1,150
581
152
14,400
57,383
777
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Short-term borrowings
The table below presents the period-end, average and maximum month-end outstanding amounts for short-term borrowings, along
with the average rates and period-end rates at and for the years ended 31 December 2014, 2013 and 2012.
CHF million, except where indicated
31.12.14
31.12.13
31.12.12
31.12.14
Short-term debt
Due to banks 1
31.12.13
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
27,363
28,004
33,674
0.4
0.2
27,633
35,067
44,789
0.5
0.4
32,493
50,301
72,432
0.7
0.7
0.0
0.0
0.0
0.0
0.0
0.0
309
1,370
0.3
0.0
31.12.12
1,782
5,267
13,555
0.4
0.2
Repurchase agreements 2
31.12.13
31.12.14
31.12.12
54,625
52,865
65,033
0.2
0.2
41,160
61,251
76,014
0.2
0.2
73,358
145,831
183,207
0.3
0.2
1 Presented net of Due from banks to reflect short-term borrowings. The difference between the gross Due to banks amount and the amount disclosed here is presented as deposits from banks on the preceding page.
2 Repurchase agreements are presented on a gross basis, and therefore, for the purpose of this disclosure, do not reflect the effect of netting permitted under IFRS.
Contractual maturities of investments in debt instruments available-for-sale 1, 2
CHF million, except percentages
31 December 2014
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value 3
CHF million, except percentages
31 December 2013
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value 3
CHF million, except percentages
31 December 2012
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value 3
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Total
Amount Yield (%)
Amount Yield (%)
Amount Yield (%)
Amount Yield (%)
0.48
0.23
0.31
0.45
41
4,873
14,072
2,089
21,075
8,317
13,758
8,489
0
30,563
1.02
0.74
0.84
4.82
1
4.00
1.25
1.33
4.42
243
280
0
525
43
13,189
28,072
10,858
4,029
56,192
4,029
4,029
1.34
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Total
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
849
25,483
743
27,075
0.17
0.27
0.52
43
13,010
7,277
6,873
27,202
0.46
0.36
0.55
0.80
3.55
3.30
0.98
0.85
4.71
1
3
63
178
0
245
44
13,861
32,842
7,795
4,017
58,559
19
1
4,017
4,037
12.16
6.60
2.09
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Total
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
110
11,152
23,189
2,030
36,482
0.13
0.20
0.27
0.69
45
12,397
3,869
4,154
20,464
0.44
0.25
0.74
0.93
1.34
3.11
4.76
4.62
877
2
113
0
993
1
18
3
7,313
7,335
4.00
8.15
8.83
1.51
156
24,426
27,078
6,300
7,313
65,273
1 Debt instruments without fixed maturities are not disclosed in this table. 2 Average yields are calculated on an amortized cost basis. 3 Includes investments in debt instruments as of 31 December 2014 issued by
US government and government agencies of CHF 17,219 million (31 December 2013: CHF 17,876 million, 31 December 2012: CHF 31,740 million), the German government of CHF 10,145 million (31 December 2013:
CHF 6,733 million, 31 December 2012: CHF 6,669 million), the French government of CHF 5,351 million (31 December 2013: CHF 5,601 million, 31 December 2012: CHF 3,593 million) and the UK government of
CHF 2,348 million (31 December 2013: CHF 8,089 million, 31 December 2012: CHF 5,042 million).
778
EDTF | Due from banks and loans (gross)
The Group’s lending portfolio is widely diversified across industry
sectors. CHF 185.9 billion (56.4% of the total) consists of loans to
thousands of private households, predominantly in Switzerland,
and mostly secured by mortgages, financial collateral or other
assets. Exposure to banks and financial institutions amounted to
CHF 77.5 billion (23.5% of the total). Exposure to banks includes
money market deposits with highly rated institutions. Excluding
banks and financial institutions, the largest industry sector expo-
sure as of 31 December 2014 was CHF 22.3 billion (6.8% of the
total) to Services. For further discussion of the loan portfolio, refer
to the “Risk management and control” section of this report.
The table below illustrates the diversification of the loan port-
folio among industry sectors as of 31 December 2014, 2013,
2012, 2011 and 2010. The industry categories presented are con-
sistent with the classification of loans for reporting to the Swiss
Financial Market Supervisory Authority (FINMA) and the Swiss Na-
tional Bank. Loans designated at fair value and loans held in the
trading portfolio are excluded from the tables below.
CHF million
Domestic
Banks
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial institutions
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 2
Total foreign
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
1,157
1,418
6,466
1,696
2,319
125,461
2,098
14,549
4,169
4,794
3,587
736
1,429
4,643
1,817
2,512
124,569
2,415
14,511
3,784
5,330
3,680
532
1,360
4,265
1,745
2,976
123,167
2,708
13,682
4,345
5,862
3,538
566
1,292
4,257
1,831
3,252
120,671
2,992
13,169
4,433
5,770
3,131
1,130
1,356
3,735
1,803
3,192
119,796
4,908
12,252
4,101
5,718
3,117
167,713
165,426
164,180
161,364
161,108
12,190
75
645
1,100
57,645
1,961
1,345
60,466
1,413
2,517
1,924
17,470
3,017
318
13,201
178
1,132
1,337
43,125
1,850
1,175
49,920
1,322
2,995
1,791
14,733
2,809
606
20,711
254
1,731
1,205
40,650
1,828
1,279
46,458
4,319
2,721
2,063
10,735
3,021
693
162,086
136,174
137,669
22,669
16,028
392
750
746
38,802
1,955
1,979
41,045
5,459
2,158
2,044
8,529
2,068
703
129,300
290,664
351
952
525
41,307
2,010
2,463
31,361
9,858
1,420
1,711
9,534
1,652
841
120,014
281,121
779
Total gross
301,849
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants. ▲
329,800
301,601
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
EDTF | Due from banks and loans (gross) (continued)
The table below analyzes the Group’s mortgage portfolio by geographic origin of the client and type of mortgage as of 31 December
2014, 2013, 2012, 2011 and 2010. Mortgages are included in the industry categories mentioned on the previous page.
CHF million
Mortgages
Domestic
Foreign
Total gross mortgages
Mortgages
Residential
Commercial
Total gross mortgages
Due from banks and loan maturities (gross)
CHF million
Domestic
Banks
Mortgages
Other loans
Total domestic
Foreign
Banks
Mortgages
Other loans
Total foreign
Total gross
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
146,637
18,112
164,748
142,380
22,368
164,748
144,852
15,235
160,086
137,370
22,716
160,086
142,143
12,311
154,454
132,033
22,421
154,454
138,204
8,818
147,022
125,775
21,247
147,022
136,687
6,174
142,861
122,499
20,362
142,861
▲
Within 1 year
1 to 5 years
Over 5 years
Total
1,157
67,360
16,035
84,552
11,972
5,477
108,941
126,390
210,942
0
44,997
2,813
47,810
190
4,198
18,430
22,818
70,627
0
34,280
1,072
35,352
28
8,437
4,412
12,878
48,230
1,157
146,637
19,920
167,713
12,190
18,112
131,784
162,086
329,800
Total
204,876
124,923
329,800
As of 31 December 2014, the total amounts of Due from banks and Loans granted at fixed- and floating-rates were:
CHF million
Fixed-rate loans
Adjustable or floating-rate loans
Total
Within 1 year
1 to 5 years
Over 5 years
107,813
103,129
210,942
58,241
12,387
70,627
38,823
9,407
48,230
780
EDTF | Impaired and non-performing loans
A loan (included in Due from banks or Loans) is classified as non-
performing: (i) when the payment of interest, principal or fees is
overdue by more than 90 days, (ii) when insolvency proceedings
have commenced or (iii) when obligations have been restructured
on preferential terms. For IFRS reporting purposes, the definition
of impaired loans is more comprehensive, covering both non-per-
forming loans and other situations where objective evidence indi-
cates that UBS may be unable to collect all amounts due. Refer to
“Impaired loans” in the “Risk management and control” section
of this report for comprehensive information on UBS’s impaired
loans, of which non-performing loans are a component. Also, re-
fer to Note 1 to the consolidated financial statements for more
information on the various risk factors that are considered to be
indicative of impairment.
The table below provides an analysis of the Group’s non-per-
forming loans.
CHF million
Non-performing loans:
Domestic
Foreign
Total non-performing loans
CHF million
Gross interest income that would have been recorded on non-performing loans:
Domestic
Foreign
Interest income included in Net profit for non-performing loans:
Domestic
Foreign
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
1,293
309
1,602
1,113
469
1,582
1,121
395
1,516
1,199
329
1,529
1,164
563
1,727
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
9
6
22
7
6
4
23
7
8
3
28
6
10
9
29
6
11
35
35
19
UBS does not, as a matter of policy, typically restructure loans to
accrue interest at rates different from the original contractual
terms or reduce the principal amount of loans. Instead, specific
loan allowances are established as necessary. Unrecognized inter-
est related to restructured loans was not material to the results of
operations in 2014, 2013, 2012, 2011 or 2010. ▲
781
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Cross-border outstandings
Cross-border outstandings consist of balances with central banks
and other financial institutions, loans, reverse repurchase agree-
ments and cash collateral on securities borrowed with counter-
parties domiciled outside Switzerland. Guarantees and commit-
ments are provided separately in the table below.
The following tables list those countries for which cross-border
outstandings exceeded 0.75% of total IFRS assets as of 31 De-
cember 2014, 2013 and 2012. As of 31 December 2014, there
were no outstandings that exceeded 0.75% of total IFRS assets in
any country currently facing debt restructuring or liquidity prob-
lems that the Group expects would materially impact the coun-
try’s ability to service its obligations. Aggregate country risk expo-
sures are monitored and reported on an ongoing basis by the risk
control organization, based on an internal framework. The inter-
nal risk view is not directly comparable to the cross-border
outstandings in the table below due to different approaches to
netting, differing trade populations and differing approach to al-
location of exposures to countries. For more information on the
country framework within risk control, refer to Country risk in the
“Risk management and control” section of this report.
CHF million
USA
United Kingdom
Japan
France
CHF million
USA
United Kingdom
Japan
France
Germany
CHF million
USA
United Kingdom
Japan
France
Private sector
Public sector
outstandings % of total assets
31.12.14
Total
84,629
47,003
16,906
6,006
153,019
67,220
24,107
10,025
59,103
13,928
5,422
67
31.12.13
14.4
6.3
2.3
0.9
Private sector
Public sector
Total outstandings
% of total assets
76,047
39,528
17,009
7,478
2,664
149,327
58,749
22,794
12,273
8,478
51,287
8,583
4,765
56
1,900
31.12.12
14.7
5.8
2.2
1.2
0.8
Private sector
Public sector
Total outstandings
% of total assets
93,401
36,960
21,943
5,955
35,125
4,287
4,707
409
173,897
54,613
28,663
11,250
13.8
4.3
2.3
0.9
Guarantees and
Commitments 1
34,967
7,660
1,771
5,037
Guarantees and
Commitments 1
38,778
8,494
289
6,997
2,062
Guarantees and
Commitments 1
43,904
12,106
2,208
9,161
Banks
9,287
6,288
1,780
3,952
Banks
21,993
10,638
1,019
4,739
3,914
Banks
45,371
13,366
2,014
4,885
1 Includes forward starting transactions (reverse repurchase agreements and securities borrowing agreements).
782
EDTF | Summary of movements in allowances and provisions for credit losses
The table below provides an analysis of movements in allowances
and provisions for credit losses.
UBS writes off loans against allowances only on final settle-
ment of bankruptcy proceedings, the sale of the underlying assets
and / or in the case of debt forgiveness. Under Swiss law, a credi-
tor can continue to collect from a debtor who has emerged from
bankruptcy, unless the debt has been forgiven through a formal
agreement.
CHF million
Balance at beginning of year
31.12.14
750
31.12.13
794
31.12.12
938
31.12.11
1,287
31.12.10
2,820
Domestic
Write-offs
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Real estate and rentals
Retail and wholesale
Services
Other 1
Total gross domestic write-offs
Foreign
Write-offs
Banks
Chemicals
Construction
Financial institutions
Manufacturing
Electricity, gas and water supply
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 2
Total gross foreign write-offs
Total usage of provisions
Total write-offs / usage of provisions
Recoveries
Domestic
Foreign
Total recoveries
Total net write-offs / usage of provisions
Increase / (decrease) in specific allowances and provisions
recognized in the income statement
Increase / (decrease) in collective loan loss allowances recognized in the income
statement
Foreign currency translation
Other
Balance at end of year 3
(1)
0
0
(3)
(39)
(1)
(28)
(15)
(3)
(90)
(15)
0
(1)
(12)
(7)
(1)
(6)
0
(2)
(2)
(14)
(1)
0
(63)
(1)
(154)
29
0
29
(124)
89
(11)
21
11
735
(2)
(6)
0
(4)
(38)
0
(11)
(4)
(1)
(67)
(1)
0
(6)
(44)
0
0
(6)
(1)
(1)
(1)
0
0
0
(61)
0
(128)
35
10
45
(83)
144
(93)
(9)
(3)
750
(1)
0
(1)
(20)
(45)
(2)
(21)
(6)
(17)
(8)
(17)
0
(31)
(59)
(3)
(37)
(21)
(6)
(112)
(183)
(8)
(47)
(1)
(28)
(66)
(2)
(117)
(49)
(16)
(332)
(2)
(846)
0
(267)
(22)
0
(21)
(1)
(1)
(1)
(9)
(3)
0
(1,173)
0
(1,505)
38
41
79
(8)
0
0
(39)
0
0
(72)
(175)
(7)
0
(1)
0
0
(303)
(14)
(501)
50
1
51
(450)
(1,427)
0
84
(1)
18
938
67
(2)
(175)
1
1,287
0
0
0
(106)
0
0
(15)
(54)
0
0
(19)
(5)
(2)
(201)
0
(313)
43
21
63
(250)
133
(15)
(8)
(3)
794
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants. 3 Includes allowances for cash collateral on securi-
ties borrowed. ▲
783
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
EDTF | Allocation of the allowances and provisions for credit losses
The following table provides an analysis of the allocation of the
allowances and provisions for credit loss by industry sector and
geographic location as of 31 December 2014, 2013, 2012, 2011
and 2010. For a description of procedures with respect to allow-
ances and provisions for credit losses, refer to the “Risk manage-
ment and control” section of this report.
CHF million
Domestic
Banks
Construction
Financial services
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic specific allowances
Foreign
Banks 2
Chemicals
Construction
Electricity, gas and water supply
Financial services
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Total foreign specific allowances
Collective loan loss allowances
31.12.14
31.12.13
31.12.12
31.12.11
30.12.10
2
14
18
16
72
52
0
18
123
25
34
374
10
0
1
0
35
9
11
65
14
1
112
29
43
330
8
3
16
16
12
57
54
0
9
152
23
24
365
13
0
17
1
37
18
2
66
16
2
77
35
19
303
20
3
16
21
9
44
60
0
10
123
24
16
326
19
1
20
1
37
23
0
45
39
4
39
35
27
290
114
1
15
19
6
65
77
0
14
131
24
28
379
16
8
6
1
96
23
0
60
33
10
15
28
39
335
131
1
23
28
5
93
91
0
19
165
45
27
497
23
8
2
0
190
15
0
139
171
15
8
12
29
613
47
Provisions for loan commitments and guarantees
Total allowances and provisions for credit losses 3
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Counterparty allowances only. 3 Includes allowances for cash collateral on securities borrowed. ▲
735
750
794
938
23
93
64
61
130
1,287
784
Due from banks and loans by industry sector (gross)
The table below presents the percentage of loans in each
industry sector and geographic location to total loans. This table
can be read in conjunction with the preceding table showing the
breakdown of the allowances and provisions for credit losses
by industry sectors to evaluate the credit risks in each of the cat-
egories.
In %
Domestic
Banks
Construction
Financial services
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 2
Total foreign
Total gross
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
0.4
0.4
2.0
0.5
0.7
38.0
0.6
4.4
1.3
1.5
1.1
50.9
3.7
0.0
0.2
0.3
17.5
0.6
0.4
18.3
0.4
0.8
0.6
5.3
0.9
0.1
0.2
0.5
1.5
0.6
0.8
41.3
0.8
4.8
1.3
1.8
1.2
54.8
4.4
0.1
0.4
0.4
14.3
0.6
0.4
16.6
0.4
1.0
0.6
4.9
0.9
0.2
0.2
0.5
1.4
0.6
1.0
40.8
0.9
4.5
1.4
1.9
1.2
54.4
6.9
0.1
0.6
0.4
13.5
0.6
0.4
15.4
1.4
0.9
0.7
3.6
1.0
0.2
0.2
0.4
1.5
0.6
1.1
41.5
1.0
4.5
1.5
2.0
1.1
55.5
7.8
0.1
0.3
0.3
13.3
0.7
0.7
14.1
1.9
0.7
0.7
2.9
0.7
0.2
0.4
0.5
1.3
0.6
1.1
42.6
1.7
4.4
1.5
2.0
1.1
57.3
5.7
0.1
0.3
0.2
14.7
0.7
0.9
11.2
3.5
0.5
0.6
3.4
0.6
0.3
49.1
100.0
45.2
100.0
45.6
100.0
44.5
100.0
42.7
100.0
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants.
785
Financial information 787
Financial informationUBS AG consolidated supplemental disclosures required under SEC regulationsA – IntroductionThe following pages contain supplemental UBS AG disclosures which are required under SEC regulations. UBS AG’s consolidated financialstatementshavebeenpreparedinaccordancewithInter-nationalFinancialReportingStandards(IFRS)asissuedbytheInternationalAccountingStandardsBoard(IASB)andaredenomi-natedinSwissfrancs(CHF),thereportingcurrencyofUBSAG. Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
The tables below provide information concerning the noon pur-
chase rate for the Swiss franc, expressed in United States dollars,
or USD, per one Swiss franc. The noon purchase rate is the rate
in New York City for cable transfers in foreign currencies as certi-
fied for customs purposes by the Federal Reserve Bank of
New York.
On 27 February 2015, the noon purchase rate was 1.0512 USD
per 1 CHF.
Year ended 31 December
2010
2011
2012
2013
2014
Month
September 2014
October 2014
November 2014
December 2014
January 2015
February 2015
1 The average of the noon purchase rates on the last business day of each full month during the relevant period.
High
1.0673
1.3706
1.1174
1.1292
1.1478
High
1.0886
1.0610
1.0447
1.0412
1.1781
1.0837
Average rate 1
Low (USD per 1 CHF)
At period end
0.9670
1.1398
1.0724
1.0826
1.0893
1.0673
1.0668
1.0923
1.1231
1.0066
0.8610
1.0251
1.0043
1.0190
1.0066
Low
1.0467
1.0341
1.0307
1.0066
0.9809
1.0482
788
B – Selected financial data Key figures
CHF million, except where indicated
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
As of or for the year ended
Group results
Operating income
Operating expenses
Operating profit / (loss) from continuing operations before tax
Net profit / (loss) attributable to UBS AG shareholders
Diluted earnings per share (CHF) 1
Key performance indicators 2
Profitability
Return on equity (RoE) (%)
Return on assets, gross (%)
Cost / income ratio (%)
Growth
Net profit growth (%)
Net new money growth for combined wealth management businesses (%)
Resources
Common equity tier 1 capital ratio (%, fully applied) 3
BIS tier 1 capital ratio, Basel 2.5 (%)
BIS total capital ratio, Basel 2.5 (%)
Swiss SRB leverage ratio (phase-in, %)
Additional information
Profitability
Return on tangible equity (%) 4
Return on risk-weighted assets, gross (%) 5
Resources
Total assets
Equity attributable to UBS AG shareholders
Common equity tier 1 capital (fully applied) 3
Common equity tier 1 capital (phase-in) 3
Risk-weighted assets (fully applied) 3
Risk-weighted assets (phase-in) 3
Common equity tier 1 capital ratio (%, phase-in) 3
Total capital ratio (%) (fully applied) 3
Total capital ratio (%) (phase-in) 3
Swiss SRB leverage ratio (fully applied, %)
Swiss SRB leverage ratio denominator (fully applied) 6
Swiss SRB leverage ratio denominator (phase-in) 6
BIS tier 1 capital, Basel 2.5
BIS risk-weighted assets, Basel 2.5
Average equity of average assets (%)
28,026
25,557
2,469
3,502
0.91
7.0
2.8
90.9
10.4
2.5
14.2
27,732
24,461
3,272
3,172
0.83
6.7
2.5
88.0
3.4
12.8
5.4
4.7
8.2
12.4
8.0
11.4
25,423
27,216
(1,794)
(2,480)
(0.66)
(5.1)
1.9
106.6
3.2
9.8
21.3
25.2
3.6
1.6
12.0
1,062,327
1,013,355
1,259,797
52,108
30,805
44,090
217,158
221,150
19.9
19.0
25.6
4.1
48,002
28,908
42,179
225,153
228,557
18.5
15.4
22.2
3.4
999,124
1,006,001
1,015,306
1,022,924
4.8
4.0
45,949
25,182
40,032
258,113
261,800
15.3
11.4
18.9
2.4
1,206,214
1,216,561
40,982
192,505
3.4
31,994
24,650
7,345
7,452
1.94
18.0
2.3
76.9
(1.2)
27,788
22,482
5,307
4,138
1.08
9.1
2.1
80.7
(44.5)
2.4
15.9
17.2
11.9
13.7
24.7
15.5
1,416,962
48,530
1,314,813
43,728
38,370
240,962
3.2
2.7
1 Refer to Note 9 to the consolidated financial statements for more information. 2 For the definitions of key performance indicators, refer to the “Measurement of performance” section of this report. 3 Based on the
Basel III framework as applicable for systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the “Capital management” section of this report for more information. 4 Net
profit / (loss) attributable to UBS AG shareholders before amortization and impairment of goodwill and intangible assets (annualized as applicable) / average equity attributable to UBS AG shareholders less average goodwill
and intangible assets. 5 Based on Basel III risk-weighted assets (phase-in) for 2014 and 2013. Based on Basel 2.5 risk-weighted assets for 2012. Based on Basel II risk-weighted assets for 2011 and 2010. 6 The leverage
ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three
months preceding the end of the reporting period. Refer to the ”Capital management” section of this report for more information.
789
Financial information Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
Key figures (continued)
CHF million, except where indicated
Other
Invested assets (CHF billion) 1
Personnel (full-time equivalents)
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: United Kingdom
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Market capitalization (CHF billion) 2
Total book value per share (CHF) 2
Tangible book value per share (CHF) 2
Registered ordinary shares (number) 2
Treasury shares (number) 2
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
As of or for the year ended
2,734
60,155
20,951
19,715
7,385
10,254
5,425
4,663
166
21,564
63,243
13.56
11.80
2,390
60,205
21,317
20,037
7,116
10,052
5,595
4,303
153
21,720
65,007
12.74
11.07
2,230
62,628
21,995
20,833
7,426
10,829
6,459
4,202
167
22,378
54,729
12.26
10.54
2,088
64,820
22,924
21,746
7,690
11,019
6,674
4,182
162
23,188
42,843
12.95
10.36
2,075
64,617
23,178
22,031
7,263
10,892
6,634
4,122
137
23,284
58,803
11.53
8.94
3,844,560,913
3,842,002,069
3,835,250,233
3,832,121,899
3,830,840,513
2,115,255
73,800,252
87,879,601
84,955,551
38,892,031
1 Group invested assets includes invested assets for Retail & Corporate. 2 Refer to the “UBS shares” section of this report for more information.
