UBS Group AG and UBS AG
Annual Report 2015
Contents
Letter to shareholders
2
5 UBS Group AG key figures
8 UBS and its businesses
10 Our Board of Directors
11 Our Group Executive Board
12 The making of UBS
15 The legal structure of UBS Group
17 External reporting concept
1. Operating environment
and strategy
20 Current market climate
22 Regulation and supervision
26 Regulatory and legal developments
33 Our strategy
39 Measurement of performance
41 Wealth Management
45 Wealth Management Americas
48 Personal & Corporate Banking
51 Asset Management
Investment Bank
54
57 Corporate Center
59 Risk factors
2. Financial and
operating performance
76 Critical accounting policies
81 Significant accounting and financial reporting changes
85 Group performance
102 Balance sheet
107 Off-balance sheet
110 Cash flows
111 Wealth Management
117 Wealth Management Americas
122 Personal & Corporate Banking
125 Asset Management
Investment Bank
132
138 Corporate Center
3. Risk, treasury and
capital management
Implementation of EDTF recommendations
152
160 Key developments
163 Risk management and control
234 Treasury management
248 Capital management
282 UBS Shares
4. Corporate governance, responsibility
and compensation
288 Corporate governance
325 UBS and Society
335 Our employees
342 Compensation
5. Consolidated
financial statements
393 UBS Group AG consolidated financial statements
563 UBS AG consolidated financial statements
6. Legal entity financial and
regulatory information
743 UBS Group AG
766 Establishment of UBS Switzerland AG
772 UBS AG
800 UBS Switzerland AG
823 UBS Limited
7. Additional regulatory
information
831 UBS Group AG consolidated supplemental disclosures
required under SEC regulations
853 UBS Group AG consolidated supplemental disclosures
required under Basel III Pillar 3 regulations
908 UBS AG consolidated supplemental disclosures required
under SEC regulations
Appendix
931 Abbreviations frequently used in our financial reports
933
934 Cautionary statement
Information sources
Annual Report 2015
Letter to shareholders
Dear shareholders,
In 2015, many of the macroeconomic and geopolitical issues we
highlighted in our outlook statements materialized, and in some
cases became more pressing. A number of developments contin-
ued to create uncertainty in global economic and financial mar-
kets: the mixed outlook on global growth; the absence of credible
improvements in the eurozone; fiscal and monetary uncertainty,
including the impact of negative rates; instability resulting from
falling commodity and energy prices, as well as rising geopolitical
tensions. In addition, a number of specific macroeconomic events
had a particular impact on UBS, including the Swiss National
Bank’s (SNB) decision in January to abandon its euro currency
floor, and the relative weakness of the Chinese economy in the
second half of the year.
Against this backdrop we stayed close to our clients while pru-
dently managing risk and resources to deliver a net profit attribut-
able to shareholders of CHF 6.2 billion, up 79% on the previous
year, our best full-year result in eight years. We also achieved a
full-year adjusted1 return on tangible equity of 13.7%, above our
full-year 2015 target of around 10%. In addition, we continued
to strengthen our capital position and reported a fully-applied
Swiss systemically relevant bank (SRB) common equity tier 1 capi-
tal ratio of 14.5% and a Swiss SRB leverage ratio of 5.3% at year
end, leaving us well-positioned to deal with both challenging
market conditions and the future requirements of the revised
Swiss too big to fail (TBTF) framework.
This strong performance was driven by the dedication of our
employees and the disciplined execution of our strategy and has
allowed us to deliver on our capital return commitment to share-
holders, even in a difficult environment. As previously announced
in our fourth-quarter earnings release, we are proposing an ordi-
nary dividend of CHF 0.60 per share, as well as a special dividend
of CHF 0.25 per share, reflecting a significant net upward revalu-
ation of deferred tax assets in 2015.
In 2015, Wealth Management’s adjusted1 profit before tax was
up 13% on the prior year to CHF 2.8 billion (reported CHF 2.7
billion), its best annual pre-tax adjusted1 profit since 2008. Wealth
Management Americas’ adjusted1 profit before tax was USD
874 million (reported USD 754 million) with record operating
income, and solid net new money of USD 21.4 billion. Personal
& Corporate Banking posted its best adjusted1 profit before tax
since 2010 with CHF 1.7 billion (reported CHF 1.6 billion) and
attracted a record number of new clients. Asset Management’s
adjusted1 profit before tax of CHF 610 million (reported CHF 584
million) was up 20% year on year, making progress towards its
medium-term profit target. The Investment Bank delivered a
strong performance with an adjusted1 profit before tax of CHF 2.3
billion (reported CHF 1.9 billion), and achieved an adjusted1 return
on attributed equity of 31% for the full year.
Over the past two years, we made significant investments to exe-
cute on a series of measures to improve the resolvability of the
Group in response to TBTF requirements in Switzerland and other
countries. In 2015, we transferred our Personal & Corporate
Banking and Wealth Management businesses booked in Switzer-
land from UBS AG to UBS Switzerland AG, and implemented a
more self-sufficient business and operating model for UBS Lim-
ited, our investment banking subsidiary in the UK. We established
UBS Business Solutions AG as a direct subsidiary of UBS Group
AG, to act as the Group service company. Also during 2015, UBS
AG established a new subsidiary, UBS Americas Holding LLC,
which we intend to designate as our intermediate holding com-
pany for our US subsidiaries in accordance with the new Dodd-
Frank rules for foreign banks in the US. The successful completion
of these measures not only improves the firm’s resolvability, but
should also allow us to qualify for a capital rebate under the pro-
posed new Swiss TBTF rules.
We were honored with a number of prestigious awards for opera-
tional excellence throughout the year. UBS dominated the recently
announced 2015 Euromoney awards, reclaiming the title “Best
Private Banking Services Overall” and “Best Global Wealth Man-
ager”. In July, UBS Switzerland confirmed its status as the coun-
try’s premier universal bank, taking the Euromoney prize for “Best
Bank in Switzerland” for the fourth year running. Our Investment
Bank was named “Bank of the Year” by the International Financ-
ing Review for the first time. The publication singled out the
Investment Bank’s remarkable transformation over the last few
years and the success of its client-centric model. UBS was also
named “Outstanding Global Private Bank – Overall” as well as
“Outstanding Global Private Bank – Asia Pacific” by Private Banker
International.
1 Refer to “Group performance” in the “Financial and operating performance” section of this report for more information on adjusted results.
2
Axel A. Weber
Chairman of the Board of Directors
Sergio P. Ermotti
Group Chief Executive Officer
3
Annual Report 2015
Letter to shareholders
We also continued to build on our position and reputation as a
sustainability leader. UBS was named industry group leader in the
Dow Jones Sustainability Indices (DJSI). DJSI praised our role in
offering a variety of sustainability-focused portfolios, as well as
creating a reporting framework to help clients better understand
these investments. As of 31 December 2015, sustainable invest-
ments increased to CHF 934 billion, representing over a third of
total invested assets. As the United Nations’ COP21 Climate
Change Summit convened in Paris in November, we added our
voice in support of a comprehensive agreement of all parties to
combat climate change and reduce greenhouse gas emissions. At
the same time, UBS reaffirmed its own commitment to limit the
effects of climate change and enable the transition to a low-
carbon economy.
In 2015, we expanded our program of community engagement.
Our global volunteer program saw 16,356 (27%) of our employees
contribute over 130,000 hours to community projects. In addition,
we donated over CHF 37 million to foundations in Switzerland,
and made direct cash contributions of over CHF 27 million to
a variety of global projects, more than 90% of which were in
support of education and entrepreneurial initiatives.
Technology and innovation remained a priority in 2015. We fur-
ther upgraded our IT infrastructure and enhanced our technology
offering for customers with our e- and mobile-banking solutions.
This included the award-winning Swiss peer-to-peer mobile pay-
ments application “Paymit,” and Wealth Management Online – a
new digital platform for Wealth Management clients in Switzer-
land and Europe International. Our Investment Bank continued to
upgrade UBS Neo, its highly innovative, award-winning client
platform, with further features and enhancements.
UBS also opened its own innovation lab at Level39, Europe’s larg-
est technology accelerator and incubator. The lab is exploring
potential applications for Blockchain and other disruptive digital
technologies in financial services. UBS received awards for “Most
Innovative Digital Offering” from Private Banker International and
“Most Innovative Investment Bank for Financial Institutions” by
The Banker. UBS’s commitment to and interest in innovation was
also highlighted by the launch of the first ever UBS Future of
Finance Challenge, an international competition for entrepre-
neurs and technology startups developing ideas and solutions for
the financial services industry. The competition attracted over 600
entrants from 50 countries.
We would like to take this opportunity to thank both our sharehold-
ers and our clients for their continued support. 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 over the
long term and continue to deliver attractive returns to shareholders.
We look forward to seeing many of you at this year’s AGM.
18 March 2016
Yours sincerely,
UBS
Axel A. Weber
Chairman of the
Board of Directors
Sergio P. Ermotti
Group Chief Executive Officer
4
UBS Group AG key figures1
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 indicators3
Profitability
Return on tangible equity (%)
Return on assets, gross (%)
Cost / income ratio (%)
Growth
Net profit growth (%)
Net new money growth for combined wealth management businesses (%)4
Resources
Common equity tier 1 capital ratio (fully applied, %)5
Leverage ratio (phase-in, %)6
Additional information
Profitability
Return on equity (RoE) (%)
Return on risk-weighted assets, gross (%)7
Resources
Total assets
Equity attributable to UBS Group AG shareholders
Common equity tier 1 capital (fully applied)5
Common equity tier 1 capital (phase-in)5
Risk-weighted assets (fully applied)5
Risk-weighted assets (phase-in)5
Common equity tier 1 capital ratio (phase-in, %)5
Total capital ratio (fully applied, %)5
Total capital ratio (phase-in, %)5
Leverage ratio (fully applied, %)6
Leverage ratio denominator (fully applied)6
Leverage ratio denominator (phase-in)6
Liquidity coverage ratio (%)8
Other
Invested assets (CHF billion)9
Personnel (full-time equivalents)
Market capitalization10
Total book value per share (CHF)10
Tangible book value per share (CHF)10
As of or for the year ended
31.12.15
31.12.14
31.12.13
30,605
25,116
5,489
6,203
1.64
13.7
3.1
81.8
79.0
2.2
14.5
6.2
11.8
14.1
942,819
55,313
30,044
40,378
207,530
212,302
19.0
22.9
26.8
5.3
897,607
904,014
124
2,689
60,099
75,147
14.75
13.00
28,027
25,567
2,461
3,466
0.91
8.2
2.8
91.0
9.3
2.5
13.4
5.4
7.0
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
123
2,734
60,155
63,526
13.94
12.14
27,732
24,461
3,272
3,172
0.83
8.0
2.5
88.0
3.4
12.8
4.7
6.7
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
110
2,390
60,205
65,007
12.74
11.07
1 Represents information for UBS Group AG (consolidated). Comparative information as of 31 December 2013 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 “The legal structure of UBS Group” section and to “Note 1 Summary of significant accounting policies” in the “Consolidated financial statements” section of
this report for more information. 2 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” in the “Consolidated financial statements” section of this report for more information. 3 Refer to the “Measure-
ment of performance” section of this report for the definitions of our key performance indicators. 4 Based on adjusted net new money, which excludes the negative effect on net new money in 2015 of CHF 9.9 billion
from our balance sheet and capital optimization program. 5 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRBs). Refer to the “Capital management” section of this report for more
information. 6 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the Swiss SRB leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are
calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital management” section of this report for more information. 7 Based on phase-in risk-weighted
assets. 8 Refer to the “Liquidity and funding management” section of this report for more information. Figures reported for 31 December 2015 represent a 3-month average. Figures for 31 December 2014 and 31 Decem-
ber 2013 were calculated on a pro forma basis and represent spot numbers. 9 Includes invested assets for Personal & Corporate Banking. 10 Refer to the “UBS shares” section of this report for more information.
5
Annual Report 2015
Creating
value
Annual Review 2015
The Annual Review 2015 will be available
from mid-April 2016 as a tablet
publication in UBS Newsstand / Annual Review
(AppStore or Google Play Store).
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 Bahnhofstrasse 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. 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
6
Contacts
Switchboards
For all general inquiries.
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, London,
New York and Singapore.
UBS Group AG, Investor Relations
P.O. Box, CH-8098 Zurich, Switzerland
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 Group Company Secretary
The Group Company Secretary receives
inquiries on compensation and
related issues addressed to members of
the Board of Directors.
UBS Group AG, Office of the
Group Company Secretary
P.O. Box, CH-8098 Zurich, Switzerland
sh-company-secretary@ubs.com
Hotline +41-44-235 6652
Fax +41-44-235 8220
Shareholder Services
UBS’s Shareholder Services team, a unit
of the Group 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
inquiries in the US.
Computershare Trust Company NA
P.O. Box 30170
College Station
TX 77842–3170, USA
Shareholder online inquiries:
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 2016 report:
Tuesday, 3 May 2016
Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com
Annual General Meeting 2016:
Thursday, 10 May 2016
Language: English
Publication of the second quarter 2016 report:
Friday, 29 July 2016
Publication of the third quarter 2016 report:
Tuesday, 1 November 2016
© UBS 2016. The key symbol and UBS are among the registered and
unregistered trademarks of UBS. All rights reserved.
Corporate calendar UBS AG
Publication of the first quarter 2016 report:
Friday, 6 May 2016
Additional publication dates of quarterly and annual reports
will be made available as part of the corporate calendar of UBS AG at
www.ubs.com/investors.
7
Annual Report 2015
UBS and its businesses
We provide financial advice and solutions to private, institutional and corporate clients worldwide, as well as private
clients in Switzerland. The operational structure of the Group is comprised of our Corporate Center and five business
divisions: Wealth Management, Wealth Management Americas, Personal & Corporate Banking, Asset Management and
the Investment Bank. 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, in order to generate attractive and sustainable returns for our shareholders. All of our businesses are
capital-efficient and benefit from a strong competitive position in their targeted markets.
Wealth Management
Personal & Corporate Banking
Wealth Management provides comprehensive advice and finan-
cial services to wealthy private clients around the world, with the
exception of those served by Wealth Management Americas. UBS
is a global firm with global capabilities, and its clients benefit from
a full spectrum of resources, including wealth planning, invest-
ment management solutions and corporate finance advice, bank-
ing and lending solutions, as well as a wide range of specific offer-
ings. Wealth Management’s guided architecture model gives
clients access to a wide range of products from the world’s lead-
ing third-party institutions that complement its 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. Its business includes UBS’s domestic US and
Canadian wealth management businesses, as well as interna-
tional business booked in the US. It provides a fully integrated set
of wealth management solutions designed to address the needs
of ultra high net worth and high net worth clients.
Effective January 2016, the business division Retail & Corporate was
renamed Personal & Corporate Banking. This change is reflected
throughout this report.
Personal & Corporate Banking provides comprehensive finan-
cial products and services to UBS’s private, corporate and institu-
tional clients in Switzerland, maintaining a leading position in
these segments and embedding its offering in a multi-channel
approach. The business is a central element of UBS’s universal
bank delivery model in Switzerland, supporting other business
divisions by referring clients and growing the wealth of the firm’s
private clients so they can be transferred to Wealth Management.
Personal & Corporate Banking leverages the cross-selling poten-
tial of UBS’s asset-gathering and investment bank businesses, and
manages a substantial part of UBS’s Swiss infrastructure and
banking products platform.
8
Asset Management
Corporate Center
Corporate Center is comprised of Services, Group Asset and
Liability Management (Group ALM) and Non-core and Legacy
Portfolio. Services includes the Group’s control functions such as
finance, risk control (including compliance) and legal. In addition,
it provides 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 out-
sourcing, nearshoring and offshoring. Group ALM is responsible
for centrally managing the Group’s liquidity and funding position,
as well as providing other balance sheet and capital management
services to the Group. 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.
Effective October 2015, the business division Global Asset Man-
agement was renamed Asset Management. This change is reflected
throughout this report.
Asset Management is a large-scale asset manager, with a pres-
ence in 22 countries. It offers investment capabilities and invest-
ment styles across all major traditional and alternative asset classes
to institutions, wholesale intermediaries and wealth management
clients around the world. It is a leading fund house in Europe, the
largest mutual fund manager in Switzerland, the third-largest
international asset manager in Asia, the second largest fund of
hedge funds manager and one of the largest real estate invest-
ment managers in the world.
Investment Bank
The Investment Bank provides corporate, institutional and wealth
management clients with expert advice, innovative solutions, exe-
cution and comprehensive access to international capital markets.
It offers advisory services and provides in-depth 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
Investment Bank is an active participant in capital markets flow
activities, including sales, trading and market-making across a
range of securities.
9
Annual Report 2015
Our Board of Directors as of 31 December 2015
5
9
8
1
10
3
7
6
2
4
1 Axel A. Weber Chairman of the Board of Directors / Chairperson of the Corporate Culture and Responsibility Committee / Chairper-
son of the Governance and Nominating Committee 2 David Sidwell Senior Independent Director / Chairperson of the Risk Commit-
tee / member of the Governance and Nominating Committee 3 Reto Francioni Member of the Compensation Committee / member
of the Corporate Culture and Responsibility Committee / member of the Risk Committee 4 Ann F. Godbehere Chairperson of the
Compensation Committee / member of the Audit Committee 5 William G. Parrett Chairperson of the Audit Committee / member
of the Compensation Committee / member of the Corporate Culture and Responsibility Committee 6 Isabelle Romy Member of the
Audit Committee / member of the Governance and Nominating Committee 7 Beatrice Weder di Mauro Member of the Audit
Committee / member of the Risk Committee 8 Joseph Yam Member of the Corporate Culture and Responsibility Commit-
tee / member of the Risk Committee 9 Axel P. Lehmann Member of the Risk Committee until 31 December 2015
10 Jes Staley (resigned as of 28 October 2015) Michel Demaré (not on this picture) Independent Vice Chairman / member of the
Audit Committee / member of the Compensation Committee / member of the Governance and Nominating Committee
The Board of Directors (BoD) of UBS Group AG and UBS AG, each
under the leadership of the Chairman, consists of six to twelve
members as per our Articles of Association (AoA). The BoD
decides on the strategy of the Group upon recommendation of
the Group Chief Executive Officer (Group CEO) and is responsible
for the overall direction, supervision and control of the Group and
its management as well as for supervising compliance with appli-
cable laws, rules and regulations. The BoD exercises oversight
over UBS Group AG and its subsidiaries and is responsible for
ensuring the establishment of a clear Group governance frame-
work to ensure effective steering and supervision of the Group,
taking into account the material risks to which UBS Group AG and
its subsidiaries are exposed. The BoD has ultimate responsibility
for the success of the Group and for delivering sustainable share-
holder value within a framework of prudent and effective con-
trols, approves all financial statements for issue and appoints and
removes all Group Executive Board (GEB) members.
10
Our Group Executive Board as of 31 December 2015
7
10
8
1
9
3
2
6
4
5
1 Sergio P. Ermotti Group Chief Executive Officer 2 Markus U. Diethelm Group General Counsel 3 Lukas Gähwiler President
Personal & Corporate Banking and President UBS Switzerland 4 Ulrich Körner President Asset Management and President
UBS Europe, Middle East and Africa 5 Tom Naratil Group Chief Financial Officer and Group Chief Operating Officer until 31 Decem-
ber 2015 / President Wealth Management Americas and President UBS Americas as of 1 January 2016 6 Andrea Orcel President
Investment Bank 7 Jürg Zeltner President Wealth Management 8 Philip J. Lofts Group Chief Risk Officer until 31 December 2015
9 Robert J. McCann President Wealth Management Americas and President UBS Americas until 31 December 2015 10 Chi-Won
Yoon President UBS Asia Pacific until 31 December 2015
UBS Group AG and UBS AG operate under a strict dual board
structure, as mandated by Swiss banking law, and therefore the
BoD delegates the management of the business to the GEB.
Under the leadership of the Group CEO, the GEB has executive
management responsibility for the steering of the Group and its
business. It assumes overall responsibility for developing the
Group and business division strategies and the implementation of
approved strategies.
➔ Refer to “Board of Directors” and “Group Executive Board”
in the “Corporate governance” section of this report or
to www.ubs.com/bod and www.ubs.com/geb, for the full
biographies of our BoD and GEB members
11
Annual Report 2015
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 real-
ity, the size and international reach of the Swiss banking sector
today is largely a product of the second half of the 20th century,
strongly influenced by two banks: Union Bank of Switzerland 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 historical pillar
of UBS’s Investment Bank, commenced operations in 1946.
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(cid:19)(cid:26)(cid:21)(cid:20)(cid:2)(cid:2)
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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
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 Swiss bank of its time,
pursued these goals primarily through a strategy of organic
growth. In contrast, SBC, then the third-largest Swiss bank, grew
mainly through a combination of partnerships and acquisitions. In
1989, SBC started a joint venture with O’Connor, a leading US
derivatives firm, before fully acquiring it in 1992. In 1994, SBC
added to its capabilities when it acquired Brinson Partners, a lead-
ing US-based institutional asset management 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 institutional
client franchise that remains crucial to our equities business to
this day.
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(cid:20)(cid:18)(cid:18)(cid:18)
13
(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 2015
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. Over the last 50+ years, UBS has established a strong pres-
ence in the Asia Pacific region, where it is the leading wealth man-
ager and a top-tier investment bank, as well as in the emerging
markets.
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
fourth quarter of 2009, we incurred significant losses on these
types of assets. We responded with decisive action, designed to
reduce risk exposures and stabilize our businesses, including rais-
ing capital. Since then, we have continued to improve the firm’s
capital strength to meet new and enhanced industry-wide regu-
latory requirements. Our position as one of the world’s best-capi-
talized banks, together with our stable funding and sound liquid-
ity positions, provides us with a solid foundation for our success.
In 2012, the year of our 150th anniversary, we accelerated the
strategic transformation to create a business model that is better
adapted to the new regulatory and market conditions and that
we believe results in more consistent and high-quality returns.
To this effect, we launched the Pillars, Principles and Behaviors in
2014 as a foundation for our new corporate strategy, identity and
culture. In the same year, we established UBS Group AG as the
Group holding company and, in 2015, we transferred the Per-
sonal & Corporate Banking and the Wealth Management busi-
ness booked in Switzerland from UBS AG to the wholly owned
subsidiary UBS Switzerland AG, with its own banking license,
thereby significantly advancing our strategic transformation
process.
We remain committed to executing our strategy aimed at
ensuring the firm’s long-term success and delivering sustainable
returns for our shareholders.
➔ Refer to www.ubs.com/history for more information on UBS’s
history of more than 150 years
14
The legal structure of UBS Group
Over the past two years, we have undertaken a series of measures
to improve the resolvability of the Group in response to too big to
fail (TBTF) requirements in Switzerland and other countries in
which the Group operates.
In December 2014, UBS Group AG completed an exchange
offer for the shares of UBS AG and established UBS Group AG as
the holding company for UBS Group.
During 2015, UBS Group AG filed and completed a court
procedure under article 33 of the Swiss Stock Exchange Act
(SESTA procedure) resulting in the cancellation of the shares of
the remaining minority shareholders of UBS AG. As a result, UBS
Group AG now owns 100% of the outstanding shares of UBS AG.
In June 2015, we transferred our Personal & Corporate Bank-
ing and Wealth Management business booked in Switzerland
from UBS AG to UBS Switzerland AG.
In the second quarter of 2015, we also completed the imple-
mentation of a more self-sufficient business and operating model
for UBS Limited, our investment banking subsidiary in the UK,
under which UBS Limited bears and retains a larger proportion of
the risk and reward in its business activities.
(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: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: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:23)
(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:19)(cid:18)(cid:18)(cid:7)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:35)(cid:41)
(cid:19)(cid:18)(cid:18)(cid:7)(cid:19)
(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:19)(cid:18)(cid:18)(cid:7)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:53)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:35)(cid:41)
(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:55)(cid:36)(cid:53)(cid:2)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)
(cid:42)(cid:81)(cid:78)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:46)(cid:46)(cid:37)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:46)(cid:75)(cid:79)(cid:75)(cid:86)(cid:71)(cid:70)
(cid:55)(cid:36)(cid:53)(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:35)(cid:41)
(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:19)(cid:18)(cid:18)(cid:7)
(cid:55)(cid:36)(cid:53)(cid:2)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)
(cid:43)(cid:80)(cid:69)(cid:16)
(cid:21)(cid:18)(cid:7)
141.553 mm
(cid:19)(cid:18)(cid:18)(cid:7)
(cid:19)(cid:18)(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:2)
(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:2)
(cid:43)(cid:80)(cid:69)(cid:16)
(cid:55)(cid:36)(cid:53)(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:46)(cid:46)(cid:37)
(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: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)
15
Annual Report 2015
In the third quarter, we established UBS Business Solutions AG
as a direct subsidiary of UBS Group AG to act as the Group service
company. We will transfer the ownership of the majority of our
existing service subsidiaries to this entity. We expect that the
transfer of shared service and support functions into the service
company structure will be implemented in a staged approach
through 2018. The purpose of the service company structure is to
improve the resolvability of the Group by enabling us to maintain
operational continuity of critical services should a recovery or res-
olution event occur.
Also during 2015, UBS AG established a new subsidiary, UBS
Americas Holding LLC, which we intend to designate as our inter-
mediate holding company for our US subsidiaries prior to the 1 July
2016 deadline under new rules for foreign banks in the US pursu-
ant to the Dodd-Frank Wall Street Reform and Consumer Protec-
tion Act (Dodd-Frank). During the third quarter of 2015, UBS AG
contributed its equity participation in the principal US operating
subsidiaries to UBS Americas Holding LLC to meet the requirement
under Dodd-Frank that the intermediate holding company own all
of our US operations, except branches of UBS AG.
➔ Refer to the “Legal entity financial and regulatory information”
section of this report for more information
We have also established a new subsidiary of UBS AG, UBS
Asset Management AG, into which we expect to transfer the
majority of the operating subsidiaries of Asset Management dur-
ing 2016. We continue to consider further changes to the legal
entities used by Asset Management, including the transfer of
operations conducted by UBS AG in Switzerland into a subsidiary
of UBS Asset Management AG.
Our strategy, our business and the way we serve the vast
majority of our clients are not affected by these changes. These
plans do not create the need 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 and
UBS Switzerland AG, along with our other announced measures,
will substantially enhance the resolvability of the Group. The Swiss
Financial Market Supervisory Authority (FINMA) has confirmed
that these measures are in principle suitable to warrant a capital
requirement rebate under the current Swiss capital regulation.
Therefore, the Group should qualify for a rebate on the gone con-
cern requirements under the new Swiss TBTF proposal, which
should result in lower overall capital requirements for the Group.
The amount and timing of any such rebate will depend on the
actual execution of these measures and can therefore only be
specified once all measures have been implemented.
We continue to consider further changes to the Group’s legal
structure in response to capital and other regulatory require-
ments, and in order to obtain any rebate in capital requirements
for which the Group may be eligible. Such changes may include
the transfer of operating subsidiaries of UBS AG to become direct
subsidiaries of UBS Group AG, consolidation of operating sub-
sidiaries in the European Union, and adjustments to the booking
entity or location of products and services. These 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 their feasibility, scope or timing.
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
“UBS Switzerland AG”
“UBS Limited”
UBS Switzerland AG on a standalone basis
UBS Limited on a standalone basis
16
External reporting approach
General requirements
Our Annual Reports and Form 20-F
Our external reporting requirements and the scope of our external
reports are defined by general accounting law and principles,
relevant stock and debt listing rules, specific legal and regulatory
requirements, as well as by our own financial reporting policies.
As a global firm with shares listed both on the SIX Swiss Exchange
and the NYSE, we have to prepare and publish consolidated
financial statements in accordance with International Financial
Reporting Standards (IFRS) on at least a half-yearly basis. How-
ever, we have decided to publish our results on a quarterly basis in
order to provide shareholders with more timely disclosures than
required by law. Additionally, statutory financial statements are
prepared annually as the basis for our Swiss tax return, the appro-
priation of retained earnings and a potential distribution of divi-
dends, subject to shareholder approval at the Annual General
Meeting (AGM). Management’s discussion and analysis (MD&A)
complements our annual financial statements by providing infor-
mation on (i) our strategy and the environment in which we
operate, (ii) the financial and operating performance of our busi-
ness divisions and Corporate Center, (iii) our risk, treasury and
capital management and (iv) our corporate governance, corporate
responsibility and compensation frameworks.
Content of our external reporting documents
Information on UBS Group AG and on UBS AG is available on
www.ubs.com/investors as follows:
– 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, and
– An Annual Report for UBS Group AG only.
The MD&A included in the combined Annual Report is on a
UBS Group AG consolidated basis, unless otherwise specified. In
particular, specific UBS AG (consolidated) information is provided
with respect to risk profile, capital and leverage ratio, as well as
corporate governance. Financial information for UBS AG (consoli-
dated) does not differ materially from UBS Group AG on a con-
solidated basis. Refer to the table “Comparison UBS Group AG
(consolidated) versus UBS AG (consolidated)” in the “Consolidated
financial statements” section of this report for more information.
Section
All electronic
versions of our
reports are
available on
www.ubs.com/
investors
Prepared in
accordance with
1. Operating
environment
and strategy
2. Financial
and
operating
performance
3. Risk,
treasury
and capital
manage-
ment
4. Corporate
governance,
responsibility
and com-
pensation
5. UBS
Group AG
consolidated
financial
statements
6. UBS
Group AG
standalone
financial
statements
7. UBS
Group AG
consolidated
SEC
disclosures
5. UBS AG
consolidated
financial
statements
6. UBS AG
standalone
financial
statements 3
7. UBS AG
consolidated
SEC
disclosures
7. UBS
Group AG
consolidated
Basel III
Pillar 3
disclosures
GRI /
Ordinance2
IFRS
Swiss
Code of
Obliga-
tions
SEC
require-
ments
Basel III
IFRS
Swiss
federal
banking
law
SEC
require-
ments
6. UBS Lim-
ited selected
financial
information 3
6. UBS
Switzerland
AG stand-
alone finan-
cial state-
ments 3
Swiss
federal
banking
law
Audited / unaudited
Unaudited1
Audited
Unaudited Unaudited
Audited
Unaudited
Audited
Unaudited
These sections are based on the consolidated UBS Group.