790
Income statement data
CHF million, except where indicated
31.12.14
31.12.13
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss (expense) / recovery
Net fee and commission income
Net trading income
Other income
Total operating income
Total operating expenses
Operating profit / (loss) from continuing operations before tax
Tax expense / (benefit)
Net profit / (loss) from continuing operations
Net profit / (loss) from discontinued operations
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS AG shareholders
Cost / income ratio (%) 1
Per share data (CHF)
Basic 2
Diluted 2
Cash dividends declared per share (CHF) 3, 4
Cash dividends declared per share (USD) 3, 4
Dividend payout ratio (%)
Rates of return (%)
Return on equity attributable to UBS AG shareholders 5
Return on average equity
Return on average assets
13,194
(6,639)
6,555
(78)
6,477
17,076
3,841
632
28,026
25,557
2,469
(1,180)
3,649
0
3,649
142
5
3,502
90.9
0.93
0.91
0.50
55
7.0
7.0
0.3
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
580
27,732
24,461
3,272
(110)
3,381
0
3,381
204
5
3,172
88.0
0.84
0.83
0.25
0.28
30
6.7
6.7
0.3
For the year ended
31.12.12
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
641
25,423
27,216
(1,794)
461
(2,255)
0
(2,255)
220
5
(2,480)
106.6
(0.66)
(0.66)
0.15
0.16
(23)
(5.1)
(5.0)
(0.2)
31.12.11
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
1,467
27,788
22,482
5,307
901
4,406
0
4,406
268
4,138
80.7
1.10
1.08
0.10
0.11
9
9.1
9.1
0.3
31.12.10
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
1,214
31,994
24,650
7,345
(409)
7,754
2
7,756
304
7,452
76.9
1.97
1.94
18.0
17.9
0.5
1 Operating expenses / operating income before credit loss expense. 2 Refer to Note 9 to the consolidated financial statements for more information. 3 Dividends and / or distribution of the capital contribution reserve are
normally approved and paid in the year subsequent to the reporting period. 4 Refer to the “Proposed distribution of capital contribution reserve” in the UBS AG standalone financial statements for more information.
5 Net profit attributable to UBS AG shareholders / average equity attributable to UBS AG shareholders. The calculation excludes expected deductions for dividends and distribution of the capital contribution reserve.
791
Financial information Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
Balance sheet data 1
CHF million
Assets
Total assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: assets pledged as collateral which may be sold
or repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Loans
Financial investments available-for-sale
Other assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Other liabilities
Equity attributable to UBS AG shareholders
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
1,062,327
104,073
13,334
24,063
68,414
138,156
56,018
256,978
30,979
315,984
57,159
23,069
10,492
9,180
11,818
27,958
254,101
42,372
75,297
410,979
91,207
70,392
52,108
1,013,355
1,259,797
1,416,962
1,314,813
80,879
13,874
27,496
91,563
122,848
42,449
254,084
26,548
286,959
59,525
20,228
12,862
9,491
13,811
26,609
248,079
44,507
69,901
390,825
81,586
62,777
48,002
66,383
21,220
37,372
130,941
160,564
44,698
418,957
30,413
279,901
66,230
17,244
23,024
9,203
38,557
34,247
395,260
71,148
91,901
373,459
104,837
66,523
45,949
40,638
23,218
58,763
213,501
181,525
39,936
486,584
41,322
266,604
53,174
15,492
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
140,617
69,633
48,530
26,939
17,133
62,454
142,790
228,815
61,352
401,146
38,071
262,877
74,768
24,973
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
130,271
70,412
43,728
1 In 2014, certain figures for 31 December 2013 were restated upon the adoption of the amendments to IAS 32 and the removal of exchange-traded derivative client cash balances from the balance sheet. Periods prior
to 31 December 2013 were not restated. Refer to Note 1b to the consolidated financial statements for more information.
792
Ratio of earnings to fixed chargesThe following table sets forth UBS AG’s ratio of earnings to fixed charges on an IFRS basis for the periods indicated. The ratios are calculated based on earnings from continuing operations. Ratios of earnings to fixed charges and preferred share dividends are not presented as there were no mandatory preferred share dividends in any of the periods indicated.For the year ended31.12.1431.12.1331.12.1231.12.1131.12.101.331.410.831.421.52 793
Financial informationC – Information on the companyAs of 31 December 2014, UBS AG operated about 855 business and banking locations worldwide, of which approximately 42% were in Switzerland, 42% in the Americas, 10% in the rest of Europe, Middle East and Africa and 6% in Asia Pacific. Of the business and banking locations in Switzerland, 31% were owned Property, plant and equipmentdirectly by UBS AG, with the remainder, along with most of UBS AG’s offices outside Switzerland, being held under commer-cial leases. These premises are subject to continuous maintenance and upgrading and are considered suitable and adequate for current and anticipated operations. Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
794
D – Information required by industry guide 3Selected statistical informationThe following tables set forth selected statistical information regarding the UBS AG’s banking operations extracted from the financialstatements.Unlessotherwiseindicated,averagebal-ancesfortheyearsended31December2014,31December2013and 31 December 2012 are calculated from monthly data. The distinction between domestic and foreign is generally based on the booking location. For loans, this method is not significantly different from an analysis based on the domicile of the borrower. Average balances and interest rates
The table below sets forth average interest-earning assets and average interest-bearing liabilities, along with the average yield, for the
years ended.
CHF million, except where indicated
Assets
Due from banks
Domestic
Foreign
Cash collateral on securities borrowed and
reverse repurchase agreements
Domestic
Foreign
Trading portfolio assets
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Cash collateral receivables on derivative instruments
Domestic
Foreign
Financial assets designated at fair value
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments available-for-sale
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Other interest-earning assets
Domestic
Foreign
Total interest-earning assets
Net interest income on swaps
Interest income on off-balance sheet securities and other
31.12.14
Average
balance
Interest
income
Average
yield (%)
Average
balance
31.12.13
Interest
income
Average
yield (%)
Average
balance
31.12.12
Interest
income
Average
yield (%)
3,269
16,692
7,374
133,640
5,105
118,038
0
8
95
4
463
209
2,988
0
0.2
0.6
0.1
0.3
4.1
2.5
3,051
16,420
11,479
162,479
5,189
119,894
0
8
82
10
575
177
2,736
0
0.3
0.5
0.1
0.4
3.4
2.3
3,566
24,718
4,884
263,958
6,019
156,581
33
282
4
1,155
235
4,247
118,038
2,988
2.5
119,894
2,736
2.3
156,581
4,247
0.0
0.2
0.0
3.6
2.1
2.4
0.6
0.5
9
36,895
454
8,790
0
143
0
369
185,969
88,246
4,280
2,150
1,572
61,233
8
373
373
113
27,920
672
4,969
1
54
1
207
193,026
109,137
3,780
2,520
2,006
52,642
0
52,642
0
12,024
8
307
0
307
0
477
686,626
11,123
1,613
458
155
29,244
414
10,113
0
70
0
364
189,969
100,027
3,974
2,420
1,980
60,093
0
0
8,953
11
310
0
310
0
430
0.9
0.2
0.1
4.2
2.0
2.3
0.4
0.6
4.0
1.6
0.6
60,093
0.5
61,233
719,460
11,168
1,528
441
4.8
1.6
7,143
439
850,037
13,718
1,804
446
0.9
1.1
0.1
0.4
3.9
2.7
2.7
0.0
0.4
0.0
4.2
2.3
2.4
0.5
0.6
0.6
6.1
1.6
Interest income and average interest-earning assets
686,626
13,194
1.9
719,460
13,137
1.8
850,037
15,968
1.9
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
232,739
6,383
127,812
1,053,561
337,781
6,054
115,921
1,179,216
460,849
5,859
130,902
1,447,647
795
Financial information Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
Average balances and interest rates (continued)
CHF million, except where indicated
Liabilities and equity
Due to banks
Domestic
Foreign
Cash collateral on securities lent and repurchase agreements
Domestic
Foreign
Trading portfolio liabilities
Domestic
Foreign
Cash collateral payables on derivative instruments
Domestic
Foreign
Financial liabilities designated at fair value
Domestic
Foreign
Due to customers
Domestic demand deposits
Domestic savings deposits
Domestic time deposits
Domestic total
Foreign 1
Short-term debt
Domestic
Foreign
Long-term debt
Domestic
Foreign
Other interest-bearing liabilities
Domestic
Foreign
Total interest-bearing liabilities
Interest expense on off-balance sheet securities
Interest expense and average interest-bearing
liabilities
Non-interest-bearing liabilities
Negative replacement values
Other
Total liabilities
Total equity
Total average liabilities and equity
Net interest income
Net yield on interest-earning assets
1 Due to customers in foreign offices consists mainly of time deposits.
31.12.14
Average
balance
Interest
income
Average
yield (%)
Average
balance
31.12.13
Interest
income
Average
yield (%)
Average
balance
31.12.12
Interest
income
Average
yield (%)
8,932
3,691
5,328
58,639
638
28,737
612
42,595
1,747
68,928
130,703
97,825
7,593
236,121
159,170
1,270
26,734
14,937
43,264
0
35,503
736,847
16
14
1
338
14
1,789
0
45
13
906
43
172
12
227
340
2
101
447
1,833
0
58
6,145
495
0.2
0.4
0.0
0.6
2.2
6.2
0.0
0.1
0.7
1.3
0.0
0.2
0.2
0.1
0.2
0.2
0.4
3.0
4.2
0.2
0.8
13,859
4,073
5,344
65,088
628
29,874
540
58,693
1,207
79,182
126,953
95,937
4,379
227,268
155,312
1,703
33,363
11,823
50,053
0
35,706
773,717
37
24
2
344
12
1,834
0
65
9
1,188
60
246
15
321
373
3
170
281
2,131
0
67
6,863
489
0.3
0.6
0.0
0.5
1.9
6.1
0.0
0.1
0.7
1.5
0.0
0.3
0.3
0.1
0.2
0.2
0.5
2.4
4.3
0.2
0.9
25,843
7,709
6,289
148,734
886
47,002
1,131
67,955
1,335
90,007
111,975
90,312
4,821
207,108
153,379
1,776
48,525
11,188
62,053
36,823
917,743
61
65
7
768
18
2,424
0
134
11
1,733
95
356
30
481
594
9
365
264
2,525
98
9,557
433
0.2
0.8
0.1
0.5
2.0
5.2
0.0
0.2
0.8
1.9
0.1
0.4
0.6
0.2
0.4
0.5
0.8
2.4
4.1
0.3
1.0
736,847
6,640
773,717
7,351
917,743
9,990
229,286
35,359
1,001,493
52,068
1,053,561
321,681
34,188
1,129,586
49,630
1,179,216
443,881
33,722
1,395,346
52,301
1,447,647
6,555
5,786
5,978
1.0
0.8
0.7
The percentage of total average interest-earning assets attribut-
able to foreign activities was 69% for 2014 (71% for 2013 and
76% for 2012). The percentage of total average interest-bearing
liabilities attributable to foreign activities was 63% for 2014 (66%
for 2013 and 72% for 2012). All assets and liabilities are trans-
lated into CHF at uniform month-end rates. Interest income and
expense are translated at monthly average rates.
Average rates earned and paid on assets and liabilities can
change from period to period based on the changes in interest
rates in general, but are also affected by changes in the currency
mix included in the assets and liabilities. This is especially true for
foreign assets and liabilities. Tax-exempt income is not recorded
on a tax-equivalent basis. For all three years presented, tax-ex-
empt income is considered to be insignificant and the impact
from such income is therefore negligible.
796
Analysis of changes in interest income and expense
The following tables allocate, by categories of interest-earning
assets and interest-bearing liabilities, the changes in interest
income and expense due to changes in volume and interest rates
for the year ended 31 December 2014 compared with the year
ended 31 December 2013, and for the year ended 31 Decem-
ber 2013 compared with the year ended 31 December 2012.
Volume and rate variances have been calculated on movements
in average balances and changes in interest rates. Changes due
to a combination of volume and rates have been allocated pro-
portionally. Refer to the appropriate section of Industry Guide 3
for a discussion of the treatment of impaired and non-performing
loans.
CHF million
Interest income from interest-earning assets
Due from banks
Domestic
Foreign
Cash collateral on securities borrowed and reverse repurchase agreements
Domestic
Foreign
Trading portfolio assets
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Cash collateral receivables on derivative instruments
Domestic
Foreign
Financial assets designated at fair value
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments available-for-sale
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Other interest-bearing assets
Domestic
Foreign
Interest income
Domestic
Foreign
Total interest income from interest-earning assets
Net interest on swaps
Interest income on off-balance sheet securities and other
Total interest income
2014 compared with 2013
2013 compared with 2012
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
interest rate
Net
change
Average
volume
Average
interest rate
Net
change
1
1
(4)
(115)
(3)
(43)
0
(43)
0
(3)
0
(185)
64
219
0
(37)
0
(37)
0
147
58
(16)
42
(1)
11
(2)
4
35
295
0
295
1
(12)
1
28
(258)
(120)
(3)
34
0
34
0
(99)
(228)
140
(87)
(5)
(91)
7
(406)
(32)
(991)
0
(991)
0
(31)
0
56
92
283
2
(7)
0
(7)
0
110
(20)
(109)
(1)
(174)
(26)
(520)
0
(520)
0
(42)
0
(61)
(398)
(13)
1
(56)
0
(56)
0
(119)
64
(1,077)
(1,013)
(443)
(1,094)
(1,537)
0
12
(6)
(111)
32
252
0
252
0
(15)
1
(157)
(194)
99
(3)
(3)
0
(3)
0
48
(170)
124
(45)
86
17
57
(25)
(200)
6
(580)
(58)
(1,511)
0
(1,511)
0
(73)
0
(5)
(306)
270
3
(63)
0
(63)
0
(9)
(379)
(2,171)
(2,550)
(276)
(5)
(2,831)
797
Financial information Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
Analysis of changes in interest income and expense (continued)
2014 compared with 2013
2013 compared with 2012
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
interest rate
Net
change
Average
volume
Average
interest rate
Net
change
(15)
(2)
0
(32)
0
(69)
0
(16)
4
(154)
0
6
10
16
8
(1)
(33)
75
(292)
0
0
79
(590)
(511)
(6)
(7)
0
26
2
24
0
(4)
0
(128)
(18)
(80)
(13)
(111)
(41)
(1)
(36)
91
(6)
0
(9)
(25)
(181)
(206)
(24)
(29)
(1)
(418)
(5)
(891)
0
(19)
(1)
(206)
15
22
(3)
34
8
0
(121)
15
(492)
0
(3)
18
(2,171)
(2,153)
(21)
(9)
0
(6)
2
(45)
0
(20)
4
(282)
(18)
(74)
(3)
(95)
(33)
(2)
(69)
166
(298)
0
(9)
54
(772)
(718)
6
(712)
0
(12)
(4)
(6)
(1)
301
0
(50)
(1)
(339)
(50)
(132)
(12)
(194)
(229)
(6)
(74)
2
98
0
(28)
(203)
(339)
(541)
(24)
(41)
(5)
(424)
(6)
(590)
0
(69)
(2)
(545)
(35)
(110)
(15)
(160)
(221)
(6)
(195)
17
(394)
0
(31)
(185)
(2,510)
(2,694)
56
(2,639)
CHF million
Interest expense on interest-bearing liabilities
Due to banks
Domestic
Foreign
Cash collateral on securities lent and repurchase agreements
Domestic
Foreign
Trading portfolio liabilities
Domestic
Foreign
Cash collateral payables on derivative instruments
Domestic
Foreign
Financial liabilities designated at fair value
Domestic
Foreign
Due to customers
Domestic demand deposits
Domestic savings deposits
Domestic time deposits
Domestic total
Foreign
Short-term debt
Domestic
Foreign
Long-term debt
Domestic
Foreign
Other interest-bearing liabilities
Domestic
Foreign
Interest expense
Domestic
Foreign
Total interest-bearing liabilities
Interest expense on off-balance sheet securities
Total interest expense
798
Deposits
The table below analyzes average deposits and average rates
on each deposit category listed below for the years ended 31 De-
cember 2014, 2013 and 2012. The geographic allocation is based
on the location of the office or branch where the deposit is made.
Deposits by foreign depositors in domestic offices were CHF
76,362 million, CHF 76,246 million and CHF 74,252 million as of
31 December 2014, 2013 and 2012, respectively.
CHF million, except where indicated
Banks
Domestic offices
Demand deposits
Time deposits
Total domestic offices
Foreign offices
Interest-bearing deposits 1
Total due to banks 2
Customer accounts
Domestic offices
Demand deposits
Savings deposits
Time deposits
Total domestic offices
Foreign offices
Demand deposits
Time and savings deposits 1
Total foreign offices
Total due to customers
31.12.14
31.12.13
31.12.12
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
5,149
3,783
8,932
3,691
12,624
130,703
97,825
7,593
236,121
49,098
110,072
159,170
395,292
(0.1)
0.6
0.2
0.4
0.2
0.0
0.2
0.2
0.1
0.0
0.3
0.2
0.1
8,513
5,346
13,859
3,763
17,622
126,953
95,937
4,379
227,268
43,954
111,358
155,312
382,580
(0.1)
0.8
0.3
0.6
0.3
0.0
0.3
0.3
0.1
0.0
0.3
0.2
0.2
1,270
2,296
3,566
24,718
28,284
111,975
90,312
4,821
207,108
38,707
114,672
153,379
360,487
0.0
0.7
0.5
0.8
0.8
0.1
0.4
0.6
0.2
0.1
0.5
0.4
0.3
1 Mainly time deposits. 2 Due to banks is considered to represent short-term borrowings to the extent that the total Due to banks exceeds total Due from banks, without differentiating between domestic and foreign
offices. The remainder of total Due to banks is considered to represent deposits for the purpose of this disclosure.
As of 31 December 2014, the maturity of time deposits was as follows:
CHF million
Within 3 months
3 to 6 months
6 to 12 months
1 to 5 years
Over 5 years
Total time deposits
Domestic
13,100
876
378
41
4
Foreign
53,251
2,250
1,150
581
152
14,400
57,383
799
Financial information Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
Short-term borrowings
The table below presents the period-end, average and maximum month-end outstanding amounts for short-term borrowings, along
with the average rates and period-end rates at and for the years ended 31 December 2014, 2013 and 2012.
CHF million, except where indicated
31.12.14
31.12.13
31.12.12
31.12.14
Short-term debt
Due to banks 1
31.12.13
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
27,363
28,004
33,674
0.4
0.2
27,633
35,067
44,789
0.5
0.4
32,493
50,301
72,432
0.7
0.7
0.0
0.0
0.0
0.0
0.0
0.0
309
1,370
0.3
0.0
31.12.12
1,782
5,267
13,555
0.4
0.2
Repurchase agreements 2
31.12.13
31.12.14
31.12.12
54,625
52,865
65,033
0.2
0.2
41,160
61,251
76,014
0.2
0.2
73,358
145,831
183,207
0.3
0.2
1 Presented net of Due from banks to reflect short-term borrowings. The difference between the gross Due to banks amount and the amount disclosed here is presented as deposits from banks on the preceding page.
2 Repurchase agreements are presented on a gross basis, and therefore, for the purpose of this disclosure, do not reflect the effect of netting permitted under IFRS.
Contractual maturities of investments in debt instruments available-for-sale 1, 2
CHF million, except percentages
31 December 2014
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value 3
CHF million, except percentages
31 December 2013
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value 3
CHF million, except percentages
31 December 2012
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value 3
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Total
Amount Yield (%)
Amount Yield (%)
Amount Yield (%)
Amount Yield (%)
0.48
0.23
0.31
0.45
41
4,873
14,072
2,089
21,075
8,317
13,758
8,489
0
30,563
1.02
0.74
0.84
4.82
1
4.00
1.25
1.33
4.42
243
280
0
525
43
13,189
28,072
10,858
4,029
56,192
4,029
4,029
1.34
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Total
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
849
25,483
743
27,075
0.17
0.27
0.52
43
13,010
7,277
6,873
27,202
0.46
0.36
0.55
0.80
3.55
3.30
0.98
0.85
4.71
1
3
63
178
0
245
44
13,861
32,842
7,795
4,017
58,559
19
1
4,017
4,037
12.16
6.60
2.09
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Total
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
110
11,152
23,189
2,030
36,482
0.13
0.20
0.27
0.69
45
12,397
3,869
4,154
20,464
0.44
0.25
0.74
0.93
1.34
3.11
4.76
4.62
877
2
113
0
993
1
18
3
7,313
7,335
4.00
8.15
8.83
1.51
156
24,426
27,078
6,300
7,313
65,273
1 Debt instruments without fixed maturities are not disclosed in this table. 2 Average yields are calculated on an amortized cost basis. 3 Includes investments in debt instruments as of 31 December 2014 issued by
US government and government agencies of CHF 17,219 million (31 December 2013: CHF 17,876 million, 31 December 2012: CHF 31,740 million), the German government of CHF 10,145 million (31 December 2013:
CHF 6,733 million, 31 December 2012: CHF 6,669 million), the French government of CHF 5,351 million (31 December 2013: CHF 5,601 million, 31 December 2012: CHF 3,593 million) and the UK government of
CHF 2,348 million (31 December 2013: CHF 8,089 million, 31 December 2012: CHF 5,042 million).
800
Due from banks and loans (gross)
UBS AG’s lending portfolio is widely diversified across industry
sectors. CHF 185.9 billion (56.3% of the total) consists of loans to
thousands of private households, predominantly in Switzerland,
and mostly secured by mortgages, financial collateral or other
assets. Exposure to banks and financial institutions amounted to
CHF 77.7 billion (23.5% of the total). Exposure to banks includes
money market deposits with highly rated institutions. Excluding
banks and financial institutions, the largest industry sector expo-
sure as of 31 December 2014 was CHF 22.3 billion (6.8% of the
total) to Services. For further discussion of the loan portfolio, refer
to the “Risk management and control” section of this report.
The table below illustrates the diversification of the loan port-
folio among industry sectors as of 31 December 2014, 2013,
2012, 2011 and 2010. The industry categories presented are con-
sistent with the classification of loans for reporting to the Swiss
Financial Market Supervisory Authority (FINMA) and the Swiss Na-
tional Bank. Loans designated at fair value and loans held in the
trading portfolio are excluded from the tables below.
CHF million
Domestic
Banks
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial institutions
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 2
Total foreign
Total gross
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
1,157
1,418
6,693
1,696
2,319
125,461
2,098
14,549
4,169
4,794
3,587
736
1,429
4,643
1,817
2,512
124,569
2,415
14,511
3,784
5,330
3,680
532
1,360
4,265
1,745
2,976
123,167
2,708
13,682
4,345
5,862
3,538
566
1,292
4,257
1,831
3,252
120,671
2,992
13,169
4,433
5,770
3,131
1,130
1,356
3,735
1,803
3,192
119,796
4,908
12,252
4,101
5,718
3,117
167,940
165,426
164,180
161,364
161,108
12,190
75
645
1,100
57,645
1,961
1,345
60,466
1,413
2,517
1,924
17,470
3,017
318
13,201
178
1,132
1,337
43,125
1,850
1,175
49,920
1,322
2,995
1,791
14,733
2,809
606
20,711
254
1,731
1,205
40,650
1,828
1,279
46,458
4,319
2,721
2,063
10,735
3,021
693
162,086
330,027
136,174
301,601
137,669
301,849
22,669
16,028
392
750
746
38,802
1,955
1,979
41,045
5,459
2,158
2,044
8,529
2,068
703
129,300
290,664
351
952
525
41,307
2,010
2,463
31,361
9,858
1,420
1,711
9,534
1,652
841
120,014
281,121
801
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants.
Financial information Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
Due from banks and loans (gross) (continued)
The table below analyzes the UBS AG’s mortgage portfolio by geographic origin of the client and type of mortgage as of 31 December
2014, 2013, 2012, 2011 and 2010. Mortgages are included in the industry categories mentioned on the previous page.
CHF million
Mortgages
Domestic
Foreign
Total gross mortgages
Mortgages
Residential
Commercial
Total gross mortgages
Due from banks and loan maturities (gross)
CHF million
Domestic
Banks
Mortgages
Other loans
Total domestic
Foreign
Banks
Mortgages
Other loans
Total foreign
Total gross
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
146,637
18,112
164,748
142,380
22,368
164,748
144,852
15,235
160,086
137,370
22,716
160,086
142,143
12,311
154,454
132,033
22,421
154,454
138,204
8,818
147,022
125,775
21,247
147,022
136,687
6,174
142,861
122,499
20,362
142,861
Within 1 year
1 to 5 years
Over 5 years
Total
1,157
67,360
16,262
84,778
11,972
5,477
108,941
126,390
211,169
0
44,997
2,813
47,810
190
4,198
18,430
22,818
70,627
0
34,280
1,072
35,352
28
8,437
4,412
12,878
48,230
1,157
146,637
20,147
167,940
12,190
18,112
131,784
162,086
330,027
Total
204,876
125,149
330,027
As of 31 December 2014, the total amounts of Due from banks and Loans granted at fixed- and floating-rates were:
CHF million
Fixed-rate loans
Adjustable or floating-rate loans
Total
Within 1 year
1 to 5 years
Over 5 years
107,813
103,356
211,169
58,241
12,387
70,627
38,823
9,407
48,230
802
Impaired and non-performing loans
A loan (included in Due from banks or Loans) is classified as non-
performing: (i) when the payment of interest, principal or fees is
overdue by more than 90 days, (ii) when insolvency proceedings
have commenced or (iii) when obligations have been restructured
on preferential terms. For IFRS reporting purposes, the definition
of impaired loans is more comprehensive, covering both non-per-
forming loans and other situations where objective evidence indi-
cates that UBS AG may be unable to collect all amounts due.
Refer to “Impaired loans” in the “Risk management and control”
section of this report for comprehensive information on UBS AG’s
impaired loans, of which non-performing loans are a component.
Also, refer to Note 1 to the consolidated financial statements for
more information on the various risk factors that are considered
to be indicative of impairment.
The table below provides an analysis of the UBS AG’s non-per-
forming loans.
CHF million
Non-performing loans:
Domestic
Foreign
Total non-performing loans
CHF million
Gross interest income that would have been recorded on non-performing loans:
Domestic
Foreign
Interest income included in Net profit for non-performing loans:
Domestic
Foreign
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
1,293
309
1,602
1,113
469
1,582
1,121
395
1,516
1,199
329
1,529
1,164
563
1,727
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
9
6
22
7
6
4
23
7
8
3
28
6
10
9
29
6
11
35
35
19
UBS AG does not, as a matter of policy, typically restructure loans
to accrue interest at rates different from the original contractual
terms or reduce the principal amount of loans. Instead, specific
loan allowances are established as necessary. Unrecognized inter-
est related to restructured loans was not material to the results of
operations in 2014, 2013, 2012, 2011 or 2010.
803
Financial information Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
Cross-border outstandings
Cross-border outstandings consist of balances with central banks
and other financial institutions, loans, reverse repurchase agree-
ments and cash collateral on securities borrowed with counter-
parties domiciled outside Switzerland. Guarantees and commit-
ments are provided separately in the table below.
The following tables list those countries for which cross-border
outstandings exceeded 0.75% of total IFRS assets as of 31 De-
cember 2014, 2013 and 2012. As of 31 December 2014, there
were no outstandings that exceeded 0.75% of total IFRS assets in
any country currently facing debt restructuring or liquidity prob-
lems that the UBS AG expects would materially impact the coun-
try’s ability to service its obligations. Aggregate country risk expo-
sures are monitored and reported on an ongoing basis by the risk
control organization, based on an internal framework. The inter-
nal risk view is not directly comparable to the cross-border
outstandings in the table below due to different approaches to
netting, differing trade populations and differing approach to al-
location of exposures to countries. For more information on the
country framework within risk control, refer to Country risk in the
“Risk management and control” section of this report.
CHF million
USA
United Kingdom
Japan
France
CHF million
USA
United Kingdom
Japan
France
Germany
CHF million
USA
United Kingdom
Japan
France
Private sector
Public sector
outstandings % of total assets
31.12.14
Total
84,629
47,003
16,906
6,006
153,019
67,220
24,107
10,025
59,103
13,928
5,422
67
31.12.13
14.4
6.3
2.3
0.9
Private sector
Public sector
Total outstandings
% of total assets
76,047
39,528
17,009
7,478
2,664
149,327
58,749
22,794
12,273
8,478
51,287
8,583
4,765
56
1,900
31.12.12
14.7
5.8
2.2
1.2
0.8
Private sector
Public sector
Total outstandings
% of total assets
93,401
36,960
21,943
5,955
35,125
4,287
4,707
409
173,897
54,613
28,663
11,250
13.8
4.3
2.3
0.9
Guarantees and
Commitments 1
34,967
7,660
1,771
5,037
Guarantees and
Commitments 1
38,778
8,494
289
6,997
2,062
Guarantees and
Commitments 1
43,904
12,106
2,208
9,161
Banks
9,287
6,288
1,780
3,952
Banks
21,993
10,638
1,019
4,739
3,914
Banks
45,371
13,366
2,014
4,885
1 Includes forward starting transactions (reverse repurchase agreements and securities borrowing agreements).
804
Summary of movements in allowances and provisions for credit losses
The table below provides an analysis of movements in allowances
and provisions for credit losses.
UBS AG writes off loans against allowances only on final settle-
ment of bankruptcy proceedings, the sale of the underlying assets
and / or in the case of debt forgiveness. Under Swiss law, a credi-
tor can continue to collect from a debtor who has emerged from
bankruptcy, unless the debt has been forgiven through a formal
agreement.
CHF million
Balance at beginning of year
31.12.14
750
31.12.13
794
31.12.12
938
31.12.11
1,287
31.12.10
2,820
Domestic
Write-offs
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Real estate and rentals
Retail and wholesale
Services
Other 1
Total gross domestic write-offs
Foreign
Write-offs
Banks
Chemicals
Construction
Financial institutions
Manufacturing
Electricity, gas and water supply
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 2
Total gross foreign write-offs
Total usage of provisions
Total write-offs / usage of provisions
Recoveries
Domestic
Foreign
Total recoveries
Total net write-offs / usage of provisions
Increase / (decrease) in specific allowances and provisions
recognized in the income statement
Increase / (decrease) in collective loan loss allowances recognized in the income
statement
Foreign currency translation
Other
Balance at end of year 3
(1)
0
0
(3)
(39)
(1)
(28)
(15)
(3)
(90)
(15)
0
(1)
(12)
(7)
(1)
(6)
0
(2)
(2)
(14)
(1)
0
(63)
(1)
(154)
29
0
29
(124)
89
(11)
21
11
735
(2)
(6)
0
(4)
(38)
0
(11)
(4)
(1)
(67)
(1)
0
(6)
(44)
0
0
(6)
(1)
(1)
(1)
0
0
0
(61)
0
(128)
35
10
45
(83)
144
(93)
(9)
(3)
750
(1)
0
(1)
(20)
(45)
(2)
(21)
(6)
(17)
(8)
(17)
0
(31)
(59)
(3)
(37)
(21)
(6)
(112)
(183)
(8)
(47)
(1)
(28)
(66)
(2)
(117)
(49)
(16)
(332)
(2)
(846)
0
(267)
(22)
0
(21)
(1)
(1)
(1)
(9)
(3)
0
(1,173)
0
(1,505)
38
41
79
(8)
0
0
(39)
0
0
(72)
(175)
(7)
0
(1)
0
0
(303)
(14)
(501)
50
1
51
(450)
(1,427)
0
84
(1)
18
938
67
(2)
(175)
1
1,287
0
0
0
(106)
0
0
(15)
(54)
0
0
(19)
(5)
(2)
(201)
0
(313)
43
21
63
(250)
133
(15)
(8)
(3)
794
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants. 3 Includes allowances for cash collateral on securi-
ties borrowed.
805
Financial information Financial information
UBS AG consolidated supplemental disclosures required under SEC regulations
Allocation of the allowances and provisions for credit losses
The following table provides an analysis of the allocation of the
allowances and provisions for credit loss by industry sector and
geographic location as of 31 December 2014, 2013, 2012, 2011
and 2010. For a description of procedures with respect to allow-
ances and provisions for credit losses, refer to the “Risk manage-
ment and control” section of this report.
CHF million
Domestic
Banks
Construction
Financial services
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic specific allowances
Foreign
Banks 2
Chemicals
Construction
Electricity, gas and water supply
Financial services
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Total foreign specific allowances
Collective loan loss allowances
Provisions for loan commitments and guarantees
Total allowances and provisions for credit losses 3
31.12.14
31.12.13
31.12.12
31.12.11
30.12.10
2
14
18
16
72
52
0
18
123
25
34
374
10
0
1
0
35
9
11
65
14
1
112
29
43
330
8
23
735
3
16
16
12
57
54
0
9
152
23
24
365
13
0
17
1
37
18
2
66
16
2
77
35
19
303
20
61
750
3
16
21
9
44
60
0
10
123
24
16
326
19
1
20
1
37
23
0
45
39
4
39
35
27
290
114
64
794
1
15
19
6
65
77
0
14
131
24
28
379
16
8
6
1
96
23
0
60
33
10
15
28
39
335
131
93
938
1
23
28
5
93
91
0
19
165
45
27
497
23
8
2
0
190
15
0
139
171
15
8
12
29
613
47
130
1,287
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Counterparty allowances only. 3 Includes allowances for cash collateral on securities borrowed.
806
Due from banks and loans by industry sector (gross)
The table below presents the percentage of loans in each
industry sector and geographic location to total loans. This table
can be read in conjunction with the preceding table showing the
breakdown of the allowances and provisions for credit losses
by industry sectors to evaluate the credit risks in each of the cat-
egories.
In %
Domestic
Banks
Construction
Financial services
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 2
Total foreign
Total gross
31.12.14
31.12.13
31.12.12
31.12.11
31.12.10
0.4
0.4
2.0
0.5
0.7
38.0
0.6
4.4
1.3
1.5
1.1
50.9
3.7
0.0
0.2
0.3
17.5
0.6
0.4
18.3
0.4
0.8
0.6
5.3
0.9
0.1
0.2
0.5
1.5
0.6
0.8
41.3
0.8
4.8
1.3
1.8
1.2
54.8
4.4
0.1
0.4
0.4
14.3
0.6
0.4
16.6
0.4
1.0
0.6
4.9
0.9
0.2
0.2
0.5
1.4
0.6
1.0
40.8
0.9
4.5
1.4
1.9
1.2
54.4
6.9
0.1
0.6
0.4
13.5
0.6
0.4
15.4
1.4
0.9
0.7
3.6
1.0
0.2
0.2
0.4
1.5
0.6
1.1
41.5
1.0
4.5
1.5
2.0
1.1
55.5
7.8
0.1
0.3
0.3
13.3
0.7
0.7
14.1
1.9
0.7
0.7
2.9
0.7
0.2
0.4
0.5
1.3
0.6
1.1
42.6
1.7
4.4
1.5
2.0
1.1
57.3
5.7
0.1
0.3
0.2
14.7
0.7
0.9
11.2
3.5
0.5
0.6
3.4
0.6
0.3
49.1
100.0
45.2
100.0
45.6
100.0
44.5
100.0
42.7
100.0
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants.
807
Financial information UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3
regulations as of 31 December 2014
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table of contents
812
Introduction
812
Table 1a: Location of Pillar 3 disclosures
815
816
817
817
818
819
Our approach to measuring risk exposure
Table 1b: Our approach to measuring risk exposure
Scope of regulatory consolidation
Table 1c: Main legal entities consolidated under IFRS but
not included in the regulatory scope of consolidation
Segmentation of Basel III exposures and
risk-weighted assets
Table 2: Detailed segmentation of Basel III
exposures and risk-weighted assets
821
Credit risk
830
831
832
832
833
833
834
Table 9f: Qualifying revolving retail exposures – Advanced
IRB approach: Regulatory net credit exposure, weighted
average PD, LGD and RWA by internal UBS ratings
Table 9g: Other retail – Advanced IRB approach:
Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
Standardized approach
Table 10a: Regulatory gross and net credit exposure by
risk weight under the standardized approach
Table 10b: Regulatory net credit exposure under the
standardized approach risk-weighted using external
ratings
Table 11: Eligible financial collateral recognized under
the standardized approach
Comparison of A-IRB approach and
Standardized Approach (SA)
Table 3: Regulatory gross credit risk by exposure
segment and RWA
Table 4: Regulatory gross credit exposure by
geographical region
Table 5: Regulatory gross credit exposure by
counterparty type
Table 6: Regulatory gross credit exposure by
residual contractual maturity
Table 7: Derivation of regulatory net credit exposure
Table 8: Regulatory gross credit exposure covered by
guarantees and credit derivatives
Advanced internal ratings-based approach
Table 9a: Sovereigns – Advanced IRB approach:
Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
Table 9b: Banks – Advanced IRB approach: Regulatory net
credit exposure, weighted average PD, LGD and RWA by
internal UBS ratings
Table 9c: Corporates – Advanced IRB approach:
Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
Table 9d: Residential mortgages – Advanced IRB
approach: Regulatory net credit exposure, weighted
average PD, LGD and RWA by internal UBS ratings
Table 9e: Lombard lending – Advanced IRB approach:
Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
836
Impairment, default and credit loss
836
836
837
837
838
838
Derivatives credit risk
Table 12: Credit exposure of derivative instruments
Other credit risk information
Table 13: Credit derivatives
Equity instruments in the banking book
Table 14: Equity instruments in the banking book
839 Market risk
840
Securitization
840
Table 15: Securitization / re-securitization
841
Objectives, roles and involvement
843
843
844
845
846
Securitization exposures in the banking and trading book
Table 16: Securitization activity for the year in
the banking book
Table 17: Securitization activity for the year in
the trading book
Table 18: Outstanding securitized exposures
Table 19: Impaired or past due securitized exposures
and losses related to securitized exposures in the
banking book
822
822
823
823
824
824
824
825
826
827
828
829
810
855
Composition of capital
855
855
Scope of regulatory consolidation
Table 30: Reconciliation of accounting balance sheet to
balance sheet under the regulatory scope of
consolidation
857
857
Composition of capital
Table 31: Composition of capital
860
G-SIBs indicators
846
847
848
849
849
850
850
850
850
851
851
852
853
853
854
854
Table 20: Exposures intended to be securitized in
the banking and trading book
Table 21: Securitization positions retained or purchased in
the banking book
Table 22: Securitization positions retained or purchased in
the trading book
Table 23a: Capital requirement for securitization /
re-securitization positions retained or purchased in
the banking book
Table 23b: Securitization / re-securitization exposures
treated under the ratings-based approach by rating
clusters – banking book
Table 23c: Securitization / re-securitization exposures
treated under the supervisory formula approach by
rating clusters – banking book
Securitization exposures to be deducted from Basel III
tier 1 capital
Securitization exposures subject to early amortization
in the banking and trading book
Table 24: Re-securitization positions retained or
purchased in the banking book
Table 25: Re-securitization positions retained or
purchased in the trading book
Table 26: Outstanding notes issued by securitization
vehicles related to UBS’s retained exposures subject to
the market risk approach
Table 27: Correlation products subject to the
comprehensive risk measure or the securitization
framework for specific risk
Table 28a: Securitization positions and capital
requirement for trading book positions subject to the
securitization framework
Table 28b: Securitization / re-securitization exposures
treated under the ratings-based approach by rating
clusters – trading book
Table 28c: Securitization / re-securitization exposures
treated under the supervisory formula approach by rating
clusters – trading book
Table 29: Capital requirement for securitization positions
related to correlation products
811
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Introduction
This section of the report provides supplemental Bank of International Settlements (BIS) Basel III Pillar 3 disclosures for
UBS Group AG on a consolidated basis. These disclosures complement other required Pillar 3 disclosures that are pro-
vided elsewhere in the Annual Report 2014 and are labelled accordingly as Pillar 3 |.
The capital adequacy framework consists of three pillars, each of
which focuses on a different aspect of capital adequacy. Pillar 1
provides a framework for measuring minimum capital require-
ments for the credit, market, operational and non-counterparty-
related risks faced by banks. Pillar 2 addresses the principles of the
supervisory review process, emphasizing the need for a qualitative
approach to supervising banks. Pillar 3 aims to encourage market
discipline by requiring banks to publish a range of disclosures,
mainly on risk and capital.
This supplemental Pillar 3 disclosures section is based on phase-
in rules under the BIS Basel III framework, as implemented by the
revised Swiss Capital Adequacy Ordinance issued by the Federal
Council and required by Swiss Financial Market Supervisory Au-
thority (FINMA) regulation. Further, as UBS is considered a sys-
temically relevant bank (SRB) under Swiss banking law, both UBS
Group and UBS AG are required to comply with regulations based
on the Basel III framework as applicable for Swiss SRB.
FINMA requires us to publish comprehensive quantitative and
qualitative Pillar 3 disclosures annually, as well as an update of
quantitative disclosures and any significant changes to qualitative
information semi-annually. For the first half of 2014, our Basel III
Pillar 3 disclosures were provided in the Basel III Pillar 3 report
published on the UBS website.
Capital information as of 31 December 2014 for UBS Group
AG (consolidated) and UBS AG (consolidated) is provided in the
“Capital management” section of this report.
Swiss SRB Basel III capital information for UBS AG (standalone)
and Basel III capital information for UBS Limited (standalone) are
disclosed in our Fourth Quarter 2014 Report.
➔ Refer to the “Capital management” section of this report for
more information on regulatory requirements and differences
between the Swiss SRB and BIS Basel III capital regulations
➔ Refer to “Pillar 3, SEC filings & other disclosures” at
www.ubs.com/investors for more information on G-SIBs
indicators and previous Pillar 3 reports
Revised Pillar 3 disclosure requirements
In January 2015, the BCBS issued revised Pillar 3 disclosure re-
quirements that aim to improve comparability and consistency of
disclosures, through the introduction of harmonized templates.
The revised requirements will take effect at the end of 2016.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the revised Pillar 3 disclosure
requirements
Table 1a: Location of Pillar 3 disclosures
The following table provides an overview of Pillar 3 disclosures in the Annual Report 2014.
Location in this supplemental section
Scope of regulatory consolidation (on page 817)
Table 1c: Main legal entities consolidated under IFRS but not included in the regulatory
scope of consolidation
Pillar 3
disclosures
Location in our
Annual Report 2014
Scope of consolidation
Financial information – Note 1
Summary of significant
accounting policies
Capital structure
Capital adequacy
Capital management
(on pages 251 – 256)
Capital management
(on pages 246 – 248)
812
Table 1a: Location of Pillar 3 disclosures (continued)
The following table provides an overview of Pillar 3 disclosures in the Annual Report 2014.
Pillar 3
disclosures
Location in our
Annual Report 2014
Location in this supplemental section
Capital instruments
Risk management
objectives, policies and
methodologies
(qualitative disclosures)
Risk-weighted assets
Credit risk
Capital management
(on page 255)
“Bondholder information” at
www.ubs.com/investors
Risk management and control
(on pages 170 – 231)
Risk management and control
(on page 169)
Segmentation of Basel III exposures and risk-weighted assets (on pages 818 – 820)
Table 2:
Detailed segmentation of Basel III exposures and risk-weighted assets
Risk management and control
(on page 181 and
pages 198 – 203)
Information on
–
–
Impaired assets by region,
Impaired assets by exposure
segment,
Changes in allowances,
provisions and specific credit
valuation adjustments,
and on
Total expected loss and
actual credit losses
(on pages 185 – 190 and
page 203)
–
–
Credit risk (on pages 821 – 838)
Table 3: Regulatory gross credit risk by exposure segment and RWA
Table 4: Regulatory gross credit exposure by geographical region
Table 5: Regulatory gross credit exposure by counterparty type
Table 6: Regulatory gross credit exposure by residual contractual maturity
Table 7: Derivation of regulatory net credit exposure
Table 8:
Table 9a:
Table 9b:
Table 9c:
Table 9d:
Table 9e:
Table 9f:
Table 9g:
Regulatory gross credit exposure covered by guarantees and
credit derivatives
Sovereigns – Advanced IRB approach: Regulatory net credit exposure, weighted
average PD, LGD and RWA by internal UBS ratings
Banks – Advanced IRB approach: Regulatory net credit exposure, weighted
average PD, LGD and RWA by internal UBS ratings
Corporates – Advanced IRB approach: Regulatory net credit exposure, weighted
average PD, LGD and RWA by internal UBS ratings
Residential mortgages – Advanced IRB approach: Regulatory net credit exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Lombard lending – Advanced IRB approach: Regulatory net credit exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Qualifying revolving retail exposures – Advanced IRB approach: Regulatory net
credit exposures, weighted average PD, LGD and RWA by internal UBS ratings
Other retail – Advanced IRB approach: Regulatory net credit exposure, weighted
average PD, LGD and RWA by internal UBS ratings
Table 10a: Regulatory gross and net credit exposure by risk weight under the standardized
approach
Table 10b: Regulatory net credit exposure under the standardized approach risk-weighted
using external ratings
Table 11: Eligible financial collateral recognized under
the standardized approach
Table 12: Credit exposure of derivative instruments
Table 13: Credit derivatives
Table 14: Equity instruments in the banking book
813
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 1a: Location of Pillar 3 disclosures (continued)
The following table provides an overview of Pillar 3 disclosures in the Annual Report 2014.