Language Publication
English
Electronic
UBS Group AG and UBS AG
Annual Report 2015
English
German
Electronic
and
printed
Electronic
and
printed
UBS Group AG
Annual Report 2015
4
4
4
4
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 4, only the compensation report is
audited. Content of the sections “UBS and Society” 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 sections “UBS and Society” 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 This section includes legal entity regulatory information prepared in accordance with Basel III. 4 The printed
version of this report only contains summarized financial statements for UBS AG (standalone) and UBS Switzerland AG (standalone).
17
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 satisfy Basel Pillar 3 disclosure requirements, respectively.
A “triangle” symbol – – indicates the end of the signpost.
Operating environment and strategy
Current market climate
Current market climate
The global economy expanded in aggregate, but divergent growth trends were in evidence, and disinflationary
factors persisted.
Global economic developments in 2015
2015 was a year of expanding global output, characterized by
gradual improvement in advanced economies, set against a con-
tinued slowing in emerging economies.
Many large advanced economies – in particular, the eurozone
and Japan – enjoyed a stronger pace of economic activity, under-
pinned by continued loose monetary policy. However, global infla-
tion rates remained unexpectedly low, as a result of a rebalancing
of the Chinese economy, ongoing deleveraging in corporate sec-
tors with excessive debt and oversupply, and continued commod-
ity price declines driven by supply / demand imbalances.
A number of macroeconomic and geopolitical shocks impacted
the path of global economic expansion. Particularly noteworthy
were the fear of a Greek exit from the eurozone, a first quantita-
tive easing package from the European Central Bank, which was
extended later in the year, extreme volatility in Chinese onshore
equity markets, uncertainty around the timing and speed of
US interest rate rises, and policy decisions by the Swiss National
Bank (SNB).
Switzerland
In UBS’s home market, the year began with a decision by the SNB
to discontinue 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 exemp-
tion threshold by 50 basis points to negative 0.75%.
This move created difficult conditions for Swiss franc deposi-
tors, and reduced the profitability of many financial market trans-
actions in Swiss francs. In aggregate, continued Swiss franc
strength against the euro, as well as the British pound, led to
material deflationary pressures on the local economy and nega-
tively affected the contribution of net exports and inventories to
Swiss economic growth.
However, strong domestic consumption trends continued,
aided in part by an annual population growth of 1.2%.
United States
The US economy expanded modestly and consumer spending
remained the biggest contributor to economic growth. However,
a strong US dollar dampened the growth contribution from net
exports. Business sentiment and investment intentions remained
cautious, given concerns over worldwide growth in demand.
US labor markets showed significant improvements, as the
unemployment rate declined and real labor income increased. The
Board of Governors of the Federal Reserve System (Federal
Reserve) determined labor market and core inflation data to be
sufficiently strong to raise the target range of the federal funds
rate in December 2015 from 0–0.25% to 0.25–0.5%, the first
interest rate hike in nine years.
Eurozone
In the eurozone, economic growth gained momentum, as mone-
tary policy efforts fostered lending growth. The European Central
Bank announced monetary policy-easing measures in January
2015, specifically a quantitative easing program of EUR 60 billion
per month to lower economy-wide borrowing costs. The resulting
euro depreciation also offered significant support to export-ori-
ented eurozone economies.
Significant easing in financial conditions in the first quarter of
2015 supported stronger monetary growth and real activity. This
was corroborated by stronger lending growth via the banking
sector. However, despite these positive developments, concerns
over the economic slowdown and rebalancing in emerging mar-
kets, notably China, led to some softening in real activity and con-
fidence indicators in the latter half of the year. Fiscal conditions
moved from significant austerity toward a neutral position with
respect to growth impact.
20
Japan
The pace of Japanese economic growth improved compared to
the recession in 2014, but was constrained by relatively low wage
growth. An increase in sales taxes implemented in April 2014 con-
tinued to weigh on consumer demand through 2015, and lower
energy prices were not sufficient to offset slow wage growth.
Additionally, the aforementioned sales tax increase did not raise
core inflation, which lingered well below the Bank of Japan’s 2%
target throughout the second half of 2015.
Concerns over the impact of slower growth in China, and the
reluctance of the Bank of Japan to further loosen its monetary
policy, also impacted international demand for Japanese goods
and services.
China
In China, policymakers responded to private-sector debt imbal-
ances and excess industrial capacity with material easing in mon-
etary and banking financial conditions. However, GDP growth
continued to slow compared with prior years.
High private-sector leverage, a large policy-induced switch
from investment-driven to consumption-driven growth, and a
deceleration in property market activity resulted in slowing indus-
trial output, tightening of onshore financing conditions, and
building domestic deflationary pressures. Lower demand for com-
modities also reflected global disinflationary forces, which were
supplemented by a surprise devaluation of the Chinese yuan
against the US dollar in August.
A mixture of tighter macroprudential policy and less state sup-
port for overindebted businesses led to higher credit spreads and
sharp equity market declines as a speculation bubble in the stock
market unwound. The Chinese authorities responded with several
interest rate and reserve ratio requirement cuts, which resulted in
some evidence of a stabilizing real economic growth trend, albeit
at a lower level, by year-end.
In late November, the Chinese yuan was accepted for inclusion
in the International Monetary Fund’s Special Drawing Rights bas-
ket, with effect from October 2016.
Other emerging markets
Other major emerging markets continued to face challenges
ranging from overly tight domestic financial conditions, inflation
pressures arising from currency depreciation, and lower commod-
ity prices.
Large depreciation in local currencies and higher costs of bor-
rowing were seen in select emerging countries, as the prospect
and eventual decision from the Fed to raise US interest rates
resulted in a strengthening US dollar and elevated costs of exter-
nal funding.
The Russian economy was particularly impacted by ongoing
economic sanctions, negative ramifications of a lower oil price on
government finances and the weakness of the Russian ruble
against the US dollar. Local financial conditions remained tight,
following the Central Bank of Russia’s moves to stem the declin-
ing international value of the currency by raising domestic policy
interest rates late in 2014.
Geopolitical developments, such as corruption allegations in
Brazil and tensions between oil-producing Saudi Arabia and Iran,
highlighted the idiosyncratic risks of doing business and investing
in emerging economies.
Economic and market outlook for 2016
Based on UBS Research’s economic models, we expect a modest
slowing in the pace of global economic expansion in 2016, with
significant underlying differences in growth rates dependent on
the degree of economy-wide deleveraging.
The US, where private sector deleveraging is most advanced,
should enjoy higher labor income gains and robust domestic con-
sumer activity. However, inventory effects and lower investment
due to oil price declines may offset this positive consumer out-
look. Additionally, the US high-yield bond market may experience
an increase in defaults, concentrated particularly in the energy
sector.
In the eurozone, we observe persistent support from loose
monetary policy and expect a rise in real disposable spending
power, more readily available credit, and mildly expansionary fis-
cal policy. Together, these factors should support a moderate
improvement in growth prospects.
Swiss economic growth should continue at a pace similar to
2015, and we expect downward pressure on year-on-year infla-
tion to persist due to the ongoing impact of low commodity
prices.
Japan’s economic growth will likely remain heavily dependent
on domestic demand. The negative impact of lower oil prices on
consumer price inflation should abate, but inflation is expected to
miss the Bank of Japan’s 2% inflation target in 2016.
We expect emerging markets to stabilize in aggregate, but
exhibit heterogeneous growth paths. We believe China is likely to
avoid a hard landing as a result of continued monetary policy
loosening and fiscal stimulus. However, the broader Asia region
may remain under pressure from slower trade growth, high levels
of debt, and disinflationary pressures.
We are closely monitoring a number of potential geopolitical
risks. These include, but are not limited to, uncertainty over the
UK’s status in the EU; the impact of migration on European poli-
tics; disruptions to political systems driven by emergent political
parties or organizations; an escalation of geopolitical tension in
the Middle East and North Africa; and acts of terrorism or cyberat-
tacks. The realization of any of these risks could pose wider chal-
lenges to the global economic outlook.
21
Operating environment and strategy Operating environment and strategy
Regulation and supervision
Regulation and supervision
The Swiss Financial Market Supervisory Authority 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
requirements and supervision of our business in Switzerland as well as in the US and the UK, our next two largest
areas of operations.
UBS Group AG and its subsidiaries are subject to consolidated
supervision by the Swiss Financial Market Supervisory Authority
(FINMA) under the Swiss Federal Law on Banks and Savings Banks
(Banking Act), and the related ordinances which impose require-
ments, including minimum capital, liquidity, risk concentration
and organizational requirements. Through UBS AG and UBS Swit-
zerland AG, which are licensed as banks in Switzerland, we may
engage in a full range of financial services activities in Switzerland
and abroad, including personal banking, commercial banking,
investment banking and asset management.
We are also subject to supervision and functional regulation in
the markets in which we operate outside of Switzerland, includ-
ing the US, the UK and the EU. Since the financial crisis of 2007–
2009, regulation of financial services firms has been undergoing
significant changes both in Switzerland and in the other countries
where we operate. These changes, which continue to require sig-
nificant resources to implement, have a significant effect on how
we conduct our business and result in increased ongoing costs.
➔ Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
Regulation and supervision in Switzerland
Capital regulation
A revised banking ordinance and capital adequacy ordinance
implementing the Basel III capital standards and the Swiss too big
to fail (TBTF) law became effective on 1 January 2013.
In 2015, the Swiss Federal Council published proposed revi-
sions to the Swiss TBTF framework. For Swiss systemically relevant
banks (SRBs) that operate internationally, including UBS, the pro-
posal would increase the existing Swiss SRB capital requirements
based on risk-weighted assets (RWA) and the leverage ratio
denominator and would establish an additional “gone concern”
requirement, which, together with the going concern require-
ment, represents the total loss-absorbing capacity (TLAC) required
for Swiss SRBs. The new requirements would be phased in and
become fully applicable by 1 January 2020. The proposal would
make the Swiss capital regime among the most demanding in the
world. In addition, Swiss authorities have exercised authority to
impose countercyclical capital buffers for real estate related expo-
sures in Switzerland and we have agreed with FINMA to an incre-
mental operational risk capital buffer.
The Basel Committee on Banking Supervision (BCBS) has
issued far-reaching proposals on changes to the standardized
approach to credit risk and to the calculation of operational risk,
as well as a revised market risk framework. It has introduced man-
datory disclosure of RWA based on a harmonized approach. It is
also conducting a review of the risk-based capital framework and
is expected to issue proposals on the design of a capital floor
framework. We expect that Switzerland will incorporate the revi-
sions to the BCBS framework in its capital requirements following
completion of the proposals.
➔ Refer to the “Regulatory and legal developments,” “Risk factors”
and “Capital management” sections of this report for more
information
Liquidity and funding
As a Swiss SRB, we are required to maintain a liquidity coverage
ratio (LCR) of high-quality liquid assets to estimated stressed net
short-term funding outflows, and will be required to maintain a
net stable funding ratio (NSFR), 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.
➔ Refer to the “Treasury management” and “Risk factors” sections
of this report for more information
Resolution planning and resolvability
The revised Swiss Banking Act and capital adequacy ordinances
provide FINMA with additional powers to intervene in order to
prevent a failure or resolve a failing financial institution, including
UBS Group, UBS AG and UBS Switzerland AG. These measures
may be triggered when certain thresholds are breached and per-
mit the exercise of considerable discretion by FINMA in determin-
ing whether, when or in what manner to exercise such powers. In
case of a possible insolvency, FINMA may impose more onerous
requirements on us, including restrictions on the payment of divi-
dends 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 limita-
tions on intra-group funding and certain guarantees), or to reduce
business risk in some manner. The Swiss Banking Act also provides
FINMA with the ability to extinguish or convert to common equity
the liabilities of a bank in connection with its resolution.
22
Swiss TBTF requirements require Swiss SRBs, including UBS, to
put in place viable emergency plans to preserve the operation of
systemically important functions despite a failure of the institu-
tion, to the extent that such activities are not sufficiently sepa-
rated in advance. The current Swiss TBTF law provides for the
possibility of a limited rebate on capital requirements for Swiss
SRBs that adopt measures to reduce resolvability risk beyond what
is legally required. Such measures include changes to the legal
structure of a bank group in a manner that would insulate parts
of the group to exposure from risks arising from other parts of the
group, thereby making it easier to dispose of certain parts of the
group in a recovery scenario, to liquidate or dispose of certain
parts of the group in a resolution scenario or to execute a debt
bail-in. The proposal for a revised TBTF ordinance also contem-
plates a limited rebate on the proposed TLAC requirement based
on improvements to resolvability. However, there is no certainty
with respect to timing or size of a potential rebate.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on proposed revisions to the Swiss
TBTF framework
➔ Refer to “If we experience financial difficulties, FINMA has the
power to open resolution or liquidation proceedings or
impose protective measures in relation to UBS Group AG,
UBS AG or UBS Switzerland AG, and such proceedings
or measures may have a material adverse effect on our share-
holders and creditors”
in the “Risk factors” section of this report for more information
➔ Refer to the “The legal structure of UBS Group” section of this
report for more information
Supervision
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
requirements and on-site audits.
As we are considered systemically relevant in Switzerland, we
are subject to more rigorous supervision than most other Swiss
banks. To promote supervisory cooperation and coordination,
FINMA has implemented a Supervisory College and a Crisis Man-
agement College with US and UK authorities and an expanded
General Supervisory College, including more than a dozen of our
host regulators.
The Swiss National Bank (SNB) contributes to the stability of
the financial system through macro-prudential measures and
monetary policy, while also providing liquidity to the banking sys-
tem. It does not exercise any banking supervision authority and is
not responsible for enforcing banking legislation, but works
together with FINMA to assist in the regulation of Swiss systemi-
cally relevant banks.
➔ Refer to the “Regulatory and legal developments” and
“Risk factors” sections of this report for more information
Regulation and supervision outside of Switzerland
Regulation and supervision in the US
We maintain branches of UBS AG in the US and as a result, our
operations in the US are subject to overall regulation and supervi-
sion by the Board of Governors of the Federal Reserve (Federal
Reserve Board) under a number of laws. UBS AG has been desig-
nated a financial holding company under the Bank Holding Com-
pany Act of 1956, as amended (BHCA). Financial holding compa-
nies 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 entities. To maintain our financial holding company
status, (i) the Group and UBS Bank USA (a Federal Deposit Insur-
ance Corporation (FDIC)-insured depository institution subsidiary),
are required to meet certain capital ratios, (ii) the US branches of
UBS AG and UBS Bank USA are required to maintain certain
examination ratings, and (iii) UBS Bank USA is required to main-
tain a rating of at least “satisfactory” under the Community Rein-
vestment Act of 1977.
We are subject to Federal Reserve Board regulations issued
under the Dodd-Frank Act that from 1 July 2016 will require for-
eign banking organizations (FBO) operating in the US to hold all
US subsidiary operations through a single US intermediate hold-
ing company (IHC). The regulations require our IHC to meet risk-
based capital, leverage ratio and liquidity requirements, subject
the IHC to Federal Reserve Board stress test and capital plan
requirements and impose governance requirements on the IHC
and our operations in the US.
Regulations implementing the “Volcker Rule” became effec-
tive in July 2015. In general, the Volcker Rule prohibits any bank-
ing entity from engaging in proprietary trading and from owning
interests in hedge funds and other private fund vehicles. The Vol-
cker Rule also broadly limits investments and other transactional
activities between a bank and funds that the bank has sponsored
or with which the bank has certain other relationships. The Vol-
cker Rule permits us and other non-US banking entities to engage
in certain activities that would otherwise be prohibited to the
extent that they are conducted entirely outside the US and certain
other conditions are met. We have established a global compli-
ance and reporting framework to ensure compliance with the Vol-
cker Rule and the available exemptions. Although the full effect of
the Volcker Rule remains uncertain given the complexity of the
implementing regulations and the required compliance frame-
work, it could have a substantial impact on market liquidity and
the economics of market-making activities.
23
Operating environment and strategy Operating environment and strategy
Regulation and supervision
UBS AG maintains branches and representative offices in sev-
eral states, including Connecticut, Illinois, New York, California
and Florida. These branches are authorized and supervised either
by the Office of the Comptroller of the Currency (OCC) or the
state banking authority of the state in which the branch is located.
We also maintain a trust company and UBS Bank USA, which are
licensed and regulated by state regulators. 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 activity and prudential restrictions on the business and
operations of those branches and subsidiaries, including limits on
extensions of credit to any single borrower and on transactions
with affiliates.
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. These cir-
cumstances generally include violations of law, unsafe business
practices and insolvency. As long as we maintain one or more fed-
eral 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 unsatisfied. If exercised,
this federal power would pre-empt the state insolvency regimes
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 UBS’s US branches as a group, and then made available for appli-
cation pursuant to any Swiss insolvency proceeding.
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 securities and
futures business. These entities are regulated by a number of dif-
ferent government agencies and self-regulatory organizations,
including the Securities and Exchange Commission (SEC), the
Financial Industry Regulatory Authority, the Commodities Futures
Trading Commission (CFTC), the Municipal Securities Rulemaking
Board and the exchanges of which it is a member, depending on
the specific nature of the respective broker-dealer’s business. In
addition, the US states and territories have local securities com-
missions that regulate and monitor activities in the interest of
investor protection. These regulators have a variety of sanctions
available, including the authority to conduct administrative pro-
ceedings that can result in censure, fines, the issuance of cease-
and-desist orders or the suspension or expulsion of the broker-
dealer or its directors, officers or employees.
UBS Asset Management (Americas) Inc. and our other US-reg-
istered investment advisor entities are regulated primarily by the
SEC and are subject to regulations that cover all aspects of the
investment advisory business. Some of these entities are also reg-
istered with the CFTC as commodity trading advisors (CTAs)
and / or commodity pool operators (CPOs) and in connection with
their activities as CTAs and / or CPOs are regulated by the CFTC. To
the extent these entities manage plan assets of employee benefit
plans subject to the Employee Retirement Income Security Act of
1974, their activities are subject to regulation by the US Depart-
ment of Labor.
➔ Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
Regulation and supervision in the UK
Our operations in the UK are mainly regulated by two bodies: the
Prudential Regulation Authority (PRA), an affiliated authority of
the Bank of England, and the Financial Conduct Authority (FCA).
The PRA’s main objective relating to the banking sector is to
promote the safety and soundness of UK-regulated financial
firms. The FCA is responsible for securing an appropriate degree
of consumer protection, protecting the integrity of the UK finan-
cial 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
ability 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.
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,
client protection requirements and conduct of business rules,
such as the Markets in Financial Instruments Directive I and recov-
ery planning and other related requirements from the Bank
Recovery and Resolution Directive. These directives apply through-
out the EU and are reflected in the regulatory regimes of the
various member states.
➔ Refer to the “Regulatory and legal developments” and
“Risk factors” sections of this report for more information
Market regulation
Substantial changes in the laws and regulations governing
markets and trading activity have been enacted or are being
considered.
In June 2015, the Swiss Parliament adopted new regulation of
the financial market infrastructure in Switzerland which came into
effect on 1 January 2016 (subject to phase-in provisions) and
mandates the clearing of over-the-counter (OTC) derivatives with
a central counterparty.
24
In the EU, similar changes have been introduced largely
through the new Markets in Financial Instruments Directive (MiFID
II) and Regulation (MiFIR), that will make significant changes to
the OTC derivative markets, to the regulation and operation of
markets for other financial instruments, as well as to other related
laws. These directives and more detailed implementing measures
are expected to take effect in 2017. They will make significant
changes to the provision of financial services in and into the Euro-
pean Economic Area, including increased pre- and post-trade
transparency, further restrictions on the provision of inducements,
introduction of a new discretionary trading venue with the aim of
regulating broker crossing networks; increased regulation of algo-
rithmic trading activities; increased conduct of business require-
ments; and strengthened supervisory powers which include
powers for authorities to ban products or services in particular
situations.
In the US, several aspects of market regulation have been
addressed in the Dodd-Frank Act and subsequent additional rule-
making by the SEC and CFTC, including money market mutual
fund reforms, electronic trading platform disclosure, regulation
imposing systems and controls requirements, and new cybersecu-
rity requirements, under their respective authorities.
OTC derivatives regulation
In 2009, the G20 countries committed to require all standardized
OTC derivative contracts to be traded on exchanges or trading
facilities and cleared through central counterparties. This commit-
ment is being implemented through Dodd-Frank in the US and
corresponding legislation in the EU, Switzerland and other juris-
dictions, 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. These market changes are
likely to reduce the revenue potential of certain lines of business
for market participants generally, and we may be adversely
affected.
UBS AG registered as a swap dealer with the 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 security-
based swap dealer with the SEC, when its registration is required.
Regulations issued by the CFTC and those proposed by the SEC
impose substantial new requirements on registered swap dealers
for clearing, trade execution, transaction reporting, recordkeep-
ing, 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 the CFTC and SEC regulations continues
to present a substantial implementation burden, will likely dupli-
cate or conflict with legal requirements applicable to us outside
the US, including in Switzerland, and may put us at a competitive
disadvantage to firms that are not required to register as swap
dealers with the SEC or CFTC.
Anti-money laundering and anti-corruption
A major focus of US government policy relating to financial insti-
tutions in recent years has been combating money laundering and
terrorist financing. The US Bank Secrecy Act and other laws and
regulations applicable to UBS require the maintenance of effective
policies, procedures and controls to detect, prevent and report
money laundering and terrorist financing, and to verify the iden-
tity 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.
We are subject to laws and regulations in jurisdictions in which
we operate, including the US Foreign Corrupt Practices Act and
the UK Bribery Act, prohibiting corrupt or illegal payments to gov-
ernment officials and others. We maintain policies, procedures
and internal controls intended to comply with these laws and
regulations.
Data protection
We are subject to laws and regulations concerning the use and
protection of customer, employee and other personal information
and confidential information, including provisions under Swiss law,
the EU Data Protection Directive and laws of other jurisdictions.
Compensation practices
We are subject to laws and regulations and regulatory oversight
that significantly affect our compensation practices, including the
Minder initiative in Switzerland, which requires a shareholder vote
on the aggregate compensation of each of our Board of Directors
and Group Executive Board, FINMA ordinances and EU regulation.
These laws and regulations are intended to curb compensation
deemed excessive or to ensure that the compensation structure of
financial institutions does not encourage excessive risk-taking. We
have made significant changes to the structure of our compensa-
tion arrangements to comply with these requirements and may
make future changes as these requirements evolve.
25
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
Regulatory and legal developments
Key developments in Switzerland
EDTF | Proposed new requirements for Swiss systemically
relevant banks
In December 2015, the Federal Department of Finance published
for consultation a revised too big to fail (TBTF) ordinance based on
the cornerstones announced by the Swiss Federal Council in
October 2015. For Swiss systemically relevant banks (SRBs) that
operate internationally, the proposal would revise existing Swiss
SRB capital requirements and would establish additional gone
concern requirements, which, together with the going concern
requirement, represents the total loss-absorbing capacity, or
TLAC. TLAC encompasses regulatory capital such as common
equity tier 1 (CET1), additional tier 1 (AT1) and tier 2 capital as
well as liabilities that can be written down or converted into
equity in case of resolution or recovery measures. The proposal
would make the Swiss capital regime among the most demanding
in the world.
The proposed going concern capital requirements consist of
basic requirements for all Swiss SRBs to maintain a leverage ratio
of 4.5% and a ratio of capital to risk-weighted assets (RWA) of
12.9%. A progressive buffer would be added on top of the basic
requirements, reflecting the degree of systemic importance. The
progressive buffer for UBS is expected to be 0.5% of its leverage
ratio denominator (LRD) and 1.4% of RWA, resulting in total
going concern capital requirements of 5.0% of LRD and 14.3% of
RWA (excluding countercyclical buffer requirements). The going
concern leverage ratio proposal would require a minimum CET1
capital ratio of 3.5% of LRD and of up to 1.5% in high-trigger
AT1 capital instruments. The minimum CET1 capital requirement
will remain unchanged at 10% of RWA, and the balance of the
RWA-based capital requirement, i.e., 4.3%, may be met with
high-trigger AT1 instruments.
The gone concern requirements would be 5.0% of LRD and
14.3% of RWA for internationally active Swiss SRBs and may be
met with senior debt that is TLAC eligible. Banks would be eligible
for a reduction of the gone concern requirements if they demon-
strate improved resolvability.
The proposal envisages transitional arrangements for out-
standing low- and high-trigger tier 2 instruments to qualify as
going concern capital until the earlier of 31 December 2019 or
their maturity or first call date. Thereafter, they may be used to
meet the gone concern requirement until one year before matu-
rity. Low-trigger AT1 capital instruments will continue to qualify as
going concern capital until the first call date and thereafter may
also be used to meet the gone concern requirement. The pro-
posed Swiss TBTF ordinance would permit a reduction of up to
2% of the LRD and 5.7% of RWA gone concern requirements for
measures taken to improve resolvability. The amount and timing
of any such reduction will be determined by FINMA as such mea-
sures are implemented.
The new capital rules are expected to come into force as of
1 July 2016. We intend to use the four-year phase-in period to
fully implement the new requirements. We intend to meet the
new CET1 leverage ratio requirement of 3.5% by retaining suffi-
cient earnings while maintaining our commitment to total capital
returns to shareholders of at least 50% of net profit attributable
to shareholders, provided that we maintain a fully applied CET1
capital ratio of at least 13%, and consistent with our objective of
maintaining a post-stress fully applied CET1 capital ratio of at
least 10%. Furthermore, we plan to continue our issuance of AT1
instruments and TLAC-eligible senior debt to meet the new
requirements without increasing overall liabilities.
➔ Refer to “If we are unable to maintain our capital strength, this
may adversely affect our ability to execute our strategy, client
franchise and competitive position” in the “Risk factors” section
of this report for more information
In addition to defining the new capital requirements, the Swiss
Federal Council has proposed that the implementation of a
Swiss emergency plan be completed by the end of 2019. The
Swiss emergency plan defines the measures required to ensure a
continuation of systemically relevant functions in Switzerland.
26
EDTF | Comparison of current and proposed requirements
Capital ratio1
Leverage ratio2
28.6%3, 4
14.3%
Gone
concern4
Going
concern
0.8%
3.5%
5.5%
4.5%
1.1.2020
(proposed)
Gone
concern
Going
concern
17.5%3
4.5%
3.0%
5.5%
4.5%
31.12.19
(current)
Gone
concern
Going
concern
4.2%
1.1%
0.7%
1.3%
1.1%
31.12.19
(current)
10%4
5.0%
1.5%
2.0%
1.5%
1.1.2020
(proposed)
Gone
concern4
Going
concern
Base: CET1 capital
Buffer: CET1 capital
Buffer: high-trigger loss-absorbing capital5
Base: high-trigger additional tier 1 capital6
Buffer: high-trigger additional tier 1 capital6
Progressive buffer: low-trigger loss-absorbing capital
TLAC-eligible senior unsecured debt7
1 In percent of risk-weighted assets. 2 In percent of the leverage ratio denominator. 3 Does not include a countercyclical buffer requirement as potential future requirements cannot be accurately predicted. 4 This
requirement may be reduced by a resolvability rebate. 5 CET1 capital can be substituted by high-trigger loss-absorbing capital up to the stated percentage. 6 Low-trigger additional tier 1 capital instruments will continue
to qualify as going concern capital until first call date. 7 Any high- and low-trigger tier 2 capital instruments remaining after 2019 will qualify for the gone concern requirement until one year before maturity. ▲
Implementation of the global Automatic Exchange
of Information standard underway
In December 2015, the Swiss Parliament adopted proposals to
create the legal basis for the implementation of the global auto-
matic exchange of information (AEI) standard in tax matters. At
the same time, it ratified the joint Organization for Economic
Cooperation and Development (OECD) and Council of Europe
Convention on Mutual Administrative Assistance, as well as the
Multilateral Competent Authority Agreement.
Separately, the Swiss Parliament rejected in December 2015 a
draft law from the Swiss Federal Council for banks and other
financial intermediaries in Switzerland to comply with enhanced
due diligence requirements when accepting assets from clients
resident in states without an AEI agreement.
In November 2015, the Swiss Federal Council submitted the
EU-Swiss and the Australia-Swiss agreements on the AEI to Parlia-
ment for approval. In early 2016, consultations were initiated on
the implementation of the AEI with the British crown dependen-
cies of Jersey, Guernsey and the Isle of Man, as well as with Japan,
South Korea, Canada, Iceland and Norway. In the past, we have
experienced outflows of cross-border client assets from our Swiss
booking center as a result of changes in local tax regimes or their
enforcement.
➔ Refer to the “Risk factors” section of this report for more
information
27
30
25
20
15
10
5
0
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
Swiss Parliament adopts Financial Market Infrastructure Act
In June 2015, the Swiss Parliament adopted the Financial Market
Infrastructure Act (FMIA). The FMIA changes the regulation of
financial market infrastructure in Switzerland, to provide an inter-
national level playing field, and implements the G20 commit-
ments on over-the-counter (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
exchange or other trading facility once this has been introduced
in partner states. The FMIA also (i) introduces new licensing
requirements for stock exchanges, multilateral and organized
trading facilities, central counterparties, central securities deposi-
taries, trade repositories and payment systems, (ii) imposes trans-
parency requirements for securities trading on platforms and (iii)
establishes a basis for regulating high-frequency trading. The
FMIA also empowers the Swiss Federal Council to impose position
limits for commodity derivatives, should this be deemed necessary
at a later date. The new law entered into force in January 2016
together with the Swiss Federal Council’s Financial Market Infra-
structure Ordinance, the respective FINMA ordinance and amend-
ments to the SNB’s National Bank Ordinance. For some require-
ments, transitional periods are provided up to January and August
2017. The FMIA is expected to affect the way UBS trades securi-
ties and derivatives, particularly OTC derivatives, leading over time
to standardized OTC derivatives being centrally cleared to reduce
counterparty risk, and may have other effects on markets. In addi-
tion, the FMIA creates additional reporting obligations and will
require foreign financial market infrastructure to obtain FINMA
approval for providing services in Switzerland. UBS is taking the
necessary steps to prepare for implementation, including the ful-
fillment of organizational requirements, risk mitigation and OTC
trade reporting.