Pillar 3
disclosures
Market risk
Operational risk
Location in our
Annual Report 2014
Risk management and control
(on pages 206 – 207)
Information on Group regulatory
value-at-risk (on page 209 and
pages 211 – 218)
Note 24 Fair value measurement
(on pages 469 – 472)
Risk management and control
(on pages 229 – 231)
Interest rate risk in
the banking book
Risk management and control
(on pages 219 – 221)
Securitization
Location in this supplemental section
Securitization (on pages 840 – 854)
Table 15: Securitization / re-securitization
Table 16: Securitization activity for the year in the banking book
Table 17: Securitization activity for the year in the trading book
Table 18: Outstanding securitized exposures
Table 19: Impaired or past due securitized exposures and losses related to securitized
exposures in the banking book
Table 20: Exposures intended to be securitized in the banking and trading book
Table 21: Securitization positions retained or purchased in the banking book
Table 22: Securitization positions retained or purchased in the trading book
Table 23a: Capital requirement for securitization / re-securitization positions retained or
purchased in the banking book
Table 23b: Securitization / re-securitization exposures treated under the ratings-based
approach by rating clusters – banking book
Table 23c: Securitization / re-securitization exposures treated under the supervisory formula
approach by rating clusters – banking book
Securitization exposures to be deducted from Basel III tier 1 capital
Securitization exposures subject to early amortization in the banking and trading book
Table 24: Re-securitization positions retained or purchased in the banking book
Table 25: Re-securitization positions retained or purchased in the trading book
Table 26: Outstanding notes issued by securitization vehicles related to UBS’s retained
exposures subject to the market risk approach
Table 27: Correlation products subject to the comprehensive risk measure or the securitiza-
tion framework for specific risk
Table 28a: Securitization positions and capital requirement for trading book positions subject
to the securitization framework
Table 28b: Securitization / re-securitization exposures treated under the ratings-based
approach by rating clusters – trading book
Table 28c: Securitization / re-securitization exposures treated under the supervisory formula
approach by rating clusters – banking book
Table 29: Capital requirement for securitization positions related to correlation products
814
Table 1a: Location of Pillar 3 disclosures (continued)
The following table provides an overview of Pillar 3 disclosures in the Annual Report 2014.
Location in this supplemental section
Composition of capital (on pages 855 – 859)
Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory
scope of consolidation
Table 31: Composition of capital
Pillar 3
disclosures
Location in our
Annual Report 2014
Composition of capital
G-SIBs indicator
(annual disclosure
requirement only)
Remuneration
(annual disclosure
requirement only)
Refer to “Pillar 3, SEC filings &
other disclosures” at
www.ubs.com/investors
Compensation
(on pages 300, 338 – 339,
342 – 343, 345 – 348, 350 – 351,
355, 359 – 360, 363 – 373)
Our approach to measuring risk exposure
Measures of risk exposure may differ depending on whether the
exposures are calculated for financial accounting purposes under
International Financial Reporting Standards (IFRS), for determin-
ing our regulatory capital or for risk management purposes. Our
Basel III Pillar 3 disclosures are generally based on measures of risk
exposure used to determine the regulatory capital required to un-
derpin those risks.
The table on the next page provides a summary of the ap-
proaches we use for the main risk categories to determine regula-
tory capital.
The naming conventions for the exposure segments used in
the following tables are based on BIS rules and may differ from
those under Swiss and European Union (EU) regulations. For ex-
ample, “sovereigns” under the BIS naming convention equate to
what are termed “central governments and central banks” under
the Swiss and EU regulations. Similarly, “banks” equate to “insti-
tutions” and “residential mortgages” equate to “claims secured
by residential real estate.”
Our risk-weighted assets (RWA) are published according to the
BIS Basel III framework, as implemented by the revised Swiss Cap-
ital Adequacy Ordinance issued by the Swiss Federal Council and
required by FINMA regulation.
➔ Refer to the “Capital management” section of this report for
more information on differences between Swiss SRB and BIS
Basel III capital regulations
815
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 1b: Our approach to measuring risk exposure
Category
Credit risk
Counterparty credit risk by
exposure segment
UBS approach
Under the advanced internal ratings-based (A-IRB) approach applied for the majority of our businesses, counterparty credit
risk weights are determined by reference to internal counterparty ratings and loss given default estimates. We use internal
models, approved by FINMA, to measure the credit risk exposures to third parties on derivatives and securities financing
transactions. For a subset of our credit portfolio, we apply the standardized approach, based on external ratings.
Securitization / re-securitiza-
tion in the banking book
Securitization / re-securitization exposures in the banking book are generally assessed using the ratings-based approach,
applying risk weights based on external ratings. For certain exposures, the supervisory formula-based approach is applied
using the A-IRB risk weights.
Equity instruments in the
banking book
Credit valuation adjustment
(CVA)
Simple risk-weight method under the A-IRB approach.
The credit valuation adjustment (CVA) is an additional capital charge to the existing counterparty credit risk default charge.
Banks are required to hold capital for the risk of mark-to-market losses (i.e., CVA) associated with the deterioration of
counterparty credit quality. The model that we use is approved by FINMA.
Settlement risk
Capital requirements for failed transactions are determined according to the rules for failed trades and non-delivery-versus-
payment transactions under the Basel III framework.
Non-counterparty-
related risk
The required capital for non-counterparty-related assets such as our premises, other properties and equipment, deferred tax
assets on temporary differences and defined benefit plans is calculated according to prescribed regulatory risk weights.
Market risk
The regulatory capital requirement is calculated using a variety of methods approved by FINMA. The components are
value-at-risk (VaR), stressed VaR (SVaR), an add-on for risks which are potentially not fully modeled in VaR (RniV), the
incremental risk charge (IRC), the comprehensive risk measure (CRM) for the correlation portfolio and the securitization
framework for securitization positions in the trading book, which is described below. Details on the derivation of RWA for
each of these components are provided in the “Risk management and control” section of this report.
Securitization / re-securitiza-
tion in the trading book
Securitization/re-securitization in the trading book are assessed for their general market risk as well as for their specific risk.
The capital charged for general market risk is determined by the VaR and SVaR methods, whereas the capital charge for
specific risk is determined using the CRM method or the ratings-based approach, applying risk weights based on external
ratings.
Operational risk
Our model to quantify operational risk meets the regulatory capital standard under the advanced measurement approach
and is approved by FINMA. Operational risk RWA also include the incremental operational risk RWA based on the
supplemental operational risk capital analysis mutually agreed to by UBS and FINMA.
➔ Refer to the “Risk management and control” section of this report for more information
816
Scope of regulatory consolidation
The scope of consolidation for the purpose of calculating Group
regulatory capital is generally the same as the consolidation scope
under IFRS and includes subsidiaries directly or indirectly con-
trolled by UBS Group AG that are active in the banking and fi-
nance sector. However, subsidiaries consolidated under IFRS that
are active in sectors other than banking and finance are excluded
from the regulatory scope of consolidation. More information on
the IFRS scope of consolidation, as well as the list of significant
subsidiaries included in this scope as of 31 December 2014, are
available in the “Financial information” section of this report.
➔ Refer to “Note 1 Summary of significant accounting policies” and
“Note 30 Interests in subsidiaries and other entities” in the
“Financial information” section of this report for more informa-
tion
The main differences in the basis of consolidation between IFRS
and regulatory capital purposes relate to the following entities as of
31 December 2014:
– Real estate and commercial companies and investment vehi-
cles which were consolidated under IFRS, but not for regula-
tory capital purposes, for which they were risk-weighted;
– Insurance companies which were consolidated under IFRS, but
not for regulatory capital purposes, for which they were risk-
weighted based on applicable threshold rules;
– Two joint ventures which were fully consolidated for regulatory
capital purposes, but which were accounted for under the eq-
uity method under IFRS;
– Entities which have issued preferred securities which were con-
solidated for regulatory capital purposes but not consolidated
under IFRS. These entities hold bonds issued by UBS AG, Swit-
zerland which are eliminated in the consolidated regulatory
capital accounts. These entities do not have material third-
party asset balances, and their equity is attributable to non-
controlling interests.
The table below provides a list of the most significant entities
that were included in the IFRS scope of consolidation, but not in
the regulatory capital scope of consolidation. As of 31 December
2014, entities consolidated under IFRS, but not included in the
regulatory scope of consolidation, did not report any significant
capital deficiencies.
In the banking book, certain equity investments were not re-
quired to be consolidated, neither under IFRS nor in the regula-
tory scope. These investments mainly consisted of infrastructure
holdings and joint operations (for example, settlement and
clearing institutions, stock and financial futures exchanges) and
included our participation in the SIX Group. These investments
were risk-weighted based on applicable threshold rules.
➔ Refer to “Table 14: Equity instruments in the banking book” of
this supplemental Pillar 3 section for more information on the
measurement of these instruments
➔ Refer to “Table 30: Reconciliation of accounting balance sheet to
balance sheet under the regulatory scope of consolidation” of
this supplemental Pillar 3 section for more information
➔ Refer to “Note 25 Restricted and transferred financial assets” in
the “Financial information” section of this report for more
information on transferability restrictions under IFRS 12
Table 1c: Main legal entities consolidated under IFRS but not included in the regulatory scope of consolidation
CHF million
UBS Global Asset Management Life Ltd
UBS International Life Limited
UBS A&Q Alternative Solution Master Limited
UBS A&Q Alternative Solution Limited
UBS Global Life AG – Vaduz
UBS Life AG – Zurich
UBS Alpha Select Hedge Fund
UBS A&Q Alpha Select Hedge Fund XL
UBS Life insurance company USA
O’Connor Global Multi-Strategy Alpha (Levered) Limited
UBS Multi-Manager Alternative Commodities Fund Ltd.
UBS AFA Trading Fund
Master Triple Net Holdings LLC
31.12.14
Total assets 1
11,270
Total equity 1
15
5,491
822
797
686
392
319
291
280
215
156
152
133
67
745 2
724 2
11
58
151 2
258 2
43
197 2
124 2
123 2
14
Purpose
Life insurance
Life Insurance
Investment vehicle for feeder funds
Investment vehicle for multiple investors
Life insurance
Life insurance
Fund
Investment vehicle for multiple investors
Life insurance
Investment vehicle for multiple investors
Offshore hedge fund
Investment vehicle for multiple investors
Real estate
1 Total assets and total equity on a standalone basis. 2 Represents the net asset value (NAV) of issued fund units. These fund units are subject to liability treatment in the consolidated financial statements in accordance
with IFRS.
817
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Segmentation of Basel III exposures and risk-weighted assets
“Table 2: Detailed segmentation of Basel III exposures and risk-
weighted assets” and subsequent tables provide a breakdown ac-
cording to BIS-defined exposure segments as follows:
– Sovereigns, consisting of exposures relating to sovereign states
and their central banks, the BIS, the International Monetary
Fund, the EU (including the European Central Bank) and eligi-
ble multilateral development banks.
– Banks, consisting of exposures to legal entities holding a bank-
ing license. This segment also includes securities firms subject
to supervisory and regulatory arrangements, including risk-
based capital requirements, which are comparable to those ap-
plied to banks according to the framework. This segment also
includes exposures to public sector entities with tax-raising
power or entities whose liabilities are fully guaranteed by a
public entity.
– Corporates, consisting of all exposures that do not fit into any
of the other exposure segments. This segment includes private
commercial entities such as corporations, partnerships or pro-
prietorships, insurance companies and funds (including man-
aged funds).
– Central counterparties, a central counterparty (CCP) is a clear-
ing house that interposes itself between counterparties to con-
tracts traded in one or more financial markets, becoming the
buyer to every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP be-
comes counterparty to trades with market participants through
novation, an open offer system, or another legally binding ar-
rangement.
– Retail, Residential mortgages, consisting of residential mort-
gages, regardless of exposure size, if the obligor occupies or
rents out the mortgaged property.
– Retail, Lombard lending, consisting of loans made against the
pledge of eligible marketable securities or cash.
– Retail, Qualifying revolving retail exposures, consisting of unse-
cured revolving credits that exhibit appropriate loss character-
istics relating to credit card relationships treated under the ad-
vanced internal ratings-based (A-IRB) approach.
– Retail, Other retail, consisting of exposures to small businesses,
private clients and other retail customers without mortgage
financing.
Table 2 also shows the gross and net exposure at default (EAD)
per risk type and exposure segment for the current disclosure
period, which forms the basis for the calculation of the RWA as
well as the capital requirement per exposure category. The Basel III
credit risk-related components “Credit valuation adjustment
(CVA)” and “Stressed expected positive exposure (sEPE)” are dis-
closed separately in this table.
Gross EAD increased by CHF 80 billion in 2014, primarily as a
result of increased exposures to central counterparties, balances
with central banks and Lombard lending along with currency ef-
fects.
➔ Refer to the table “Basel III risk-weighted assets by risk type,
exposure and reporting segment” in the “Capital management”
section of this report for more information on RWA by business
division and Corporate Center
➔ Refer to the table “Basel III RWA movement by key driver, risk
type and reporting segment” in the “Capital management”
section of this report for more information on RWA movements
818
EDTF | Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets
Gross EAD
Net EAD
A-IRB /
model-
based
Standard-
ized
31.12.14
Basel III (phase-in)
RWA 1
A-IRB /
model-
based
Standard-
ized
Capital requirement
A-IRB /
model-
based
Standard-
ized
CHF million
Credit risk
Counterparty credit risk by
exposure segment (including sEPE)
Stressed EPE (sEPE) 3
Counterparty credit risk by exposure
segment (excluding sEPE)
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving retail exposures
Other retail
Securitization / re-securitization
in the banking book
Equity instruments in the banking book 5
Credit valuation adjustment (CVA)
Settlement risk
Non-counterparty-related risk 6
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR (RniV)
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization
in the trading book
Operational risk
of which: incremental RWA 7
Total Swiss SRB
Total
approach
approach
Total
approach
approach
Total
approach
approach
720,039
558,841
138,968
697,810
86,380
22,220
108,601
9,604
2,471
Total 2
12,075
709,293
548,283
138,788
687,072
25,517
25,517
25,517
72,504
4,948
18,595
91,099
4,948
8,062
550
2,068
10,129
550
138,788
661,555
67,556
18,595
86,151
7,511
2,068
9,579
683,775
165,565
50,789
522,766
108,243 4
40,115
161,350
134,144
49,238
256,834
137,159
115,192
1,524
2,959
9,048
1,448
250
22,126
1,610
240,263
131,121
107,036
1,524
582
9,048
1,448
62
1,610
57,321
165,565
7,916
15,899
49,238
8,414
6,038
2,376
180
22,126
48,031
150,043
49,238
248,678
137,159
107,036
1,524
2,959
9,048
1,448
242
22,126
1,610
1,610
1,610
1,610
1,257
6,519
189
2,360
37,888
10,650
1,379
4,017
2,234
1,783
3,381
244
19,060
21,892
15,767
5,359
532
233
2,650
4,735
6,395
96
16,483
2,024
4,115
5,911
3,039
131
1,262
76,734
17,451
1,446
8,879
48,538
1,379
25,909
18,002
5,359
532
2,016
2,650
4,735
9,775
340
19,060
16,483
2,024
4,115
5,911
3,039
131
1,262
76,734
17,451
220,877 1
140
725
21
262
4,213
1,184
153
447
248
198
376
27
2,119
2,434
1,753
596
59
26
295
526
711
11
1,833
225
458
657
338
15
140
8,532
1,940
161
987
5,397
153
2,881
2,002
596
59
224
295
526
1,087
38
2,119
1,833
225
458
657
338
15
140
8,532
1,940
19,969
4,590
24,559
743,774
560,451
161,094
721,545
179,597
41,280
1 Refer to the “Capital management” section of this report for more information on the differences between phase-in and fully applied RWA. 2 Calculated based on our Swiss SRB Basel III total capital requirement
of 11.1% of RWA. 3 Majority relates to exposures to Banks and Corporates. 4 Exposures to sovereigns based on the A-IRB / model-based approach increased by CHF 74 billion between 31 December 2013 and
31 December 2014, mainly as assets held at central banks, which are part of our multi-currency portfolio unencumbered, high-quality liquid assets, are now treated under the A-IRB / model-based approach. Previously,
these assets were treated under the standardized approach. This is a part of our ongoing objective to increase the proportion of exposures based on the A-IRB/model-based approach. The impact on RWA was minimal
due to the low risk weights that these exposures attract. 5 Simple risk-weight method. 6 Exposures and RWA related to defined benefit plans are newly presented as non-counterparty-related risk. In previous re-
ports, these RWA were presented as credit risk RWA. Prior periods were not restated for this change in presentation. 7 Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutu-
ally agreed by UBS and FINMA.
819
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets (continued)
Gross EAD
Net EAD
A-IRB /
model-
based
approach
Standard-
ized
approach
Total
Total
31.12.13
Basel III (phase-in)
RWA 1
A-IRB /
model-
based
approach
Standard-
ized
approach
Capital requirement
A-IRB /
model-
based
approach
Standard-
ized
approach
Total
644,448
460,505
164,328
624,833
97,472
26,783
124,255
8,349
2,294
630,097
446,948
164,290
611,239
22,579
22,579
607,518
148,381
67,515
424,369
33,863
54,396
142,986
118,159
18,107
230,530
133,552
92,661
1,490
2,827
217,951
128,563
87,293
1,490
605
12,569
1,522
11,928
1,522
164,290
114,518
5,950
18,848
18,106
6,868
4,646
2,222
260
16,924
2,098
107
1,966
37
16,924
22,579
588,660
148,381
60,346
137,007
18,106
224,819
133,209
87,293
1,490
2,826
11,928
1,522
144
16,924
1,966
2,098
1,966
1,966
73,171
6,202
20,992
66,969
20,992
266
1,981
13,606
1,793
3,346
1,680
1,666
840
11,615
34,625
19,889
14,667
4,437
519
266
8,352
4,999
10,598
352
13,727
1,746
2,604
2,025
1,377
4,176
1,799
77,941
22,500
94,163
6,202
87,960
1,106
13,596
48,231
1,793
23,234
16,346
4,437
519
1,932
8,352
4,999
447
12,634
13,727
1,746
2,604
2,025
1,377
4,176
1,799
77,941
22,500
228,557 1
5,696
16,294
95
12,634
6,267
531
1,798
5,736
1,798
72
995
23
170
2,966
1,165
154
287
144
143
488
8
1,082
1,704
1,256
380
44
23
715
428
908
30
1,176
150
223
173
118
358
154
6,676
1,927
Total 2
10,643
8,065
531
7,534
95
1,165
4,131
154
1,990
1,400
380
44
165
715
428
1,396
38
1,082
1,176
150
223
173
118
358
154
6,676
1,927
CHF million
Credit risk
Counterparty credit risk by
exposure segment (including sEPE)
Stressed EPE (sEPE) 3
Counterparty credit risk by exposure
segment (excluding sEPE)
Sovereigns
Banks
Corporates 4
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving retail exposures
Other retail 4
Securitization / re-securitization
in the banking book
Equity instruments in the banking book 5
Credit valuation adjustment (CVA)
Settlement risk
Non-counterparty-related risk
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR (RniV)
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization
in the trading book
Operational risk
of which: incremental RWA 6
Total Swiss SRB
663,469
462,471
181,251
643,722
189,141
39,417
16,201
3,376
19,577
1 Refer to the “Capital management” section of this report for more information on the differences between phase-in and fully applied RWA. 2 Calculated based on our Swiss SRB Basel III total capital requirement of 8.6%
of RWA. 3 Majority relates to exposures to Banks and Corporates. 4 Effective 31 December 2014, we present qualifying revolving retail exposures separately in this section. The lines “Corporates” and “Other Retail” for
31 December 2013 were restated accordingly. 5 Simple risk-weight method. 6 Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed by UBS and FINMA. ▲
820
Credit risk
The tables in this section provide details on the exposures used to
determine the firm’s credit risk-related regulatory capital require-
ment. The parameters applied under the A-IRB approach are gen-
erally based on the same methodologies, data and systems we
use for internal credit risk quantification, except where certain
treatments are specified by regulatory requirements. These in-
clude, for example, the application of regulatory prescribed floors
and multipliers, and differences with respect to eligibility criteria
and exposure definitions. The exposure information presented in
this section therefore differs from that disclosed in the “Risk man-
agement and control” sections of our quarterly and annual re-
ports. Similarly, the regulatory capital prescribed measure of credit
risk exposure also differs from that required under IFRS. The fol-
lowing credit risk-related tables are based on Basel III phase-in
requirements and correspond to the counterparty credit risk by
exposure segment excluding sEPE, which is shown in “Table 2:
Detailed segmentation of Basel III exposures and risk-weighted
assets.”
➔ Refer to the “Risk management and control” section of this
report for more information
The regulatory gross credit exposure for banking products is
equal to the drawn loan amounts represented on the balance sheet,
with the exception of off-balance sheet commitments where the
regulatory gross credit exposure is calculated by applying a credit
conversion factor to the undrawn amount or contingent claim.
Within traded products, we determine the regulatory credit ex-
posure on the majority of our derivative exposures by applying the
effective expected positive exposure (EPE) and sEPE as defined in
the Basel III framework. However, for a small portion of the de-
rivatives portfolio we apply the current exposure method (CEM)
based on the replacement value of derivatives in combination
with a regulatory prescribed add-on. For a majority of securities
financing transactions (securities borrowing / lending and repur-
chase agreements / reverse repurchase agreements), we deter-
mine the regulatory gross credit exposure using the close-out pe-
riod (COP) approach. The regulatory gross credit exposure for
traded products is equal to regulatory net credit exposure, in the
credit risk tables on the following pages.
The regulatory net credit exposure detailed in the tables on the
following pages is shown as the regulatory exposure at default
after applying collateral, netting and other eligible risk mitigants
permitted by the relevant regulations. The information on im-
paired and defaulted assets by segmentation, consistent with the
regulatory capital treatment, is presented in the “Impairment, de-
fault and credit loss” section of this report.
821
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
EDTF | Table 3: Regulatory gross credit risk by exposure segment and RWA
This table shows the derivation of RWA from the regulatory gross credit exposure excluding sEPE broken down by major types of
credit exposure according to classes of financial instruments.
Exposure
Regulatory gross
credit exposure
Less: regulatory
credit risk offsets
and adjustments
Regulatory net
credit exposure
Average regulatory
risk-weighting
RWA 1
CHF million
Cash and balances with central banks
Due from banks 3
Loans
Financial assets designated at fair value
Guarantees, commitments and forward starting
transactions
Banking products
Derivatives
Cash collateral on derivative instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale
Other assets
Other products
Total 31.12.14
Total 31.12.13
Average regulatory
gross credit
exposure 2
93,201
22,905
302,135
2,038
33,505
453,783
45,812
22,938
58,321
102,303
12,838
313,357
1,842
32,668
463,008
57,444
32,280
62,999
127,071
152,723
2,621
52,967
13,633
69,221
650,076
630,724
1,723
54,456
11,865
68,044
683,775
607,518
(1,873)
(18,038)
(218)
(282)
(20,411)
(10)
(1,800)
(1,810)
(22,221)
(18,859)
102,303
10,966
295,319
1,625
32,385
442,597
57,444
32,280
62,999
152,723
1,713
54,456
10,065
66,234
661,555
588,660
0%
26%
15%
44%
29%
13%
19%
8%
7%
12%
104%
3%
74%
16%
13%
15%
252
2,877
44,191
720
9,456
57,496
11,011
2,591
4,415
18,017
1,780
1,393
7,466
10,638
86,151
87,960
1 The derivation of RWA is based on the various credit risk parameters of the A-IRB approach and the standardized approach, respectively. 2 The average regulatory gross credit exposure represents the average of the
applicable quarter-end exposures for the relevant reporting periods. 3 Includes non-bank financial institutions. ▲
EDTF | Table 4: Regulatory gross credit exposure by geographical region
This table provides a breakdown of our portfolio by major types of credit exposure excluding sEPE, presenting classes of financial instru-
ments by geographical regions. The geographical distribution is based on the legal domicile of the counterparty or issuer.
Asia Pacific
Latin
America
Middle East
and Africa
Rest of
Europe
Total regulatory
gross credit
exposure
Total regulatory
net credit
exposure
5,815
4,004
22,560
15
833
33,227
7,179
3,437
6,734
92
6,556
413
7,062
731
182
231
17,350
1,144
88
1,804
567
2,460
53,037
50,141
81
89
38
207
8,413
7,294
North
America Switzerland
56,932
3,421
23,993
1,144
78,650
166,385
1,429
17,234
7,504
138
4,672
509
15,563
4,038
34,533
398
6,174
5,320
157,666
199,026
60,707
304
156
1,659
2,118
20
33
54
23,192
16,784
25,750
65,726
829
22,842
6,175
29,845
6,507
363
2,575
9,444
10
1,523
775
2,307
19,532
11,358
26,051
56,941
695
28,199
4,278
33,172
7,492
6,907
253,237
210,778
150,819
192,507
200,307
150,363
102,303
12,838
313,357
1,842
32,668
463,008
57,444
32,280
62,999
152,723
1,723
54,456
11,865
68,044
683,775
607,518
102,303
10,966
295,319
1,625
32,385
442,597
57,444
32,280
62,999
152,723
1,713
54,456
10,065
66,234
661,555
588,660
CHF million
Cash and balances with central banks
Due from banks 1
Loans
Financial assets designated at fair value
Guarantees, commitments and forward starting transactions
Banking products
Derivatives
Cash collateral on derivative instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale
Other assets
Other products
Total 31.12.14
Total 31.12.13
1 Includes non-bank financial institutions. ▲
822
EDTF | Table 5: Regulatory gross credit exposure by counterparty type
This table provides a breakdown of our portfolio by major types of credit exposure excluding sEPE, presenting classes of financial instru-
ments by counterparty type. The counterparty type is different from the BIS-defined exposure segments used in certain other tables in
this section.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Guarantees, commitments and forward starting transactions
Banking products
Derivatives
Cash collateral on derivative financial instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale
Other assets
Other products
Total 31.12.14
Total 31.12.13
1 Also includes non-bank financial institutions. ▲
Private
individuals
Corporates 1
Public entities
(including
sovereigns and
central banks)
102,127
196,178
2,352
198,530
2,353
65
10
113,693
1,360
28,841
143,894
34,449
28,163
44,045
2,428
106,656
1,519
10,158
4,843
16,520
267,070
211,890
4,490
4,490
205,447
189,964
648
3,486
4
103
106,368
5,765
208
5,548
11,521
161
33,051
1,654
34,866
152,755
138,706
Banks and
multilateral
institutions
Total regulatory
gross credit
exposure
Total regulatory
net credit
exposure
176
12,190
478
1,372
14,216
14,877
3,844
13,396
32,118
42
11,247
879
12,168
58,502
66,958
102,303
12,838
313,357
1,842
32,668
463,008
57,444
32,280
62,999
152,723
1,723
54,456
11,865
68,044
683,775
607,518
102,303
10,966
295,319
1,625
32,385
442,597
57,444
32,280
62,999
152,723
1,713
54,456
10,065
66,234
661,555
588,660
EDTF | Table 6: Regulatory gross credit exposure by residual contractual maturity
This table provides a breakdown of our portfolio by major types of credit exposure excluding sEPE, presenting classes of financial instru-
ments by residual contractual maturity, not taking into account any early redemption features.
Due in
1 year or less
Due between
1 year and
5 years
Due over
5 years
Total regulatory
gross credit
exposure
Total regulatory
net credit
exposure
CHF million
Cash and balances with central banks
Due from banks 2
Loans
Financial assets designated at fair value
Guarantees, commitments and forward starting transactions
Banking products
Derivatives
Cash collateral on derivative instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale
Other assets
Other products
Total 31.12.14
On demand 1
102,303
10,298
39,754
98
152,453
17,058
51,382
68,440
21
33
7,262
7,315
2,332
157,629
199
8,168
168,327
37,008
4,416
10,897
52,321
233
19,657
1,361
21,251
180
68,156
1,151
21,704
91,191
8,479
4,140
720
13,340
709
30,242
2,390
33,340
28
47,819
492
2,698
51,037
11,958
6,665
18,623
760
4,525
852
6,138
102,303
12,838
313,357
1,842
32,668
463,008
57,444
32,280
62,999
152,723
1,723
54,456
11,865
68,044
Total 31.12.13
1 Includes loans without a fixed term, collateral swaps and cash collateral on derivative instruments, on which notice of termination has not been given. 2 Includes non-bank financial institutions. ▲
233,075
171,259
607,518
134,204
68,981
228,208
241,899
137,871
75,798
683,775
102,303
10,966
295,319
1,625
32,385
442,597
57,444
32,280
62,999
152,723
1,713
54,456
10,065
66,234
661,555
588,660
823
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 7: Derivation of regulatory net credit exposure
This table provides a derivation of the regulatory net credit exposure from the regulatory gross credit exposure excluding sEPE accord-
ing to the A-IRB approach and the standardized approach.
CHF million
Total regulatory gross credit exposure
Less: regulatory credit risk offsets and adjustments
Total regulatory net credit exposure
Total 31.12.13
Advanced IRB
approach
Standardized
approach
539,693
(16,927)
522,766 1
424,369
144,083
(5,294)
138,788
164,290
Total
31.12.14
683,775
(22,221)
661,555
Total
31.12.13
607,518
(18,859)
588,660
1 Total regulatory net credit exposure under the A-IRB model-based approach increased between 31 December 2013 and 31 December 2014, mainly due to higher exposures to sovereigns, primarily as assets held at
central banks, which are part of our multi-currency portfolio of unencumbered, high-quality liquid assets, are now treated under the A-IRB / model-based approach. Previously, these assets were treated under the stan-
dardized approach. This is part of our ongoing objective to increase the proportion of exposures that are based on the A-IRB model-based approach.
➔ Refer to the “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” section of this supplemental Pillar 3 section
for more information on the regulatory net credit exposure by exposure segment
Table 8: Regulatory gross credit exposure covered by guarantees and credit derivatives
This table provides a breakdown of regulatory gross credit exposures excluding sEPE covered by guarantees and credit derivatives, ac-
cording to BIS-defined exposure segments. The amounts in the table reflect the values used for determining regulatory capital to the
extent collateral is eligible under the BIS framework.
CHF million
Exposure segment
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving retail exposures
Other retail
Total 31.12.14
Total 31.12.13
Regulatory gross
credit exposure
of which: covered by
guarantees 1
of which: covered by
credit derivatives
165,565
50,789
161,350
49,238
137,159
115,192
1,524
2,959
683,775
607,518
120
300
3,294
3
726
62
2
4,507
5,145
22
9,370
9,392
12,357
1 Includes guarantees and standby letters of credit provided by third parties, mainly banks.
Advanced internal ratings-based approach
UBS uses the advanced internal ratings-based (A-IRB) approach
for calculating certain credit risk exposures across all business divi-
sions and the Corporate Center. Under the A-IRB approach, the
required capital for credit risk is quantified through empirical
models that we have developed to estimate the probability of de-
fault (PD), loss given default (LGD), exposure at default (EAD) and
other parameters, subject to the approval of FINMA.
➔ Refer to the “Risk management and control” section of this
report for more information
824
Tables 9a to 9g provide a breakdown of the regulatory net
credit exposure-weighted average PD, LGD, RWA and the average
risk weight by internal UBS ratings across BIS-defined exposure
segments. In addition, a breakdown of the regulatory net credit
exposure and RWA for which we apply the A-IRB approach by
internal UBS rating class is shown for each of the exposure seg-
ments. The allocation of exposure to the UBS internal ratings in
the following tables is newly based on the regulatory PD applied
for the purposes of calculating RWA. Comparative figures for De-
cember 2013 have been restated accordingly.
Total regulatory net credit exposure and RWA are not equal to
the numbers presented in table 2, as impaired and defaulted as-
sets are excluded in tables 9a through 9g.
EDTF | Table 9a: Sovereigns – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and
RWA by internal UBS ratings
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
31.12.14
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
94,738
6,847
2,165
4,040
171
235
8
7
1
6
2
1
6
0
1
79
4
0
0
0
1
194
16
6
24
0
0
25,521
3,903
1,077
2,896
255
135
15
18
1
9
1
0
6
0
0.0
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.0
33.2
32.9
43.9
51.5
60.7
42.8
10.2
41.3
82.3
10.4
38.5
16.0
25.8
10.0
34.1
RWA
38
241
210
560
64
105
2
4
1
2
2
0
8
0
1,239
Average risk
weight in %
0.0
3.5
9.7
13.9
37.6
44.8
21.0
59.7
166.0
35.7
117.6
66.1
131.1
54.5
1.1
0.0
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.0
39.3
30.3
44.8
42.0
56.0
48.3
17.3
39.3
92.5
21.9
27.2
10.0
25.3
10.0
38.8
38
84
98
389
87
84
4
12
4
6
1
0
7
0
815
0.2
2.1
9.1
13.4
34.2
62.5
28.6
67.1
243.5
69.1
92.7
47.1
120.1
54.5
2.4
Total 31.12.14
108,226
83
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 18 million as of 31 December 2014). Refer to the “Risk management and control”section of this report for impaired and defaulted figures.
2 Average PD for the internal rating categories are based on midpoint values.
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
Total 31.12.13
33,840
240
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 25 million as of 31 December 2013). Refer to the “Risk management and control”section of our Annual Report 2013 for impaired and defaulted
figures. 2 Average PD for the internal rating categories are based on midpoint values.
825
Financial information CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 9b: Banks – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by
internal UBS ratings
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.14
24,178
9,659
3,124
1,845
641
371
68
140
33
24
11
4
5,550
1,567
106
6
7
1
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.1
35.6
34.9
38.8
44.5
43.6
44.4
27.3
35.8
37.0
43.1
43.3
44.0
36.3
2,255
1,575
954
795
397
217
45
145
41
43
25
11
6,501
9.3
16.3
30.6
43.1
61.9
58.5
65.2
103.2
125.1
178.7
226.1
260.6
16.2
Total 31.12.14
40,098
7,236
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 18 million as of 31 December 2014). Refer to the “Risk management and control”section of this report for impaired and defaulted figures.
2 Average PD for the internal rating categories are based on midpoint values.
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
37,676
10,308
2,774
1,577
659
381
530
144
22
64
90
0
7,719
1,454
41
45
4
197
5
0
1
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.1
34.5
34.5
40.3
30.1
39.1
42.7
17.6
35.8
42.5
42.1
38.4
29.1
34.7
6,815
1,687
922
572
419
323
219
162
33
115
174
1
11,441
18.1
16.4
33.2
36.3
63.5
84.7
41.4
112.8
152.7
179.2
192.6
165.8
21.1
Total 31.12.13
54,225
9,466
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 174 million as of 31 December 2013). Refer to the “Risk management and control”section of our Annual Report 2013 for impaired and defaulted
figures. 2 Average PD for the internal rating categories are based on midpoint values.
826
Table 9c: Corporates – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by
internal UBS ratings
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.14
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.14
47,174
19,078
10,131
11,320
13,384
12,042
8,119
5,554
3,991
1,398
300
108
132,599 3
2,568
5,431
1,354
992
708
500
611
586
1,575
452
82
21
14,881
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.7
19.7
35.6
33.6
33.1
25.4
21.9
17.6
20.7
21.1
17.8
14.6
23.1
24.9
3,485
3,697
2,977
4,620
5,674
5,096
3,289
3,005
3,021
1,068
186
135
36,254 4
7.4
19.4
29.4
40.8
42.4
42.3
40.5
54.1
75.7
76.4
62.1
124.3
27.3
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 1,634 million as of 31 December 2014). Refer to the “Risk management and control”section of this report for impaired and defaulted figures.
2 Average PD for the internal rating categories are based on midpoint values. 3 Includes exposures with Managed Funds with a regulatory net credit exposure of CHF 45,653 million, which generally generate very low
risk-weighted-assets. 4 Includes high volatility commercial real estate (HVCRE) exposures related to specialized lending secured by properties sharing higher volatilities in portfolio default rates (RWA: CHF 159 million
as of 31 December 2014).
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.13
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
40,863
17,435
10,063
9,222
10,039
10,189
8,583
5,240
3,725
967
495
162
116,985 3
2,516
3,454
1,624
997
439
639
925
555
1,249
403
124
52
12,975
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.8
22.3
33.0
36.9
36.3
23.4
22.0
20.7
19.8
21.7
18.6
20.2
20.4
26.0
3,394
3,475
3,167
4,126
3,780
4,385
4,074
2,731
2,844
743
482
179
33,380 4
8.3
19.9
31.5
44.7
37.7
43.0
47.5
52.1
76.3
76.8
97.3
110.2
28.5
1 Impaired and defaulted assets are excluded in this table (RWA: CHF 1,245 million as of 31 December 2013). Refer to the “Risk management and control” section of our Annual Report 2013 for impaired and defaulted
figures. 2 Average PD for the internal rating categories are based on midpoint values. 3 Includes exposures with Managed Funds with a regulatory net credit exposure of CHF 32,690 million, which generally gener-
ate very low risk-weighted-assets. 4 Includes high volatility commercial real estate (HVCRE) exposures related to specialized lending secured by properties sharing higher volatilities in portfolio default rates (RWA: CHF
212 million as of 31 December 2013).
827
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 9d: Residential mortgages – Advanced IRB approach: Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.14
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.14
37,281
16,673
17,109
15,197
11,824
12,011
9,318
5,829
3,144
1,452
581
224
130,644
156
45
48
47
60
236
57
34
9
13
4
5
714
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.8
10.6
11.0
11.2
11.4
12.4
12.0
12.1
11.3
11.0
10.8
10.8
11.0
11.3
579
540
995
1,433
1,658
2,331
2,517
2,132
1,525
909
443
199
15,262
1.6
3.2
5.8
9.4
14.0
19.4
27.0
36.6
48.5
62.6
76.3
89.1
11.7
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 506 million as of 31 December 2014). Refer to the “Risk management and control”section of this report for impaired and defaulted figures.
2 Average PD for the internal rating categories are based on midpoint values.
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.13
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
32,486
16,540
16,698
14,997
12,144
13,478
10,184
6,162
3,362
1,407
483
163
128,104
123
43
48
61
57
273
126
36
22
15
7
5
816
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.8
9.7
10.2
10.4
11.0
11.9
11.7
11.5
10.8
10.4
10.2
10.2
10.7
10.7
423
454
834
1,290
1,577
2,444
2,497
1,988
1,445
775
325
127
14,180
1.3
2.7
5.0
8.6
13.0
18.1
24.5
32.3
43.0
55.1
67.3
78.1
11.1
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 487 million as of 31 December 2013). Refer to the “Risk management and control”section of our Annual Report 2013 for impaired and defaulted
figures. 2 Average PD for the internal rating categories are based on midpoint values.
828
Table 9e: Lombard lending – Advanced IRB approach: Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.14
56,020
35,336
3,257
6,651
3,007
1,463
358
38
503
398
199
102
6
32
2
1
11
28
11
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
20.0
20.0
20.0
19.6
20.0
20.0
20.2
20.0
20.0
20.0
1,473
1,577
250
807
520
315
111
11
156
132
2.6
4.5
7.7
12.1
17.3
21.6
31.0
29.1
31.0
33.3
Total 31.12.14
107,030
393
0.2
20.0
5,353
5.0
1 Impaired and defaulted assets are excluded in this table (RWA: CHF 6 million as of 31 December 2014). Refer to the “Risk management and control”section of this report for impaired and defaulted figures.
2 Average PD for the internal rating categories are based on midpoint values.
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
47,034
26,482
2,598
6,646
2,241
890
431
36
649
286
259
19
16
25
3
1
25
0
3
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
0.2
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
1,236
1,182
200
821
387
192
111
11
201
95
2.6
4.5
7.7
12.3
17.3
21.6
25.9
29.1
31.0
33.3
20.0
4,436
5.1
Total 31.12.13
87,293
351
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 0.5 million as of 31 December 2013). Refer to the “Risk management and control”section of our Annual Report 2013 for impaired and defaulted
figures. 2 Average PD for the internal rating categories are based on midpoint values.
829
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 9f: Qualifying revolving retail exposures – Advanced IRB approach: Regulatory net credit exposure, weighted
average PD, LGD and RWA by internal UBS ratings
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.14
124
1,394
1.7
2.7
47.0
42.0
35
490
28.0
35.2
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.14
1,518
2.6
42.4
525
34.6
1 Impaired and defaulted assets are excluded in this table (RWA: CHF 7 million as of 31 December 2014). Refer to the “Risk management and control”section of this report for impaired and defaulted figures.
2 Average PD for the internal rating categories are based on midpoint values.
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
120
1,365
1.7
2.7
47.0
42.0
33
480
28.0
35.2
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.13
1,484
2.6
42.4
513
34.6
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 6 million as of 31 December 2013). Refer to the “Risk management and control”section of our Annual Report 2013 for impaired and defaulted
figures. 2 Average PD for the internal rating categories are based on midpoint values.
830
Table 9g: Other Retail – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA
by internal UBS ratings
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.14
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.14
146
63
7
10
2
107
3
217
8
10
0
574
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
1.5
18.0
18.4
12.4
11.3
14.1
32.8
22.7
51.8
26.4
49.7
16.5
34.1
7
3
0
1
0
38
1
163
3
8
0
225
4.8
4.3
5.1
7.3
12.9
35.7
28.1
75.0
42.0
81.1
30.2
39.2
1
1
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 9 million as of 31 December 2014). Refer to the “Risk management and control”section of this report report for impaired and defaulted fig-
ures. 2 Average PD for the internal rating categories are based on midpoint values.
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.13
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
154
10
7
11
6
113
6
267
21
7
0
602
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
1.7
19.5
12.3
10.4
9.2
10.4
23.6
39.3
50.5
41.5
54.8
68.0
34.9
0
2
2
13
0
0
1
1
29
3
196
13
6
0
262
8.6
2.8
4.6
5.8
9.3
25.9
47.9
73.2
64.8
89.4
121.2
43.6
1 Impaired and defaulted assets are excluded from this table (RWA: CHF 3 million as of 31 December 2013). Refer to the “Risk management and control”section of our Annual Report 2013 for impaired and defaulted
figures. 2 Average PD for the internal rating categories are based on midpoint values. ▲
831
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Standardized approach
The standardized approach is generally applied where it is not
possible to use the A-IRB approach. The standardized approach
requires banks to use risk assessments prepared by external credit
assessment institutions (ECAI) or export credit agencies to deter-
mine the risk weightings applied to rated counterparties. We use
FINMA-recognized ECAI risk assessments to determine the risk
weightings for certain counterparties according to the BIS-defined
exposure segments.
We use three FINMA-recognized ECAI for this purpose: Standard
& Poor’s Ratings Group, Moody’s Investors Service and Fitch Rat-
ings. The mapping of external ratings to the standardized approach
risk weights is determined by FINMA and published on its website.
EDTF | Table 10a: Regulatory gross and net credit exposure by risk weight under the standardized approach
This table provides a breakdown of the regulatory gross and net credit exposure by risk weight according to BIS-defined exposure seg-
ments for those credit exposures for which we apply the standardized approach.
Total exposure
Total exposure
0%
> 0–20%
21–50%
51–100%
150%
31.12.14
31.12.13
56,929
2
111
5,358
5,862
239
2,540
1,242
29,456
19,476
34
146
13,932
97
9
26
209
57,321
8,044
21,065
49,238
114,518
5,950
24,967
18,107
5,801
237
6,038
4,989
86,387
114,132
30,808
27,299
56,929
2
111
5,357
5,862
29,456
19,476
9,823
8,565
239
2,540
1,125
2,377
16,823
20,627
34
19
8,899
97
2,377
144,083
57,321
7,916
15,899
49,238
243
132
9
11
209
2,224
170,754
114,518
5,950
18,848
18,106
5,801
237
6,038
4,646
86,387
114,132
30,806
27,299
9,705
8,557
2,376
11,662
14,185
2,376
138,788
228
118
2,222
164,290
▲
CHF million
Risk weight
Regulatory gross credit exposure
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving retail exposures
Other retail
Total 31.12.14
Total 31.12.13
Regulatory net credit exposure
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving retail exposures
Other retail
Total 31.12.14
Total 31.12.13
832
Table 10b: Regulatory net credit exposure under the standardized approach risk-weighted using external ratings
This table provides a breakdown of the rated and unrated regulatory net credit exposure by ECAI and by risk weight according to BIS-
defined exposure segments for those credit exposures for which we apply the standardized approach.
CHF million
Risk weight
0%
> 0–20%
21–50%
51–100%
150%
31.12.14
Total exposure
Total exposure
Regulatory net credit exposure 1
Sovereigns
Rated 2
Unrated
Rated 2
Unrated
Rated 2
Unrated
Rated 2
Unrated 3
Rated 2
Unrated
Banks
Corporates
Central counterparties
Retail
Total 31.12.14
Total 31.12.13
56,891
38
2
29,456
111
3,690
1,666
5,862
196
19,280
239
11
2,530
1,125
34
19
43
8,855
9
8
3
57,249
72
3,720
4,196
7,038
8,861
196
97
209
49,042
86,387
114,132
30,806
27,299
5,801
9,705
8,557
2,614
11,662
14,185
228
118
8,414
138,788
164,290
1 For a breakdown of securitization exposures by risk weight bands and rating clusters refer to tables 23a to 23c (banking book) and 28a to 28c (trading book) of this report. 2 We use three FINMA recognized
ECAI for this purpose: Standard & Poor’s Ratings Group, Moody’s Investors Service and Fitch Ratings. 3 In accordance with the regulations based on the Basel III framework, external ratings are not used for the risk
weighting of trades with qualifying central counterparties.
Table 11: Eligible financial collateral recognized under the standardized approach
This table provides a breakdown of the financial collateral eligible for recognition in the regulatory capital calculation under the stan-
dardized approach, according to BIS-defined exposure segments.
CHF million
Exposure segment
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving retail exposures
Other retail
Total
Regulatory net credit exposure
under standardized approach
Eligible financial collateral recognized
in capital calculation 1
31.12.14
31.12.13
31.12.14
31.12.13
57,321
7,916
15,899
49,238
114,518
5,950
18,848
18,106
6,038
4,646
3
1,662
6,604
9,465
2,376
138,788
2,222
164,290
19
17,752
25
500
7,668
887
343
22
9,444
1 Reflects the impact of the application of regulatory haircuts for exposures not covered under an internal exposure model. The eligible financial collateral recognized in the capital calculation is based on the difference
between the regulatory gross credit exposure and the regulatory net credit exposure.