Financial Services Act and Financial Institutions Act
to enter parliamentary debate
On 4 November 2015, the Swiss Federal Council adopted the dis-
patch on the Financial Services Act (FinSA) and the Financial Insti-
tutions Act (FinIA). Both items will jointly enter parliamentary
debate in 2016. The FinSA primarily aims to improve client protec-
tion and has far-reaching consequences for the provision of finan-
cial services in Switzerland. The FinIA will provide a differentiated
supervisory regime for financial institutions and introduce a pru-
dential supervision of managers of individual client assets, man-
agers of the assets of occupational benefits schemes, and trust-
ees. A final assessment for both acts can only be made once the
parliamentary debate has been concluded.
Key developments in the EU
Bank Recovery and Resolution Directive
The Bank Recovery and Resolution Directive (BRRD) came into
force during 2014. This directive seeks to achieve a harmonized
approach to the recovery and resolution of banks in the EU and
broadly covers measures relating to recovery and resolution plan-
ning, early intervention powers for authorities and resolution
tools should a bank fail or be deemed likely to fail.
The majority of the Directive has been applicable from 1 Janu-
ary 2015, while the bail-in tool became applicable on 1 January
2016. UBS’s EU subsidiaries that are credit institutions or invest-
ment firms are subject to the requirements of the Directive, while
EU member states have the right to apply the provisions of the
Directive to UBS’s EU-based branches in certain circumstances.
The Single Resolution Mechanism (SRM) implements the BRRD
in the eurozone. The SRM became fully operational on 1 January
2016. The SRM is an important step in the completion of the
European Banking Union. The aim of the SRM is to ensure an
orderly resolution of failing banks with minimum impact on the
real economy and public finances of the participating member
states and beyond. The SRM establishes uniform rules and proce-
dures for the resolution of entities, removes obstacles to resolu-
tion in order to make the European banking system more secure,
and ensures a unified decision-making process for resolution
within the European Banking Union to foster market confidence.
UBS (Luxembourg) S.A. is directly supervised by the European
Central Bank (ECB) under the Single Supervisory Mechanism and
thereby automatically falls under the SRM. The Single Resolution
Board is expected to determine minimum requirements for eligi-
ble liabilities (MREL) for UBS (Luxembourg) S.A. over the course of
2016. As MREL are set on a case–by-case basis, the potential
impact on UBS is not yet clear. It is possible that we will need to
increase loss-absorbing capacity at the UBS (Luxembourg) S.A.
level as a result of the new requirements.
In the UK, the Bank of England (BoE) issued a consultation
paper in December 2015 on the UK implementation of the BRRD’s
MREL. These requirements are expected to be established on a
case-by-case basis and will apply directly to UBS Limited. The BoE
states that where the resolution strategy of a UK subsidiary of a
non-UK headquartered bank is based on the home resolution
authority taking the lead with the BoE in a supporting role (as is
the case for UBS Limited), it will set MREL for the subsidiary to
reflect the agreed resolution strategy. MREL for such institutions
will generally need to be satisfied through capital or subordinated
liabilities issued to the foreign parent company and therefore will
be subordinated to senior operating liabilities. UBS Limited is
required to be fully compliant with its applicable MREL by 1 Janu-
ary 2020.
MREL is conceptually similar to the Financial Stability Board’s
(FSB) total loss absorbing capacity (TLAC) standards and the two
are broadly compatible although not identical.
28
EU Markets in Financial Instruments Directive II and Regulation
package application date expected to be delayed to January 2018
The European Commission (EC) has formally proposed a one-year
delay to the EU Markets in Financial Instruments Directive II and
Regulation package (MiFID II / MiFIR), postponing its application to
3 January 2018. Any delay is subject to the approval of the Euro-
pean Parliament and the Council of the EU. Once applied, MiFID
II / MiFIR will have significant impact in five broad areas: (i) market
structure, (ii) transparency, (iii) European Securities and Market
Authority (ESMA) powers; (iv) conduct of business / investor pro-
tection, and (v) third-country market access. Final implementing
measures are expected to be adopted by the EC in the first half of
2016. MiFID II / MiFIR is expected to significantly affect processes
and practices in UBS’s asset management, investment banking
and wealth management businesses.
Areas of significant change include requirements for higher
levels of non-equity transparency, restrictions on the volume of
equity trading that can take place on a non-pre-trade transparent
basis, increased levels of best execution transparency, potential
restrictions on the current model for payment for investment
research, increased product governance requirements, and the
introduction of commodities position reporting.
European Market Infrastructure Regulation clearing
obligations and non-cleared derivative risk mitigation
requirements to become applicable during 2016
The G20 leaders agreed in 2009 that all standardized OTC deriva-
tive contracts should be traded on exchanges or electronic trading
platforms, where appropriate, and cleared through Central Coun-
terparties (CCPs) by the end of 2012. In the EU, the clearing and
reporting requirements are being implemented via European Mar-
ket Infrastructure Regulation (EMIR), while the trading obligations
are being implemented via the review of MiFID. EMIR came into
force on 16 August 2012. On 21 December 2015, rules requiring
mandatory clearing of OTC derivatives through a CCP came into
force for certain OTC interest rate swaps. The clearing obligation
will be phased in and will apply from 21 June 2016 for Category
1 counterparties, including UBS Limited. The rules include a three-
year transitional period for intra-group transactions between an
EU and a non-EU group counterparty. The EC has also adopted a
clearing obligation for certain credit default swaps (CDSs). This
proposed clearing obligation still requires approval by the Euro-
pean Parliament and the Council of the EU before it becomes
applicable. UBS Limited and other UBS entities will be impacted
by the clearing obligations, as we will be required to clear our
own in-scope OTC derivative transactions as well as provide clear-
ing services to some of our clients. The risk mitigation require-
ments for non-cleared derivatives (including mandatory exchange
of initial margin and variation margin) will apply from 1 Septem-
ber 2016. These new requirements are expected to have a signifi-
cant impact on the operations of, and collateral requirements for,
UBS Limited.
Preliminary Agreement on Data Protection Regulation reached
In December 2015, the European Parliament and the Council of
the EU reached a political agreement on the European Data Pro-
tection framework, which consists of a regulation on personal
data protection and a directive dealing with data protection in law
enforcement contexts. The new framework regulates the process-
ing of personal data of our clients and employees located (i) in the
EU, irrespective of whether or not we process the personal data in
the EU, and (ii) outside the EU to the extent that such processing
is effected by a natural or legal person, public authority, agency or
any other body established in the EU. As such, it has extensive
extraterritorial impact. The framework includes new rights for
individuals, including a right to have personal data removed from
records, and to request access to the data stored by banks at no
cost and within a short timeframe. Moreover, significant financial
penalties have been introduced for non-compliance with the new
framework. The new framework is expected to become effective
in the first quarter of 2018, and is likely to impact UBS’s global
data processing activities.
Agreement on EU Benchmarks Regulation reached
The European Parliament and Council of the EU have reached
political agreement on the EU Benchmarks Regulation (EBR),
which aims to improve the accuracy and integrity of benchmarks.
New rules apply to administrators, contributors and users of
benchmarks.
The regulation is likely to have a cross-divisional impact and
potentially a cross-regional impact, as it affects UBS at three lev-
els: (i) as administrator of UBS indices, (ii) as contributor to various
benchmarks, and (iii) as a user of benchmarks. The definition of
benchmarks is broad. The governance, control and transparency
requirements for administrators and contributors may carry cost
implications. The new authorization requirement and third-coun-
try regime may have a significant impact across the industry and
will likely result in a reduction of available benchmarks for use in
financial instruments and financial contracts. The use of EU
benchmarks (captured by the EBR) in financial contracts or finan-
cial instruments, or to measure the performance of investment
funds may impact our product strategy. The EBR is expected to
enter into force in the third quarter of 2016 and become effective
in 2018.
29
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
Senior Managers and Certification Regime
to apply from March 2016
The UK Banking Reform Act, which entered into force in March
2015, implements key recommendations of the Parliamentary
Commission on Banking Standards (PCBS). As part of implement-
ing the PCBS recommendations, the UK Prudential Regulation
Authority and the Financial Conduct Authority (FCA) are introduc-
ing the Senior Managers and Certification regimes (SMCR). The
Senior Managers Regime will focus accountability on a small
number of senior managers specified by the PRA or FCA, whether
physically based in the UK or overseas. The Certification Regime
will require relevant firms to assess the fitness and propriety of
certain employees who could pose a risk of significant harm to
the firm or any of its clients. The SMCR for banks applies from
7 March 2016. The SMCR applies directly to UBS Limited and the
London branch of UBS AG.
Key developments in the US
US Securities and Exchange Commission releases final and
proposed rules for security-based swaps
In 2015, the US Securities and Exchange Commission (SEC) final-
ized or proposed a number of rules relating to security-based
swaps (SBSs).
In January 2015, the SEC proposed additional security-based
swap (SBS) transaction reporting rules and guidance. The Report-
ing and Dissemination of Security-Based Swap Information Regu-
lation (Regulation SBSR) outlines the information that must be
reported and publicly disseminated for SBS transactions and
assigns reporting duties. The final rules address the cross-border
application of Regulation SBSR and specify that any SBS transac-
tion involving a US person, registered SBS dealer or registered
major SBS participant, whether as a direct counterparty or as a
guarantor, must be reported regardless of where the transaction
is executed. The compliance date for these new rules, which will
increase reporting requirements and associated costs, will depend
on the finalization of the proposed rule and on the date the first
SBS data repository becomes effective.
In February 2016, the SEC finalized rules that apply registration,
reporting, public dissemination and business conduct require-
ments to SBS transactions of non-US companies that use US per-
sonnel to arrange, negotiate or execute SBSs in connection with
their dealing activity. The finalized rules specify, among other
things, that such transactions be counted toward the requirement
to register as an SBS dealer. The rules do not impose mandatory
clearing or mandatory trade execution on an SBS between two
non-US persons solely because one or both counterparties arrange,
negotiate or execute the SBS using personnel located in the US.
In August 2015, the SEC finalized its rules describing the regis-
tration application process for SBS dealers. Among other things,
the rules require non-resident SBS dealers to obtain a legal opinion
that concludes that the SBS dealer can, as a matter of law, provide
the SEC with access to its books and records and submit to on-site
examination, as well as a certification that it can and will do so.
UBS intends to register at least UBS AG as an SBS dealer.
SEC proposes clawback rules for incentive-based compensation
In July 2015, the SEC proposed rules that would require national
securities exchanges and associations to establish additional list-
ing standards. These would require listed companies, such as UBS,
to develop and enforce clawback policies stipulating that if a
listed company has to make a material restatement of its financial
statements resulting from an error, it must reclaim incentive-based
compensation from current and former executive officers that
they would not have received on the basis of such restatement.
US Department of Labor re-proposes fiduciary rule
In April 2015, the US Department of Labor (DOL) re-proposed a
fiduciary rule (first proposed in 2010) that would expand the defi-
nition of “fiduciary” under the Employee Retirement Income
Security Act of 1974 (ERISA). Under the revised proposal, all advi-
sors, including broker-dealers, would be required to abide by an
ERISA fiduciary standard in dealings with qualified retirement
plans and individual retirement accounts. The revised proposal
would result in a prohibition on a variety of customary transac-
tions and fee arrangements in the financial services industry with
respect to retirement investors. In addition to providing narrow
carve-outs for certain activities, the DOL also issued exemptions
from the prohibited transaction rules. Wealth Management
Americas and Asset Management would be required to make
material changes to their businesses, for example by implement-
ing a new fee structure, if the rule is adopted as proposed.
US Federal Reserve Board proposes total loss-absorbing
capacity rules, as well as long-term debt and clean holding
company requirements
In October 2015, the Federal Reserve Board proposed a rule for
total loss-absorbing capacity (TLAC) and long-term debt (LTD)
requirements for covered bank holding companies and the Inter-
mediate Holding Companies (IHCs) of foreign banks. The pro-
posal would require IHCs, such as that of UBS, to hold internal
LTD based on the greatest of 7% of RWA, 3% of total leverage
exposure if subject to the supplementary leverage ratio (SLR), and
4% of average total consolidated assets. The internal TLAC
requirement would depend on whether the IHC is a non-resolu-
tion entity or a resolution entity, as defined in the rule. Non-reso-
lution IHCs, which require certification from the home country
regulator, would be required to hold the greatest of 16% of RWA,
6% of total leverage exposure if subject to the SLR, and 8% of
average total consolidated assets. Resolution IHCs would be
required to hold the greatest of 18% of RWA, 6.75% of total
leverage exposure if subject to the SLR, and 9% of average total
consolidated assets. We intend to seek the certification necessary
to classify our IHC as a non-resolution IHC.
30
The proposal also applies an internal TLAC buffer of 2.5% plus
any applicable countercyclical capital buffer. A breach would sub-
ject the IHC to restrictions on distributions and discretionary
bonus payments. The proposal’s clean holding company require-
ments would prohibit or limit IHCs from entering into certain
financial arrangements that could create obstacles to orderly reso-
lution. The UBS IHC would be subject to the requirements under
the proposal.
US regulators finalize margin rules for non-cleared swaps
The prudential regulators, including the Federal Reserve Board,
Federal Deposit Insurance Corporation (FDIC), and Office of the
Comptroller of the Currency (together, Agencies) approved a final
rule to establish margin and capital requirements for covered
swap entities for non-cleared swaps. The rule establishes the min-
imum amount of initial and variation margin that a covered swap
entity must exchange with its counterparties, based on the cate-
gory of the counterparty, as defined in the rule. Under the rule,
substituted compliance is allowed if the Agencies determine a
foreign regulatory framework is comparable. The final rule differs
from the proposal by creating specific rules for affiliate transac-
tions. The rule will become effective as of 1 April 2016, but com-
pliance dates will be phased in from September 2016 to Septem-
ber 2020. UBS will be subject to the Agencies’ final rules.
Far-reaching regulatory revisions and reform proposals
on the international level
Basel Committee on Banking Supervision proposes changes to
the standardized approach for credit risk
The Basel Committee on Banking Supervision (BCBS) released a
second consultative document on revisions to the standardized
approach for credit risk in December 2015. The proposal would
reintroduce the use of external credit ratings for exposures to
banks and corporates and would adopt a loan-to-value approach
to risk weighting of real estate loans. The consultation ran until
11 March 2016 and the BCBS intends to finalize the revisions by
the end of 2016.
BCBS issues revised market risk framework
In January 2016, the BCBS published a revised market risk frame-
work, which defines minimum capital requirements for market
risk exposures. The market risk framework includes stricter rules
on the designation of instruments as either trading or banking
book, a more prescriptive internal-model approach aimed at
increasing consistency across banks, as well as a revised and more
risk-sensitive standardized approach, which may also be used as a
fall back to the internal-model approach. The BCBS will conduct
further quantitative impact studies in order to monitor the effect
of the capital requirements and to ensure consistency in the appli-
cation of the framework. We expect Switzerland to finalize these
changes in the domestic regulations no later than 1 January 2019,
the deadline set by the BCBS.
BCBS continues review of risk-based capital framework
The BCBS also published two consultation papers during 2015 as
part of its review of the capital framework to balance simplicity
and risk sensitivity, and to promote comparability. The first paper
is a consultation on the risk management, capital treatment and
supervision of interest rate risk in the banking book, expanding
upon and intending to ultimately replace the Basel Committee’s
2004 principles for the management and supervision of interest
rate risk. The second paper is a consultation on the Credit Valua-
tion Adjustment (CVA) Risk Framework, intending to ensure that
all important drivers of credit valuation adjustment risk and its
hedges are covered in the Basel regulatory capital standard, in
order to align the capital standard with the fair value measure-
ment of CVA employed under various accounting regimes, and to
ensure consistency with the proposed revisions to the market risk
framework under the Basel Committee’s fundamental review of
the trading book.
In addition, as part of its quarterly review, the Bank for Interna-
tional Settlements (BIS) published a paper on the leverage ratio
calibration. Subject to various caveats, the paper finds that there
is considerable room to raise the leverage ratio requirement above
its original 3% “test” level, to within a range of about 4–5%. The
BCBS intends to complete the final calibration of the leverage
ratio, and any further adjustments to its definition, by 2017, with
a view to migrating to a Pillar 1 (minimum capital requirement)
treatment on 1 January 2018.
Financial Stability Board defines a regulatory framework for
haircuts on non-centrally cleared securities financing transactions
In November 2015, the Financial Stability Board (FSB) issued the
final framework for haircuts on non-centrally cleared securities
financing transactions, defining haircut floors to non-bank-to-
non-bank transactions. This completes the FSB’s policy recom-
mendations in the framework for haircuts on certain non-centrally
cleared securities financing transactions that were published in
October 2014. The framework of numerical haircut floors applies
to non-centrally cleared securities financing transactions in which
financing against collateral other than government securities is
provided to non-banks. The framework is intended to limit the
build-up of excessive leverage outside the banking system.
31
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
BCBS and G20 work on corporate governance principles
The BCBS published updated principles on corporate governance
for banks in July 2015. These principles are intended to provide a
framework within which banks and supervisors should operate.
The framework consists of 13 principles, describing the roles and
responsibilities of the directors and senior management, including
(i) the role of directors in overseeing the implementation of effec-
tive risk management systems, (ii) directors’ collective compe-
tence and obligation to dedicate sufficient time to their mandates,
(iii) strengthen the guidance on risk governance and the impor-
tance of a sound risk culture , and (iv) compensation systems form
a key component of the governance and incentive structure
through which the board and senior management of a bank con-
vey acceptable risk-taking behavior and reinforce the bank’s oper-
ating and risk culture. The G20 finance ministers also endorsed
the revised G20 / OECD Principles of Corporate Governance in
September 2015. We continue to strive for and maintain a high
standard of corporate governance. We note that national imple-
mentation of these standards and application of the standards to
specific jurisdictions and entities, including the aforementioned
senior management regimes in the UK and the governance regu-
lations for our IHC, will present challenges to the overall gover-
nance of the Group.
32
Our strategy
We are committed to providing our clients with superior financial advice and solutions while generating attractive and
sustainable returns for shareholders. Capital strength is the foundation of our success. Our strategy builds on the
strengths of all our businesses and focuses our efforts on areas in which we excel, while seeking to capitalize on the
growth prospects in the businesses and regions in which we operate. Our strategy centers on our leading wealth
management businesses and our premier universal bank in Switzerland, enhanced by our asset management business
and our Investment Bank. These businesses share three key characteristics: they benefit from a strong competitive
position in their targeted markets, are capital efficient, and offer an attractive structural growth and profitability
outlook. Our strategic priorities are the continued execution of our strategy to enable us to deliver on our performance
targets, improving our effectiveness and efficiency, and making further investments to take advantage of growth
opportunities.
Who we are
We are the world’s largest and fastest growing wealth manager
and the only bank with a truly global wealth management fran-
chise at the center of its strategy. Our footprint is unique, and we
benefit from significant scale in an industry with attractive growth
prospects in excess of GDP-growth and rising barriers to entry. We
have a leading position across the attractive high net worth and
ultra high net worth client segments. Our value proposition is
highly scalable and can be tailored to our clients’ financial needs
and preferences. The partnership between our wealth manage-
ment businesses and Personal & Corporate Banking in Switzer-
land, Asset Management and the Investment Bank is a key dif-
ferentiating factor and a competitive advantage of our wealth
management franchise.
The world’s largest and fastest growing wealth manager1, 2
Strong capital position and capital efficient business model
Capital strength is the foundation of our success. It provides our
clients and all other stakeholders with a strong sense of comfort,
creating a distinct competitive advantage for our businesses. Our
fully applied common equity tier 1 (CET1) capital ratio is the high-
est among our peer group of large global banks, and we are well-
positioned to meet the proposed requirements of the revised
Swiss too big to fail (TBTF) framework. Our highly capital-accretive
and efficient business model helps us adapt to changes in regula-
tory requirements, while pursuing growth opportunities without
the need for significant earnings retention. We believe that our
business model can generate an adjusted return on tangible
equity of more than 15%, which we aim to achieve in 2018.
Invested assets
CHF billion
Operating income3
CHF billion
Profit before tax3
CHF billion
+ 8 % CAGR4
+ 6 % CAGR4
+ 11 % CAGR4
1,751
886
1,593
821
2,014
987
1,982
947
772
865
1,027
1,035
14.1
7.6
14.9
7.9
15.4
8.0
6.5
7.0
7.4
12.9
7.0
5.9
31.12.12
31.12.13
31.12.14
31.12.15
2012
2013
2014
2015
Wealth Management Americas
Wealth Management
3.3
2.4
0.9
2013
3.5
2.5
0.9
2014
2.7
2.1
0.6
2012
3.7
2.8
0.8
2015
1 Based on Scorpio Partnership Global Private Banking Benchmark 2015, on reporting base currency basis for institutions with AuM > USD 500 billion. 2 Data represents information for the combined wealth management
businesses, presented on an adjusted basis, where applicable. Refer to our Annual Report 2014 for information on the adjusted results for full-year 2012, and to the “Group performance” section of this report for subsequent
periods. 3 Based on adjusted numbers. 4 Compound annual growth rate.
33
15.40
11.55
7.70
3.85
3.700
2.775
1.850
0.925
2.0
1.5
1.0
0.5
0.0
0.00
0.000
Operating environment and strategy Operating environment and strategy
Our strategy
We are committed to an attractive capital returns policy
EDTF | Our earnings capacity, capital efficiency and low-risk profile
support our objective to deliver sustainable and growing returns
to our shareholders. We are committed to a total capital return to
shareholders of at least 50% of net profit attributable to share-
holders, provided that we maintain a fully applied CET1 capital
ratio of at least 13% and consistent with our objective of main-
taining a post-stress fully applied CET1 capital ratio of at least
10%. Total capital returns will consist of an ordinary dividend,
which we intend to grow steadily over time, and other forms of
capital returns. Our ordinary dividend was established at CHF 0.50
for the financial year 2014. For the financial year 2015, our Board
of Directors intends to propose a total dividend payment of CHF
0.85 per share, comprised of an ordinary dividend of CHF 0.60
per share, up 20% compared with 2014, and a special dividend
of CHF 0.25 per share, reflecting a significant net upward revalu-
ation of deferred tax assets in 2015. The total dividend of CHF
0.85 per share represents a payout ratio of 52%.
Industry trends
Business transformation
In response to the evolving market and regulatory environment,
the industry is continuing to observe adjustments to strategies
and business portfolios, particularly across large European banks.
We communicated our strategy in 2011 and accelerated its exe-
cution in 2012. We focused on creating a business model that is
better adapted to the new regulatory and market environment
and that we believe results in more consistent and high-quality
returns. Having completed our business transformation in 2014,
we are now capitalizing on our strong strategic position by focus-
ing on growing the profitability of our core businesses and deliv-
ering attractive returns to our shareholders. As a consequence,
we believe we are well-positioned to adapt to the changing mar-
ket environment and capture the benefits of new and evolving
industry trends. We are confident with our capabilities and mar-
ket position, but we will not be complacent.
Wealth accumulation
The wealth management industry offers fundamentally attractive
economics with a forecast for robust wealth accumulation around
the world. According to the Boston Consulting Group Global
Wealth Report 2015, the ultra high net worth segment is expected
to expand by about 11% annually from 2014 to 2019, and the
high net worth segment by about 7% annually. Asia Pacific and
the emerging markets are expected to be the fastest-growing
regions, with an estimated average annual market growth rate of
approximately 11% for the high net worth and ultra high net
worth segments combined. Even mature markets, such as West-
ern Europe and North America, are forecast to see wealth accu-
mulation grow within the high net worth and ultra high net worth
segments at an annual rate exceeding expected GDP growth.
Despite the attractiveness of a capital-light and highly cash flow-
generative business, we believe that wealth management is likely
to remain a highly fragmented industry and barriers to entry are
expected to increase, partly due to significant investments needed
to meet current and proposed regulatory requirements.
Our unique investment engine is an essential component of
our holistic wealth management offering and sets us apart from
our peers. The combination of our strategic focus on wealth man-
agement, our unique footprint and capabilities, and our leading
position across the attractive ultra high net worth and high net
worth client segments, enable us to benefit from significant scale,
which we expect will help us capture market growth and increase
share of wallet.
Demographics, wealth transfer and retirement funding
Demographic changes, including the increasing average age of
the world’s population, escalating costs associated with the care
of an ageing population and the funding challenges faced by
public pension systems, will be a key long-term driver for both
wealth consumption and wealth transfer, which will also impact
retirement funding. The strong reliance on public pension schemes
will make reform especially urgent in certain countries. Although
each country will follow its own regulatory agenda, a general and
gradual shift from public to privately funded pension schemes
seems inevitable.
(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:67)(cid:80)(cid:70)(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:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
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(cid:23)(cid:18)(cid:23)
(cid:19)(cid:23)(cid:24)
(cid:20)(cid:25)(cid:20)
(cid:35)(cid:50)(cid:35)(cid:37)
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(cid:23)(cid:19)(cid:25)
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(cid:19)(cid:14)(cid:18)(cid:21)(cid:23)
(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(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:71)(cid:85)(cid:86)(cid:75)(cid:79)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:96)(cid:25)(cid:7)(cid:19)
(cid:19)(cid:2)(cid:39)(cid:85)(cid:86)(cid:75)(cid:79)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(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:84)(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:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:87)(cid:80)(cid:70)(cid:2)(cid:67)(cid:80)(cid:80)(cid:87)(cid:67)(cid:78)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:70)(cid:2)
(cid:20)(cid:18)(cid:19)(cid:22)(cid:115)(cid:20)(cid:18)(cid:19)(cid:27)(cid:14)(cid:2)(cid:36)(cid:81)(cid:85)(cid:86)(cid:81)(cid:80)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:52)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:55)(cid:42)(cid:48)(cid:57)(cid:2)(cid:75)(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:81)(cid:88)(cid:71)(cid:84)(cid:78)(cid:67)(cid:82)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)
(cid:86)(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:16)(cid:2)(cid:43)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:81)(cid:85)(cid:86)(cid:81)(cid:80)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:52)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:14)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:75)(cid:85)(cid:2)(cid:70)(cid:71)(cid:386)(cid:80)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:74)(cid:81)(cid:87)(cid:85)(cid:71)(cid:74)(cid:81)(cid:78)(cid:70)(cid:85)(cid:2)
(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:55)(cid:53)(cid:38)(cid:2)(cid:20)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:80)(cid:2)(cid:82)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:16)(cid:2)
34
These developments are expected to benefit our businesses, as
individuals and privately funded pension schemes seek invest-
ment advice and tailored service offerings with a relevant product
range. Our strong capabilities in asset management, as well as our
ability to tailor our service offerings to our clients’ financial needs
and preferences, put us in a position of strength to address these
emerging needs.
Digitalization
Over the last few years, investments in financial technology have
multiplied, and the market expects continued digital disruption in
the financial industry, driven by consumer preferences and expec-
tations. We expect that core technologies, such as automated
investment advice, mobile access to banking services, distributed
ledger technology and natural language user interfaces, will be
ready for application in the financial services industry in the near
future. Digital capabilities are likely to play a significant role in
transforming not only how banks operate internally, but also how
banks interact with clients. The financial services industry will
have to adapt to a new digital reality driven by evolving client
needs, increasing demand for efficiency, accelerating technologi-
cal innovation and the emergence of new market participants.
UBS acknowledged early on that there is a need for constant
innovation, and has launched several initiatives to meet evolving
client expectations in personalization, convenience and transpar-
ency. Our technology is used extensively by our clients, and it
allows us to increase market share and customer loyalty, and to
attract new business. We are focused on leveraging our technol-
ogy not only to improve the services for our clients, but also to
increase scalability by providing more efficient methods for deliv-
ering content, to directly access clients, to improve automation in
the back office to increase efficiency, and to derive the most
meaningful information from vast amounts of data to better man-
age our business.
We have also created innovation labs in London, Singapore
and Zurich to research how UBS can further foster innovation as a
key driver for business growth and improved efficiency. Recogniz-
ing that innovation is not something UBS can do on its own, we
have engaged with a wide range of startup companies, venture
capitalists and academic institutions, for example, with the
“Future of finance” challenge, which involved 600 participants
world-wide. In another example, UBS launched an initiative to
explore blockchain technology, and has become one of the
thought leaders in this fundamental new technology and its appli-
cations for financial services. Furthermore, in 2015, UBS, together
with the SIX and Zürcher Kantonalbank, successfully launched the
new peer-to-peer mobile payments application “Paymit” in Swit-
zerland, winning the “Master of Swiss Apps” award.
Further adaptation of operating models
Operating models in the financial services industry are expected to
continue to evolve, given an increase in operational cost pressure,
reflecting higher regulatory costs, together with a subdued reve-
nue environment. This persistent push for efficiency is forcing
banks to reassess front-to-back processes, focus on identifying
potential for standardization, and to rethink the ownership of
value chain components, which will be supported by a continuous
increase in straight-through processing capabilities and reduced
repetitive human intervention. Over the past few years, a diverse
network of suppliers has emerged that is both disaggregating the
service and supply chain and changing the dynamics of demand
and supply in the banking sector.
In 2015, we established UBS Business Solutions AG to act as
the Group’s service company subsidiary and we plan to transfer
the majority of our middle- and back-office processes into the
service company structure. The transfer is a first step in enabling
us to commercialize middle- and back-office processes and ben-
efit from economies of scale. In addition, it allows us to take
advantage of opportunities to share regulatory investments.