833
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Comparison of A-IRB approach and Standardized
Approach (SA)
(cid:37)(cid:81)(cid:79)(cid:82)(cid:67)(cid:84)(cid:75)(cid:85)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:85)(cid:19)
(cid:43)(cid:80)(cid:2)(cid:7)
(cid:21)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)
(cid:18)
(cid:35)(cid:35)(cid:35)
(cid:35) (cid:35)
(cid:35)
(cid:36)(cid:36)(cid:36)(cid:13)(cid:14)
(cid:36)(cid:36)(cid:36)
(cid:36)(cid:36)(cid:36)(cid:115) (cid:36)(cid:36)(cid:13)
(cid:36)(cid:36)
(cid:36)(cid:36)(cid:115)
(cid:36)(cid:13)
(cid:36)
(cid:36)(cid:115)
(cid:37)(cid:37)(cid:37)
(cid:37)
(cid:27)(cid:26)(cid:14)(cid:27)(cid:19)(cid:26)
(cid:19)(cid:19)(cid:19)(cid:14)(cid:25)(cid:25)(cid:21)
(cid:21)(cid:19)(cid:14)(cid:24)(cid:21)(cid:23)
(cid:21)(cid:24)(cid:14)(cid:21)(cid:20)(cid:21)
(cid:35)(cid:15)(cid:43)(cid:52)(cid:36)(cid:2)(cid:19)(cid:59)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:91)
(cid:53)(cid:35)
(cid:35)(cid:15)(cid:43)(cid:52)(cid:36)(cid:2)(cid:23)(cid:59)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:91)
(cid:20)(cid:20)(cid:23)(cid:14)(cid:26)(cid:23)(cid:22)
(cid:20)(cid:21)(cid:18)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:20)(cid:19)(cid:26)(cid:14)(cid:24)(cid:26)(cid:19)
(cid:19)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:69)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:85)
(cid:22)(cid:19)(cid:14)(cid:26)(cid:23)(cid:26)
(cid:21)(cid:22)(cid:14)(cid:23)(cid:23)(cid:24)
(cid:21)(cid:19)(cid:14)(cid:23)(cid:19)(cid:27)
(cid:20)(cid:24)(cid:14)(cid:25)(cid:18)(cid:19)
(cid:24)(cid:19)(cid:22)(cid:15)(cid:22)(cid:19)(cid:19)(cid:19)(cid:16)(cid:19)(cid:2)
300
posures; this difference is not driven by models, as the same rat-
ing is used for both approaches, but by different assumptions
made when calibrating the SA. Additionally, the SA does not gen-
erally consider the exposure maturity whereas the A-IRB does. The
effect is that the shorter the maturity and the better the quality of
a bank’s portfolio, the lower A-IRB risk weights will be compared
with SA risk weights for a given exposure type, or asset class.
Therefore, when comparing SA and A-IRB risk weights, with mid-
range probability of default (PD) and loss given default (LGD) val-
ues, the maturity implied from the SA risk weights is typically lon-
ger than the maturity of our credit exposures. Since the accelerated
implementation of our strategy, the maturity effect has become
particularly important as we had a notable shift from longer-term
to shorter-term transactions in our credit portfolio.
0
Corporates asset class: for counterparties without external rat-
ing, the SA risk weight defaults to 100%. While this suggests that
unrated counterparties would see bigger differences between A-
IRB and SA risk weights, counterparties with no external rating
are generally riskier and thus also have higher A-IRB risk weights.
A notable and material exception is managed funds, which are
included in the Corporates exposure segment in our Basel III expo-
sures and RWA disclosures. These funds have virtually no debt, are
very low risk, i.e., AAA equivalent, and thus have very low A-IRB
risk weights. However, due to the absence of debt, they are not
externally rated and a 100% default risk weight is applied under
SA, equivalent to BB / B exposure. These materially different risk
weights applied for managed funds generate significant differ-
ences between the SA and A-IRB risk weights for the Corporates
exposure segment. The table below provides an illustrative ex-
ample how A-IRB is better suited for the Risk Weight assignment
aligned with the risk of the underlying portfolio:
Increased regulatory focus on differences between
A-IRB and current SA
In accordance with current prudential regulations, we use the A-
IRB approach for calculating the required capital for substantially
all of our credit risk exposures and hence only apply the standard-
ized approach (SA) to a limited extent. Regulators are increasingly
focused on the overall differences between these two approaches,
as suggested in recent consultation papers of the Basel Commit-
tee for Banking Supervision (BCBS), which include a full revision of
the current SA. In this context, we have been advised by FINMA to
disclose the existing differences between the A-IRB and the cur-
rent SA in this report.
Conceptual differences
A hypothetical calculation of our credit risk RWA under the cur-
rent SA would result in different RWA determinations due to fun-
damental differences between the SA and A-IRB. These can be
explained by both differences in definitions for exposure at de-
fault (EAD) and the application of different risk weights.
For EAD, the main differences relate to derivatives and securi-
ties financing transactions, i.e., traded products. Under the SA for
exposure determination, the derivative-related EADs use market
values at the balance sheet date plus prudential add-ons to take
into account potential market movements. The calculation gives
very limited benefit to netting and portfolio effects, although the
regulatory changes to the Current Exposure Method (CEM) will
improve this aspect from 2017 onwards. Also, diversification ben-
efits are not appropriately reflected. As a result, large diversified
portfolios will generate much higher RWA under the SA-EAD than
under the A-IRB approach. Additionally, SA-EAD for loans is sig-
nificantly affected by the eligibility of collateral: certain types of
collateral are entirely excluded from the SA-EAD approach (e.g.,
bonds rated below BBB-), while they are still allowed, with appro-
priate haircut estimations, under the A-IRB approach. This differ-
ence in collateral eligibility is particularly relevant to the Lombard
lending business.
The difference between SA and A-IRB risk weights depends on
the credit quality of the counterparty, the maturity of the expo-
sure, whether the counterparty is externally rated or not and the
assumptions about the collateralization and corresponding LGD.
For a short maturity exposure, using external rating agencies’ de-
fault and loss rates, the ratio of SA risk weight to A-IRB risk weight
ranges from approximately three times higher for investment
grade exposures to almost identical for sub-investment grade ex-
834
Comparison of risk weights as a function of internal rating assessment
The table assumes two counterparties without external rating assignment.
Interest
payment
coverage
(EBITDA /
Total
interest
payments)
Managed fund
> 1000
Leverage
finance
counterparty
< 2
Total debt /
EBITDA
Debt / assets
Liquidity
(fraction of
assets that
are liquid)
Internal
rating
assessment
Exposure
maturity
0
> 2.5
0
> 50%
100%
0%
AAA–A
BB–C
< 1Y
> 5Y
A-IRB risk
weight
range
10%–20%
100%–250%
SA risk
weight
100%
100%
Banks asset class: for the Banks exposure segment, differences
in the EAD mainly relating to derivatives and in risk weights are
both drivers for the difference between SA and A-IRB RWA.
Retail asset class: for exposures secured by residential proper-
ties, the SA only differentiates the risk weights based on the loan-
to-value (LTV), while our internal models also consider the debt
service capacity of borrowers and the availability of other collater-
alizing assets. This is an important difference for the Swiss market,
where there is legal recourse to the borrower, as borrowers may
choose for tax reasons to defer the redemption of their mortgage
loans in spite of having financial resources available. Further, for
Lombard lending the A-IRB offers an increased collateral eligibility
versus the current SA.
Sovereign asset class: for the Sovereigns exposure segment,
the SA approach assigns zero risk weight for all assets rated AA-
and better, while the A-IRB approach assigns risk weights higher
than zero.
All asset classes: in line with the BCBS objective, the A-IRB ap-
proach seeks to balance the maintenance of prudent levels of
capital while encouraging, where appropriate, the use of ad-
vanced risk management techniques. Therefore by design, the
calibration of the current SA and A-IRB approaches is such that
low-risk, short-maturity, well collateralized portfolios across the
various asset classes (with the exception of Sovereigns) receive
more punitive risk weights under SA than under the A-IRB. While
the above observations are based on the current SA, the BCBS
has issued a consultation paper outlining a full revision of the
current SA, with the objective to make the SA more risk sensitive,
more closely aligned (in terms of definitions and scope) to the
internal ratings-based approach, and less reliant on external
credit ratings.
Although both the current SA and the A-IRB approaches are
individually dependent on the counterparty credit quality, we be-
lieve that the current SA is not a suitable measure for risks in-
curred by large banks. Internal models provide the link between
the capital requirements and the business drivers. This is integral
to promoting a proactive risk culture at origination, and growing
capital consciousness within institutions. Risk-sensitivity and risk-
sensitive capital underpinning are the foundations of how banks
price credit and make strategic decisions.
Assessing differences between A-IRB and SA-based RWA
without taking any other factors into account might lead to
wrong conclusions and reduce comparability of banks. A more
powerful way to enhance comparability is by means of comparing
the RWA across a peer group of banks on reference portfolios, as
done in the past by either regulators or industry associations
where it can be observed that UBS’s calibration of internal ratings
and LGD models is close to the industry mean.
835
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Impairment, default and credit loss
The “Risk management and control” section of this report pro-
vides additional information on the impaired, default and credit
loss-related disclosures.
➔ Refer to “Note 12 Allowances and provisions for credit losses” in
the “Financial information” section of this report for more
information
Derivatives credit risk
➔ Refer to “Note 14 Derivative instruments and hedge accounting” in the “Financial information” section of this report for more information
on derivative instruments
836
EDTF | Table 12: Credit exposure of derivative instrumentsThis table provides an overview of our credit exposures arising from derivatives. Exposures are provided based on the balance sheet carrying values of derivatives as well as regulatory net cred-it exposures. The net balance sheet credit exposure differs from the regulatory net credit exposures because of differences in valu-ation methods, netting and collateral deductions used for ac-counting and regulatory capital purposes. Net current credit expo-sure is derived from gross positive replacement values which reflect the balance sheet carrying values of derivatives after net-ting and eligible financial collateral, where an enforceable Master Netting Agreement is in place. Regulatory net credit exposure is calculated using our internal models or the supervisory approach.CHF million31.12.1431.12.13 1Gross positive replacement values256,978254,084Netting benefits recognized(198,744)(194,891)Collateral held(30,794)(33,457)of which: cash collateral(25,128)(28,288)of which: non-cash collateral(5,666)(5,169)Net current credit exposure27,43925,736Regulatory net credit exposure (total counterparty credit risk)57,44445,718of which: based on internal models (effective expected positive exposure [EPE])43,40038,906of which: based on supervisory approach (current exposure method)14,0446,8121 In 2014, certain figures for 31 December 2013 were restated upon the adoption of the amendments to IAS 32, resulting in increases to the lines “Gross replacement values” and “Netting benefits recognized” and an immaterial decrease in the line “Collateral held.” The above changes reduced the line “Net current credit exposure” as a result. Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” of this report for more information on the adoption of the amendments to IAS 32. ▲ Other credit risk information
Our credit derivatives trading is predominantly conducted on a
collateralized basis. This means that our mark-to-market expo-
sures arising from derivatives activities with collateralized counter-
parties are typically closed out in full or reduced to nominal levels
on a regular basis by the use of collateral.
Derivatives trading with counterparties with high credit ratings
is typically conducted under an International Swaps and Deriva-
tives Association (ISDA) master netting agreement. Credit expo-
sures to those counterparties from credit default swaps (CDS),
together with exposures from other over-the-counter (OTC) de-
rivatives, are netted and included in the calculation of the collat-
eral that is required to be posted. Trading with lower-rated coun-
terparties, such as hedge funds, would generally require an initial
margin to be posted by the counterparty.
We receive collateral from or post collateral to our counterpar-
ties based on our open net receivable or net payable from OTC
derivative activities. Under the terms of the ISDA master netting
agreement and similar agreements, this collateral, which generally
takes the form of cash or highly liquid debt securities, is available
to cover any amounts due under those derivative transactions.
Table 13: Credit derivatives
This table provides an overview of the notional amount of credit derivatives, including those used to manage risks within our banking
and trading books. Notional amounts of credit derivatives do not include any netting benefits. For capital underpinning of the coun-
terparty credit risk of derivative positions, the effective expected positive exposure or exposure according to current exposure method
is taken. Notional amounts are reported based on regulatory scope of consolidation.
Regulatory banking book
Regulatory trading book
Total
Notional amounts, CHF million
Credit default swaps
Total rate of return swaps
Options and warrants
Total 31.12.14
Total 31.12.13
Protection
bought
Protection
sold
13,720
250
13,970
22,676
751
751
3,307
Total
14,472
250
14,722
25,983
Protection
bought
Protection
sold
Total
31.12.14
237,188
232,215
469,403
483,875
5,185
6,476
248,849
630,379
3,464
1,552
8,649
8,028
8,899
8,028
237,231
486,080
500,802
625,480
1,255,859
1,281,842
31.12.13 1
1,272,002
6,182
3,658
1 In 2014, figures for 31 December 2013 were restated upon the adoption of the amendments to IAS 32 resulting in a reclassification of notionals related to cash collateral on derivative instruments to notionals on
replacement values. This resulted in an increase in notionals for credit default swaps of approximately CHF 203 billion, as notionals related to cash collateral on derivative instruments were previously excluded from this
disclosure. Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” of this report for more information.
Measured on a notional basis, our counterparties for buying and selling protection are mainly banks and to a lesser extent broker-
dealers and central counterparties. In 2014, we saw a reduction in notional exposures, primarily with banks and broker-dealers.
➔ Refer to “Note 14 Derivative instruments and hedge accounting” in the “Financial information” section of this report for more information
on credit derivatives by instrument and counterparty
837
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Equity instruments in the banking book
The regulatory capital view for equity instruments in the banking
book differs from the IFRS view, primarily due to the following:
– Differences in the basis of valuation, for example financial in-
vestments available-for-sale are subject to fair value account-
ing under IFRS but have to be treated under the “lower of cost
or market” or “cost less impairment” concept for regulatory
capital purposes.
– Certain instruments which are held as debt investments on the
IFRS balance sheet, mainly investment fund units, are treated
as equity instruments for regulatory capital purposes.
– Certain instruments which are held as trading portfolio assets
on the IFRS balance sheet, but which are not part of the regu-
latory VaR framework, are included as equity instruments in
the banking book for regulatory capital purposes.
– Differences in the scope of consolidation.
➔ Refer to the “Scope of regulatory consolidation” section of this
supplemental Pillar 3 section for more information
EDTF | Table 14: Equity instruments in the banking book
The table below shows the different equity instruments categories
held in the banking book with their amounts as recognized under
IFRS, followed by the regulatory capital adjustment amount. This
adjustment considers the abovementioned differences to IFRS re-
sulting in the total regulatory equity instruments exposure under
the BIS framework, the corresponding RWA and the capital charge.
The table also shows net realized gains and losses and unreal-
ized revaluation gains relating to equity instruments.
CHF million
Equity instruments
Financial investments available-for-sale
Investments in associates
Total equity instruments under IFRS
Regulatory capital adjustment 1
Total equity instruments under regulatory capital 2
of which: to be risk-weighted
publicly traded (risk-weighted at 300%)
privately held (risk-weighted at 400%) 3
not deducted in application of threshold, but risk-weighted at 250%
of which: deduction from common equity tier 1 capital 4
RWA according to simple risk-weight method 5
Capital requirement according to simple risk-weight method 5
Total capital charge
As of
31.12.14
31.12.13
664
927
1,591
780
2,371
219
1,039
738
375
4,735
526
901
649
842
1,491
885
2,376
132
1,225
674
344
4,999
428
772
Net realized gains / (losses) and unrealized gains from equity instruments
For the year ended 31.12.14
For the year ended 31.12.13
Net realized gains / (losses) from disposals
Unrealized revaluation gains
of which: included in tier 2 capital
80
285
128
122
11
5
1 Includes CHF 767 million investment fund units treated as debt investments under IFRS, as of 31 December 2014. 2 As of 31 December 2014, gross and net EAD presented in the “Equity instruments in the banking
book” line of “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” include total equity instruments under regulatory capital of CHF 2,371 million presented in this table, less a CHF 548 mil-
lion exposure related to compensation and benefit trusts and CHF 375 million of goodwill on investments in associates.” 3 Includes a CHF 548 million exposure related to compensation and benefit trusts, that did not
generate risk-weighted assets. 4 Under Basel III, goodwill on investments in associates is deducted from common equity tier 1 capital. 5 The risk-weighted assets of CHF 4,735 million and the capital requirement of
CHF 526 million, as of 31 December 2014, are also disclosed in the “Equity instruments in the banking book” line of “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets.” ▲
838
Market risk
The “Risk management and control” section of this report provides consolidated information on market risk-related Pillar 3 disclosures.
➔ Refer to “Market risk” in the “Risk management and control” section of this report, as well as our quarterly 2014 reports for more
information
839
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Securitization
This section provides details of traditional and synthetic securitiza-
tion exposures in the banking and trading book based on the
Basel III framework. Securitized exposures are risk-weighted, gen-
erally, based on their external ratings. This section also provides
details of the regulatory capital requirement associated with these
exposures.
In a traditional securitization, a pool of loans (or other debt
obligations) is typically transferred to structured entities that have
been established to own the loan pool and to issue tranched se-
curities to third-party investors referencing this pool of loans. In a
synthetic securitization, legal ownership of securitized pools of
assets is typically retained, but associated credit risk is transferred
to structured entities typically through guarantees, credit deriva-
tives or credit-linked notes. Hybrid structures with a mix of tradi-
tional and synthetic features are disclosed as synthetic securitiza-
tions.
We act in different roles in securitization transactions. As origina-
tor, we create or purchase financial assets, which are then securi-
tized in traditional or synthetic securitization transactions, enabling
us to transfer significant risk to third-party investors. As sponsor, we
manage, provide financing or advise securitization programs. In line
with the Basel framework, sponsoring includes underwriting, that is,
placing securities in the market. In all other cases, we act in the role
of investor by taking securitization positions.
RWA attributable to securitization positions decreased to CHF
3.9 billion as of 31 December 2014 from CHF 10.2 billion as of
31 December 2013, mainly due to a decline of CHF 6.5 billion in
Corporate Center – Non-core and Legacy Portfolio, predominantly
reflecting the sale of student loan securities and commercial mort-
gage-backed securities.
➔ Refer to “Note 30 Interests in subsidiaries and other entities” in
the “Financial information” section of this report for more
information on structured entities
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
the “Risk management and control” section of this report for
more information on RWA by portfolio composition and
exposure category
Table 15: Securitization / re-securitization
31.12.14
31.12.13
Capital
CHF million
Gross EAD
Net EAD
RWA
requirement
Gross EAD
Securitization / re-securitization in the banking book
CC – Non-core and Legacy Portfolio
Other business divisions 1
Securitization / re-securitization in the trading book
CC – Non-core and Legacy Portfolio
Other business divisions 1
1 Mainly reflecting exposures in the Investment Bank.
9,048
4,735
4,313
1,610
1,205
405
9,048
4,735
4,313
1,610
1,205
405
2,650
2,028
622
1,262
993
268
295
226
69
140
110
30
12,569
8,767
3,803
2,098
1,896
202
Net EAD
11,928
8,125
3,803
1,966
1,799
167
RWA
8,352
7,772
580
1,799
1,711
89
Capital
requirement
715
666
50
154
147
8
840
Objectives, roles and involvement
Securitization in the banking book
Securitization positions held in the banking book include
tranches of synthetic securitization of loan exposures and over-
the-counter derivatives. These were primarily hedging transac-
tions executed in 2014, 2013 and 2012 by synthetically trans-
ferring counterparty credit risk. In addition, securitization in the
banking book includes legacy risk positions in Corporate Center
– Non Core and Legacy portfolio. As of 31 December 2014,
this portfolio included collateralized debt obligations and col-
lateralized loan obligations, some of which have credit default
swap protection purchased from monoline insurers, as well as
commercial mortgage-backed securities, residential mortgage-
backed securities and reference-linked note programs.
In 2014, we acted in the roles of both originator and sponsor.
As originator, we sold originated commercial mortgage loans into
securitization programs. As sponsor, we managed or advised se-
curitization programs and helped to place the securities in the
market. Refer to “Table 16: Securitization activity for the year in
the banking book” for an overview of our originating and spon-
soring activities in 2014 and in 2013, respectively.
Securitization and re-securitization positions in the banking
book are measured either at fair value or at amortized cost less
impairment. The impairment assessment for a securitized position
is generally based on the net present value of future cash flows
expected from the underlying pool of assets.
Securitization in the trading book
Securitizations (including correlation products) held in the trading
book are part of the trading activities, which typically include
market-making and client facilitation. Included in the trading
book are positions in our correlation book and legacy positions in
leveraged super senior tranches. In the trading book, securitiza-
tion and re-securitization positions are measured at fair value re-
flecting market prices where available or are based on our internal
pricing models.
Type of structured entities and affiliated entities involved in the
securitization transactions
For the securitization of third-party exposures, the type of struc-
tured entities employed is selected as appropriate based on the
type of transaction undertaken. Examples of this include limited
liability corporations, common law trusts and depositor entities.
We manage or advise significant groups of affiliated entities
that invest in exposures we have securitized or in structured enti-
ties that we sponsor. Significant groups of affiliated entities in-
clude North Street, Brooklands / ELM, and East Street, which are
involved in the US, European and Asia Pacific reference-linked
note programs, respectively.
➔ Refer to “Note 30 Interests in subsidiaries and other entities” in
the “Financial information” section of this report for more
information on structured entities
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
the “Risk management and control” section of this report for
more information on RWA by portfolio composition and
exposure category
Managing and monitoring of the credit and market risk of
securitization positions
The banking book securitization and re-securitization portfolio is
subject to specific risk monitoring, which may include interest rate
and credit spread sensitivity analysis, as well as inclusion in firm-
wide earnings-at-risk, capital-at-risk and combined stress test
metrics.
The trading book securitization and re-securitization positions
are also subject to multiple risk limits in our Investment Bank, such
as management VaR and stress limits as well as market value lim-
its. As part of managing risks within pre-defined risk limits, traders
may utilize hedging and risk mitigation strategies. Hedging may,
however, expose the firm to basis risks as the hedging instrument
and the position being hedged may not always move in parallel.
Such basis risks are managed within the overall limits. Any re-
tained securitization from origination activities and any purchased
securitization positions are governed by risk limits together with
any other trading positions. Legacy trading book securitization
exposure is subject to the same management VaR limit frame-
work. Additionally, risk limits are used to control the unwind,
novation and asset sales process on an ongoing basis.
841
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Regulatory capital treatment of securitization structures
Generally, in both the banking and trading book we apply the
ratings-based approach to securitization positions using ratings, if
available, from Standard & Poor’s Ratings Group, Moody’s
Investors Service and Fitch Ratings for all securitization and
re-securitization exposures. The selection of the External Credit
Assessment Institutions (ECAI) is based on the primary rating
agency concept. This concept is applied, in principle, to avoid that
the credit assessment by one ECAI is applied for one or more
tranches and another ECAI for the other tranches unless this is the
result of the application of the specific rules for multiple assess-
ments. If any two of the abovementioned rating agencies have
issued a rating for a particular position, we would apply the lower
credit rating of the two. If all three rating agencies have issued a
rating for a particular position, we would apply the middle credit
rating of the three. Under the ratings-based approach, the
amount of capital required for securitization and re-securitization
exposures in the banking book is capped at the level of the capital
requirement that would have been assessed against the underly-
ing assets had they not been securitized. This treatment has been
applied in particular to the US and European reference-linked
note programs. For the purposes of determining regulatory capi-
tal and the Pillar 3 disclosure for these positions, the underlying
ex posures are reported under the standardized approach, the
advanced internal ratings-based approach or the securitization
approach, depending on the category of the underlying security.
If the underlying security is reported under the standardized ap-
proach or the advanced internal ratings-based approach, the re-
lated positions are excluded from the tables on the following
pages.
The supervisory formula approach is applied to synthetic secu-
ritizations of portfolios of counterparty credit risk inherent in de-
rivatives and loan exposures for which an external rating was not
sought. The supervisory formula approach is also applied to lever-
aged super senior tranches.
In the trading book, the comprehensive risk measure is used
for the correlation portfolio as defined by Basel III requirements.
This measure broadly covers securitizations of liquid corporate un-
derlying assets as well as associated hedges that are not necessar-
ily securitizations, for example, single-name credit default swaps
and credit default swaps on indices.
We do not apply the concentration ratio approach or the inter-
nal assessment approach to securitization positions.
The counterparty risk of interest rate or foreign currency de-
rivatives with securitization vehicles is treated under the advanced
internal ratings-based approach and is therefore not part of this
disclosure.
Accounting policies
Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for information
on accounting policies that relate to securitization activities, pri-
marily “Note 1a item 3 Subsidiaries and structured entities” and
“Note 1a item 12 Securitization structures set up by UBS.”
We disclose our intention to securitize exposures as an origina-
tor if assets are designated for securitization and a tentative pric-
ing date for a transaction is known as of the balance sheet date
or if a pricing of a transaction has been fixed. Exposures intended
to be securitized continue to be valued in the same way until such
time as the securitization transaction takes place.
Presentation principles
It is our policy to present Pillar 3 disclosures for securitization
transactions and balances in line with the capital adequacy treat-
ments which were applied under Pillar 1 in the respective period
presented.
We do not amend comparative prior period numbers for pre-
sentational changes triggered by new and revised information
from third-party data providers, as long as the updated informa-
tion does not impact the Pillar 1 treatments of prior periods.
Good practice guidelines
On 18 December 2008, the European Banking Federation, the
Association for Financial Markets in Europe, the European Savings
Banks Group and the European Association of Public Banks and
Funding Agencies published the “Industry good practice guide-
lines on Pillar 3 disclosure requirement for securitization.” These
guidelines were slightly revised in 2009 and 2010, and were
incorporated in this report.
842
Securitization exposures in the banking and trading book
Tables 16 and 17 outline the exposures measured as the transac-
tion size we securitized at inception in the banking and trading
book in 2014 and in 2013. The activity is further broken down
by our role (originator / sponsor) and by type (traditional / syn-
thetic).
Amounts disclosed under the Traditional column of these ta-
bles reflect the total outstanding notes at par value issued by the
securitization vehicle at issuance. For synthetic securitization
transactions, the amounts disclosed generally reflect the balance
sheet carrying values of the securitized exposures at issuance.
For securitization transactions where we acted as originator,
exposures are split into two parts: those in which we have re-
tained securitization positions and / or continue to be involved on
an ongoing basis (for example credit enhancement or implicit sup-
port), and those in which we do not have retained securitization
positions and / or have no further involvement.
Where we acted as both originator and sponsor to a securitiza-
tion, originated assets are reported under Originator and the total
amount of the underlying assets securitized is reported under
Sponsor. As a result, as of 31 December 2014 and 31 December
2013, amounts of CHF 2.9 billion and CHF 2.5 billion, respec-
tively, were included in “Table 16: Securitization activity for the
year in the banking book” under both Originator and Sponsor
and “Table 18: Outstanding securitized exposures.”
Table 16: Securitization activity for the year in the banking book
Originator
Sponsor
Traditional
Synthetic
Securitization
positions retained
No securitization
positions retained
Securitization
positions retained
No securitization
positions retained
Realized
gains / (losses) on
traditional
securitizations
Traditional
Synthetic
1,680
1,262
68
9,258
1,680
1,262
351
351
0
1,331
1,199
68
97
9,258
0
7,580
1,331
1,199
876
876
0
97
7,580
0
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.14
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.13
843
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 17: Securitization activity for the year in the trading book
Originator
Sponsor 1
Traditional
Synthetic
Securitization
positions retained
No securitization
positions retained
Securitization
positions retained
No securitization
positions retained
Realized
gains / (losses) on
traditional
securitizations
Traditional
Synthetic
0
0
0
0
0
0
0
0
0
0
0
0
0
0
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.14
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.13
1 This disclosure excludes sponsor-only activity where we do not retain a position. In such cases, we advised the originator or placed securities in the market for a fee, without any impact to our risk-weighted assets or
capital. On this basis, we did not conduct any securitization activity in both 2013 and 2014.
844
Table 18: Outstanding securitized exposures
Banking book
Trading book 1, 2
Originator
Sponsor
Originator
Sponsor
Traditional
Synthetic
Traditional
Synthetic
Traditional
Synthetic
1,008
Synthetic
Traditional 3
7,307
2,437
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.14
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.13
2,942
2,942
658
2,529
243
7,306
7,549
585
3,772
390
8,659
9,049
17,234
282
405
1,106
463
19,489
158
18,592
553
741
6,788
3,426
754
31,011
742
199
1,057
0
1,207
1,057
10,487
0
1,324
4,871
15,323
770
181
0
1,505
951
951
20,963
0
1 As per FINMA Circular “Market Risk-Banks,” only the higher of the net long or the net short securitization positions in the trading book were to be underpinned for regulatory capital purposes until 31 December 2013.
As of 1 January 2014, both net long and net short positions require capital underpinning. 2 In line with our disclosure principles, we disclose the UBS originated and sponsored deals only where the positions result in
a RWA or capital deduction under Pillar 1. 3 This disclosure excludes sponsor-only activity where we do not retain a position. In such cases, we advised the originator or placed securities in the market for a fee, and did
not otherwise impact our capital ratios.
845
Financial informationThis table outlines the outstanding transaction size of securitiza-tion exposures which we have originated / sponsored and retained securitization positions at the balance sheet date in the banking or trading book and / or are otherwise involved on an ongoing basis, for example through the provision of credit enhancement or implicit support.Amounts disclosed under the Traditional column in this table reflect the total outstanding notes at par value issued by the secu-ritization vehicle. For synthetic securitization transactions, we generally disclose the balance sheet carrying values of the expo-sures securitized or, for hybrid structures, the outstanding notes at par value issued by the securitization vehicle.The table also includes securitization activities conducted in 2014 and in 2013 in which we retained / purchased positions. These can also be found in “Table 16: Securitization activity for the period in the banking book” and “Table 17: Securitization activity for the period in the trading book.” Where no positions were retained, the outstanding transaction size is only disclosed in the year of inception for originator transactions.All values in this table are as of the balance sheet date. Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 19: Impaired or past due securitized exposures and losses related to securitized exposures in the banking book
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total
31.12.14
31.12.13
Originator
Sponsor
Originator
Sponsor
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
30
8
38
0
0
1
323
0
21
793
321
307
50
680
115
115
1,134
11
3
0
0
15
0
6
6
Table 20: Exposures intended to be securitized in the banking and trading book
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total
846
31.12.14
31.12.13
Banking book
Trading book
Banking book
Trading book
144
144
0
0
0
This table provides a breakdown of the outstanding impaired or past due exposures at the balance sheet date as well as losses recognized in our income statement for transactions in which we acted as originator or sponsor in the banking book. Losses are reported after taking into account the offsetting effects of any credit protection from eligible risk mitigation instruments under the Basel III framework for the retained or purchased po-sitions.Where we did not retain positions, impaired or past due infor-mation is only reported in the year of inception of a transaction. Where available, past due information is derived from investor reports. Past due is generally defined as delinquency above 60 days. Where investor reports do not provide this information, alternative methods have been applied, which may include an as-sessment of the fair value of the retained position or reference assets, or identification of any credit events.This table provides the amount of exposures by exposure type we intend to securitize in the banking and trading book. We disclose our intention to securitize exposures as an originator if assets are designated for securitization and a tentative pricing date for a transaction is known at the balance sheet date or if a pricing of a transaction has been fixed. Table 21: Securitization positions retained or purchased in the banking book
This table provides a breakdown of securitization positions we retained or purchased in the banking book, irrespective of our role in
the securitization transaction. The value disclosed is the net exposure amount at default subject to risk-weighting at the balance sheet
date.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 1
On balance
sheet
31.12.14
Off balance
sheet 3
499
31
1
173
1
402
452
7,449
9,009
39
39
On balance
sheet
31.12.13
Off balance
sheet 3
541
351
43
349
1
1,060
948
8,403 2
11,696
161
71
232
Total
499
31
1
173
1
402
492
7,449
9,048
Total
541
351
43
349
1
1,060
1,109
8,474
11,928
1 The total exposure of CHF 9,048 million as of 31 December 2014 is also disclosed in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” in line “Securitization / re-securitization in the
banking book.” 2 “Other” primarily includes securitization of portfolios of counterparty credit risk in over-the-counter (OTC) derivatives and loan exposures. 3 Synthetic long exposures through sold CDS positions are
classified as off balance sheet exposures.
847
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 22: Securitization positions retained or purchased in the trading book
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.14
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.13
Cash positions
Derivative positions
Total
Gross long
Gross short
Gross long
Gross short
Net long
Net short
14
238
28
3
283
86
462
0
37
16
601
3
1
0
4
2
0
0
1
0
3
481
1,299
633
1,332
16
427
106
203
2,090
1,036
847
39
203
2,208
1,196
1,341
45
269
2,197
72
269
2,878
15
3
461
109
477
9
16
611
45
6
4
55
199
508
8
715
Net Total 1, 2
61
433
18
3
515
308
985
17
1,325
1 As of 1 January 2014, both net long and net short positions are underpinned in the trading book and EAD is capped at the maximum possible loss. 2 31 December 2014 does not include CHF 1,095 million related
to leveraged super senior tranches treated under the supervisory formula approach which are reported in “Table 28c: Securitization / re-securitization exposures treated under the supervisory formula approach by rating
clusters – trading book.” Including these exposures, net total exposures were CHF 1,610 million, which equals the gross and net exposure of securitization / re-securitization in the trading book presented in “Table 2:
Detailed segmentation of Basel III exposures and risk-weighted assets.”
848
This table provides a breakdown of securitization positions we purchased or retained in the trading book subject to the securiti-zation framework for specific market risk, irrespective of our role in the securitization transaction. Gross long and gross short amounts reflect the positions prior to the eligible offsetting of cash and derivative positions. Net long and net short amounts are the result of offsetting cash and derivative positions to the extent eligible under Basel III. The amounts disclosed are either the fair value or, in the case of derivative positions, the aggregate of the notional amount and the associated replacement value at the bal-ance sheet date. There are no off balance sheet securitization po-sitions retained or purchased in the trading book as of 31 Decem-ber 2014 or 31 December 2013. Table 23a: Capital requirement for securitization / re-securitization positions retained or purchased in the banking book
The table below provides the capital requirements for securitization and re-securitization positions we purchased or retained in the
banking book, irrespective of our role in the securitization transaction, split by risk weight bands and regulatory capital approach. We
use three FINMA-recognized ECAI for this purpose: Standard & Poor’s Ratings Group, Moody’s Investors Service and Fitch Ratings.
31.12.14
31.12.13
Ratings-based
approach
Supervisory formula
approach
Ratings-based
approach
Supervisory formula
approach
Securitization
securitization Securitization
Re-
Re-
securitization
Total Securitization
securitization Securitization
Re-
Re-
securitization
Total
20
5
6
11
7
6
5
34
16
110
16
2
18
0
0
1
10
2
49
45
53
37
135
0
81
60
24
11
7
6
6
44
55
295
25
8
3
17
14
21
99
279
27
494
0
29
0
2
8
65
26
2
132
72
17
89
97
9
32
17
17
29
163
306
46
715
0
CHF million
over 0 – 20%
over 20 – 35%
over 35 – 50%
over 50 – 75%
over 75 – 100%
over 100 – 250%
over 250 – 1,249%
1,250% rated
1,250% unrated
Total 1
1 Refer to “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets.” On 31 December 2014, CHF 9,048 million banking book securitization net exposures translated to an overall capital requirement
of CHF 295 million.
Table 23b: Securitization / re-securitization exposures treated under the ratings-based approach by rating clusters –
banking book
CHF million
Exposure amount
Capital charge
Exposure amount
Capital charge
31.12.14
31.12.13
AAA
AA
A+
A
A–
BBB+
BBB
BBB–
BB+
BB
BB–
Below BB– / unrated
Total
223
917
54
335
119
121
126
69
26
9
6
44
2,050
4
27
1
8
5
10
11
12
10
5
6
62
159
972
1,165
173
370
297
90
262
224
124
175
99
295
4,247
11
33
4
7
11
7
21
35
36
68
61
335
627
849
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 23c: Securitization / re-securitization exposures treated under the supervisory formula approach by rating clusters
– banking book
CHF million
over 0–20%
over 20–35%
1,250%
Total
Implied rating1
AAA
A
Below BB
31.12.14
31.12.13
Exposure amount
Capital charge
Exposure amount
Capital charge
5,190
1,782
27
6,998
45
53
37
135
7,668
12
7,681
72
17
89
1 These exposures are not rated by the FINMA-recognized ECAI such as Standard & Poor’s Ratings Group, Moody’s Investor Service and Fitch Ratings. The implied rating has been derived based on the risk weights linked
to the Basel III securitization framework.
Securitization exposures to be deducted from Basel III tier 1
capital
In 2014 and in 2013, we have not retained any significant expo-
sures relating to securitization for which we have recorded gains
on sale requiring deduction from Basel III tier 1 capital.
Securitization exposures subject to early amortization in the
banking and trading book
In 2014 and in 2013, we had no securitization structures in the
banking and trading book that are subject to early amortization
treatment.
Table 24: Re-securitization positions retained or purchased in the banking book
The table below shows the total of re-securitization positions
(cash as well as synthetic) held in the banking book, broken down
into positions for which credit risk mitigation has been recognized
and those for which no credit risk mitigation has been recognized.
Credit risk mitigation includes protection bought by entering into
credit derivatives with third-party protection sellers, as well as
financial collateral received. Both bought credit protection and
financial collateral must be eligible under Basel III regulations. In
2014 and in 2013, no credit risk mitigation has been recognized
for re-securitization positions (cash as well as synthetic) held in the
banking book. As of 31 December 2014, none of the retained or
purchased banking book re-securitization positions had an inte-
grated insurance wrapper.
CHF million
Total 31.12.14
Total 31.12.13
With credit risk
mitigation
Without credit risk
mitigation
0
0
492
1,109
Total
492
1,109
850
Table 25: Re-securitization positions retained or purchased in the trading book
The table below outlines re-securitization positions retained or
purchased subject to the securitization framework for specific
market risk held in the trading book on a gross long and gross
short basis, including synthetic long and short positions resulting
from derivative transactions. It also includes positions on a net
long and net short basis, that is, gross long and short positions
after offsetting to the extent it is eligible under Basel III. As of
31 December 2014, none of the retained or purchased trading
book re-securitization positions had an integrated insurance
wrapper.
CHF million
Total 31.12.14
Total 31.12.13
Gross long
Gross short
Net long
Net short
134
82
41
73
15
9
4
8
Table 26: Outstanding notes issued by securitization vehicles related to UBS’s retained exposures subject to the market
risk approach
The table does not include positions from current year securitizations (where UBS was originator) unless they were retained as of
31 December 2014, or 31 December 2013. Disclosure is made only where we have retained positions in the trading book. The amount
disclosed is the notional amount of the outstanding notes issued by the securitization vehicle at the balance sheet date.
Originator
Sponsor
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.14 1, 2
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.13 1, 2
Traditional
1,008
Synthetic
Traditional
Synthetic
7,307
2,437
742
199
1,057
1,208
1,324
1,057
10,487
0
4,871
15,323
770
181
1,505
951
951
20,963
0
1 As per FINMA Circular “Market Risk-Banks,” only the higher of the net long or the net short securitization positions in the trading book were to be underpinned for regulatory capital purposes until 31 December 2013.
As of 1 January 2014, both net long and net short positions require capital underpinning. 2 In line with our disclosure principles, we disclose the UBS originated and sponsored deals only where the positions result in
a RWA or capital deduction under Pillar 1.
851
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 27: Correlation products subject to the comprehensive risk measure or the securitization framework for specific risk
This table outlines products in the correlation portfolio that we
retained or purchased in the trading book, irrespective of our
role in the securitization transaction. They are subject to either
the comprehensive risk measure or the securitization framework
for specific risk. Correlation products subject to the securitiza-
tion framework are leveraged super senior positions. The values
disclosed are market values for cash positions, replacement val-
ues and notional values for derivative positions. Derivatives are
split by positive replacement value and negative replacement
value. The decrease in notional values related to positive replace-
ment values and negative replacement values resulted mainly
from risk transfers to exit the majority of the correlation trading
portfolio where market risk was transferred through back-to-
back trades and was followed by novations to de-recognize the
trades from our balance sheet, as well as from trades maturing
during the year.
31.12.14
CHF million
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
31.12.13
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
1 Includes leveraged super senior tranches.
Cash positions
Assets
Liabilities
Derivative positions
Assets
Liabilities
Market
value
137
Market
value
609
71
615
Positive
replacement
value
Positive
replacement
value
notionals
Negative
replacement
value
Negative
replacement
value
notionals
254
1
998
88
4,019
3,095
627
1
5,610
3,095
30,645
5,970
1,298
1
20,532
1,465
852
Table 28a: Securitization positions and capital requirement for trading book positions subject to the securitization
framework
This table outlines securitization positions we purchased or retained and the capital charge in the trading book subject to the securiti-
zation framework for specific market risk, irrespective of our role in the securitization transaction, broken down by risk weight bands
and regulatory capital approach. The amounts disclosed for securitization positions are market values at the balance sheet date after
eligible netting under Basel III.
CHF million
over 0 – 20%
over 20 – 35%
over 35 – 50%
over 50 – 75%
over 75 – 100%
over 100 – 250%
over 250 – 1,249%
1,250% rated
1,250% unrated
Total 2
31.12.14
Ratings-based
approach
Net
short
0
0
3
6
0
42
2
55
Net
Total
347
51
18
11
6
8
0
55
20
516
Capital
require -
ment
5
2
1
1
1
2
0
76
28
116 3
Net
long
346
51
17
8
0
8
13
18
461
31.12.13
Ratings-based
approach
Net
short
715
Net
Total
1,0821
16
37
32
38
10
1
91
18
Net
long
367
16
37
32
38
10
1
91
18
611
715
1,325
Capital
require-
ment
1 4
0
2
2
3
2
97
20
132
1 As per FINMA Circular “Market Risk-Banks” only the higher of the net long or the net short securitization positions in the trading book were to be underpinned for regulatory capital purposes until 31 December 2013.
As of 1 January 2014, both net long and net short positions require capital underpinning. The amount disclosed under net short as at 31 December 2013 is for information only, i.e., a 0% risk-weight was applied.
2 Leveraged super senior tranches (subject to the securitization framework) are not included in this table, but disclosed in “Table 27: Correlation products subject to the comprehensive risk measure or the securitization
framework for specific risk.” 3 The capital requirement of CHF 140 million as of 31 December 2014 disclosed in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” in line “Securitiza-
tion / re-securitization in the trading book” is comprised of the total ratings-based approach charge of CHF 116 million and a CHF 24 million capital requirement for leveraged super senior tranches as disclosed in “Table
29: Capital requirement for securitization positions related to correlation products.”
Table 28b: Securitization / re-securitization exposures treated under the ratings-based approach by rating clusters
– trading book
CHF million
AAA
AA
A+
A
A–
BBB+
BBB
BBB–
BB+
BB
BB–
Below BB– / unrated
Total
31.12.14
31.12.13
Exposure amount
Capital charge
Exposure amount
Capital charge
301
60
12
35
14
4
6
8
0
75
515
4
1
1
1
1
0
1
2
0
104
116
324
30
26
10
37
25
38
10
1
0
109
611
4
0
1
0
2
2
3
2
0
0
117
131
853
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 28c: Securitization / re-securitization exposures treated under the supervisory formula approach by rating clusters
– trading book
CHF million
over 0 –20%
Total
31.12.14
31.12.13
Implied rating 1
A
Exposure amount
Capital charge
Exposure amount
Capital charge
1,095
1,095
24
24
1,356
1,356
23
23
1 These exposures are not rated by the FINMA-recognized ECAI such as Standard & Poor’s Ratings Group, Moody’s Investor Service and Fitch Ratings. The implied rating has been derived based on the risk weights linked
to the Basel III securitization framework.
Table 29: Capital requirement for securitization positions related to correlation products
This table outlines the capital requirement for securitization posi-
tions in the trading book for correlation products, including posi-
tions subject to comprehensive risk measure and positions related
to leveraged super senior positions and certain re-securitized cor-
porate credit exposures positions subject to the securitization
framework. Our model does not distinguish between “default
risk,” “migration risk” and “correlation risk.” The capital require-
ment for positions subject to the comprehensive risk measure de-
clined due to the execution of a series of risk transfers to exit the
majority of the correlation trading portfolio market risk.
CHF million
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
Total
1 Leveraged super senior tranches.
31.12.14
Capital
requirement
31.12.13
Capital
requirement
15
24
39
358
23
381
854
Composition of capital
BIS and FINMA require banks to publish their capital positions ac-
cording to common templates with the objective of mitigating the
risk of inconsistent disclosure formats undermining market par-
ticipants’ ability to compare capital adequacy of banks across ju-
risdictions. The following tables provide the required information.
In addition to these disclosures, an overview of the main features
of our regulatory capital instruments, as well as the full terms and
conditions, are published in the “Bondholder information” sec-
tion of our Investor Relations website.
➔ Refer to “Bondholder information” at www.ubs.com/investors
for more information on the capital instruments of UBS Group
AG and UBS AG
Scope of regulatory consolidation
The table below provides a reconciliation of the IFRS balance
sheet to the balance sheet according to the regulatory scope of
consolidation. Lines in the balance sheet under the regulatory
scope of consolidation are expanded and referenced where rele-
vant to display all components that are used in “Table 31: Com-
position of capital.”
➔ Refer to the “Introduction” section of this supplemental Pillar 3
section for more information
Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation
Balance sheet in
accordance with
IFRS scope of
consolidation
Effect of deconsoli-
dated entities
for regulatory
consolidation
Effect of additional
consolidated entities
for regu latory
consolidation
Balance sheet in
accordance with
regulatory scope of
consolidation
References 1
CHF million
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Positive replacement values
Cash collateral receivables on derivative instruments
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Consolidated participations
Investments in associates
of which: goodwill
Property and equipment
Goodwill and intangible assets
of which: goodwill
of which: intangible assets
Deferred tax assets
of which: deferred tax assets recognized for tax loss carry-forwards
of which: deferred tax assets on temporary differences
Other assets
Total assets
31.12.14
104,073
13,334
24,063
68,414
138,156
256,978
30,979
4,951
315,757
57,159
0
927
375
6,854
6,785
6,368
417
11,060
7,456
3,605
22,988
1,062,478
(459)
(18,076)
39
116
(80)
204
(92)
(1)
(201)
(18,550)
1 References link the applicable lines of this table to the respective reference numbers provided in the column “References” in “Table 31: Composition of capital.”