Banking intermediation
Against the backdrop of digitalization and new market partici-
pants, the banking sector’s role as a facilitator of economic policy
and an enabler of domestic growth may come under threat, as
well as renewed discussion and scrutiny. The combination of
enhanced regulatory requirements, reduced risk appetite and sub-
dued macroeconomic prospects continues to curb the lending
appetite of banks. Other financial industry players, such as asset
managers, insurers and hedge funds, are increasingly stepping
into banking intermediation and risk-taking areas, even though
they are currently still focused on more specific or niche areas,
such as long-dated assets and high-risk lending. It is expected that
this trend will continue with its extent and pace dependent on
regulatory developments.
Despite these challenges, we believe banks still have the neces-
sary capital and the competitive ability to preserve their core role
in the economy and to have continued access to their traditional
revenue sources.
35
Operating environment and strategy Operating environment and strategy
Our strategy
Regulation
There has been continuous regulatory pressure on the financial
services industry to become simpler, more transparent and more
resilient, and it is expected that regulation will remain a major
driver of change for the industry.
We believe we have the right business model to comply with
the new, more demanding regulations without the need to
change our strategy. We have the highest fully applied CET1 cap-
ital ratio among our peer group of large global banks and we
have made substantial progress in our efforts to improve resolv-
ability. We are well prepared to meet the requirements of the pro-
posed revised Swiss too big to fail framework over the phase-in
period and by the effective date in 2020, and we intend to use the
four-year period to fully implement the new requirements.
➔ Refer to the “Regulatory and legal developments” section of
this report for more information on the proposed revised Swiss
too big to fail framework
Our strategic priorities
EDTF | We intend to build on our successful track record and focus
on three key strategic priorities as set out below.
1. Continue to execute our strategy and deliver on our
performance targets
EDTF | The strategic change we initiated in 2011 was driven by our
decision to focus on our strengths and by anticipation of more
demanding regulation. We outlined a strategy that works in a
number of business environments. Having successfully completed
our transformation, we now continue to execute our strategy in a
focused and disciplined manner.
2. Improve effectiveness and efficiency
EDTF | At year-end 2015, we achieved CHF 1.1 billion of net cost
reductions versus full-year 2013 and we remain fully committed
to achieving our net cost reduction target of CHF 2.1 billion by
year-end 2017. Our effectiveness and efficiency improvements are
centered on creating the right infrastructure and cost framework
for the future, including workforce and footprint. In addition, we
will continue to invest heavily in technology, compliance and risk
control, as our initiatives create more stable IT platforms, reduce
the need for manual intervention, and enable faster upgrades and
overall stronger controls.
3. Invest for growth
EDTF | We will continue to build our capabilities in technology and
digitalization with a focus on further strengthening our position,
particularly in regions such as the Americas and Asia Pacific. Our
investments in technology are attracting broad industry recogni-
tion, but, more importantly, they are used extensively by our cli-
ents and allow us to capture market share and attract business.
We also remain committed to investing in the development of our
existing employees and to hiring the best available talent. The
ability to take advantage of growth opportunities in technology
and our continued focus on attracting the right people and devel-
oping the talent we have in order to achieve their full potential
will help us to better serve our clients.
Our performance targets and expectations
The tables on the next page show our performance targets and
expectations for the Group, the business divisions and Corporate
Center for 2016 and beyond. The performance targets and expec-
tations are calculated on an annual basis, except for adjusted
pre-tax profit growth for our combined wealth management
businesses, which represents a through the cycle target. Our per-
formance targets and expectations are based on adjusted results
that exclude items that management believes are not representa-
tive of the underlying performance of our businesses, such as
restructuring expenses and gains and losses on sales of businesses
and real estate, and assume constant foreign currency translation
rates, unless otherwise indicated.
36
Group
Adjusted cost / income ratio
Adjusted return on tangible equity
Target: 60–70%
Expectation: 65–75% over short / medium term
Target: >15%
Expectation: approximately at 2015 level in 2016, approximately 15% in 2017 and >15% in 2018
Common equity tier 1 capital ratio (fully applied)1
At least 13% 2
Risk-weighted assets (fully applied)1
Expectation: around CHF 250 billion short / medium term
Leverage ratio denominator (fully applied)1
Expectation: around CHF 950 billion short / medium term
1 Based on the currently applicable rules. Refer to the “Capital management” section of this report for more information. 2 Our capital returns policy is also subject to our objective of maintaining a post-stress fully
applied CET1 capital ratio of at least 10%.
Business divisions and Corporate Center
Wealth Management
Wealth Management Americas1
Net new money growth rate
Adjusted cost / income ratio
Net new money growth rate
Adjusted cost / income ratio
3–5%
55–65%
2–4%
75–85%
Combined wealth management businesses
Annual adjusted pre-tax profit growth
10–15% through the cycle
Personal & Corporate Banking
Net new business volume growth rate
1–4% (personal banking)
Asset Management
Investment Bank
Net interest margin
Adjusted cost / income ratio
Net new money growth rate
Adjusted cost / income ratio
Adjusted annual pre-tax profit
Adjusted annual pre-tax RoAE
Adjusted cost / income ratio
Risk-weighted assets (fully applied)2
Leverage ratio denominator (fully applied)2
140–180 bps
50–60%
3–5% excluding money market flows
60–70%
CHF 1 billion in the medium term
>15%
70–80%
Expectation: around CHF 85 billion
short / medium term
Expectation: around CHF 325 billion
short / medium term
Corporate Center
Net cost reduction 3
CHF 2.1 billion by 20174
1 Based on USD. 2 Based on the currently applicable rules. Refer to the “Capital management” section of this report for more information. 3 Measured by year-end exit rate versus full year 2013 adjusted operating
expenses, net of changes in charges for provisions for litigation, regulatory and similar matters, foreign currency movements and changes in regulatory demand of a temporary nature. 4 We currently expect to achieve
the previously announced CHF 1.4 billion of net cost reduction by mid-2016.
37
Operating environment and strategy Operating environment and strategy
UBS – leading universal bank in Switzerland
Leading positions in all five business areas in Switzerland
Personal
Banking
Wealth
Management
Switzerland
Corporate &
Institutional Banking
Investment Bank
Switzerland
Asset
Management
Switzerland
of banking products and services drawn
from across our business segments. Our
universal bank model has proven itself to
be highly effective and consistently
contributes substantially to the Group.
Our distribution model is based on a
multichannel strategy. We strive to offer
a unique client experience, giving clients
the choice in how to interact with us –
via branches, customer service centers or
digital channels. Our expanding elec-
tronic and mobile banking offering is very
well-regarded and we continue to see
a steadily rising number of users and
client interactions. In 2015, users of our
e-banking service exceeded the
1.5 million mark, while we reached the
milestone of 500,000 downloads of
our Mobile Banking app earlier in 2015.
We strengthened our segment-specific
offering with the introduction of Wealth
Management Online and Corporate
Financial Management. We also increased
the ways clients can interact with us by
launching Live Chat and the new
retirement calculators on ubs.com. The
joint introduction of Paymit with SIX
and Zürcher Kantonalbank has made UBS
the leader in the Swiss mobile payment
space: UBS Paymit achieved more than
150,000 downloads by the end of 2015,
received excellent client feedback in the
Apple App Store and earned external
recognition with the ”Master of Swiss
Apps 2015” award. We will continue to
build on our position as the leading
multi-channel bank in Switzerland and as
an innovator in digital services to
improve our client experience, capture
market share and increase efficiency.
(cid:55)(cid:36)(cid:53)(cid:2)(cid:79)(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:13)(cid:20)(cid:21)(cid:21)(cid:7)
(cid:24)(cid:18)(cid:18)
(cid:22)(cid:23)(cid:18)
(cid:21)(cid:18)(cid:18)
(cid:19)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:23)(cid:22)(cid:20)
(cid:22)(cid:20)(cid:19)
(cid:20)(cid:26)(cid:24)
(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)
(cid:20)(cid:18)(cid:19)(cid:23)
UBS is the preeminent universal bank in
Switzerland, the only country where we
operate in all five of our business areas:
personal banking, wealth management,
corporate and institutional banking,
investment bank and asset management.
We are fully committed to our home
market, as our leading position in Switzer-
land 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
households, high net worth individuals
and pension funds, more than 120,000
companies, and around 80% of banks
domiciled in Switzerland. In 2015,
Euromoney acknowledged our preeminent
position in Switzerland with its presti-
gious Best Bank in Switzerland award for
the fourth consecutive year.
Our universal bank model is central to
our success. We differentiate ourselves by
leveraging our strengths across all
segments. Our management approach
promotes cross-divisional thinking,
enables effective collaboration across all
business areas and allows us to utilize
our resources efficiently. As a result, we
are in an excellent position to meet our
clients’ needs with a comprehensive range
38
(cid:24)(cid:18)(cid:18)
(cid:23)(cid:20)(cid:23)
(cid:22)(cid:23)(cid:18)
(cid:21)(cid:25)(cid:23)
(cid:21)(cid:18)(cid:18)
(cid:20)(cid:20)(cid:23)
(cid:19)(cid:23)(cid:18)
(cid:25)(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. The Group and busi-
ness divisions are managed based on this KPI framework, which
emphasizes risk awareness, effective risk and capital manage-
ment, sustainable profitability and client focus. Both Group and
business division KPIs are taken into account in determining vari-
able compensation.
Our senior management reviews the KPI framework on a regu-
lar basis by considering prevailing strategy, business conditions
and the environment in which we operate. The KPIs are disclosed
consistently in our quarterly and annual reporting to facilitate
comparison of our performance over the reporting periods.
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 perfor-
mance measures.
➔ Refer to the “Our strategy” section of this report for more
information on performance targets
New key performance indicators in 2016
EDTF | In 2016, the revised Swiss too big to fail going concern lever-
age ratio will replace the Swiss SRB leverage ratio as a Group KPI,
as it is expected to become the relevant regulatory measure in
2016.
Client / invested assets reporting
We report two distinct metrics for client funds:
– The metric client assets encompasses all client assets managed
by or deposited with us, including custody-only assets.
– The metric invested assets is more restrictive and includes only
client assets managed by or deposited with us for investment
purposes.
Of the two, invested assets is the more important metric. 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 with-
drawn by existing clients or clients who terminated their relation-
ship with us. Wealth Management Americas also reports net new
money including interest and dividend income, in line with his-
torical reporting practice in the US market.
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 inde-
pendent service to their client, add value and generate revenues.
Most double-counting arises when mutual funds are managed by
Asset Management and sold by Wealth Management or 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 strategy, and
allows us to accurately reflect the performance of each individual
business. Overall, CHF 185 billion of invested assets were double-
counted as of 31 December 2015 (CHF 173 billion as of 31 Decem-
ber 2014).
➔ Refer to “Note 35 Invested assets and net new money” in the
“Consolidated financial statements” 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
impacted by seasonal components, such as lower client activity
levels related to the summer and end-of-year holiday seasons,
annual income tax payments (which are concentrated in the sec-
ond quarter in the US) and asset withdrawals that tend to occur
in the fourth quarter.
39
Operating environment and strategy Operating environment and strategy
Measurement of performance
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 tangible equity (RoTE)
(%)
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 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 of UBS Group AG
Return on attributed equity (RoaE)
(%)
Business division performance before tax (annualized as
applicable) / average attributed equity
Return on assets, gross (%)
Leverage ratio
(phase-in, %)
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average total assets
Swiss SRB common equity tier 1 capital and loss-absorbing
capital / leverage ratio denominator
Common equity tier 1 capital ratio
(fully applied, %)
Swiss SRB common equity tier 1 capital / Swiss SRB 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. Asset Management net new money
growth excludes money market flows
Gross margin on invested assets (bps)
Net margin on invested assets (bps)
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average invested assets
Business division performance before tax
(annualized as applicable) / average invested assets
Net new business volume growth
for personal banking (%)
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%confidencelevel,overa1-daytimehorizonandbased
on fiveyearsofhistoricaldata
EDTF | Pillar 3 | New key performance indicators in 2016
Key performance indicators
Definition
Going concern leverage ratio (%)
Common equity tier 1 capital and additional tier 1 capital /
leverage ratio denominator1
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1 Based on the proposed Swiss too big to fail requirements. Refer to “Proposed new requirements for Swiss systemically relevant banks” in the “Regulatory and legal developments” section of this report
for more information.
40
Wealth Management
Wealth Management provides wealthy private clients with investment advice and solutions tailored to their individual
needs. At the end of 2015, we had a presence in more than 40 countries and invested assets of CHF 947 billion.
Business
We provide comprehensive advice and financial services to
wealthy private clients around the world, with the exception of
those served by Wealth Management Americas. UBS is a global
firm with global capabilities, and our clients benefit from a full
spectrum of resources, including wealth planning, investment
management solutions and corporate finance advice, banking
and lending solutions, as well as the specific offerings outlined
below. Our guided architecture model gives clients access to a
wide range of products from the world’s leading third-party insti-
tutions that complement our own products.
Strategy and clients
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
offices, has the highest growth potential, followed by the high
net worth and affluent markets. Our broad client base and strong
global footprint put us in an excellent position to capture the
growth opportunities across regions and segments.
We are the preeminent wealth manager globally and aim to
provide our clients with comprehensive, tailored advice. We serve
private clients, particularly in the ultra high net worth (generally
considered to be clients with more than CHF 50 million in invest-
able assets, with some market-driven differentiation), high net
worth (generally considered to be clients with CHF 2 million to
CHF 50 million in investable assets, with some market-driven dif-
ferentiation) and affluent (generally considered to be clients with
CHF 250 thousand to CHF 2 million in investable assets, with
some market-driven differentiation) segments. We have unique
scale, an industry-leading platform, and a broad-based setup,
being active in the most diverse wealth management markets and
segments.
We measure the performance of our business against five key
performance indicators: pre-tax profit growth, cost / income ratio,
net new money growth, gross margin on invested assets and net
margin on invested assets. We also evaluate our performance
against our annual performance targets, which comprise a
cost / income ratio of 55–65%, a net new money growth rate of
3–5%, and together with Wealth Management Americas, a pre-
tax profit growth of 10–15%, as defined in the “Our strategy”
section of this report. We have defined a set of strategic priorities
to enable us to drive profitable growth and be at the forefront of
shaping the wealth management industry. As the industry trans-
forms, our aim is to increasingly translate our competitive advan-
tages into profitable market share gains.
➔ Refer to the “Our strategy” section of this report for more
information on our targets
Invested assets by client domicile(cid:15)
%
Total: CHF 947 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:22)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
As of 31.12.15
9
22
41
(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:23)
(cid:27)
Americas
Asia Pacific
28
Europe, Middle East and Africa
Switzerland
(cid:24)(cid:20)
(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)
68-161_1 WM_IA by client domicile_e
41
(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)
Operating environment and strategy
Operating environment and strategy
Wealth Management
Investment management and portfolio construction are 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. Clients 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. We aspire to reach a mandate penetration
of approximately 40% of Wealth Management’s invested assets,
to provide a greater selection of value-added services to our cli-
ents. Growing our mandates business also contributes to higher
recurring revenues.
We seek to capitalize on our market-leading position in the ultra
high net worth business and to increase share considerably in this
high-growth segment. We also invest significantly in growing our
high net worth and affluent client segments, especially by leverag-
ing and further strengthening our leading competence in invest-
ment management, as well as investing in our digital capabilities.
We cater to the specific needs of our diverse client segments.
Our ultra high net worth clients have access to the infrastructure
we offer to our institutional clients. Through our Global Family
Office Group, our most sophisticated ultra high net worth clients
benefit from tailored institutional coverage and global execution
provided by dedicated specialist teams from both Wealth Man-
agement and the Investment Bank. We offer our high net worth
clients the full range of our investment management capabilities.
For example, UBS Advice, which forms part of our advisory man-
date offering, provides our clients with tailored investment advice.
It is an industry leader in terms of how it uses state-of-the-art
technology to systematically monitor client portfolios to detect
risks as well as deviations from their selected investment strate-
gies. We believe that both our advisory and discretionary mandate
offerings provide a superior value proposition as they both pro-
vide our clients with the best of our investment management
capabilities.
All clients can invest in the full range of financial instruments,
from single securities such as equities and bonds to various invest-
ment funds, structured products and alternative investments.
Additionally, we offer clients advice on structured lending and
corporate finance. Our integrated client service model allows us
to bundle capabilities from across the Group to identify invest-
ment opportunities in all market conditions and create solutions
that suit individual client needs. This collaboration is also crucial to
our focused expansion in key onshore markets, where we con-
tinue to benefit from the established business relationships of our
local Investment Bank and Asset Management teams.
We invest significantly in digitalization and innovation to meet
the evolving needs of our client base. To support the rapid devel-
opment of state-of-the-art banking services and to ensure that
these are delivered consistently, we are further consolidating and
extending our IT platform globally. In addition, we are developing
new solutions to deliver our leading content through digital chan-
nels. For example, in 2015, we launched Wealth Management
Online, giving our clients electronic access to our offering, includ-
ing our portfolio management and advisory services. We also
introduced My House View, an interactive filter for our investment
research, enabling users to easily find the content most relevant
to them.
Our operating model is continually adapted to focus on effi-
ciency, simplicity and digital innovation. For example, we will
leverage our Swiss platform across our most important markets in
Asia and Europe following successful deployment in Germany in
2015. In addition, we continue to make focused investments in
our onshore businesses to capture growth opportunities.
Our booking centers across the globe give us a strong local
presence that allows us to book client assets in multiple locations,
in response to client preferences. The strength and scope of our
franchise also help us adapt swiftly to a changing legal and regu-
latory environment.
In Asia Pacific, we have accelerated our growth with a particu-
lar focus on Hong Kong and Singapore, the leading financial cen-
ters in the region, and China. In 2015, we opened a branch in
Kowloon, our first branch in Hong Kong outside the central busi-
ness district, and we continue to expand our local onshore pres-
ence in China to help capture long-term growth opportunities.
We are also developing our presence in major onshore markets
such as Japan and Taiwan.
In the emerging markets, we are focused on markets such as
Mexico, Brazil, Turkey, Russia, Israel and Saudi Arabia. We regu-
larly assess our local presence to ensure proximity to our clients in
key markets, aiming to serve them most efficiently out of key
hubs in the major emerging regions. Many emerging market cli-
ents prefer to book their assets in established financial centers
and, to that end, we are strengthening our coverage for such cli-
ents through our booking centers in Switzerland and the UK, as
well as in the US through Wealth Management Americas.
In Europe, our long-established local presence in all major mar-
kets supports our growth ambition. We recognized the converg-
ing needs of clients early and combined our offshore and onshore
businesses. This gives clients across the region access to our
extensive Swiss product offering, and creates economies of scale,
enabling us to deal efficiently with increased regulatory and fiscal
requirements.
In Switzerland, based on our integrated business model, we
collaborate closely with our colleagues in the personal and corpo-
rate banking, asset management, and investment banking busi-
nesses. This creates opportunities to expand our business through
client referrals and generates efficiencies by enabling us to make
use of UBS’s extensive branch network, which includes around
100 wealth management offices.
42
(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:21)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:23)
(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:21)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:23)
(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: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:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:27)(cid:22)(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: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:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:27)(cid:22)(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: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:19)(cid:20)
(cid:19)(cid:22)
(cid:21)(cid:18)
(cid:19)(cid:19)
(cid:19)(cid:22)
(cid:19)(cid:27)
(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)
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 2,000 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.
Organizational structure
Headquartered in Switzerland, we have a presence in more than
40 countries with approximately 190 offices, of which around
100 are in Switzerland. As of the end of 2015, we employed
10,239 people worldwide, of which 4,019 were 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, Swit-
zerland and Global Ultra High Net Worth. Our business is sup-
ported by the Chief Investment Office and a global Investment
Products and Services unit, as well as central functions managed
by the Chief Operating Officer, and shared services provided by
Corporate Center.
Competitors
Our major global competitors include the private banking opera-
tions of Credit Suisse, JP Morgan, Deutsche Bank, BNP Paribas,
HSBC, Citigroup and Julius Bär. In the European domestic mar-
kets, we primarily compete with the local private banking opera-
tions of large banks such as RBS in the UK, Deutsche Bank in
Germany and UniCredit in Italy. In Asia Pacific, the private banking
franchises of Citigroup, Credit Suisse and HSBC are our main
competitors.
(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:23)
(cid:21)(cid:22)
(cid:19)(cid:25)
(cid:24)
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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 approach focuses on a fundamental understanding of our
clients’ lifecycle needs and financial objectives. Based on this
approach, we seek to provide superior investment advice and
solutions. Our client advisors are proactive in their relationships
with clients, and we have a systematic process for developing a
thorough understanding of our clients’ financial objectives and
risk appetite. 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 lifecycle needs. With
this comprehensive service, we offer them wealth planning advice
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 pro-
files 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 enable
them to deliver superior advice and solutions to our clients. All our
client advisors must obtain the Wealth Management Diploma, a
program accredited by Switzerland’s State Secretariat for Economic
Affairs that ensures a high level of knowledge and expertise.
For our most senior client advisors, we offer extensive training
through the Wealth Management 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, known as “the UBS House View”.
43
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Operating environment and strategy Operating environment and strategy
Wealth Management
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 our clients’ wealth, and strives to
ensure that our clients remain on course to meet their financial
goals over the long term. It is complemented by our tactical asset
allocation, which uses our global expertise to help our clients
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 discre-
tionary and advisory offerings with our UBS House View. To help
our clients address the challenges of an increasingly complex
financial world, we continue to develop innovative products. For
example, in 2015, we introduced new discretionary investment
solutions based on a new Chief Investment Office asset allocation
framework.
Our products are aimed at achieving positive relative perfor-
mance in various market scenarios. They are developed from a
wide range of sources, including Investment Products and Ser-
vices, Asset Management, 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 insti-
tutional clients.
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44
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 ultra high net worth and high
net worth clients.
Business
We are one of the leading wealth managers in the Americas in
terms of financial advisor productivity and invested assets. Our
business includes UBS’s domestic US and Canadian wealth man-
agement businesses, as well as international business booked in
the US. We have attractive growth opportunities and a clear strat-
egy focused on serving our target client segments. As of
31 December 2015, invested assets totaled USD 1,033 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, provides integrated, comprehensive wealth manage-
ment and institutional-type services to selected Family Office cli-
ents. Our Wealth Advice Center serves emerging affluent clients
with investable assets of less than USD 250,000. We are commit-
ted to providing high-quality advice to our clients across all their
financial needs by employing the best professionals in the indus-
try, delivering the highest standard of execution, and running a
streamlined and efficient business.
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45
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(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
We measure the performance of our business against five key
performance indicators: pre-tax profit growth, cost / income ratio,
net new money growth, gross margin on invested assets and net
margin on invested assets. We also evaluate our performance
against our annual performance targets, which comprise a
cost / income ratio of 75–85%, a net new money growth rate of
2–4% and, together with Wealth Management, a pre-tax profit
growth of 10–15%, as defined in the “Our strategy” section of
this report.
➔ Refer to the “Our strategy” section of this report for more
information on our targets
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 7,140 financial advisors and over USD
1 trillion in invested assets, we are large enough to be meaning-
ful, but focused enough to be nimble, which enables 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
resources of UBS, including access to wealth management
research, our global Chief Investment Office, and solutions from
our asset-gathering businesses and the Investment Bank. These
resources are augmented by our commitment to an open archi-
tecture platform and 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
2015, our strategy and focus led to continued 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 advisors’ focus toward delivering holistic
advice across the full spectrum 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 technology, while remaining disci-
plined on cost. We expect these efforts to enable us to achieve
higher levels of client satisfaction, strengthen our client relation-
ships, and lead to greater revenue productivity among our finan-
cial advisors.
Organizational structure
Wealth Management Americas consists of branch networks in the
US, Puerto Rico, Canada and Uruguay, with 7,140 financial advi-
sors as of 31 December 2015. 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 offers Federal Deposit Insurance Corporation
(FDIC)-insured deposit accounts, collateralized lending services,
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.
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(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:21)(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:21)(cid:2)
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(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(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: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:2)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:19)(cid:14)(cid:18)(cid:21)(cid:21)(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)
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(cid:22)(cid:18)
(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:35)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:85)(cid:2)(cid:17)(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: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: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)
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(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)
46
(cid:19)(cid:16)(cid:18)(cid:18)
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(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, domestic
and global private banks, regional broker-dealers, independent
broker-dealers, registered investment advisors, trust companies
and other financial services firms offering wealth management
services to US and Canadian private clients, as well as foreign
non-resident clients seeking wealth management 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 indi-
vidual 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,
retirement 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.
Our offering is designed to meet a wide variety of investment
objectives, including wealth accumulation and preservation,
income 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
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
robust 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 invest-
ment discretion to a qualified financial advisor, a team of our
investment professionals or a third-party investment manager.
Separately, we also offer mutual 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 allo-
cation 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
investment offerings to complement their portfolio strategies.
All of these solutions are supported by a dedicated capital mar-
kets group. This group collaborates with the Investment Bank and
Asset Management in order to access the resources of the entire
firm, as well as with third-party investment banks and asset man-
agement firms.
47
Operating environment and strategy Operating environment and strategy
Personal & Corporate Banking
Personal & Corporate Banking
As the leading personal and corporate banking business in Switzerland, our goal is to deliver comprehensive financial
products and services to private, 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
private, corporate and institutional clients in Switzerland, main-
taining a leading position in these client segments and embed-
ding our offering in a multi-channel approach. As shown in the
“Business mix” chart below, our personal and corporate banking
business generates stable profits which contribute substantially to
the overall financial performance of the Group. We are among
the leading players in the private and corporate loan market in
Switzerland, with a well-collateralized lending portfolio of CHF
136 billion as of 31 December 2015, as shown in the “Loans,
gross” chart below. This portfolio is managed conservatively,
focusing on profitability and credit quality rather than market
share.
Our personal and corporate banking business is a central ele-
ment of UBS’s universal bank delivery model in Switzerland, sup-
porting other business divisions by referring clients to them and
assisting private 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 bank businesses.
In addition, we manage a substantial part of UBS’s Swiss infra-
structure and Swiss banking products platform, which are both
leveraged across the Group.
(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:23)
(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:27)(cid:19)(cid:21)(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:26)
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(cid:20)(cid:26)
(cid:19)(cid:22)
48
Our strategy focuses on profitable and qualitative growth in Swit-
zerland. In the personal banking business we continue to pursue
our strategy of growing our business in high-quality loans moder-
ately and selectively and to further leverage the potential from
digitalization.
We aspire to be the bank of choice for private clients in Switzer-
land 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-service terminals, and 4 customer service centers, as well as
state-of-the-art digital banking services. Technology is fundamen-
tally 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 tradi-
tion as a leader and innovator in digital services to deliver superior
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.
Loans, gross
%
As of 31.12.15
6
5
1
14
74
Total: CHF 136 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 53% average loan-to-value. 3 54% average loan-to-value.
(cid:19)(cid:36)(cid:38)(cid:18)(cid:20)(cid:20)(cid:65)(cid:71)
1BD021_e
We measure the performance of our business against four key
performance indicators: pre-tax profit growth, cost / income ratio,
net new business volume growth for personal banking and net
interest margin. We also evaluate our performance against our
annual performance targets, which comprise a cost / income ratio
of 50–60%, a net new business volume growth rate of 1–4% for
personal banking, and a net interest margin of 140–180 basis
points, as defined in the “Our strategy” section of this report.
➔ Refer to the “Our strategy” section of this report for more
information on our targets
In the corporate and institutional business we focus on a qual-
itative growth strategy. Our key strategic focus is centered on con-
tinuous improvement of our profitability and capital efficiency.
Through cross-divisional collaboration, we deliver our full value
proposition to our clients, leveraging our capabilities across all
business divisions.
Our size in Switzerland and the diversity of businesses we oper-
ate 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
more than 85% of the 1,000 largest Swiss corporations, one in
three pension funds in Switzerland including 75 of the largest
100, and around 80% of banks domiciled in Switzerland. We
strive to selectively expand our market share in Switzerland with a
focus on cash flow-based lending and fee and trading business.
Additionally, we systematically expand our international footprint,
leveraging our product capabilities to optimally serve Swiss corpo-
rate clients with activities abroad as well as global corporate cli-
ents with headquarters in Switzerland.
Our clients value the good work we do and have rewarded it
once again. In 2015, for the fifth consecutive year, 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. Additionally, in 2015, UBS was
rated as a leading asset servicing provider across several catego-
ries according to the R&M Survey, one of the industry’s most
important client surveys, recognizing UBS as the “Best Custodian
for Asset Managers”.
As the leading private 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
administrative 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
ensuring superior client service. UBS is a front-runner in the Swiss
market in terms of the certification of its client advisors and has
set a standard with its state-accredited ISO certification program.
Other banking groups in Switzerland have followed UBS in adopt-
ing the standard for their own certification programs.
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 private, corporate and institutional clients.
Switzerland is the only country where we operate in private, cor-
porate 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. Dedi-
cated 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 ser-
vice.
Competitors
In the Swiss retail business, our competitors are Raiffeisen, 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.
49
Operating environment and strategy Operating environment and strategy
Personal & Corporate Banking
Products and services
Our private clients have access to a comprehensive life-cycle-
based offering, comprising easy-to-understand products, includ-
ing cash accounts, payments, savings and retirement solutions,
investment fund products, residential mortgages, a loyalty pro-
gram and advisory services. We provide financing and investment
solutions to our corporate and institutional clients, offering access
to equity and debt capital markets, syndicated and structured
credit, private placements, leasing and traditional financing. Our
transaction banking offers solutions for payment and cash man-
agement services, trade and export finance, receivable finance, as
well as global custody solutions to institutional clients. In 2015,
we implemented a number of product and service innovations.