104,073
12,875
24,063
68,414
120,080
257,017
30,979
4,951
315,873
57,079
204
927
375
6,762
6,785
6,368
417
11,060
7,455
3,605
22,789
1,043,930
2
2
4
4
5
9
855
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation
(continued)
Balance sheet in
accordance with
IFRS scope of
consolidation
Effect of deconsoli-
dated entities
for regulatory
consolidation
Effect of additional
consolidated entities
for regu latory
consolidation
Balance sheet in
accordance with
regulatory scope of
consolidation
References 1
CHF million
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
of which: amount eligible for low-trigger loss-absorbing tier 2 capital 2
of which: amount eligible for capital instruments subject to phase-out
from additional tier 1 capital 3
of which: amount eligible for capital instruments subject to phase-out
from tier 2 capital 4
Provisions
Other liabilities
of which: amount eligible for high-trigger loss-absorbing capital
(Deferred Contingent Capital Plan (DCCP)) 5
Total liabilities
Share capital
Share premium
Treasury shares
Equity classified as obligation to purchase own shares
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
of which: unrealized gains / (losses) from cash flow hedges 6
Equity attributable to UBS Group AG shareholders
Equity attributable to preferred noteholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
31.12.14
10,492
9,180
11,818
27,958
254,101
42,372
75,297
410,207
91,207
10,451
1,197
2,050
4,366
71,112
745
1,008,110
372
32,590
(1,393)
(1)
22,134
(3,093)
2,156
50,608
0
3,760
54,368
(53)
(39)
111
17
(131)
(28)
(4)
(18,335)
(18,462)
(2)
1
(197)
109
(90)
1
(88)
1,062,478
(18,550)
10,439
9,180
11,818
27,919
254,212
42,372
75,314
410,077
91,180
10,451
1,197
2,050
4,361
52,778
745
989,649
372
32,590
(1,393)
(1)
21,937
(2,985)
2,156
50,519
0
3,761
54,280
1,043,930
7
6
8
7
1
1
3
3
2
3
11
6, 10
1
1
2
(1)
(1)
1
1
2
1 References link the applicable lines of this table to the respective reference numbers provided in the column “References” in “Table 31: Composition of capital.” 2 IFRS book value is CHF 10,464 million.
3 Represents IFRS book value. 4 IFRS book value is CHF 4,462 million. 5 IFRS book value is CHF 794 million. Refer to the “Compensation” section of this report for more information on the DCCP. 6 IFRS book value
is CHF 2,084 million.
856
Composition of capital
The table below provides the “Composition of capital” as defined
by BIS and FINMA. Reference is made to items reconciling to the
balance sheet under the regulatory scope of consolidation as dis-
closed in “Table 30: Reconciliation of accounting balance sheet to
balance sheet under the regulatory scope of consolidation.” Where
relevant, the effect of phase-in arrangements is disclosed as well.
➔ Refer to the “Capital management” section of this report for
more information on phase-in arrangements
Effect of the
transition phase
References 1
31.12.14
EDTF | Table 31: Composition of capital
CHF million, except where indicated
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Directly issued qualifying common share (and equivalent for non-joint stock companies) capital plus related stock
surplus
Retained earnings
Accumulated other comprehensive income (and other reserves)
Directly issued capital subject to phase-out from common equity tier 1 capital
(only applicable to non-joint stock companies)
Common share capital issued by subsidiaries and held by third parties
(amount allowed in Group common equity tier 1 capital)
Common equity tier 1 capital before regulatory adjustments
Prudential valuation adjustments
Goodwill, net of tax, less hybrid capital and additional tier 1 capital 2
Intangible assets, net of tax 2
Deferred tax assets recognized for tax loss carry-forwards 3
Unrealized (gains) / losses from cash flow hedges, net of tax
Expected losses on advanced internal ratings-based portfolio less general provisions
Securitization gain on sale
Own credit related to financial liabilities designated at fair value and replacement values, net of tax
Defined benefit plans
Compensation and own shares-related capital components (not recognized in net profit)
Reciprocal crossholdings in common equity
17a Qualifying interest where a controlling influence is exercised together with other owners (CET instruments)
17b Consolidated investments (CET1 instruments)
18
19
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of
the issued share capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial and insurance entities that are outside
the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)
20 Mortgage servicing rights (amount above 10% threshold)
Numbers
phase-in
31.12.14
32,962
21,937
(4,379)
1,702
52,222
(123)
(3,010)
(410)
(1,605)
(2,156)
(318)
136
3,198
(1,219)
(3,677)
(6,442)
(3,198)
21
22
23
24
25
26
Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability)
(604)
Amount exceeding the 15% threshold
of which: significant investments in the common stock of financials
of which: mortgage servicing rights
of which: deferred tax assets arising from temporary differences
Expected losses on equity investments treated according to the PD / LGD approach
26a Other adjustments relating to the application of an internationally accepted accounting standard
26b Other deductions
27
28
29
Regulatory adjustments applied to common equity tier 1 due to insufficient additional tier 1 and tier 2 to cover deductions
Total regulatory adjustments to common equity tier 1
Common equity tier 1 capital (CET1)
(384)
(3,467)
(9,359)
42,863
(13,921)
(13,921)
1 References link the applicable lines of this table to the respective reference numbers provided in the column “References” in “Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory
scope of consolidation.” 2 The CHF 6,687 million (CHF 3,010 million and CHF 3,677 million) reported in line 8 includes deferred tax liabilities on goodwill of CHF 55 million. The CHF 410 million reported in line
9 includes deferred tax liabilities on intangibles of CHF 7 million. 3 The CHF 8,047 million (CHF 1,605 million and CHF 6,442 million) deferred tax assets recognized for tax loss carry-forwards reported in line 10 differ
from the CHF 7,455 million deferred tax assets shown in the line “Deferred tax assets” in Table 30 because the latter figure is shown after the offset of deferred tax liabilities for cash flow hedge gains (CHF 559 million)
and other temporary differences, which are adjusted out in line 11 and other lines of this table respectively.
857
1
2
3
10
4
5
9
11
7
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 31: Composition of capital (continued)
CHF million, except where indicated
30
31
32
33
34
35
36
37
38
Directly issued qualifying additional tier 1 instruments plus related stock surplus 2
of which: classified as equity under applicable accounting standards
of which: classified as liabilities under applicable accounting standards
Directly issued capital instruments subject to phase-out from additional tier 1
Additional tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third
parties (amount allowed in Group additional tier 1)
of which: instruments issued by subsidiaries subject to phase-out
Additional tier 1 capital before regulatory adjustments
Investments in own additional tier 1 instruments
Reciprocal crossholdings in additional tier 1 instruments
38a Qualifying interest where a controlling influence is exercised together with other owners (AT1 instruments)
38b Holdings in companies which are to be consolidated (additional tier 1 instruments)
39
40
41
42
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of
the issued common share capital of the entity (amount above 10% threshold)
Significant investments in the capital of banking, financial and insurance entities that are outside
the scope of regulatory consolidation (net of eligible short positions)
National specific regulatory adjustments
Regulatory adjustments applied to additional tier 1 due to insufficient tier 2 to cover deductions
Tier 1 adjustments on impact of transitional arrangements
of which: prudential valuation adjustment
of which: own CET1 instruments
Effect of the
transition phase
References 1
Numbers
phase-in
31.12.14
467
467
3,210
3,210
3,677
31.12.14
0
0
(3,210)
(3,210)
(3,210)
(3,677)
(3,677)
3,677
3,677
of which: goodwill net of tax, offset against hybrid capital and high-trigger loss-absorbing capital
(3,677)
3,677
of which: intangible assets (net of related tax liabilities)
of which: gains from the calculation of cash flow hedges
of which: IRB shortfall of provisions to expected losses
of which: gains on sales related to securitization transactions
of which: gains / losses in connection with own credit risk
of which: investments
of which: expected loss amount for equity exposures under the PD / LGD approach
of which: mortgage servicing rights
42a Excess of the adjustments which are allocated to the common equity tier 1 capital
43
44
45
46
47
48
49
50
51
Total regulatory adjustments to additional tier 1 capital
Additional tier 1 capital (AT1)
Tier 1 capital (T1 = CET1 + AT1)
Directly issued qualifying tier 2 instruments plus related stock surplus 2
Directly issued capital instruments subject to phase-out from tier 2
Tier 2 instruments (and CET1 and additional tier 1 instruments not included in rows 5 or 34)
issued by subsidiaries and held by third parties (amount allowed in Group tier 2)
of which: instruments issued by subsidiaries subject to phase-out
Provisions
Tier 2 capital before regulatory adjustments
(3,677)
0
42,863
11,405
2,076
3,677
467
(13,454)
(2,076)
13,481
(2,076)
1 References link the applicable lines of this table to the respective reference numbers provided in the column “References” in “Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory
scope of consolidation.” 2 The CHF 11,405 million and CHF 467 million reported in line 30 and 46 respectively, includes the following positions: CHF 10,459 million low-trigger loss-absorbing tier 2 capital (line “Debt
issue” in table 30), which is shown net of CHF 7 million investments in own tier 2 instruments reported in line 52 of this table, CHF 745 million DCCP recognized in the line “Other liabilities” in table 30, CHF 670 mil-
lion recognized in DCCP-related charge for regulatory capital purpose in line 26b “Other deductions.”
858
6
7
8
Table 31: Composition of capital (continued)
CHF million, except where indicated
52
53
Investments in own tier 2 instruments
Reciprocal cross holdings in tier 2 instruments
53a Qualifying interest where a controlling influence is exercised together with other owners (tier 2 instruments)
53b Investments to be consolidated (tier 2 instruments)
54
55
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of
the issued common share capital of the entity (amount above the 10% threshold)
Significant investments in the capital banking, financial and insurance entities that are outside
the scope of regulatory consolidation (net of eligible short positions)
56
National specific regulatory adjustments
56a Excess of the adjustments which are allocated to the additional tier 1 capital
57
58
Total regulatory adjustments to tier 2 capital
Tier 2 capital (T2)
of which: high-trigger loss-absorbing capital
of which: low-trigger loss-absorbing capital
59
Total capital (TC = T1 + T2)
Amount with risk-weight pursuant the transitional arrangement (phase-in)
of which: defined benefit plans
of which: DTA on TD, excess over threshold and DTA on TD for IAS19R
60
Total risk-weighted assets
Capital ratios and buffers
61
62
63
64
65
66
67
68
Common equity tier 1 (as a percentage of risk-weighted assets)
Tier 1 (Pos 45 as a percentage of risk-weighted assets)
Total capital (pos 59 as a percentage of risk-weighted assets)
Institution-specific buffer requirement (minimum CET1 requirement plus capital conservation and countercyclical
buffer requirements plus G-SIB buffer requirement, expressed as a percentage of risk-weighted assets)
of which: capital conservation buffer
of which: bank-specific countercyclical buffer requirement
of which: G-SIB buffer requirement
Common equity tier 1 available to meet buffers (as a percentage of risk-weighted assets)
68a Common equity tier 1 requirement including countercyclical buffer according to FINMA RS 11/2
68b Available common equity tier 1 (in percentage of risk-weighted assets)
68c
Tier 1 requirement including countercyclical buffer according to FINMA RS 11/2
68d Available tier 1 (in percentage of risk-weighted assets)
68e
Total capital requirement including countercyclical buffer according to FINMA RS 11/2
68f Available total capital (in percentage of risk-weighted assets)
72
73
Non significant investments in the capital of other financials
Significant investments in the common stock of financials
74 Mortgage servicing rights (net of related tax liability)
75
Deferred tax assets arising from temporary differences (net of related tax liability)
Applicable caps on the inclusion of provisions in tier 2
76
77
78
Provisions eligible for inclusion in tier 2 in respect of exposures subject to standardized approach
(prior to application of cap)
Cap on inclusion of provisions in tier 2 under standardized approach
Provisions eligible for inclusion in tier 2 in respect of exposures subject to internal ratings-based approach
(prior to application of cap)
79
Cap for inclusion of provisions in tier 2 under internal ratings-based approach
Numbers
phase-in
31.12.14
(33)
Effect of the
transition phase
References 1
31.12.14
26
8
7
26
(2,050)
(15,504)
(4,415)
(3,026)
(1,389)
(4,415)
(33)
13,448
946
10,451
56,310
220,877
19.4
19.4
25.5
8.6
4.5
0.1
19.4
8.6
19.4
8.6
19.4
11.1
25.5
1,364
730
3,559
1 References link the applicable lines of this table to the respective reference numbers provided in the column “References” in “Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory
scope of consolidation.” ▲
859
Financial information Financial information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
G-SIBs indicators
As of 31 December 2014 and 2013, all banks that qualify as
global systemically important banks (G-SIBs) are required to dis-
close, as defined by the Basel Committee on Banking Supervision,
the 12 indicators for assessing the systemic importance of G-SIBs.
UBS, being classified as a G-SIB since 2013, is required to comply
with these additional disclosure requirements. These 12 indicators
fall under five categories of size, cross-jurisdictional activity, inter-
connectedness, substitutability / financial institution infrastructure
and complexity, which are weighted equally and will be used for
the G-SIB score calculation that drives the G-SIB surcharge to the
CET1 capital ratio of 1.5%.
G-SIBs indicators for 2014 will be available online by the end of
April 2015.
➔ Refer to “Pillar 3, SEC filings & other disclosures” at www.ubs.
com/investors for more information
860
Appendix
Abbreviations frequently used in our financial reports
A
ABS
AGM
AIV
AMA
AoA
APAC
ARS
AT1
B
BCBS
BIS
BoD
bps
C
CC
CCAR
CCF
CCP
CDO
CDR
CDS
CEA
CEO
CET1
CFO
CHF
CLN
CLO
CMBS
COSO
CVA
D
DBO
DCCP
DOJ
DVA
E
EAD
EBU
EC
ECB
EIR
EMEA
EOP
EPS
ETD
ETF
EU
EUR
EURIBOR
F
FCA
FCT
FDIC
FINMA
FRA
FSA
FSB
FTD
FTP
FVA
FX
asset-backed securities
annual general meeting of
shareholders
alternative investment
vehicles
advanced measurement
approach
articles of association
Asia Pacific
auction rate securities
additional tier 1
Basel Committee on
Banking Supervision
Bank for International
Settlements
Board of Directors
basis points
Corporate Center
Comprehensive Capital
Analysis and Review
credit conversion factors
central counterparty
collateralized debt
obligations
constant default rate
credit default swaps
Commodity Exchange Act
Chief Executive Officer
common equity tier 1
Chief Financial Officer
Swiss franc
credit-linked notes
collateralized loan obliga-
tions
commercial mortgage-
backed securities
Committee of Sponsoring
Organizations of the
Treadway Commission
credit valuation adjust-
ments
defined benefit obligation
deferred contingent capital
plan
Department of Justice
debit valuation adjustments
exposure at default
European Banking Union
European Commission
European Central Bank
effective interest rate
Europe, Middle East and
Africa
Equity Ownership Plan
earnings per share
exchange-traded deriva-
tives
exchange-traded funds
European Union
euro
Euro Interbank Offered
Rate
UK Financial Conduct
Authority
foreign currency translation
Federal Deposit Insurance
Corporation
Swiss Financial Market
Supervisory Authority
forward rate agreements
UK Financial Services
Authority
Financial Stability Board
first to default swaps
funds transfer price
funding valuation adjust-
ments
foreign exchange
G
GAAP
generally accepted
accounting principles
British pound
Group Executive Board
Greece, Italy, Ireland,
Portugal and Spain
Group ALM Group Asset and
GBP
GEB
GIIPS
Liability Management
Group ALCO Group Asset and Liability
Management Committee
global systemically
important banks
G-SIB
H
HQLA
I
IAS
IASB
IFRS
IPS
IRB
IRC
ISDA
K
KPI
L
LAC
LAS
LCR
LGD
LIBOR
LRD
LTV
M
MTN
high-quality liquid assets
International Accounting
Standards
International Accounting
Standards Board
International Financial
Reporting Standards
Investment Products and
Services
internal ratings-based
incremental risk charge
International Swaps and
Derivatives Association
key performance indicator
loss-absorbing capital
liquidity adjusted stress
liquidity coverage ratio
loss given default
London Interbank Offered
Rate
leverage ratio denominator
loan-to-value
medium-term notes
861
Appendix
Abbreviations frequently used in our financial reports (continued)
T
TBTF
TLAC
U
UK
US
USD
V
VaR
too big to fail
total loss absorbing
capacity
United Kingdom
United States of America
US dollar
value-at-risk
N
NAV
NRV
NPA
NSFR
O
OCC
OECD
OCI
OTC
P
PRA
PRV
net asset value
negative replacement
values
non-prosecution
agreement
net stable funding ratio
Office of the Comptroller
of the Currency
Organization for Economic
Cooperation and
Development
other comprehensive
income
over-the-counter
UK Prudential Regulation
Authority
positive replacement values
R
REIT
RLN
RMBS
RoaE
RoE
RoTE
RV
RWA
S
SE
SEC
SEEOP
SNB
SRB
SRM
SSM
real estate investment trust
reference-linked notes
residential mortgage-
backed securities
return on attributed equity
return on equity
return on tangible equity
replacement values
risk-weighted assets
structured entity
US Securities and Exchange
Commission
Senior Executive Equity
Ownership Plan
Swiss National Bank
systemically relevant banks
Single Resolution Mecha-
nism
Single Supervisory Mecha-
nism
862
Information sources
Reporting publications
Other information
Annual publications: Annual report (SAP no. 80531): Published
in both English and German, this single volume report provides a
description of our Group strategy and performance; the strategy
and performance of the business divisions and the Corporate
Center; a description of risk, treasury, capital management, cor-
porate governance, responsibility and senior management com-
pensation, including compensation for the Board of Directors and
the Group Executive Board members; and financial information,
including the financial statements. Review (SAP no. 80530): The
booklet contains key information on our strategy and financials. It
is published in English, German, French and Italian. Compensation
Report (SAP no. 82307): The report discusses our compensation
framework and provides information on compensation for the
Board of Directors and the Group Executive Board members. It is
published in English and German.
Quarterly publications: Letter to shareholders: The letter pro-
vides a quarterly update from executive management on our
strategy and performance. The letter is published in English, Ger-
man, French and Italian. Financial report (SAP no. 80834): The
quarterly financial report provides an update on our strategy and
performance for the respective quarter. It is published in English.
How to order reports: The annual and quarterly publications are
available in PDF on the internet at www.ubs.com/investors in the
“Financial information” section. Printed copies can be ordered
from the same website in the “Investor services” section, which
can be accessed via the link on the left-hand side of the screen.
Alternatively, they can be ordered by quoting the SAP number
and the language preference, where applicable, from UBS AG,
F4UK–AUL, P.O. Box, CH-8098 Zurich, Switzerland.
Website: The “Investor Relations” website at www.ubs.com/investors
provides the following information on UBS: news releases, financial
information, including results-related filings with the US Securities
and Exchange Commission, corporate information, including UBS
share price charts and data and dividend information, the UBS
corporate calendar and presentations by management for inves-
tors and financial analysts. Information on the internet is available
in English and German.
Result presentations: Our quarterly results presentations are
webcast live. A playback of most presentations is downloadable
at www.ubs.com/presentations.
Messaging service / UBS news alert: On the www.ubs.com/
newsalerts website, it is possible to subscribe to receive news
alerts about UBS via SMS or email. Messages are sent in English,
German, French or Italian and it is possible to state theme prefer-
ences for the alerts received.
Form 20-F and other submissions to the US Securities and
Exchange Commission: We file periodic reports and submit
other information about UBS to the US Securities and Exchange
Commission (SEC). Principal among these filings is the annual re-
port on Form 20-F, filed pursuant to the US Securities Exchange
Act of 1934. The filing of Form 20-F is structured as a “wrap-
around” document. Most sections of the filing can be satisfied by
referring to parts of the annual report. However, there is a small
amount of additional information in Form 20-F which is not pre-
sented elsewhere, and is particularly targeted at readers in the US.
Readers are encouraged to refer to this additional disclosure. Any
document that we file with the SEC is available to read and copy
on the SEC’s website, www.sec.gov, or at the SEC’s public refer-
ence room at 100 F Street, N.E., Room 1580, Washington, DC,
20549. Please call the SEC by dialing +1-800-SEC-0330 for fur-
ther information on the operation of its public reference room.
Please visit www.ubs.com/investors for more information.
863
Appendix
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 and statements relating to the anticipated effect of transactions and strategic initiatives
on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters de-
scribed, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations.
These factors include, but are not limited to: (i) the degree to which UBS is successful in executing its announced strategic plans, including its cost reduction and
efficiency initiatives and its planned further reduction in its Basel III risk-weighted assets (RWA) and leverage ratio denominator (LRD); (ii) developments 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 and interest
rates and the effect of economic conditions and market developments on the financial position or creditworthiness of UBS’s clients and counterparties; (iii) changes
in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings, or arising from requirements for bail-in debt or loss-absorbing
capital; (iv) changes in or the implementation of financial legislation and regulation in Switzerland, the US, the UK and other financial centers that may impose
more stringent capital (including leverage ratio), liquidity and funding requirements, incremental tax requirements, additional levies, limitations on permitted ac-
tivities, constraints on remuneration or other measures; (v) uncertainty as to when and to what degree the Swiss Financial Market Supervisory Authority (FINMA)
will approve reductions to the incremental RWA resulting from the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA, or will
approve a limited reduction of capital requirements due to measures to reduce resolvability risk; (vi) the degree to which UBS is successful in executing the an-
nounced creation of a new Swiss banking subsidiary and a US intermediate holding company, the squeeze-out to complete the establishment of a holding com-
pany for the UBS Group, changes in the operating model of UBS Limited and other changes which UBS may make in its legal entity structure and operating model,
including the possible consequences of such changes, and the potential need to make other changes to the legal structure or booking model of UBS Group in
response to legal and regulatory requirements, including capital requirements, resolvability requirements and proposals in Switzerland and other countries for
mandatory structural reform of banks; (vii) changes in UBS’s competitive position, including whether differences in regulatory capital and other requirements
among the major financial centers will adversely affect UBS’s ability to compete in certain lines of business; (viii) 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; (ix) the effects
on UBS’s cross-border banking business of tax or regulatory developments and of possible changes in UBS’s policies and practices relating to this business; (x) 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 com-
petitive factors including differences in compensation practices; (xi) changes in accounting or tax standards or policies, and determinations or interpretations af-
fecting the recognition of gain or loss, the valuation of goodwill, the recognition of deferred tax assets and other matters; (xii) limitations on the effectiveness of
UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (xiii) whether UBS will be successful in
keeping pace with competitors in updating its technology, particularly in trading businesses; (xiv) the occurrence of operational failures, such as fraud, unauthor-
ized trading and systems failures; and (xv) the effect that these or other factors or unanticipated events may have on our reputation and the additional conse-
quences 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 oc-
currence 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 SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings
made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2014. 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
are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the percentages and percent changes that would be derived
based on figures that are not rounded.
Tables | Within tables, blank fields generally indicate that the field is not applicable or not 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.
864
UBS Group AG
P.O. Box, CH-8098 Zurich
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com