Examples include the launch of our innovative Corporate Financial
Management for our small and medium-sized clients, the devel-
opment of an electronic document presentation service for trade
finance transactions, as well as the continued extension of our
corporate banking capabilities targeted at subsidiaries and
branches of Swiss clients in Singapore and Hong Kong. Addition-
ally, we further extended our Multi-channel Center to optimally
steer clients across digital and non-digital channels and to create
a unique client experience. To best leverage our value proposition
to clients, close collaboration with our investment bank and asset
management businesses are key building blocks in our universal
bank strategy. This enables us to offer capital market products,
foreign exchange products, hedging strategies and trading capa-
bilities, as well as to provide corporate finance advice through the
Investment Bank and state-of-the-art fund solutions and portfolio
management through Asset Management.
Our distribution model is based on a solid, balanced multi-
channel strategy. Our expanding electronic and mobile banking
offering is very well-regarded and we continue to see a steadily
rising number of users and client interactions. The joint introduc-
tion of Paymit with SIX and Zürcher Kantonalbank has made UBS
the leader in the Swiss mobile payment space. UBS Paymit achieved
more than 150,000 downloads by the end of 2015. We will con-
tinue to build on our position as the leading multi-channel bank in
Switzerland and as an innovator in digital services to improve client
experience, capture market share and increase efficiency.
50
Asset Management
Asset Management is a large-scale asset manager, with a presence in 22 countries. We offer investment capabilities
and investment styles across all major traditional and alternative asset classes to institutions, wholesale intermediaries
and wealth management clients around the world.
Business
We are a leading fund house in Europe, the largest mutual fund
manager in Switzerland, the third-largest international asset man-
ager in Asia, the second largest fund of hedge funds manager
and one of the largest real estate investment managers in the
world. We provide investment management products and ser-
vices to a broad range of clients around the world, including: cor-
porate and public pension plans; sovereign institutions such as
governments and central banks; supranationals; endowments,
municipalities and charities; insurance companies; wholesale
intermediaries; financial institutions; and private clients.
Our global investment capabilities include equities, fixed
income, currency, hedge funds, real estate, infrastructure and pri-
vate equity, which can also be combined into customized solu-
tions and multi-asset strategies. Complementing our investment
offering, our fund services business provides administration ser-
vices for traditional UBS and third-party funds.
We have a diverse client base located throughout the world.
As of 31 December 2015, invested assets totaled CHF 650 billion
and assets under administration were CHF 407 billion. Approxi-
mately 66% of invested assets were from institutional clients and
the remainder was from wholesale clients, including UBS’s wealth
management businesses and third parties.
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51
Operating environment and strategy Operating environment and strategy
Asset Management
Approximately 30% of invested assets were managed in pas-
sive strategies, 9% were money market assets and the remaining
61% were managed in active, non-money market strategies.
ratio of 60 –70%, and 3 – 5% net new money growth, excluding
money market flows, as defined in the “Our strategy” section of
this report.
Strategy and clients
We aspire to provide our clients with the best ideas and superior
investment performance by drawing on the breadth and depth of
our insights and capabilities to deliver high-quality solutions and
services.
Our aim is to drive profitable and sustainable growth across
our client segments. For third-party clients, we are focusing our
growth ambitions on key markets, strengthening our institutional
business and accelerating the growth of our wholesale business.
We are also intensifying our coverage and collaboration with
UBS’s wealth management businesses to continue to deliver prod-
ucts that meet their clients’ needs.
Our global business model has proven resilient to challenging
market conditions, and provides a solid foundation to capture
growth opportunities despite shifting market dynamics.
In 2015 we sold our Alternative Fund Services (AFS) business to
Mitsubishi UFJ Financial Group, as part of our strategy to focus on
delivering best-in-class investment management capabilities to
our clients.
We intend to build on our areas of strength in traditional, alter-
native and passive investments. In alternatives, we will continue
to expand our established positions in real estate and hedge
funds, leveraging our expertise and best practice across all invest-
ment areas. To further develop our solutions offering to meet cli-
ent needs across alternative and traditional asset classes, we have
brought together our customized client solutions capabilities. In
passive investments, we continue to develop our well-established
capabilities, including indexed strategies and exchange-traded
funds (ETFs).
To support the successful execution of our strategy, we are
investing in our operating platform and in attracting, developing
and retaining world-class professionals.
We measure the performance of our business against five key
performance indicators: pre-tax profit growth, cost / income ratio,
net new money growth, gross margin on invested assets and net
margin on invested assets. We also evaluate our performance
against our annual performance targets, which include an annual
pre-tax profit of CHF 1 billion in the medium term, a cost / income
➔ Refer to the “Our strategy” section of this report for more
information on our targets
The asset management industry has seen continued asset
inflows. The long-term outlook is positive, with three main driv-
ers: (i) populations are aging in developed countries and this will
increase future savings requirements; (ii) governments are con-
tinuing to reduce support for pensions and benefits, leading to a
greater need for private funding; and (iii) emerging regulation is
creating opportunities for asset managers that have the scale to
deliver new value-added services.
Organizational structure
Following the sale of our AFS business, at the end of 2015 we
employed 2,277 personnel in 22 countries, and have our principal
offices in Chicago, Frankfurt, Hartford, Hong Kong, London, New
York, Singapore, Sydney, Tokyo and Zurich.
Effective 1 January 2016, our structure is organized around the
following investment areas and functions:
– Investment and business areas: Equities, Multi-Asset &
O’Connor; Fixed Income; Global Real Estate; Infrastructure and
Private Equity; Solutions; and Fund Services.
– Distribution: global and regional teams responsible for client
servicing and coverage;
– Products: global and regional teams responsible for product
development and lifecycle management
– Support functions, including the Chief Operating Officer area
and shared services provided by Corporate Center.
Competitors
Our competitors include global firms with wide-ranging capabili-
ties and distribution channels, such as BlackRock, JP Morgan
Asset 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
asset class focus.
52
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Products and services
We offer clients a wide range of investment products and services
in different asset class capabilities, which can be delivered through
segregated, pooled or advisory mandates as well as registered
investment funds in a variety of jurisdictions. Our active traditional
and alternative capabilities are:
– Equities – investment strategies with varying risk and return
objectives, including global, region-focused and thematic
strategies, as well as high alpha, growth and quantitative
styles.
– Multi-Asset – global and regional asset allocation and currency
investment strategies across the risk / return spectrum.
– O’Connor – a global, relative value-focused, single-manager
hedge fund platform providing investors with absolute and
risk-adjusted returns.
– Fixed Income – global, regional and local market-based single-
sector, multi-sector and extended sector strategies such as
high yield and emerging market debt. The team also manages
unconstrained fixed income and currency strategies.
– Global Real Estate – global and regional strategies across the
major real estate sectors, mainly focused on core and value-
added strategies, and also including other strategies across the
risk / return spectrum.
– Infrastructure and Private Equity – direct infrastructure invest-
ment in core infrastructure assets globally, and multi-manager
infrastructure and private equity strategies in broadly diversi-
fied fund of funds portfolios.
Our Solutions business offers:
– Multi-manager hedge fund solutions and advisory services,
providing exposure to hedge fund investments with tailored
risk and return profiles.
– Customized multi-asset solutions and advisory services, includ-
ing risk-managed and structured strategies, manager selec-
tion, pension risk management, risk advisory and global tacti-
cal asset allocation.
Our passive capabilities include indexed, alternative beta and
rules-based strategies across equities, fixed income, commodities,
real estate and alternatives with benchmarks ranging from main-
stream to highly customized indices and rules-driven solutions.
Products are offered in a variety of structures, including ETFs,
pooled funds, structured funds and mandates.
53
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 international capital markets. We offer advisory services and provide
in-depth 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
Corporate Client Solutions includes all advisory and financing
solutions businesses, origination, structuring and execution,
including equity and debt capital markets in service of corporate,
financial institution, sponsor clients and UBS’s wealth manage-
ment businesses.
Investor Client Services
Investor Client Services includes execution, distribution and trading
for institutional investors and provides support to Corporate Client
Solutions and UBS’s wealth management businesses. It includes
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 distribution and risk
management capabilities required to support all of our businesses.
Strategy and clients
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 for our
wealth management, personal & corporate banking and asset
management businesses, 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.
54
Our Corporate Client Solutions business unit includes our advi-
sory and capital markets businesses and financing solutions,
which are geared toward industries and regions that 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 banking
professionals.
Within Investor Client Services, we are one of the leading equi-
ties franchises in the world. The business continues to leverage its
global distribution platform and comprehensive product capabili-
ties, to support a broad client base, including UBS’s wealth man-
agement businesses, and institutional and retail investors, provid-
ing access to primary and secondary equity markets globally. Our
foreign exchange and precious metals businesses, underpinned
by a world-class distribution platform, continue to be a corner-
stone of our services. Consistent with our strategy, our rates and
credit businesses are focused on client flow and solutions, in addi-
tion to executing and clearing exchange-traded fixed income and
commodities derivatives. In line with the equities and foreign
exchange businesses, the rates and credit businesses serve our
capital markets business through an intermediation model.
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(cid:21)(cid:14)(cid:24)(cid:23)(cid:27)
(cid:26)(cid:14)(cid:26)(cid:26)(cid:27)
(cid:20)(cid:14)(cid:27)(cid:24)(cid:18)
(cid:19)(cid:14)(cid:27)(cid:24)(cid:25)
(cid:21)(cid:14)(cid:27)(cid:24)(cid:20)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:18)(cid:19)(cid:23)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:40)(cid:58)(cid:14)(cid:2)(cid:52)(cid:67)(cid:86)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:53)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
1 (cid:36)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2) (cid:81)(cid:80)(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:2) (cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2) (cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2) (cid:78)(cid:81)(cid:85)(cid:85)(cid:2) (cid:71)(cid:90)(cid:82)(cid:71)(cid:80)(cid:85)(cid:71)(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: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: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:67)(cid:80)(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: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:19)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:26)(cid:18)(cid:18)(cid:18)
(cid:24)(cid:18)(cid:18)(cid:18)
(cid:22)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:18)
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
our ongoing cost reduction programs and on strengthening our
operational risk framework. In 2015, we continued to further
optimize internal efficiencies by implementing a targeted technol-
ogy 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 continue to take 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 considering the
support and contribution they provide to each other.
We assess the performance of our business through five key
performance indicators: pre-tax profit growth, cost / income ratio,
return on attributed equity (RoaE), gross return on assets and
average value-at-risk (VaR). We also evaluate our performance
against our performance targets, which comprise a cost / income
ratio of 70–80% and an annual pre-tax RoaE of greater than
15%, as defined in the “Our strategy” section of this report. In
addition, we have short- to medium-term expectations for fully
applied risk-weighted assets of CHF 85 billion, and a fully applied
leverage ratio denominator of CHF 325 billion.
➔ Refer to the “Our strategy” section of this report for more
information on our targets and expectations
Organizational structure
At the end of 2015, we employed 5,243 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-
centric business units: Corporate Client Solutions and Investor Cli-
ent Services. Dedicated management teams in these business
units complement our global product capabilities with their
regional expertise to foster cross-product and cross-divisional col-
laboration, enabling us to deliver the firm’s comprehensive range
of services 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 and 2015 for UBS Limited.
Competitors
Competing firms are active in many of the businesses and markets
in which we participate, but our Investment Bank’s strategy is
unique. The main competitors of our equities, foreign exchange
and corporate advisory businesses are the major global invest-
ment banks, including Bank of America Merrill Lynch, Barclays,
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Mor-
gan 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, financial sponsor clients and clients of UBS’s wealth
management businesses. Corporate Client Solutions works closely
with Investor Client Services in the distribution and risk manage-
ment of capital markets products and financing solutions. With a
presence in all major financial markets, Corporate Client Solutions
is managed by region and is organized on a matrix of product,
industry sector and country banking professionals. Its main busi-
ness lines are as follows:
– Advisory provides bespoke solutions for our clients’ most com-
plex strategic challenges. This includes domestic and cross-
border mergers and acquisitions, as well as spin-offs, exchange
offers, leveraged buyouts, joint ventures, exclusive sales,
restructurings, 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
private placements, equity-linked transactions and other stra-
tegic equities solutions.
– Debt capital markets works closely with corporate and finan-
cial institution clients in raising debt capital, including invest-
ment-grade and emerging market bonds, high-yield bonds,
subordinated debt and hybrid capital. It also offers event-
driven (acquisition, leveraged buy-out) loans, bonds and mez-
zanine financing. All debt products are provided alongside risk
management solutions, including derivatives in close collabo-
ration 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.
55
Operating environment and strategy Operating environment and strategy
Investment Bank
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 one of the
leading participants 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, clear-
ing and custody services. Our franchise takes a client-centric
approach in serving hedge funds, asset managers, wealth man-
agement advisors, financial institutions and sponsors, pension
funds, sovereign wealth funds and corporations globally. We dis-
tribute, structure, execute, finance and clear cash equity and
equity derivative products. Our research franchise provides in-
depth investment analysis on companies, sectors, regions, macro-
economic trends, public policy and asset-allocation strategies. The
main business lines of the equities unit are:
– 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.
Foreign exchange, rates and credit
Foreign exchange, rates and credit consists of our foreign
exchange franchise, which ranks in the top tier globally, and our
market-leading precious metals business, as well as select rates
and credit businesses. These businesses support the execution,
distribution and risk management related to corporate and insti-
tutional 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
one of the leading foreign exchange market-makers in the pro-
fessional spot, forwards and options markets. We provide cli-
ents worldwide with first-class execution facilities (voice, elec-
tronic, algorithmic) coupled with our robust advisory and
structuring capabilities when tailored solutions best fit our cli-
ents’ positioning, hedging or liquidity management. We have
been present in physical and non-physical precious metals mar-
kets for almost a 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,
medium-term notes, government and corporate bonds, bank
notes, credit derivatives and the execution and clearing of
exchange-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.
Research
UBS Securities Research offers its clients key insights on multiple
securities in major financial markets around the globe.
Designed to be closely aligned with the needs of its clients,
UBS Securities Research’s approach to sell-side financial research
starts with identifying the issues that drive market prices. In our
flagship ’Q-series’ reports, which are based on questions received
from our clients, UBS Securities Research analysts, economists and
strategists address issues with a coordinated perspective across
regions, sectors, and asset classes.
With insightful evidence being a continued need for our cli-
ents, we have established UBS Evidence Lab, which is now the
sell-side’s largest team of experienced primary research experts.
Working in collaboration with UBS Securities Research analysts,
UBS Evidence Lab helps uncover new evidence on key issues that
inform clients on investment decisions, facilitated by its cutting-
edge toolkit of techniques.
56
Corporate Center
Corporate Center is comprised of Services, Group Asset and Liability Management (Group ALM) and Non-core and
Legacy Portfolio. Services includes the Group’s control functions and provides all logistics and support services to our
businesses. Group ALM is responsible for centrally managing the Group’s liquidity and funding position, as well as
providing other balance sheet and capital management services to the Group. Non-core and Legacy Portfolio is com-
prised of the non-core businesses and legacy positions that were part of the Investment Bank prior to its restructuring.
Strategic priorities and initiatives
Corporate Center – Services
Achieving greater effectiveness and efficiency is the primary focus
of our strategy across the whole of Corporate Center. At year-end
2015, we achieved CHF 1.1 billion of net cost reductions com-
pared with full-year 2013 and we remain fully committed to
achieving our net cost reduction target of CHF 2.1 billion by year-
end 2017. We continue to focus our efforts on the strategic levers
that can be categorized into workforce and footprint, organiza-
tion and process optimization, and technology.
Today, 27% of employees and contractors are in offshore or
nearshore locations compared with 18% two years ago. In addi-
tion to lower future personnel expenses, this allows us to tap
growing talent pools and realize efficiencies by reducing our foot-
print in high-cost real estate locations.
Through organization and process optimization, we seek to
increase effectiveness and efficiency by leveraging common capa-
bilities and creating centralized functions. Within Group Technol-
ogy, we continue to modernize our infrastructure and simplify our
portfolio of applications.
Group Asset and Liability Management continues to focus on
optimizing our asset and liability positions across the Group. The
key drivers of these activities are the management of our struc-
tural risks, including foreign exchange sensitivity, counterparty
credit risk and interest rate risk in the banking book; the ongoing
evolution of the global regulatory landscape; and changes to the
financial resource requirements of our business divisions.
Non-core and Legacy Portfolio continues a wind-down strat-
egy that balances the further disciplined reduction of both our
risk-weighted assets and our leverage ratio denominator, weighed
against the ultimate benefit for shareholders.
➔ Refer to the “Our strategy” section of this report for more
information
At the end of 2015, 23,470 personnel were employed in Corpo-
rate Center – Services. Corporate Center – Services allocates the
majority of its operating expenses associated with shared services
functions to the business divisions and other Corporate Center
units for which the respective services are performed based on
service consumption, including operations, information technol-
ogy, human resources, regulatory relations and strategic initia-
tives, communications and branding, corporate services, physical
security, information security as well as outsourcing, nearshoring
and offshoring. Additionally, operating expense associated with
control functions, including Group Finance, Group Risk and Group
General Counsel, is allocated to the business divisions and other
Corporate Center units based on utilization.
Each year, as part of the annual business planning cycle, Cor-
porate Center – Services agrees with the business divisions, Non-
core and Legacy Portfolio as well as Group ALM 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 service performed. However, as
actual costs incurred may differ from those expected, Corporate
Center – Services may recognize significant under- or over-allo-
cations depending on various factors, including Corporate Cen-
ter – Services’ ability to manage the delivery of its services and
achieve cost savings.
Operating expenses remaining in Corporate Center – Services
after allocations relate mainly to Group governance functions and
other corporate activities, certain strategic and regulatory projects
and certain retained restructuring expenses.
57
Operating environment and strategy Operating environment and strategy
Corporate Center
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 also responsible for management and control of the
Group’s tax affairs and for treasury and capital management,
including management and control of our regulatory capital
ratios, as well as funding and liquidity risk with independent over-
sight from the Group Chief Risk Officer (Group CRO). After con-
sultation with the Audit Committee of the Board of Directors
(BoD), our Group CFO makes proposals to the BoD regarding the
accounting standards adopted by the Group, and defines finan-
cial reporting and disclosure standards. Together with the Group
Chief Executive Officer (Group CEO), the Group CFO provides
external certifications under sections 302 and 404 of the Sar-
banes-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
Group Technology, Group Operations and Group Corporate Ser-
vices. The Group COO is responsible for providing high-quality,
cost-effective and differentiating Group-wide IT services and tools
in line with the needs of the business divisions and Corporate Cen-
ter and for the delivery of a wide range of operational services
across all business divisions and regions. The Group COO is also
responsible for supplying real estate infrastructure and general
administrative services, and for directing and controlling all supply
and demand management activities for the entire firm. He sup-
ports 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 Group in
enabling change and transition by improving the effectiveness and
efficiency of UBS’s operating model and processes, reducing com-
plexity and enhancing the flexibility and agility of the organization.
Group Chief Risk Officer
The Group Chief Risk Officer (Group CRO) is responsible for the
development of the Group’s risk appetite framework, its risk man-
agement and control principles and risk policies. In accordance
with the risk appetite framework approved by the BoD, the Group
CRO is responsible for the implementation of appropriate inde-
pendent control frameworks for the Group’s credit, market, trea-
sury, country, compliance and operational risks. 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 has approval authority for transactions, positions, exposures,
portfolio limits and credit risk provisions / allowances in accor-
dance with the risk control authorities delegated to this role. The
Group CRO has management responsibility over the divisional,
regional and firm-wide risk control functions, and monitors and
challenges the bank’s risk-taking activities. Our Group Security
Services function is also 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. In addition, the Group GC is responsible for
legal oversight in respect of the Group’s key regulatory interac-
tions and for maintaining the relationships with our key regulators
with respect to legal matters. The Group GC is also responsible for
reporting legal risks and material litigation, as well as managing
internal, special and regulatory investigations.
Corporate Center – Group ALM
Group ALM manages the structural risks of our balance sheet
including pricing and managing the Group’s structural interest rate
and currency risk, funding and liquidity risk, currency basis and
interest rate basis risk and collateral risk. Group ALM also seeks to
optimize the Group’s financial performance by better matching
assets and liabilities within the context of the Group’s liquidity,
funding and capital targets. Group ALM serves all business divi-
sions and other Corporate Center units, and its risk management
is fully integrated into the Group’s risk governance framework.
The results of certain hedging activities, including any non-
economic volatility caused by the applicable accounting treat-
ment, are retained by Group ALM.
Revenues generated by the Group ALM’s banking book inter-
est rate risk management activities performed on behalf of Wealth
Management and Personal & Corporate Banking are fully allo-
cated to the originating business divisions. Funding and liquidity
costs are allocated to the business divisions and other Corporate
Center units based on their consumption, which is driven by vari-
ous internal funding and liquidity models. The Group seeks to
maintain liquidity and funding levels at, or above, the minimum
regulatory requirements.
Corporate Center – Non-core and Legacy Portfolio
Corporate Center – Non-core and Legacy Portfolio is comprised of
the positions from businesses that were part of the Investment
Bank prior to its restructuring, and is overseen 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 positions are managed and
exited over time with the objective of maximizing shareholder
value, in line with our strategic plan.
58
Risk factors
EDTF | Certain risks, including those described below, may impact
our ability to execute our strategy or otherwise affect our business
activities, financial condition, results of operations and prospects.
Because 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. In
addition, these risks could affect our business activities, financial
condition, results of operations and prospects. The order of pre-
sentation of the risk factors below does not indicate the likelihood
of their occurrence or the potential magnitude of their conse-
quences.
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 | We prepare our consolidated financial statements in Swiss
francs. However, a substantial portion of our assets, liabilities,
invested assets, revenues and expenses, equity of foreign opera-
tions and risk-weighted assets (RWA) are denominated in other
currencies, particularly the US dollar, the euro and the British
pound. Accordingly, changes in foreign exchange rates 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 common equity tier 1
(CET1) capital. These effects may adversely affect our income, bal-
ance sheet, capital, leverage and liquidity ratios.
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. Moreover, a
significant portion of the equity of our foreign operations is
denominated in US dollars, euros, British pounds and other for-
eign currencies. Therefore, the appreciation of the Swiss franc
against other currencies generally has an adverse effect on our
earnings and equity, including on deferred tax assets, in the
absence of any mitigating actions.
Similarly, a significant portion of our 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 capital ratios, while a significant depreciation of the Swiss
franc against these currencies could adversely affect our Basel III
capital ratios.
On 15 January 2015, the Swiss National Bank (SNB) discontin-
ued the minimum targeted exchange rate for the Swiss franc ver-
sus 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. 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 exchange
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 also adopted a negative-interest-
rate policy.
Swiss counterparties are, in general, highly reliant on the
domestic economy and the economies 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. The stronger
Swiss franc may have a negative effect on the Swiss economy,
particularly on exporters, which could adversely affect some of
the counterparties within our domestic lending portfolio and lead
to an increase in the level of credit loss expenses in future periods
from the low levels recently observed.
Moreover, our equity and capital are also affected by changes in
interest rates. In particular, the calculation of our net defined ben-
efit 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 cor-
responding reduction in our equity and fully applied CET1 capital.
59
Operating environment and strategy Operating environment and strategy
Risk factors
A continuing low or negative interest rate environment would
likely have an adverse effect on the repricing of UBS’s assets and
liabilities, and may significantly impact the net interest income
generated from our wealth management businesses and Personal
& Corporate Banking. The low or negative interest rate environ-
ment may affect customer behavior and hence the overall balance
sheet structure. It may also affect the performance of our wealth
management businesses, particularly given the associated cost of
maintaining the high-quality liquid assets (HQLA) required to
cover regulatory outflow assumptions embedded in the liquidity
coverage ratio (LCR), which could be exacerbated by a reduction
of the aforementioned SNB deposit exemption threshold for
banks. Mitigating actions that we have taken, or may take in the
future, to counteract these effects, such as the introduction of
selective deposit fees or minimum lending rates, have resulted
and could further result in the loss of customer deposits, a key
source of our funding, net new money outflows and / or a declin-
ing market share in our domestic lending.
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
subsequent 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
approach we currently use as required by the Swiss Financial
Market Supervisory Authority (FINMA) under the Basel III
framework;
– prudential adjustments to valuation of assets at the discretion
of regulators;
– changes in the calculation of the leverage ratio and the intro-
duction of a more demanding leverage ratio;
– new or significantly enhanced liquidity and stable funding
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 require-
ments 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 or entity 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
legislative action or to further rulemaking by regulatory authori-
ties before final implementation. As a result, there remains sig-
nificant 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
interpretations, and the dates of their effectiveness. In addition,
the cumulative effect of the changes in laws and regulations in
Switzerland and the other jurisdictions in which we operate
remains uncertain. The implementation of such measures and fur-
ther, more restrictive changes may materially affect our business
and our ability to execute our strategic plans, impose additional
implementation, compliance and other costs on us, or require us
to increase prices for, or cease offering of, certain services and
products.
Notwithstanding attempts by regulators to align their efforts,
the measures adopted or proposed differ significantly across the
major jurisdictions, making it increasingly difficult to manage
a global institution. Moreover, the absence of a coordinated
approach puts institutions headquartered in jurisdictions that
impose relatively more stringent standards at a disadvantage.
Switzerland has adopted capital and liquidity requirements for its
major international banks that are among the strictest of the
major financial centers. This could put Swiss banks, such as UBS,
at a disadvantage when they compete with peer financial institu-
tions subject to more lenient regulation or with unregulated non-
bank competitors.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information
60
Regulatory and legislative changes in Switzerland
EDTF | Swiss regulatory changes with regards to capital, liquidity
and other areas have generally proceeded more quickly than
those in other major jurisdictions. FINMA, the SNB and the Swiss
Federal Council are implementing requirements that are signifi-
cantly more onerous and restrictive for major Swiss banks, such as
UBS, than those adopted or proposed by regulatory authorities in
other major global financial centers.
Capital and TBTF regulation: A revised banking ordinance and
capital adequacy ordinance implementing the Basel III capital stan-
dards and the Swiss TBTF law became effective on 1 January 2013.
As a systemically relevant Swiss bank, we are subject to base capi-
tal 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 2015, the Swiss Federal
Council published proposed revisions to the Swiss TBTF framework
that would significantly increase our capital requirements based on
RWA and impose a significantly higher leverage ratio requirement.
In addition, the proposed revisions to the TBTF ordinance would
impose a total loss absorbing capital requirement. Moreover, Swiss
governmental authorities have, and have exercised, the authority
to impose an additional countercyclical buffer capital requirement
and have further required banks using the internal ratings-based
(IRB) approach to use a bank-specific multiplier when calculating
RWA for Swiss residential mortgages, income-producing residen-
tial and commercial real estate (IPRE) and credit exposures to cor-
porates for the Investment Bank. In addition, UBS has mutually
agreed with FINMA to an incremental operational capital require-
ment to be held against litigation, regulatory and similar matters
and other contingent liabilities, which added CHF 13.3 billion to
our RWA as of 31 December 2015. There is no assurance that we
will not be subject to increases in capital requirements in the
future, from the imposition of further add-ons in the calculation of
RWA or other components of minimum capital requirements.
Switzerland has implemented new Basel Committee on Bank-
ing Supervision (BCBS) requirements for the mandatory Pillar 3
disclosures of RWA based on a harmonized approach, and we
expect it will implement, when finalized, the BCBS revisions relat-
ing to (i) modifications of the internal ratings-based approach for
credit risk, (ii) the fundamental review of the trading book, includ-
ing a standardized approach, for market risk, (iii) the standardized
approach for credit risk, (iv) the introduction of a floor based on
the standardized approach, and (v) the calculation of operational
risks. The revisions to the BCBS standards are likely to increase our
credit risk and market risk RWA and, based on initial analysis, also
our operational risk RWA. Implementation of these revisions
would result in significant implementation costs to us. In addition,
a floor based on a standardized approach would likely be less risk
sensitive and may result in significantly higher RWA.
Liquidity and funding: As a Swiss SRB, we are required to main-
tain an LCR of high-quality liquid assets to estimated stressed
short-term net cash outflows, and we will also be required to
maintain a net stable funding ratio (NSFR). Both of these require-
ments 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.
These requirements, together with liquidity and funding
requirements imposed by other jurisdictions in which we operate,
oblige us to maintain substantially higher levels of overall liquidity
than was previously the case, or limit our efforts to optimize inter-
est expense. Increased capital, funding and liquidity 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 likelihood and amount of
outflows of funding and available sources of additional funding in
a market or firm-specific stress situation. There can be no assur-
ance that in an actual stress situation our funding outflows would
not exceed the assumed amounts.
Resolution planning and resolvability: The Swiss banking act and
capital adequacy ordinances provide FINMA with significant pow-
ers to intervene in order to prevent a failure of, or resolve, a failing
financial institution. FINMA has considerable discretion in deter-
mining 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 pay-
ment of dividends and interest. FINMA could also require us,
directly or indirectly, for example, to alter our legal structure,
including by separating 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 capital instruments
and liabilities of UBS Group AG, UBS AG and UBS Switzerland AG
in connection with a resolution. FINMA has broad powers and
significant discretion in the exercise of its powers in connection
with a resolution proceeding. Certain classes of creditors, such as
Swiss deposits, are protected. As a result, holders of obligations of
an entity subject to a Swiss restructuring proceeding may have
their obligations extinguished or converted to equity even though
obligations ranking on a parity with or junior to such obligations
are not restructured.
Swiss TBTF requirements require Swiss SRBs, including UBS, to
put in place viable emergency plans to preserve the operation of
systemically important functions in the event of a failure of the
institution, to the extent that such activities are not sufficiently
separated in advance. The current Swiss TBTF law provides for the
possibility of a limited reduction of capital requirements for Swiss
SRBs that adopt measures to reduce resolvability risk beyond what
is legally required. Such actions include changes to the legal struc-
ture of a bank group in a manner that would insulate parts of the
group to exposure from risks arising from other parts of the group,
thereby making it easier to dispose of certain parts of the group in
a recovery scenario, to liquidate or dispose of certain parts of the
group in a resolution scenario or to execute a debt bail-in. The
aforementioned proposal for a revised TBTF ordinance contem-
plates a limited reduction of the proposed gone concern require-
ment based on improvements to resolvability. However, there is no
certainty with respect to timing or size of a potential rebate.
61
Operating environment and strategy Operating environment and strategy
Risk factors
Movement of businesses to subsidiaries, which we refer to in
this section as subsidiarization, will require significant time and
resources to implement. As also discussed below, subsidiarization
in Switzerland and elsewhere may create operational, capital,
liquidity, funding and tax inefficiencies and may increase our own
and our counterparties’ credit risk.
There can be no assurance that the execution of the changes
we have undertaken, planned or may implement in the future,
will result in a material reduction in capital or gone concern
requirements or that these changes will satisfy existing or future
requirements for resolvability or mandatory structural change in
banking organizations.
Market regulation: In June 2015, the Swiss Parliament adopted
new regulation of the financial market infrastructure in Switzer-
land which came into effect on 1 January 2016, subject to phase-
in provisions, and mandates, among other things, the clearing of
OTC derivatives with a central counterparty. These laws may have
a material impact on the market infrastructure that we use, avail-
able 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 restric-
tions both in individual jurisdictions and, in some cases, globally.
Banking structure and activity limitations: Regulatory and leg-
islative changes may subject us to requirements to move activities
from UBS AG branches into subsidiaries. Such subsidiarization can
create operational, capital, liquidity, funding and tax inefficien-
cies, increase our aggregate credit exposure to counterparties as
they transact with multiple entities within our Group, expose our
businesses to local capital, liquidity and funding requirements,
and potentially give rise to client and counterparty concerns about
the credit quality of individual subsidiaries. Such changes could
also negatively affect our funding model and severely limit our
booking flexibility.
For example, we have significant operations in the UK and
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 very sub-
stantially increase the capitalization of our UK bank subsidiary,
UBS Limited, and may be required to change our booking prac-
tices to reduce, or even eliminate, our utilization of UBS AG’s
London branch as a global booking center for the ongoing busi-
ness of the Investment Bank.
We are subject to the US “Volcker Rule” under the Dodd-Frank
Act and may become subject to other regulations substantively
limiting the types of activities in which we may engage. We have
incurred substantial costs to implement a compliance and moni-
toring framework to comply with the Volcker Rule and have been
required to modify our business activities both inside and outside
of the US to conform to its activity limitations. The Volcker Rule
may also 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. This commitment is being
implemented through Dodd-Frank in the US and corresponding
legislation in the EU, Switzerland – where the new regulation
came into effect on 1 January 2016 – and other jurisdictions, and
has and will continue to have a significant effect on our OTC
derivatives business, which is conducted primarily in the Invest-
ment 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. These market changes
are likely to reduce the revenue potential of certain lines of busi-
ness for market participants generally, and we may be adversely
affected.
UBS AG registered as a swap dealer with the Commodity
Futures 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 security-based swap dealer
with the SEC, when its registration is required. Some of these
regulations, including those relating to swap data reporting,
recordkeeping, compliance and supervision, apply to UBS AG
globally. The changes in OTC derivative regulation in the US, the
EU, Switzerland and elsewhere continue to present a substantial
implementation burden, and in some cases US rules will likely
duplicate or conflict with legal requirements applicable to us else-
where, including in Switzerland, and may place us at a competi-
tive disadvantage to firms that are not required to register as swap
dealers in the US with the SEC or CFTC.
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 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 jurisdictions from Switzer-
land. In addition, a number of jurisdictions are increasingly regu-
lating cross-border activities on the basis of some notion of comity,
e.g., substituted compliance and equivalence determination. A
negative determination in certain jurisdictions could limit our
access to the market in those jurisdictions and may negatively
influence our ability to act as a global firm. In addition, as jurisdic-
tions tend to apply such determinations on a jurisdictional level
rather than on an entity level, we will generally need to rely on
jurisdictions’ willingness to collaborate.
62
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. If a recovery
or resolution plan is determined by the relevant authority to be
inadequate or not credible, relevant regulation may authorize the
authority to place limitations on the scope or size of our business
in that jurisdiction, oblige us to hold higher amounts of capital or
liquidity, or to change our legal structure or business in order to
remove the relevant impediments to resolution. 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 acceptable to
the relevant regulators. Such structural changes may negatively
affect our ability to benefit from synergies between business
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.
Regulatory requirements for banks to maintain minimum
TLAC, such as those contemplated under the proposed revised
Swiss TBTF ordinance, or requirements to maintain TLAC at sub-
sidiaries, e.g., those proposed by the Federal Reserve Board for US
IHC, as well as the power of resolution authorities to bail in TLAC
and other debt obligations and uncertainty as to how such pow-
ers will be exercised, will likely increase our cost of funding and
could potentially increase the total amount of funding required
absent other changes in our business.
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 will likely continue to be costly
to implement. They could also have a negative effect on our legal
structure or business model, potentially generating capital ineffi-
ciencies and affecting our profitability. Finally, the uncertainty
related to, or the implementation of, legislative and regulatory
changes may have a negative impact on our relationships with
clients and our success in attracting client business.
If we are unable to maintain our capital strength, this
may adversely affect our ability to execute our strategy,
client franchise and competitive position
EDTF | Our capital position, as measured by our risk-weighted capi-
tal and leverage ratios under Swiss SRB Basel III requirements, is
determined by our RWA, our leverage ratio denominator and our
eligible capital. RWA, leverage ratio denominator and eligible
capital may fluctuate based on a number of factors.
RWA are credit, non-counterparty related, market and opera-
tional risk positions, measured and risk-weighted according to
regulatory criteria. They are driven by our business activities and
by changes in the risk profile of our exposures, as well as the
effect of currency and methodology changes and regulatory
requirements. For instance, substantial market volatility, a widen-
ing of credit spreads, which is a major driver of our value-at-risk,
adverse currency movements, increased counterparty risk, deteri-
oration in the economic environment, or increased operational
risk could result in a rise in RWA. Our eligible capital would be
reduced if we experienced losses recognized within net profit or
other comprehensive income, 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 reduced for a number of other reasons,
including certain reductions in the ratings of securitization expo-
sures, acquisitions and divestments changing the level of good-
will, adverse currency movements affecting the value of equity,
prudential adjustments that may be required due to the valuation
uncertainty associated with certain types of positions, 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. Refer to “Fluctuation in foreign exchange
rates and continuing low or negative interest rates may have a
detrimental effect on our capital strength, our liquidity and fund-
ing position, and our profitability” above for more information on
the effect on capital of changes to pension plan defined benefit
obligations. 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. We have significantly reduced our market risk and credit
risk RWA as we have executed our strategy, however, operational
risk events, particularly those arising from litigation, regulatory
and similar matters have resulted in significant increases in opera-
tional risk RWA. We have agreed on a supplemental analysis with
FINMA that is used to calculate an incremental operational risk
capital charge to be held for litigation, regulatory and similar mat-
ters and other contingent liabilities which as of 31 December
2015 was CHF 13.3 billion. There can be no assurance that UBS
will be successful in settling these matters at existing or future
provision levels, and reducing or eliminating the incremental
operational risk component of RWA.
63
Operating environment and strategy Operating environment and strategy
Risk factors
The required levels and calculation of our regulatory capital
and the calculation of our RWA are also subject, in Switzerland or
in other jurisdictions in which we operate, to changes in regula-
tory requirements or their interpretation, as well as the exercise of
regulatory discretion. Changes in the calculation of RWA, or, as
already discussed above, the imposition of additional supplemen-
tal RWA charges or multipliers applied to certain exposures, or the
imposition of a RWA floor based on the standardized approach or
other methodology changes 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 counteract to some degree 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 SRBs and
expect to become subject to significantly higher leverage ratio-
based capital and TLAC requirements under the proposed revi-
sions to the Swiss TBTF framework. The leverage ratio operates
separately from the risk-based capital requirements. It is a simple
balance sheet measure and therefore limits balance sheet-inten-
sive activities, such as lending, more than activities that are less
balance sheet-intensive, and it may constrain our business activi-
ties even if we satisfy other risk-based capital requirements.
Increases in the minimum leverage ratio or the imposition of other
LRD-based requirements, such as in the current Swiss proposal,
may adversely affect the profitability of some of our businesses,
make these businesses less competitive and adversely affect our
profitability.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information
We may not be successful in completing our announced
strategic plans
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. As part of our strategy, we have also announced
annual performance expectations and targets for the Group, the
business divisions and Corporate Center. In the third quarter of
2015 we amended some of these for 2016 and future years, in
light of actual and forecasted changes in macroeconomic condi-
tions, the announcement of the new Swiss TBTF proposal and the
continuing costs of meeting new regulatory requirements. A risk
remains that we may need to further amend our targets and
expectations, that we may not succeed in executing the rest of our
plans, that our plans may be delayed, that market events or other
factors may adversely affect the implementation of our plans or
that their effects may differ from those intended.
In particular, we have substantially reduced the RWA and LRD
usage of our Non-core and Legacy Portfolio positions, but there is
no assurance that we will continue to be able to exit the remain-
ing positions 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 difficult to sell or otherwise exit these positions and
reduce the RWA and LRD usage associated with these exposures.
As part of our strategy, we also have a program underway to
achieve significant incremental cost reductions. Delivering on our
cost reduction initiatives is one of our key priorities, but a number
of factors could negatively impact our plans. Higher permanent
regulatory costs and business demand than we had originally
anticipated have partly offset our gross cost reductions, and
although we currently expect to achieve the net cost reduction
that we had targeted for 2015 by around the middle of 2016, we
could be further challenged in the execution of this and our fur-
ther cost reduction plans. Moreover, the success of our strategy
and our ability to reach some of our announced targets depends
on the success of the effectiveness and efficiency measures we are
able to carry out. As is often the case with major effectiveness and
efficiency programs, our plans involve significant risks. Included
among these are the risks that restructuring 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 antici-
pate. Changes in our work force as a result of outsourcing, near-
shoring or offshoring or staff reductions may introduce new oper-
ational risks that, if not effectively addressed could affect our
ability to recognize the desired cost and other benefits from such
changes or could result in operational losses. Changes in work-
force location or reductions in workforce can lead to expenses
recognized in the income statement well in advance of the cost
savings intended to be achieved through such workforce strategy.
For example, under International Financial Reporting Standards
(IFRS) we are required to recognize provisions for real estate lease
contracts when the unavoidable costs of meeting the obligations
under the contracts exceed the benefits expected to be received
under them. Additionally, closure or disposal of operations may
result in foreign currency translation losses (or gains) previously
recorded in other comprehensive income being reclassified to the
income statement.
As we implement our effectiveness and efficiency programs we
may also experience unintended consequences such as the loss or
degradation of capabilities that we need in order to maintain our
competitive position and achieve our targeted returns.
64
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 vari-
ety of claims, disputes, legal proceedings and government inves-
tigations and inquiries, including matters related to our cross
border business and licensing, trading practices, securities offer-
ings including residential mortgage-backed securities, sales prac-
tices and suitability, accounting matters, anti-money laundering,
sanctions and anti-corruption laws and investment management
practices. 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
approximately CHF 1.4 billion in fines by and disgorgements to
US, UK and Swiss authorities to resolve investigations by those
authorities relating to LIBOR and other benchmark interest rates.
We entered into a non-prosecution agreement (NPA) with the US
Department of Justice (DOJ) and UBS Securities Japan Co. Ltd.
also pleaded guilty to one count of wire fraud relating to the
manipulation of certain benchmark interest rates. In May 2015,
the DOJ exercised its discretion to terminate the NPA based on its
determination that we had committed a US crime in relation to
foreign exchange matters. As a consequence, UBS AG has pleaded
guilty to one count of wire fraud for conduct in the LIBOR matter,
and has agreed to pay a USD 203 million fine and accept a three-
year term of probation.
Our settlements with governmental authorities in connection
with foreign exchange and LIBOR and benchmark interest rates
starkly illustrate the much-increased level of financial and reputa-
tional risk now associated with regulatory matters in major juris-
dictions. Very large fines and disgorgement amounts were
assessed against us, and we were required to enter guilty pleas,
despite our full cooperation with the authorities in the investiga-
tions relating to LIBOR and other benchmark interest rates, and
despite our receipt of conditional leniency or conditional immu-
nity from antitrust authorities in a number of jurisdictions, includ-
ing the US and Switzerland. We understand that, in determining
the consequences for us, the authorities considered the fact that
it had in the recent past been determined that we had engaged in
serious misconduct in several other matters.
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 consolidated finan-
cial statements included in this report and we expect that our
ongoing business activities will continue to give rise to such mat-
ters in the future. The extent of our financial exposure to these
and other matters is material and could substantially exceed the
level of provisions that we have established. We are not able to
predict the financial and other terms on which some of these mat-
ters may be resolved. Litigation, regulatory and similar matters
may also result in non-monetary penalties and consequences.
Among other things, a guilty plea to, or conviction of, a crime
(including as a result of termination of the NPA) could have mate-
rial consequences for us. Resolution of regulatory proceedings
may require us to obtain waivers of regulatory disqualifications to
maintain certain operations, may entitle regulatory authorities to
limit, suspend or terminate licenses and regulatory authorizations
and may permit financial market utilities to limit, suspend or ter-
minate our participation in such utilities. Failure to obtain such
waivers, or any limitation, suspension or termination of licenses,
authorizations or participations, could have material conse-
quences for us.
Ever since our material losses arising from the 2007 to 2009
financial crisis, we have been subject to a very high level of regula-
tory scrutiny and to certain regulatory measures that constrain our
strategic flexibility. While we believe that we have remediated the
deficiencies that led to those losses as well as the unauthorized
trading incident announced in September 2011, the LIBOR-related
settlements of 2012 and settlements with some regulators of
matters related to our foreign exchange and precious metals busi-
ness, the resulting effects of these matters on our reputation and
relationships with regulatory authorities have proven to be more
difficult to overcome. We are determined to address the issues
that have arisen in these and other matters in a thorough and
constructive manner. We are in active dialog with our regulators
concerning the actions that we are taking to improve our opera-
tional risk management and control framework, but there can be
no assurance that our efforts will have the desired effects. As a
result of this history, our level of risk with respect to regulatory
enforcement may be greater than that of some of our peers.
➔ Refer to “Note 22 Provisions and contingent liabilities”
in the “Consolidated financial statements” of this report for
more information
65
Operating environment and strategy Operating environment and strategy
Risk factors
Operational risks affect our business
EDTF | Our businesses depend on our ability to process a large num-
ber of complex transactions across multiple and diverse markets in
different currencies, to comply with requirements of many differ-
ent legal and regulatory regimes to which we are subject and to
prevent, or promptly detect and stop, unauthorized, fictitious or
fraudulent transactions. We also rely on access to, and on the
functioning of, systems maintained by third parties, including
clearing systems, exchanges, information processors and central
counterparties. Failure of our systems or third party systems could
have an adverse effect on us. Our operational risk management
and control systems and processes are designed to help ensure
that the risks associated with our activities, including those arising
from process error, failed execution, misconduct, unauthorized
trading, fraud, system failures, financial crime, cyber-attacks,
breaches of information security and failure of security and physi-
cal protection, are appropriately controlled.
We devote significant resources to maintain systems and pro-
cesses that are designed to protect our systems, networks and
software and to protect the confidentiality of information belong-
ing to our customers and us. However, we and other financial
services firms have been subject to breaches of security and to
cyber and other forms of attack, some of which are sophisticated
and targeted attacks intended to gain access to confidential infor-
mation or systems, disrupt service or destroy data. It is possible
that we may not be able to anticipate, detect or recognize threats
to our systems or data or that our preventative measures will not
be effective to prevent an attack or a security breach. A successful
breach or circumvention of security of our systems or data could
have significant negative consequences for us, including disrup-
tion of our operations, misappropriation of confidential informa-
tion concerning us or our customers, damage to our systems,
financial losses for us or customers, violations of data privacy and
similar laws, litigation exposure and damage to our reputation.
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 obli-
gations to maintain effective policies, procedures and controls to
detect, prevent and report money laundering and terrorist financ-
ing, and to verify the identity of our clients. We are also subject to
laws and regulations related to corrupt and illegal payments to
government officials by others, such as the US Foreign Corrupt
Practices Act and the UK Bribery Act. We have implemented poli-
cies, procedures and internal controls that are designed to comply
with such laws and regulations. Failure to maintain and imple-
ment adequate programs to combat money laundering, terrorist
financing or corruption, or any failure of our programs in these
areas, could have serious consequences both from legal enforce-
ment action and from damage to our reputation.
Although we seek to continuously adapt our capability to
detect and respond to the risks described above, if our internal
controls fail or prove ineffective in identifying and remedying
these risks, we could suffer operational failures that might result
in material losses, such as the loss from the unauthorized trading
incident announced in September 2011.
Our wealth and asset management businesses operate in an
environment of increasing regulatory scrutiny and changing stan-
dards. Legislation and regulation have changed and are likely to
continue to change fiduciary and other standards of care for asset
managers and advisors and have increased focus on mitigating or
eliminating conflicts of interest between a manager or advisor
and the client. These changes have presented, and likely will con-
tinue to present, regulatory and operational risks if not imple-
mented 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, more stringent standards in the wealth and asset manage-
ment industry, we could be subject to additional fines and sanc-
tions 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-
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.
66
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 (relat-
ing to the governmental inquiries and investigations relating to
our cross-border private banking services to US private clients dur-
ing the years 2000–2007 and the settlements entered into with
US authorities with respect to this matter) and other events seri-
ously damaged our reputation. Reputational damage was an
important factor in our loss of clients and client assets across our
asset-gathering businesses, and contributed to our loss of and
difficulty in attracting staff in 2008 and 2009. These develop-
ments had short-term and also more lasting adverse effects on
our financial performance, 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 investigations 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 | Our businesses are materially affected by market and eco-
nomic conditions. Adverse changes in interest rates, credit
spreads, securities’ prices, market volatility and liquidity, foreign
exchange levels, commodity prices, and other market fluctua-
tions, as well as changes in investor sentiment, can affect our
earnings and ultimately our financial and capital positions.
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,
natural disasters, pandemics, civil unrest, war or terrorism.
Because financial markets are global and highly interconnected,
even local and regional events, such as the ongoing European
sovereign debt concerns or concerns around the potential exit
from the EU by the UK or a significant slowing of economic
growth in China can have widespread impact well beyond the
countries in which they occur.
A crisis could develop, regionally or globally, as a result of dis-
ruptions in emerging markets as well as developed markets that
are susceptible to macroeconomic and political developments, or
as a result of the failure of a major market participant. Macroeco-
nomic and political developments can have unpredictable and
destabilizing effects, as reflected in our Global Recession scenario,
which we implemented in 2015 as the binding scenario in our
combined stress-testing framework, and which assumes a hard
landing in China leading to severe contagion of Asian and emerg-
ing markets economies and at the same time multiple debt
restructurings in Europe, related direct losses for European banks
and fear of a eurozone breakup severely affecting developed mar-
kets such as Switzerland, the UK and the US.
We have material exposures to a number of markets, both as
a wealth manager and as an investment bank. Moreover, our
strategic plans depend more heavily on our ability to generate
growth and revenue in emerging markets, including China, caus-
ing us to be more exposed to the risks associated with them.
Toward the end of 2015, uncertainties regarding macroeconomic
developments in China, and emerging markets more broadly, as
well as weakening of commodity prices, particularly oil, have
given rise to increased market volatility, which could well persist
throughout 2016.
A reduction in business and client activity and market volumes,
as significant market volatility can determine and, as we have
recently experienced, affects transaction fees, commissions and
margins, particularly in our wealth management businesses and
our Investment Bank. A market downturn is likely to reduce the
volume and valuations of assets we manage on behalf of clients,
reducing our asset and performance-based fees. On the other
side, 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.
Additionally, deteriorating market conditions could cause a
decline in the value of assets that we own and account for as
investments or trading positions.
The regional balance of our business mix also exposes us to
risk. Our Investment Bank equities business, for example, is more
heavily weighted to Europe and Asia, and therein our derivatives
business is more heavily weighted to structured products for
wealth management clients, in particular with European and
Asian underlyings. Turbulence in these markets can therefore
affect us more than other financial service providers.
The ongoing low interest rate environment will further erode
interest margins in several of our businesses and adversely affect
our net defined benefit obligations in relation to our pension
plans. Moreover, negative interest rates announced by central
banks in Switzerland or elsewhere may also affect client behavior.
Also, changes to our deposit and lending pricing and structure
that we have made and may make to respond to negative interest
rates and client behavior may cause deposit outflows (as hap-
pened with Wealth Management’s balance sheet and capital opti-
mization program in 2015), reduce business volumes or otherwise
adversely affect our businesses, particularly given the associated
cost of maintaining the high-quality liquid assets required to cover
regulatory outflow assumptions embedded in the LCR.
67
Operating environment and strategy Operating environment and strategy
Risk factors
Credit risk is an integral part of many of our activities, including
lending, underwriting and derivatives activities. Worsening eco-
nomic conditions and adverse market developments could lead to
impairments and defaults on credit exposures and on our trading
and investment positions. Losses may be exacerbated by declines
in the value of collateral we hold. We are exposed to risk in,
among others, our prime brokerage, reverse repurchase and Lom-
bard lending activities, as the value or liquidity of the assets
against which we provide financing may decline rapidly.
Because we have very substantial exposures to other major
financial institutions, the failure of one or more such institutions
could also have a material effect on us.
We are a member of numerous securities and derivative
exchanges and clearing houses. In connection with some of those
memberships, we may be required to pay a share of the financial
obligations of another member who defaults or we may be other-
wise exposed to additional financial obligations.
Moreover, if individual countries impose restrictions on cross-
border payments 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 counter-
parties, be unable to access our own assets, or be impeded in, or
prevented from, managing our risks.
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 and capital
position. There are related risks that, as a result of the factors
listed above, the carrying value of goodwill of a business unit
might suffer impairment and deferred tax asset levels may need to
be adjusted.
We may not be successful in implementing changes in our
wealth management businesses to meet changing market,
regulatory and other conditions
EDTF | We are exposed to possible outflows of client assets in our
asset-gathering businesses and to changes affecting the profit-
ability of our wealth management businesses and we may not be
successful in implementing the business changes needed to
address them.
We experienced substantial net outflows of client assets in our
wealth management and asset management businesses in 2008
and 2009. The net outflows resulted from a number of different
factors, including our substantial losses, damage to our reputa-
tion, the loss of client advisors, difficulty in recruiting qualified
client advisors and tax, legal and regulatory developments con-
cerning our cross-border private banking business. Many of these
factors have been successfully addressed. However, long-term
changes affecting the cross-border private banking business
model will continue to affect client flows in the wealth manage-
ment businesses for an extended period of time.
One of the important drivers behind the longer-term reduction
in the amount of cross-border private banking assets, particularly
in Europe but increasingly also in other regions, including emerg-
ing markets, is the heightened focus of fiscal authorities on cross-
border investments. For the last several years, UBS has experienced
net withdrawals in its Swiss booking center from clients domiciled
elsewhere in Europe, in many cases related to the negotiation of
tax treaties between Switzerland and other countries. Changes in
local tax laws or regulations and their enforcement, the implemen-
tation of cross-border tax information exchange regimes, includ-
ing international agreements for automatic tax information
exchange, national tax amnesty or enforcement programs or simi-
lar actions, in Europe or elsewhere in the world, may affect the
ability or the willingness of our clients to do business with us, and
result in additional, and possibly material, cross-border outflows,
or affect the viability of our strategies and business model.
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 clients. This dynamic, com-
bined with changes in client product preferences as a result of
which low-margin products account for a larger share of our rev-
enues than in the past, put downward pressure on our return on
invested assets and adversely affect the profitability of our Wealth
Management business division.
We will continue our efforts to adjust to client trends, regula-
tory and market dynamics as necessary, in an effort to overcome
the effects of changes in the business environment on our profit-
ability, balance sheet and capital positions, but there is no assur-
ance that we will be able to counteract those effects. Moreover,
initiatives we may carry out for this purpose may cause net new
money outflows and reductions in client deposits, as happened
with Wealth Management’s balance sheet and capital optimiza-
tion program in 2015. In addition, we have made changes to our
business offerings and pricing practices in line with the Swiss
Supreme Court case concerning 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 is no assurance that we will be success-
ful in our efforts to offset the adverse impact of these or similar
trends and developments.
➔ Refer to “Wealth Management” in the “Financial and operating
performance” section of this report for more information
68
We may be unable to identify or capture revenue or
competitive opportunities, or retain and attract qualified
employees
inability to attract qualified replacements, depending on 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.
EDTF | The financial services industry is characterized by intense
competition, continuous innovation, detailed, and sometimes
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
respond to them by devising and implementing adequate busi-
ness strategies, adequately developing or updating our technol-
ogy, 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
affect our business performance.
We have made changes to the terms of compensation awards
to reflect the demands of various stakeholders, including regula-
tory authorities and shareholders. These terms include the intro-
duction of a deferred contingent capital plan with many of the
features of the loss-absorbing capital that we have issued in the
market but with a higher capital ratio write-down trigger for
members of the Group Executive Board, increased average defer-
ral periods for stock awards, and expanded forfeiture, and to a
more limited extent claw-back, provisions for certain awards
linked to business performance.
In the EU we are subject to legislation that caps the amount of
variable compensation in proportion to the amount of fixed com-
pensation for employees in key risk-taker roles, and whose appli-
cation could potentially extend to a wider group of employees, on
the basis of the revised guidelines on sound remuneration policies
published by the European Banking Authority in December 2015.
Moreover, from the 2015 annual general meeting, Swiss law
requires UBS to submit to the binding vote of the shareholders the
aggregate compensation of each of the board of directors and
the executive board on an annual basis.
These requirements, while intended to better align the inter-
ests of our staff with those of other stakeholders, increase the risk
that key employees will be attracted by competitors and decide to
leave us, and that we may be less successful than our competitors
in attracting qualified employees. The loss of key staff and the
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 | Like other financial market participants, we were severely
affected by the financial crisis that began in 2007. The deteriora-
tion of financial markets since the beginning of the crisis was
extremely severe by historical standards, and we recorded sub-
stantial 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 Swiss TBTF standards, we
continue to hold substantial legacy risk positions, primarily in
Corporate Center – Non-core and Legacy Portfolio. In many
cases, these risk positions remain illiquid, and we continue to be
exposed to the risk that the remaining positions may again dete-
riorate in value.
Moreover, we hold positions related to real estate in various
countries, and could suffer losses on these positions. These
positions 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 concerns expressed by the Swiss National Bank and
others about unsustainable price escalation in the Swiss real
estate market come to fruition. Other macroeconomic develop-
ments, such as the implications on export markets of the appre-
ciation of the Swiss franc, the adoption of negative interest
rates by the Swiss National Bank or other central banks or any
return of crisis conditions within the eurozone, or the EU, and
the potential implications of the decision in Switzerland to rein-
state 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.
We depend on our risk management and control processes
to avoid or limit potential losses in our businesses
EDTF | Controlled risk-taking is a major part of the business of a
financial services firm. Some losses from risk-taking activities are
inevitable, but to be successful over time, we must balance the
risks we take against the returns we generate. We must, there-
fore, 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
exposures can lead to severe losses.
69
Operating environment and strategy Operating environment and strategy
Risk factors
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;
– 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
manage 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 expenses
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
that have no observable source
EDTF | If available, the fair value of a financial instrument or non-
financial 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,
including pricing models. Where available, valuation techniques
use market observable assumptions and inputs. If such informa-
tion is not available, inputs may be derived by reference to similar
instruments in active markets, from recent prices for comparable
transactions or from other observable market data. If market
observable data is not available, we select non-market observable
inputs to be used in our valuation techniques.
We also use internally developed valuation models. Such mod-
els have inherent limitations; different 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 nec-
essary to reflect evolving market conditions could have a material
adverse effect on our financial results. Moreover, evolving market
practice may result in changes to valuation techniques that could
have a material impact on our financial results.
Changes in model inputs or calibration, changes in the valua-
tion 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 avail-
ability of short-term funding could occur quickly.
70
Reductions in our credit ratings can increase our funding
costs, in particular with regard to funding from wholesale unse-
cured sources, and can affect the availability of certain kinds of
funding. In addition, as we experienced in connection with
Moody’s downgrade 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 relat-
ing to our derivatives businesses. Our credit ratings, together
with our capital strength and reputation, also contribute to main-
taining 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 and funding 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 requirements and the potential future requirements to
maintain senior unsecured debt that could be written down in the
event of our insolvency or other resolution, may increase our
funding costs or limit the availability of funding of the types
required.
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 International Accounting Standards
Board (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 regula-
tory 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. For exam-
ple, IFRS 9, when fully adopted, will require us to record loans at
inception net of expected losses instead of recording credit losses
on an incurred loss basis.
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 2015 indicated that our respective
goodwill balances are not impaired. The impairment test is based
on assumptions 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 assumptions in future periods deviate from the current
outlook, the value of the goodwill in any one or more of our busi-
nesses may become impaired in the future, giving rise to losses in
the income statement.
The effect of taxes on our financial results is significantly
influenced by reassessments of our deferred tax assets
EDTF | The deferred tax assets (DTAs) that we have recognized on
our balance sheet as of 31 December 2015 based on prior years’
tax losses reflect the probable recoverable level based on future
taxable profit as informed by our business plans. If the business
plan earnings and assumptions in future periods substantially
deviate from current forecasts, the amount of recognized DTAs
may need to be adjusted in the future. These adjustments may
include write-downs of DTAs 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 reflected
in our business plans. Our results in recent periods have demon-
strated that changes in the recognition of DTAs can have a very
significant effect on our reported results. If our performance is
expected to improve, particularly in the US, or the UK, we could
potentially recognize additional DTAs as a result of that assess-
ment. The effect of doing so would be to significantly reduce our
effective tax rate in years in which additional DTAs are recognized
and to increase our effective tax rate in future years. Conversely, if
our performance in those countries is expected to produce dimin-
ished taxable profit in future years, we may be required to write
down all or a portion of the currently recognized DTAs 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.
71
Operating environment and strategy Operating environment and strategy
Risk factors
For 2016, notwithstanding the effects of any potential reas-
sessment of the level of deferred tax assets, we expect the effec-
tive tax rate to be in the range of 22% to 25%. Consistent with
past practice, we expect to revalue our deferred tax assets in the
second half of 2016 based on a reassessment of future profitabil-
ity taking into account updated business plan forecasts. The full-
year effective tax rate could change significantly on the basis of
this reassessment. It could also change if aggregate tax expenses
in respect of profits from branches and subsidiaries without loss
coverage differ from what is expected. Part of the aforemen-
tioned reassessment of future profitability includes consideration
of a possible further extension of the forecast period used for US
deferred tax asset recognition purposes to eight years from the
seven years used as of 31 December 2015. The determination of
whether to extend the forecast period by an additional year will
be made on the basis of all relevant facts and circumstances exist-
ing at that time. Inasmuch as the ex-ante parameters we have
established for further extending the forecast period are more
challenging to satisfy than in prior years, it is therefore less prob-
able that we will add an eighth year to the forecast period in 2016
for purposes of revaluing our US deferred tax assets.
UBS’s effective tax rate is also sensitive to any future reductions
in statutory tax rates, particularly in the US and Switzerland.
Reductions 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 DTAs.
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 UBS
to materially differ from the amount accrued.
Moreover, we have undertaken, or are considering, changes to
our legal structure in the US, the UK, Switzerland and other coun-
tries in response to regulatory changes. Tax laws or the tax author-
ities 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 utiliza-
tion of tax losses that relate to businesses formerly conducted by
the transferor. Were this to occur in situations where there were
also limited planning opportunities to utilize the tax losses in the
originating entity, the DTAs associated with such tax losses could
be written down through the income statement.
72
As UBS Group AG is a holding company, its operating
results, financial condition and ability to pay dividends
and other distributions and / or to pay its obligations
in the future depend on funding, dividends and other
distributions received directly or indirectly from its
subsidiaries, which may be subject to restrictions
EDTF | UBS Group AG’s ability to pay dividends and other distribu-
tions and to pay its obligations in the future will depend on the
level of funding, dividends and other distributions, if any, received
from UBS AG and any new subsidiaries established by UBS Group
AG in the future. The ability of such subsidiaries to make loans or
distributions (directly or indirectly) to UBS Group AG may be
restricted as a result of several factors, including restrictions in
financing agreements, the requirements of applicable law and
regulatory, fiscal or other restrictions. UBS Group AG’s direct and
indirect subsidiaries, including UBS AG, UBS Switzerland AG, UBS
Limited and the US IHC (when designated) are subject to laws and
regulations that restrict dividend payments, authorize regulatory
bodies to block or reduce the flow of funds from those subsidiar-
ies to UBS Group AG, or limit or prohibit transactions with affili-
ates. Restrictions and regulatory actions of this kind could impede
access to funds that UBS Group AG may need to make payments.
In addition, UBS Group AG’s right to participate in a distribu-
tion of assets upon a subsidiary’s liquidation or reorganization is
subject to all prior claims of the subsidiary’s creditors.
Subordinated debt and capital instruments issued by UBS
Group AG that contribute to its regulatory capital contractually
prevent UBS Group AG to propose the distribution of dividends to
shareholders, other than in the form of shares, if we do not pay
interest on these instruments.
UBS Group AG’s credit rating could be lower than the rating of
UBS AG, which may adversely affect the market value of the securi-
ties and other obligations of UBS Group AG on a standalone basis.
Furthermore, we expect that UBS Group AG may guarantee
some of the payment obligations of certain of our subsidiaries
from time to time. These guarantees may require UBS Group AG
to provide substantial funds or assets to subsidiaries or their cred-
itors or counterparties at a time when UBS Group AG is in need of
liquidity to fund its own obligations.
Our stated capital returns objective is based, in part, on
capital ratios that are subject to regulatory change and
may fluctuate significantly
EDTF | We are committed to a total capital return to shareholders of
at least 50% of net profit attributable to our shareholders, pro-
vided that we maintain a fully applied CET1 capital ratio of at least
13%, and consistent with our objective of maintaining a post-
stress fully applied CET1 capital ratio of at least 10%.
Our ability to maintain a fully applied CET1 capital ratio of at
least 13% is subject to numerous risks, including the financial
results of our businesses, changes to capital standards such as the
changes currently proposed in Switzerland, methodologies and
interpretation that may adversely affect the calculation of our fully
applied CET1 capital ratio, and the imposition of risk add-ons or
capital buffers. Refer to "Fluctuation in foreign exchange rates
and continuing low or negative interest rates may have a detri-
mental effect on our capital strength, our liquidity and funding
position, and our profitability“ and to ”If we are unable to main-
tain our capital strength, this may adversely affect our ability to
execute our strategy, client franchise and competitive position"
above for more information on certain factors that could cause
our capital ratios to fluctuate significantly, including the effect on
capital of changes to pension plan defined benefit obligations.
Moreover, changes in the methodology, assumptions, stress
scenario, market conditions, business volumes and other factors
may result in material changes in our post-stress fully applied
CET1 capital ratio. These factors may lead to material fluctuations
in our post-stress fully applied CET1 capital ratio during any
period. In assessing whether our post-stress fully applied CET1
capital ratio objective has been met at any time, we may consider
both the current ratio and our expectation as to future develop-
ments in the ratio.
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 capital, including our net defined benefit plan 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 fully applied 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 the calcula-
tion of our post-stress fully applied 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
parameters and other factors.
Our stress scenarios, the events comprising a scenario and the
assumed shocks and market and economic consequences applied
in each scenario are subject to periodic review and change. A
change in the CST scenario used to calculate the post-stress fully
applied CET1 capital ratio, or in the assumptions used in a par-
ticular scenario, may cause the post-stress fully applied CET1 cap-
ital ratio to fluctuate materially.
Our business plans and forecasts are subject to inherent uncer-
tainty, our choice of stress test scenarios and the market and mac-
roeconomic assumptions used in each scenario are based on judg-
ments and assumptions about possible future events. Our risk
exposure measurement methodologies are subject to inherent
limitations, 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 fully applied
CET1 capital ratio, as calculated using our methodology for any
period, being materially higher or lower than the actual effect of
a stress scenario.
If we experience financial difficulties, FINMA has the
power to open resolution or liquidation proceedings or
impose protective measures in relation to UBS Group AG,
UBS AG or UBS Switzerland AG, and such proceedings
or measures may have a material adverse effect on our
shareholders and creditors
EDTF | Under the Swiss Banking Act, FINMA is able to exercise broad
statutory powers with respect to Swiss banks and Swiss parent
companies of financial groups, such as UBS AG, UBS Group AG
and UBS Switzerland AG, if there is justified concern that the
entity is over-indebted, has serious liquidity problems or, after the
expiration of any relevant deadline, no longer fulfils capital ade-
quacy requirements. Such powers include ordering protective
measures, instituting restructuring proceedings (and exercising
any Swiss resolution powers in connection therewith), and insti-
tuting liquidation proceedings, all of which may have a material
adverse effect on our shareholders and creditors or may prevent
UBS Group AG or UBS AG from paying dividends or making pay-
ments on debt obligations.
Protective measures may include, but are not limited to, certain
measures that could require or result in a moratorium on, or the
deferment of, payments. We would have limited ability to chal-
lenge any such protective measures. Additionally, creditors would
have no right under Swiss law or in Swiss courts to reject, seek the
suspension of, or challenge the imposition of any such protective
measures, including those that require or result in the deferment
of payments owed to creditors.
73
Operating environment and strategy Operating environment and strategy
Risk factors
If restructuring proceedings are opened with respect to UBS
Group AG, UBS AG or UBS Switzerland AG, the resolution pow-
ers, which FINMA may exercise, include the power to (i) transfer
all or some of the assets, debt and other liabilities, and contracts
of the entity subject to proceedings to another entity, (ii) stay for
a maximum of two business days the termination of, or the exer-
cise of rights to terminate, netting rights, rights to enforce or dis-
pose of certain types of collateral or rights to transfer claims, lia-
bilities or certain collateral, under contracts to which the entity
subject to proceedings is a party, and / or (iii) partially or fully write
down the equity capital and, if such equity capital is fully written
down, convert into equity or write down the capital and other
debt instruments of the entity subject to proceedings. Sharehold-
ers and creditors would have no right to reject, or to seek the
suspension of, any restructuring plan pursuant to which such
resolution powers are exercised. They would have only limited
rights to challenge any decision to exercise resolution powers or
to have that decision reviewed by a judicial or administrative pro-
cess or otherwise.
Upon full or partial write-down of the equity and of the debt
of the entity subject to restructuring proceedings, the relevant
shareholders and creditors would receive no payment in respect
of the equity and debt that is written down, the write-down
would be permanent, and the investors would not, at such time
or at any time thereafter, receive any shares or other participation
rights, or be entitled to any write-up or any other compensation
in the event of a potential recovery of the debtor. If FINMA orders
the conversion of debt of the entity subject to restructuring pro-
ceedings into equity, the securities received by the investors may
be worth significantly less than the original debt and may have a
significantly different risk profile, and such conversion would also
dilute the ownership of existing shareholders. In addition, credi-
tors receiving equity would be effectively subordinated to all cred-
itors in the event of a subsequent winding up, liquidation or dis-
solution of the entity subject to restructuring proceedings, which
would increase the risk that investors would lose all or some of
their investment.
FINMA has broad powers and significant discretion in the exer-
cise of its powers in connection with a resolution proceeding. Cer-
tain categories of debt obligations, such as certain types of depos-
its, are protected. As a result, holders of obligations of an entity
subject to a Swiss restructuring proceeding may have their obliga-
tions written down or converted into equity even though obliga-
tions ranking on par with or junior to such obligations are not
written down or converted.
Moreover, FINMA has expressed its preference for a “single-
point-of-entry” resolution strategy for global systemically impor-
tant financial groups, led by the bank’s home supervisory and
resolution authorities and focused on the top-level group com-
pany. This would mean that, if UBS AG or one of UBS Group AG’s
other subsidiaries faces substantial losses, FINMA could open
restructuring proceedings with respect to UBS Group AG only and
order a bail-in of its liabilities if there is a justified concern that in
the near future such losses could impact UBS Group AG. In that
case, it is possible that the obligations of UBS AG or any other
subsidiary of UBS Group AG would remain untouched and out-
standing, while the equity capital and the capital and other debt
instruments of UBS Group AG would be written down and / or
converted into equity of UBS Group AG in order to recapitalize
UBS AG or such other subsidiary.
74
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
application of these accounting standards requires the use of
judgment, based on estimates and assumptions that may involve
significant uncertainty at the time they are made. Such judg-
ments, including the underlying estimates and assumptions,
which encompass historical experience, expectations of the future
and other factors are regularly evaluated to determine their con-
tinuing relevance based on current conditions. Using different
assumptions could cause the reported results to differ. Changes in
assumptions may have a significant impact on the financial state-
ments 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 fairly present, in all material respects, the financial posi-
tion of UBS as of 31 December 2015, and the results of our oper-
ations and cash flows for the period then ended in accordance
with IFRS. Alternative outcomes and sensitivity analyses discussed
or referred to in this section 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
critical to our financial position, the results of our operations and
cash flows, because they are material in terms of the items to
which they apply, and they involve significant assumptions and
estimates. A broader and more detailed description of our signifi-
cant accounting policies is included in “Note 1 Summary of sig-
nificant accounting policies” in the “Consolidated financial state-
ments” section of this report.
Fair value of financial instruments
We account for a significant portion of our 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
inputs to a valuation technique are principally based on observ-
able market data. Level 3 applies to instruments that are mea-
sured by a valuation technique that incorporates one or more
significant unobservable inputs. Valuation techniques that rely to
a greater extent on unobservable inputs require a higher level of
judgment to calculate a fair value than those based entirely on
observable inputs. Substantially all of our financial assets and
financial liabilities 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
determine fair values, they are periodically reviewed and validated
by qualified personnel, independent of those who created 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.
Our valuation techniques 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 approach based
on an expected exposure profile is used to adjust the fair value of
derivative instruments, including funded derivative instruments
which are classified as Financial assets designated at fair value, to
reflect counterparty credit risk. Correspondingly, a debit-valua-
tion-adjustment approach is applied to incorporate our own credit
risk, where applicable, in the fair value of derivative instruments.
We incorporate funding valuation adjustments into the valuation
estimates for certain OTC derivatives, reflecting the market cost of
unsecured funding in the valuation of such instruments.
In 2015, we made further enhancements to our valuation
methodology for the own credit component of fair value of finan-
cial liabilities designated at fair value. This change in accounting
estimate resulted in a gain of CHF 260 million.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Consolidated financial
statements” section of this report for more information
76
As of 31 December 2015, 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
216 billion and CHF 230 billion, respectively, (61% and 85% of
total financial assets measured at fair value and total financial
liabilities measured at fair value, respectively). Financial assets and
financial liabilities whose valuations include significant unobserv-
able inputs (Level 3) amounted to CHF 9 billion and CHF 14 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 in estimating unobservable market inputs
can affect the amount of gain or loss recorded for a particular
position. While we believe our valuation techniques are appropri-
ate and consistent with those of other market participants, the
use of different techniques or assumptions to determine the fair
value of certain financial instruments could result in a different
estimate of fair value at the reporting date. As of 31 December
2015, the total favorable and unfavorable effects of changing one
or more of the unobservable inputs to reflect reasonably possible
alternative assumptions for financial instruments classified as
Level 3 were CHF 809 million and CHF 640 million, respectively.
➔ Refer to “Note 24 Fair value measurement” in the “Consolidated
financial statements” 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 esti-
mate of credit losses incurred in the loan portfolio at the balance
sheet date due to credit deterioration of the issuer or counter-
party. The portion of the Group’s loan portfolio that is measured
at amortized cost less impairment consists of financial assets pre-
sented on the balance sheet lines Due from banks and Loans.
A credit loss expense is recognized if there is objective evidence
that we will be unable to collect all amounts due (or the equiva-
lent thereof) on a claim based on the original contractual terms
due to credit deterioration of the issuer or counterparty. Allow-
ances for credit losses are evaluated at both a counterparty-spe-
cific level and collectively. Under this incurred loss model, a finan-
cial 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 calculating impair-
ment 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
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 for calculating the recover-
able amount is the current effective interest rate. An allowance
for credit losses is reported as a reduction of the carrying value of
the financial asset on the balance sheet.
Collective allowances for credit losses are calculated for portfo-
lios with similar credit risk characteristics, taking into account his-
torical loss experience and current conditions. The methodology
and assumptions used are reviewed regularly to reduce any differ-
ences between estimated and actual loss experience. For all of our
portfolios, we also assess whether there have been any unfore-
seen developments which might result in impairments but which
are not immediately observable. To determine whether such 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 2015, the gross loan portfolio was CHF
313 billion and the related allowances for credit losses amounted
to CHF 0.7 billion, consisting of specific and collective allowances
of CHF 683 million and CHF 6 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),” and “Note 12 Allowances and provisions for credit losses”
in the “Consolidated financial statements” 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
We perform an impairment test on our goodwill assets on an
annual basis, or when indicators of impairment exist. We consider
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, adapted to use inputs that consider features of
the banking business and its regulatory environment. The recover-
able amount of a segment is the sum of the discounted earnings
attributable to shareholders from the first three forecasted years
and the terminal value.
77
Financial and operating performance Financial and operating performance
Critical accounting policies
The carrying amount for each segment is determined by refer-
ence to our equity attribution framework described in the “Capi-
tal management” section of this report. Attributed equity equals
the capital that a segment requires to conduct its business and is
considered an appropriate starting point to determine the carry-
ing value of the segments. The attributed equity 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 our 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 three, 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 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 with respect to the
goodwill balances of any of our cash-generating units as of
31 December 2015.
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
income 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 is expected on the Group’s total capital ratios.
As of 31 December 2015, total goodwill recognized on the
balance sheet was CHF 6.2 billion, of which CHF 1.3 billion, CHF
3.5 billion and CHF 1.4 billion was carried by Wealth Manage-
ment, Wealth Management Americas and Asset Management,
respectively. On the basis of the impairment testing methodology
described above, we concluded that the year-end 2015 balances
of goodwill allocated to our 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 “Consolidated financial statements”
section of this report for more information
Deferred taxes
Deferred tax assets arise from a variety of sources, with the most
significant being: (i) tax losses that can be carried forward and
utilized against profits in future years and (ii) expenses recognized
in our income statement that are not deductible until the associ-
ated cash flows occur.
We record a valuation allowance to reduce our deferred tax
assets to the amount which can be recognized under IAS 12,
Income Taxes. The level of deferred tax asset recognition is influ-
enced 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 circum-
stances. This review is conducted annually, in the second half of
each year when the business planning process is undertaken, but
adjustments may be made at other times, if required. In a situa-
tion where recent losses have been incurred, IAS 12 requires con-
vincing evidence that there will be sufficient future profits against
which the deferred tax assets can be utilized.
If the estimated earnings and other assumptions in future peri-
ods deviate from the current outlook, the value of our deferred
tax assets may become impaired in the future, giving rise to losses
in the income statement. Recognition of any impairment of
deferred tax assets would reduce IFRS equity attributable to UBS
shareholders and net profit. It would not impact cash flows and,
as tax loss carry-forward deferred tax assets, as well as temporary
difference deferred tax assets in excess of 10% of common equity
tier 1 (CET1) capital, are required to be deducted for the purposes
of calculating Basel III fully-applied CET1 capital, the capital ratio
may not be significantly affected.
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. As of 31 December 2015, our deferred tax
assets amounted to CHF 12.8 billion, which included CHF 7.1 bil-
lion in respect of tax losses carried forward and CHF 5.7 billion of
deductible temporary differences (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 “Consolidated financial statements” section and
“The effect of taxes on our financial results is significantly
influenced by reassessments of our deferred tax assets” in the
“Risk factors” section of this report for more information
78
Provisions
Pension and other post-employment benefit plans
Provisions are liabilities of uncertain timing or amount, and are
recognized when we have 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. An established provision
for an item or class is representative of the best estimate of the
outflow of economic benefits required to settle the present obli-
gation as of 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 for litiga-
tion, regulatory and similar matters, which, because of their
nature, 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. Determin-
ing whether an obligation exists as a result of a past event and
estimating the probability, timing and amount of any potential
outflows is based on a variety of assumptions, variables, and
known and unknown uncertainties. The amount of any provision
recognized can be very sensitive to the assumptions used and
there could be a wide range of possible outcomes for any par-
ticular matter. Statistical or other quantitative analytical tools are
of limited use in determining whether to establish or determine
the amount of provisions for litigation, regulatory and similar
matters. Furthermore, information currently available to manage-
ment may be incomplete or inaccurate, increasing the risk of
erroneous assumptions with regards to the future developments
of such matters. Management regularly reviews all the available
information 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 likely than not that an obligation exists as a result of a past
event and in assessing the probability, timing and amount of any
potential outflows.
As of 31 December 2015, total provisions amounted to CHF
4,164 million, of which CHF 2,983 million related to litigation,
regulatory and similar matters. Since the future outflow of
resources in respect of these matters cannot be determined with
certainty based on currently available information, the actual out-
flows may ultimately prove to be substantially greater (or may be
less) than the provisions recognized.
➔ Refer to “Note 22 Provisions and contingent liabilities” and
“Note 1a item 27 Provisions” in the “Consolidated financial
statements” section of this report for more information
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. 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 asset is limited to the present value of economic
benefits available in the form of refunds from the plan or reduc-
tions in future contributions to the plan. The net defined benefit
liability or asset at the end of the year and the related personnel
expense depend on the expected future benefits to be provided,
determined using a number of financial and demographic
assumptions. The most significant assumptions include life expec-
tancy, the discount rate, expected salary increases, pension rates,
and in addition, for the Swiss plan and one of the US defined
benefit pension plans, interest credits on retirement savings
account balances. We regularly review the actuarial assumptions
used in calculating our defined benefit obligations to ensure the
most appropriate estimate of our obligation. As part of the review,
we also consult with independent actuarial firms.
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 appro-
priate currency and term at the measurement date. The assump-
tion for salary increases reflects the long-term expectations for
salary growth and takes into account inflation, seniority, promo-
tion and other relevant factors such as supply and demand in the
labor market. For a sensitivity analysis of the defined benefit obli-
gation to these significant actuarial assumptions, refer to “Note 28
Pension and other post-employment benefit plans” in the “Con-
solidated financial statements” section of this report.
The most significant plan is the Swiss pension plan. Consistent
with 2014, life expectancy for this plan has been based on the
2010 BVG generational mortality tables. The assumption for the
discount rate has changed to 1.09% in 2015 from 1.15% in the
prior year. Additional information on the update to assumptions
for both the Swiss and non-Swiss plans during the year are
included in “Note 28 Pension and other post-employment ben-
efit plans.”
➔ 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 “Consolidated financial statements” section
of this report for more information
79
Financial and operating performance Financial and operating performance
Critical accounting policies
Equity compensation
We recognize share-based compensation awarded to employees
as compensation 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. Certain performance shares issued by UBS to its
employees have features that are not directly comparable with
our shares 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 instruments granted to our employees. If we were
to use different models, the values produced would differ, even if
the same inputs were used.
The models we use require inputs, such as expected dividends
and share price volatility, as well as adjustments for certain non-
vesting conditions. Some of the model inputs we use are not mar-
ket observable and have to be estimated or derived from available
data. Use of different estimates would produce different valua-
tions, which in turn would result in recognition of higher or lower
compensation expense.
➔ Refer to “Note 1a item 25 Equity participation and other
compensation plans” and “Note 29 Equity participation and
other compensation plans” in the “Consolidated financial
statements” section of this report for more information
Consolidation of structured entities
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 vari-
able returns and an investor’s ability to use its power to affect its
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
direct 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-
making authority, (ii) rights held by other parties, including
removal or other participating rights and (iii) exposure to variabil-
ity, 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 circum-
stances.
➔ Refer to “Note 1a item 3 Subsidiaries and structured entities”
and “Note 30 Interests in subsidiaries and other entities” in the
“Consolidated financial statements” section of this report for
more information
80
Significant accounting and
financial reporting changes
Significant accounting changes
Financial reporting changes
Own credit
In 2015, we further enhanced our valuation methodology for the
own credit component of fair value of financial liabilities desig-
nated at fair value. This change in accounting estimate resulted in
a gain of CHF 260 million.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Consolidated financial
statements” section of this report for more information
Review of actuarial assumptions used in calculating
defined benefit obligations
In 2015, we carried out a methodology review of the actuarial
assumptions used in calculating our defined benefit obligation
(DBO) for our Swiss pension plan and as a result, we enhanced
our methodology for estimating the discount rate. Furthermore,
we refined our approach to estimating the rate of salary increases,
the rate of interest credit on retirement savings, the employee
turnover rate, the rate of employee disabilities and the rate of
marriage. These improvements in estimates resulted in a total net
decrease of CHF 2.1 billion in the DBO of the Swiss pension plan
and a corresponding gain of CHF 2.0 billion recognized within
other comprehensive income (OCI) attributable to UBS Group AG
shareholders.
Furthermore, we enhanced methodologies and refined
approaches used to estimate various actuarial assumptions for our
UK pension plan, which resulted in a total net decrease of CHF 0.2
billion in the DBO of the UK pension plan and a corresponding
gain of CHF 0.2 billion recognized within OCI attributable to UBS
Group AG shareholders.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Consolidated financial
statements” section of this report for more information
New structure of Corporate Center
As of 1 January 2015, Corporate Center – Core Functions was
reorganized into two new units, Corporate Center – Services and
Corporate Center – Group Asset and Liability Management
(Group ALM). Therefore, we now report: (i) Corporate Center –
Services, (ii) Corporate Center – Group ALM and (iii) Corporate
Center – Non-Core and Legacy Portfolio separately, which
enhances the transparency of Corporate Center activities.
Group ALM is responsible for centrally managing the Group’s
liquidity and funding position, as well as providing other balance
sheet and capital management services to the Group. Most of
the income generated and expenses incurred by Group ALM
from these activities continues to be allocated to the business
divisions and other Corporate Center units. Own credit gains and
losses on financial liabilities designated at fair value are presented
in Group ALM.
Corporate Center – Services includes the Group’s control func-
tions and all logistics and support functions serving the business
divisions and other Corporate Center units. Most of the expenses
of Corporate Center – Services are allocated to the business divi-
sions and other Corporate Center units.
Service and personnel allocations from Corporate Center –
Services to business divisions and other Corporate Center units
In 2015, we revised the presentation of service allocations from
Corporate Center – Services to the business divisions and other
Corporate Center units to better reflect the economic relationship
between them. These cost allocations were previously presented
within the Personnel expenses, General and administrative
expenses and Depreciation and impairment of property, equip-
ment and software line items and are newly presented in the Ser-
vices (to) / from business divisions and Corporate Center line items.
Prior-period information has been restated to reflect this change.
This change in presentation did not affect total operating expenses
or performance before tax of the business divisions and Corporate
Center units for any period presented. Similarly, personnel of Cor-
porate Center – Services are no longer allocated to the business
divisions and other Corporate Center units. Prior-period informa-
tion has been restated accordingly.
81
Financial and operating performance Financial and operating performance
Significant accounting and financial reporting changes
Change in segment reporting related to fair value gains and
losses on certain internal funding transactions
Consistent with changes in the manner in which operating seg-
ment performance is assessed, beginning in 2015, we have
applied fair value accounting for certain internal funding transac-
tions between Corporate Center – Group ALM and the Invest-
ment Bank and Corporate Center – Non-core and Legacy Portfo-
lio, rather than applying amortized cost accounting. This treatment
better aligns with the mark-to-market basis on which these inter-
nal transactions are risk managed within the Investment Bank and
Corporate Center – Non-core and Legacy Portfolio. The terms of
the funding transactions remain otherwise unchanged. Prior peri-
ods have been restated to reflect this change. As a result, the
Investment Bank’s operating income and performance before tax
decreased by CHF 37 million for the year ended 31 December
2014 and by CHF 162 million for the year ended 31 December
2013, with offsetting increases in Corporate Center. This change
did not affect the Group’s total operating income or net profit for
any period presented.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Consolidated financial state-
ments” section of this report for more information
Retail & Corporate renamed Personal & Corporate Banking
Effective 2016, the business division Retail & Corporate was
renamed Personal & Corporate Banking. This change is reflected
throughout this report.
Global Asset Management renamed Asset Management
In 2015, the business division Global Asset Management was
renamed Asset Management. This change is reflected throughout
this report.
A&Q hedge fund solutions renamed Hedge Fund Solutions
In 2015, A&Q hedge funds solutions, the multi-manager hedge
fund business, was renamed Hedge Fund Solutions (HFS). This
business continues to be reported together with the O’Connor
business under the business line name O’Connor and Hedge Fund
Solutions, within the business division Asset Management.
Non-core and Legacy portfolio disclosures
Following a substantial reduction in risk exposure over the past
years, we have merged our disclosures for Non-core and Legacy
Portfolio and included them in the Corporate Center section of
our reports, including the disclosures previously provided in the
“Risk management and control” section. Details on risk-weighted
assets, leverage ratio denominator and balance sheet assets for
the remaining Non-core and Legacy Portfolio exposures are now
provided in one combined table.
Change in Asset Management business lines
As of 1 January 2016, Asset Management was reorganized into
the following business lines: (i) Equities, Multi-asset & O’Connor,
(ii) Fixed Income, (iii) Global Real Estate, (iv) Infrastructure & Private
Equity, (v) Solutions and (vi) Fund Services. In our first quarter 2016
report, we will reflect this change and provide more information.
Accounting for expected credit losses under IFRS 9,
Financial Instruments
EDTF | In July 2014, the IASB published the final version of IFRS 9,
Financial Instruments, with a mandatory effective date of 1 Janu-
ary 2018. The standard reflects the classification and measure-
ment, impairment and hedge accounting phases of the IASB’s
project to replace IAS 39, Financial instruments: Recognition and
Measurement. The standard includes the introduction of a for-
ward-looking expected credit loss (ECL) approach, replacing the
incurred loss impairment approach for financial instruments in IAS
39, and the loss-provisioning approach for financial guarantees
and lending commitments in IAS 37, Provisions, contingent liabil-
ities and contingent assets.
In November 2015, the Enhanced Disclosure Task Force (EDTF)
published disclosure recommendations for IFRS 9 in its report
“Impact of Expected Credit Loss Approaches on Bank Risk Disclo-
sures.” Disclosures are recommended during the transition period
and once IFRS 9 is fully adopted, to ensure that changes and
impacts arising from using an expected loss model are transpar-
ent, understandable and consistently applied. We address these
recommendations below. More granular information will be pro-
vided as we approach the adoption of IFRS 9 on 1 January 2018.
IFRS 9 is a key strategic initiative for UBS and is currently being
implemented under the joint sponsorship of the Group Chief Risk
Officer and the Group Chief Financial Officer. The implementa-
tion project structure has been defined to address the critical
requirements of the standard and to manage the appropriate
involvement of key stakeholders, including Risk Control, Finance,
Group Technology and the business divisions. Steering and Oper-
ating Committees, a Technical Board and individual workstreams
have been created to ensure a streamlined implementation with
appropriate controls and governance over all decisions. We have
finalized key technical accounting and risk methodology deci-
sions and are currently focusing on model development, IT archi-
tecture, and consequential implementation work. We are also
undertaking an impact assessment, and intend to perform a par-
allel run in 2017.
82
Moving from an incurred loss to an expected credit loss
impairment approach
EDTF | Under the current incurred loss impairment approach in IAS
39, a financial asset or group of financial assets is impaired if there
is objective evidence as a result of one or more events (so-called
trigger events) having occurred since the financial asset was rec-
ognized, that we will be unable to collect all amounts under the
contract. Once a trigger event has occurred, allowances for credit
losses are established based on the difference between the carry-
ing amount and the present value of future estimated cash flows.
IFRS 9 no longer requires a trigger event to have occurred
before credit loss allowances are recognized. Instead, entities are
required to recognize a 12-month, or less if the exposure period is
less than 12 months, allowance for financial assets measured at
amortized cost, debt instruments fair valued through other com-
prehensive income, lease receivables, financial guarantees and
loan commitments from initial recognition. The ECL should reflect
an unbiased and probability-weighted amount that is determined
by evaluating a range of possible outcomes and that incorporates
reasonable and supportable information about past events, cur-
rent conditions, forecasts of future economic conditions and the
time value of money.
If a significant increase in credit risk (SICR) arises after the
instrument is initially recognized, a lifetime ECL allowance is
required. Life-time ECL allowances are always recognized for
credit-impaired financial assets.
A SICR may be assessed at an individual financial asset level, or,
where appropriate, on a collective basis. Assessments on a collec-
tive basis will only be made where the in-scope financial instru-
ments share the same credit risk characteristics.
We will determine whether a SICR has occurred at the report-
ing date by assessing changes in an instrument’s risk of default
since initial recognition. A range of indicators will be considered,
including, but not limited to, significant changes in the actual or
expected credit rating of the borrower, internal indicators of credit
risk and external market indicators of credit risk or general eco-
nomic conditions.
The SICR assessment and the ECL calculation will use point in
time (PIT) based parameters, including probability of default (PD),
leveraging the respective parameters determined under the
Basel III through the cycle (TTC) based approach, with adjust-
ments made to account for current conditions and to incorporate
forward-looking economic information which will include interest
and foreign exchange rates, gross domestic product forecasts,
unemployment rates, real estate price indices and other relevant
risk parameters. Although ECL is not a stress loss concept, we
plan to leverage our existing stress testing models to capture the
effects of forward-looking economic information.
The definition and assessment of what constitutes a SICR, and
in particular the incorporation of forward-looking information is
inherently subjective and will involve the use of significant judg-
ment. We are establishing effective and robust governance and
controls around the ECL calculation process, including what con-
stitutes a SICR and the use of forward-looking information. Our
economists, risk methodology personnel and credit risk officers
will be involved in developing the forward-looking macroeco-
nomic assumptions to be used in the ECL calculation, which will
be validated and approved through a new governance process
that will provide for a consistent use of forward-looking informa-
tion throughout UBS.
Implementation of the IFRS 9 ECL approach is generally
expected to result in an increase in recognized credit loss allow-
ances, as compared to the current incurred-loss approach. This is
due in part to the 12-month ECL allowance that must be reported
for all in-scope instruments, and to the lifetime ECL allowance
that will apply to positions following a SICR and prior to an
incurred credit loss event. Upon adoption, any change in credit
loss allowances will be booked as an adjustment to retained earn-
ings. In addition, increased income statement volatility is expected
on an ongoing basis, due to the application of forward-looking
assumptions and the SICR approach. We are currently assessing
the impact of the IFRS 9 ECL requirements on our financial state-
ments and we intend to disclose the potential impact no later
than in our Annual Report 2017. In addition, we are monitoring
the potential effects on our regulatory capital requirements. The
Swiss Financial Market Supervisory Authority (FINMA) and the
Basel Committee on Banking Supervision (BCBS) have not yet
issued guidance on how IFRS 9 expected credit losses will be
treated for regulatory capital purposes.
83
Financial and operating performance Financial and operating performance
Significant accounting and financial reporting changes
The table below sets out certain key differences between the
definitions we apply in determining expected losses under the
current Basel III framework and those planned to be used in deter-
mining ECL for IFRS 9 purposes. We do not expect the definition
of default under IFRS 9 to be different from the definition used for
the purpose of our advanced internal ratings-based approach,
and the term is therefore not included in the table below.
➔ Refer to “Credit risk models” in the “Risk management and
control” section of this report for more information
EDTF |
Scope
Current Basel III (advanced internal ratings-based (A-IRB)
approach)
The Basel III A-IRB treatment applies to the majority of credit risk
exposures. It includes transactions measured at amortized cost,
at fair value through profit and loss and at fair value through other
comprehensive income (OCI).
12-month versus lifetime
expected loss
The Basel III A-IRB approach takes into account lifetime expected losses
resulting from expected default events over a 12-month period.
IFRS 9 treatment
The IFRS 9 expected loss calculation mainly applies to financial assets
measured at amortized cost and debt instruments measured at fair value
through OCI, as well as loan commitments and financial guarantee
contracts not at fair value through profit and loss.
In the absence of a significant increase in credit risk (SICR) event, IFRS 9
takes into account lifetime expected losses considering expected default
events over a maximum period of 12 months. Once a SICR event has
occurred, expected default events over the lifetime of a transaction have to
be considered.
Exposure at default
(EAD)
EADrepresentstheamountweexpecttobeowedby acounterpartyatthe
time of a possible default. For banking products, the EAD equals the book
value as of the reporting date, whereas for traded products, such as
securities financing transactions, the EAD is modeled. The EAD is expected
to remain constant over the 12-month period. For loan commitments, a
credit conversion factor is applied to model expected future drawdowns
over the 12-month period.
The EAD for IFRS 9 purposes is generally calculated based on the cash
flows that are expected to be outstanding at the individual points in time
during the period over which UBS is exposed to credit risk, discounted to
the reporting date using the effective interest rate. For loan commitments,
a credit conversion factor is applied to model expected future drawdowns
over the period that UBS is exposed to credit risk, which is capped at 12
months, unless a SICR would occur.
Probability of default
(PD)
PD estimates are determined on a through the cycle (TTC) basis. They
represent historical average PDs, taking into account observed losses over
a prolonged historical period, and are therefore less sensitive to move-
mentsintheunderlying economy.
Loss given default
(LGD)
LGD includes prudential adjustments, such as downturn LGD assumptions
and floors. Similar to PD, LGD is determined on a TTC basis.
PD estimates will be determined on a point in time (PIT) basis, based on
current conditions and incorporating forecasts of future economic condi-
tions at the reporting date.
LGD should reflect those losses which are reasonably expected and
therefore prudential adjustments should not be applied. Similar to PD, LGD
is determined based on a PIT approach.
84
Group performance
Net profit attributable to UBS Group AG shareholders was CHF 6,203 million in 2015 compared with CHF 3,466 million
in 2014. We recorded an operating profit before tax of CHF 5,489 million compared with CHF 2,461 million, largely
reflecting an increase of CHF 2,578 million in operating income, mainly due to increased net interest and trading income
in the Investment Bank and our wealth management businesses, as well as reduced losses in Corporate Center – Non-
core and Legacy Portfolio. Operating expenses decreased by CHF 451 million, mainly driven by a CHF 1,507 million lower
net charge for provisions for litigation, regulatory and similar matters, partly offset by higher restructuring expenses
and increased personnel expenses. We recorded a net tax benefit of CHF 898 million compared with CHF 1,180 million,
reflecting net upward revaluations of deferred tax assets in both years, which more than offset tax expenses for
taxable profits.
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
of which: net interest and trading income
Personnel expenses
General and administrative expenses
Depreciation and impairment of property, equipment and software
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
For the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
6,732
(117)
6,615
17,140
5,742
5,190
553
1,107
30,605
12,474
15,981
8,107
920
107
25,116
5,489
(898)
6,386
183
6,203
5,781
83
5,698
6,555
(78)
6,477
17,076
3,842
3,551
292
632
28,027
10,397
15,280
9,387
817
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
10,915
15,182
8,380
816
83
24,461
3,272
(110)
3,381
204
5
3,172
2,524
559
4
1,961
3
50
2
0
49
46
89
75
9
20
5
(14)
13
29
(2)
123
(24)
75
(100)
472
79
11
(100)
5
16
85
Financial and operating performance Financial and operating performance
Group performance
Adjusted results1, 2
CHF million
Operating income as reported
of which: own credit on financial liabilities
designated at fair value4
of which: gains on sales of real estate
of which: gains on sales of subsidiaries and
businesses5
of which: net foreign currency translation gain6
of which: gain related to our investment in
the SIX Group
of which: gain from a further partial sale of our
investment in Markit
of which: net losses related to the buyback of debt
For the year ended 31.12.15
Wealth
Manage-
ment
8,155
Wealth
Manage-
ment
Americas
7,381
Personal &
Corporate
Banking
3,877
Asset
Manage-
ment
2,057
Investment
Bank
8,821
CC –
Services3
241
CC –
Group ALM
277
CC – Non-
core and
Legacy
Portfolio
(203)
169
15
56
66
378
11
553
88
(257)
(107)
(5)
0
0
0
(203)
1,301
14
0
43
Operating income (adjusted)
7,971
7,381
3,811
2,001
8,810
(137)
Operating expenses as reported
of which: personnel-related restructuring expenses5
of which: non-personnel-related restructuring
expenses5
of which: restructuring expenses allocated from
CC – Services5
of which: gain related to a change to retiree benefit
plans in the US7
of which: impairment of an intangible asset
5,465
20
38
265
6,663
0
2,231
2
1,474
4
6,929
14
1,059
406
0
99
11
68
7
719
376
(986)
0
137
(21)
Operating expenses (adjusted)
5,142
6,547
2,130
1,392
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
2,689
2,828
718
834
1,646
1,681
584
610
919
(5)
1,245
(818)
(1,056)
282
(102)
(1,503)
(1,447)
5,489
5,635
For the year ended 31.12.14
Wealth
Manage-
ment
7,901
Wealth
Manage-
ment
Americas
6,998
Personal &
Corporate
Banking
3,741
Asset
Manage-
ment
1,902
Investment
Bank
8,308
CC –
Services3
37
CC –
Group ALM
2
CC – Non-
core and
Legacy
Portfolio
(862)
CHF million
Operating income as reported
of which: own credit on financial liabilities
designated at fair value4
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
Operating income (adjusted)
7,901
6,998
3,741
1,902
Operating expenses as reported
of which: personnel-related restructuring expenses5
of which: non-personnel-related restructuring
expenses5
of which: restructuring expenses allocated from
CC – Services5
of which: gain related to changes to retiree benefit
plans in US7
Operating expenses (adjusted)
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
5,574
18
49
119
0
5,389
2,326
2,511
6,099
0
2,235
4
1,435
19
0
55
(9)
6,053
900
946
0
60
0
2,171
1,506
1,570
2
30
(8)
1,393
467
509
86
292
44
(7)
(290)
(862)
688
221
263
(454)
0
658
(652)
(666)
1,144
1
0
29
0
0
0
0
0
0
(3)
1,116
(41)
24,931
2
(290)
(2,005)
(1,977)
2,461
2,766
UBS
30,605
553
378
225
88
81
11
(257)
29,526
25,116
460
775
0
(21)
11
23,891
UBS
28,027
292
44
43
(48)
27,696
25,567
327
350
0
11
6,522
1,892
2,288
43
(48)
8,313
8,392
64
36
161
(20)
8,151
(84)
162
Adjusted results1, 2 (continued)
CHF million
Operating income as reported
of which: own credit on financial liabilities designated
at fair value4
of which: gains on sales of real estate
of which: net losses related to the buyback of debt
of which: gains on sales of subsidiaries and businesses
of which: net foreign currency translation loss6
For the year ended 31.12.13
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
7,563
6,538
3,756
1,935
8,438
CC – Non-
core and
Legacy
Portfolio
166
CC –
Services3
178
CC –
Group ALM
(841)
(283)
288
34
55
(194)
27
Operating income (adjusted)
7,563
6,538
3,756
1,901
8,383
(110)
Operating expenses as reported
5,316
5,680
2,298
1,359
6,300
of which: personnel-related restructuring expenses5
of which: non-personnel-related expenses expenses5
of which: restructuring expenses allocated from
CC – Services5
Operating expenses (adjusted)
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
40
35
104
5,138
2,247
2,425
0
0
59
5,621
858
917
0
0
54
2,244
1,458
1,512
2
2
38
1,316
576
585
(38)
1
247
6,090
2,138
2,293
804
129
578
(714)
810
(626)
(920)
UBS
27,732
(283)
288
(167)
89
(24)
156
616
0
23,689
3,272
4,141
(24)
(340)
43
0
0
0
43
139
27,829
2,660
24,461
23
0
211
2,425
(884)
(383)
(2,494)
(2,286)
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
following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period. 3 Corporate Center – Services
operating expenses presented in this table are after service allocations to business divisions and other Corporate Center units. 4 Refer to “Note 24 Fair value measurement” in the “Consolidated financial statements”
section of this report for more information. 5 Refer to “Note 32 Changes in organization and disposals” in the “Consolidated financial statements” section of this report for more information. 6 Related to the disposal
of subsidiaries. 7 Refer to “Note 28 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of this report for more information.
87
Financial and operating performance Financial and operating performance
Group performance
2015 compared with 2014
Results
We recorded an operating profit before tax of CHF 5,489 million
compared with CHF 2,461 million, largely reflecting an increase of
CHF 2,578 million in operating income, mainly due to increased
net interest and trading income in the Investment Bank and our
wealth management businesses, as well as reduced losses in Cor-
porate Center – Non-core and Legacy Portfolio. Operating
expenses decreased by CHF 451 million, mainly driven by a CHF
1,507 million lower net charge for provisions for litigation, regula-
tory and similar matters, partly offset by higher restructuring
expenses and increased personnel expenses.
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 2015, the items we
excluded were an own credit gain of CHF 553 million, gains on
sales of real estate of CHF 378 million which primarily related to
the sale of a property in Geneva, Switzerland, net gains on sales
of subsidiaries and businesses of CHF 225 million, a net foreign
currency translation gain from the disposal of subsidiaries of CHF
88 million, a gain of CHF 81 million related to our investment in
the SIX Group, a gain of CHF 11 million from a further partial sale
of our investment in Markit, net losses related to the buyback of
debt in a tender offer of CHF 257 million, net restructuring
expenses of CHF 1,235 million, a gain of CHF 21 million related to
a change to retiree benefit plans in the US and an impairment of
an intangible asset of CHF 11 million. 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 expenses of CHF 677 million and a
gain of CHF 41 million related to changes to retiree benefit plans
in the US.
On this adjusted basis, profit before tax was CHF 5,635 million
compared with CHF 2,766 million in the prior year.
Adjusted operating income increased by CHF 1,830 million to
CHF 29,526 million, largely due to an increase of CHF 1,816 mil-
lion in adjusted net interest and trading income, reflecting
increases in the Investment Bank and our wealth management
businesses, as well as reduced losses in Corporate Center – Non-
core and Legacy Portfolio.
Adjusted operating expenses decreased by CHF 1,040 million
to CHF 23,891 million, mainly due to a CHF 1,507 million lower
net charge for provisions for litigation, regulatory and similar mat-
ters, partly offset by CHF 548 million higher personnel expenses.
88
As a result of ongoing efforts to optimize our legal entity struc-
ture, we anticipate that some foreign currency translation gains
and losses previously booked directly into equity through other
comprehensive income will be reclassified to the income state-
ment in future periods due to the sale or closure of UBS AG
branches and subsidiaries. In this respect, we currently expect to
record net foreign currency translation losses of around CHF 130
million in the first quarter of 2016. These losses will be treated as
adjusting items and recorded in Corporate Center – Group Asset
and Liability Management (Group ALM). The reclassification of
foreign currency translation losses to the income statement will
not affect shareholders’ equity or regulatory capital.
Operating income
Total operating income was CHF 30,605 million compared with
CHF 28,027 million. On an adjusted basis, total operating income
increased by CHF 1,830 million to CHF 29,526 million. Adjusted
net interest and trading income increased by CHF 1,816 million,
reflecting increases in the Investment Bank and our wealth man-
agement businesses, as well as reduced losses in Corporate
Center – Non-core and Legacy Portfolio. Net fee and commission
income increased by CHF 64 million, mainly in Wealth Manage-
ment Americas and Asset Management. Adjusted other income
was broadly unchanged.
Net interest and trading income
Net interest and trading income increased by CHF 2,077 million to
CHF 12,474 million. 2015 included an own credit gain on finan-
cial liabilities designated at fair value of CHF 553 million, com-
pared with a gain of CHF 292 million. In 2015, we made further
enhancements to our valuation methodology for the own credit
component of fair value of financial liabilities designated at fair
value. This change in accounting estimate resulted in a gain of
CHF 260 million. Excluding the effect of own credit in both years,
net interest and trading income increased by CHF 1,816 million to
CHF 11,921 million, reflecting increases in the Investment Bank
and our wealth management businesses, as well as reduced losses
in Corporate Center – Non-core and Legacy Portfolio.
We will adopt the own credit presentation requirements of
IFRS 9 in the first quarter of 2016. Under this aspect of IFRS 9,
changes in the fair value of financial liabilities designated at fair
value through profit and loss related to own credit will be recog-
nized in other comprehensive income and will not be reclassified
to the Income statement. We will adopt the other requirements of
IFRS 9 as of the mandatory effective date of 1 January 2018.
➔ Refer to the “Significant accounting and financial reporting
changes” section for more information on the enhancements to
our valuation methodology for own credit
In Wealth Management, net interest and trading income
increased by CHF 189 million. Net interest income increased by
CHF 161 million, mainly due to higher lending revenues and an
increase in allocated revenues from Group ALM, and net trading
income increased by CHF 28 million.
In Wealth Management Americas, net interest and trading
income increased by CHF 185 million to CHF 1,537 million, mainly
due to higher net interest income, reflecting continued growth in
loan and deposit balances.
In Personal & Corporate Banking, net interest and trading
income increased by CHF 77 million to CHF 2,613 million, mainly
due to higher net interest income from loans and deposits, reflect-
ing our pricing measures.
In the Investment Bank, net interest and trading income
increased by CHF 669 million to CHF 5,186 million, mainly due to
higher revenues in our Foreign Exchange and Rates businesses
within Investor Client Services, reflecting elevated client activity
and higher volatility, particularly heightened following the Swiss
National Bank’s actions of 15 January 2015. Furthermore, also
within Investor Client Services, Financing services revenues were
higher driven primarily by increased client activity in Prime Broker-
age and Equity Financing.
Corporate Center – Group ALM net interest and trading
income, excluding the effect of own credit in both years, increased
by CHF 148 million, mainly reflecting higher income related to
high-quality liquid assets.
In Corporate Center – Non-core and Legacy Portfolio, net
interest and trading income improved by CHF 591 million, primar-
ily reflecting reduced losses from novation and unwind activities.
Furthermore, 2014 included a net loss of CHF 345 million related
to funding and debit valuation adjustments (FVA / DVA) on deriva-
tives, of which CHF 252 million was recorded upon the implemen-
tation of FVA.
➔ Refer to “Note 3 Net interest and trading income” in the
“Consolidated financial statements” section of this report for
more information
➔ Refer to the “Significant accounting and financial reporting
changes” section for more information on a change in segment
reporting related to fair value gains and losses on certain
internal funding transactions
Credit loss expense / recovery
Net credit loss expense was CHF 117 million compared with CHF
78 million. The Investment Bank recorded a net credit loss expense
of CHF 68 million, mainly related to the energy sector, compared
with a net recovery of CHF 2 million. Net credit loss expense in
Personal & Corporate Banking was CHF 37 million compared with
CHF 95 million, predominantly due to lower expenses for newly
impaired positions.
➔ Refer to the “Investment Bank, Personal & Corporate Banking
and Risk management and control” sections of this report for
more information
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
Personal & Corporate Banking
Asset Management
Investment Bank
of which: Corporate Client Solutions
of which: Investor Client Services
Corporate Center
of which: Services
of which: Group ALM
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
31.12.15
31.12.14
31.12.13
31.12.14
6,732
5,742
12,474
3,034
1,537
2,613
(5)
5,186
1,001
4,185
110
(3)
426
553
(313)
6,555
3,842
10,397
2,845
1,352
2,536
0
4,517
1,030
3,487
(854)
34
16
292
(904)
5,786
5,130
10,915
2,868
1,323
2,485
9
4,852
1,146
3,707
(622)
(166)
(535)
(283)
79
12,474
10,397
10,915
3
49
20
7
14
3
15
(3)
20
89
(65)
20
89
Financial and operating performance Financial and operating performance
Group performance
Credit loss (expense) / recovery
CHF million
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Investment Bank
Corporate Center
of which: Non-core and Legacy Portfolio
Total
For the year ended
31.12.15
31.12.14
31.12.13
0
(4)
(37)
(68)
(8)
(8)
(117)
(1)
15
(95)
2
2
2
(78)
(10)
(27)
(18)
2
3
3
(50)
% change from
31.12.14
(100)
(61)
50
Net fee and commission income
Net fee and commission income increased by CHF 64 million to
CHF 17,140 million.
Portfolio management and advisory fees increased by CHF 515
million to CHF 7,858 million, primarily in Wealth Management
Americas, largely due to an increase in managed account fees,
reflecting higher invested asset levels. Portfolio management and
advisory fees also increased in Wealth Management and Asset
Management.
Underwriting fees decreased by CHF 224 million, reflecting lower
equity and debt underwriting fees, largely in the Investment Bank.
Investment fund fees declined by CHF 150 million, primarily
reflecting a decrease in mutual fund related fees in Wealth Man-
agement Americas and lower transaction-based income in Wealth
Management. This was partly offset by an increase in Asset Man-
agement.
➔ Refer to “Note 4 Net fee and commission income”
in the “Consolidated financial statements” section of
this report for more information
Other income
Other income was CHF 1,107 million compared with CHF 632
million. On an adjusted basis, other income decreased by CHF 12
million. Adjusted income related to associates and subsidiaries
decreased by CHF 124 million, mainly as 2014 included a gain of
CHF 65 million on an investment in an associate which was reclas-
sified to a financial investment available-for-sale following its ini-
tial public offering, as well as a gain of CHF 58 million related to
the release of a provision for litigation, regulatory and similar mat-
ters which was recorded as other income. This was partly offset by
CHF 92 million higher adjusted income from financial investments
classified as available-for-sale, primarily related to net gains on
sales of equity investments in 2015, mainly within the Investment
Bank.
➔ Refer to “Note 5 Other income” in the “Consolidated financial
statements” section of this report for more information
Recurring net fee and transaction-based income in
Wealth Management, Wealth Management Americas and
Personal & Corporate Banking
Recurring net fee income for Wealth Management, Wealth Man-
agement Americas and Personal & Corporate Banking includes
fees for services 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 divisions’ client assets. This is part of total net
fee and commission income in the UBS Group financial state-
ments. Transaction-based income includes the non-recurring por-
tion of net fee and commission income for these business divi-
sions, mainly consisting of brokerage and transaction-based
investment fund fees, as well as credit card fees and fees for pay-
ment transactions, together with the respective divisional net
trading income.
➔ Refer to the “Wealth Management,” “Wealth Management
Americas” and “Personal & Corporate Banking” sections of
this report for more information
Operating income Wealth Management, Wealth Management Americas and Personal & Corporate Banking
CHF million
Net interest income
Recurring net fee income
Transaction-based income
Other income
Income
Credit loss (expense) / recovery
Total operating income
90
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
For the year ended
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
2,326
3,820
1,778
231
8,155
0
2,165
3,783
1,928
25
7,902
(1)
8,155
7,901
2,061
3,567
1,887
57
7,573
(10)
7,563
1,174
4,623
1,555
31
7,384
(4)
7,381
983
4,294
1,678
30
6,984
15
6,998
936
3,796
1,800
33
6,565
(27)
6,538
2,270
544
959
140
3,913
(37)
3,877
2,184
556
1,022
75
3,836
(95)
3,741
2,144
511
1,034
86
3,774
(18)
3,756
Operating expenses
Total operating expenses decreased by CHF 451 million to CHF
25,116 million. Restructuring expenses were CHF 1,235 million
compared with CHF 677 million, largely related to our transition-
ing activities to nearshore and offshore locations. Personnel-
related restructuring expenses increased by CHF 133 million to
CHF 460 million, while non-personnel-related restructuring
expenses increased by CHF 425 million to CHF 775 million.
On an adjusted basis, excluding restructuring expenses and
gains related to changes to retiree benefit plans in the US in both
years and an impairment of an intangible asset in 2015, total
operating expenses decreased by CHF 1,040 million to CHF
23,891 million. This decrease was mainly due to a CHF 1,507 mil-
lion lower net charge for provisions for litigation, regulatory and
similar matters, partly offset by CHF 548 million higher adjusted
personnel expenses, primarily reflecting an increase in expenses
for variable compensation.
➔ Refer to “Note 32 Changes in organization and disposals”
in the “Consolidated financial statements” section of
this report for more information on restructuring expenses
Personnel expenses
Personnel expenses increased by CHF 701 million to CHF 15,981
million and included restructuring expenses of CHF 460 million
compared with CHF 327 million, largely related to our transition-
ing activities to nearshore and offshore locations. On an adjusted
basis, excluding restructuring expenses and gains related to
changes to retiree benefit plans in the US, personnel expenses
increased by CHF 548 million to CHF 15,542 million.
Expenses for salaries, excluding restructuring expenses,
decreased by CHF 154 million to CHF 5,970 million, primarily
reflecting a reduction in staff levels.
Excluding restructuring expenses, total variable compensation
expenses increased by CHF 297 million. Expenses for current-year
awards increased by CHF 272 million, reflecting improved busi-
ness performance. Expenses relating to the amortization of prior
years’ awards increased by CHF 24 million.
Financial advisor compensation in Wealth Management Amer-
icas increased by CHF 167 million to CHF 3,552 million, primarily
due to unfavorable foreign currency translation effects.
Operating expenses
CHF million
Personnel expenses (adjusted)1
Salaries
Total variable compensation
of which: relating to current year2
of which: relating to prior years3
Wealth Management Americas: Financial advisor compensation4
Other personnel expenses5
Total personnel expenses (adjusted)1
Non-personnel expenses (adjusted)1
General and administrative expenses
of which: provisions for litigation, regulatory and similar matters
of which: other general and administrative expenses
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total non-personnel expenses (adjusted)1
Total operating expenses (adjusted)1
Adjusting items
of which: personnel-related restructuring expenses
of which: non-personnel-related restructuring expenses
of which: gains related to changes to retiree benefit plans in the US6
of which: impairment of an intangible asset
For the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
5,970
3,410
2,610
799
3,552
2,613
6,124
3,113
2,338
775
3,385
2,372
6,203
3,201
2,369
832
3,140
2,481
15,542
14,994
15,026
7,346
1,087
6,259
908
94
8,349
23,891
1,225
460
775
(21)
11
9,068
2,594
6,474
788
81
9,937
24,931
636
327
350
(41)
7,832
1,701
6,132
748
83
8,662
23,689
772
156
616
(3)
10
12
3
5
10
4
(19)
(58)
(3)
15
16
(16)
(4)
93
41
121
(49)
(2)
Total operating expenses as reported
25,116
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 expenses 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 “Consolidated financial statements” section of this report for more information. 6 Refer to “Note 28 Pension and other post-employment benefit plans” in the “Consolidated financial state-
ments” section of this report for more information.
91
Financial and operating performance Financial and operating performance
Group performance
Other personnel expenses, excluding restructuring expenses
and the aforementioned gains related to changes to retiree ben-
efit plans in the US, increased by CHF 241 million to CHF 2,613
million, mainly due to an increase of CHF 113 million in costs for
pension and other post-employment benefits plans and CHF 113
million higher expenses for contractors.
➔ Refer to “Note 6 Personnel expenses” in the “Consolidated
financial statements” section of this report for more information
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Consolidated financial statements” section
of this report for more information
Depreciation, impairment and amortization
Depreciation and impairment of property, equipment and soft-
ware increased by CHF 103 million to CHF 920 million. Excluding
restructuring expenses of CHF 12 million compared with CHF 29
million, depreciation expenses increased by CHF 120 million,
largely driven by higher depreciation expenses related to internally
generated capitalized software.
Amortization and impairment of intangible assets was CHF
107 million compared with CHF 83 million. On an adjusted basis,
these expenses increased by CHF 13 million.
➔ Refer to “Note 16 Property, equipment and software”
➔ Refer to “Note 29 Equity participation and other compensation
in the “Consolidated financial statements” section of this
plans” in the “Consolidated financial statements” section
report for more information
of this report for more information
➔ Refer to “Note 17 Goodwill and intangible assets”
➔ Refer to the “Compensation” section of this report for more
in the “Consolidated financial statements” section of this
information
report for more information
General and administrative expenses
General and administrative expenses decreased by CHF 1,280 mil-
lion to CHF 8,107 million. Net restructuring expenses increased to
CHF 761 million from CHF 319 million, largely related to our tran-
sitioning activities to nearshore and offshore locations. On an
adjusted basis, excluding net restructuring expenses, general and
administrative expenses decreased by CHF 1,722 million, mainly
due to a CHF 1,507 million lower net charge for provisions for
litigation, regulatory and similar matters.
At this point in time, we believe that the industry continues to
operate in an environment in which expenses associated with liti-
gation, 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.
Excluding restructuring expenses, other general and adminis-
trative expenses decreased by CHF 215 million, primarily as 2014
included net expenses of CHF 120 million related to certain dis-
puted receivables. Furthermore, occupancy costs and expenses
for outsourcing of IT and other services decreased.
General and administrative expenses also included a net
expense of CHF 166 million for the annual UK bank levy in 2015,
mainly in the Investment Bank and in Non-core and Legacy Port-
folio, compared with a net expense of CHF 123 million in 2014.
➔ Refer to “Note 7 General and administrative expenses”
in the “Consolidated financial statements” section of
this report for more information
➔ Refer to “Note 22 Provisions and contingent liabilities”
in the “Consolidated financial statements” section of
this report for more information
Tax
We recognized a net income tax benefit of CHF 898 million for
2015, which included a net Swiss tax expense of CHF 569 million
and a net non-Swiss tax benefit of CHF 1,467 million, primarily
relating to the upward revaluation of US deferred tax assets.
The Swiss tax expense included a current tax expense of CHF
239 million related to taxable profits, against which no losses
were available to offset, mainly earned by Swiss subsidiaries. In
addition, it included a net deferred tax expense of CHF 330 mil-
lion, which mainly reflected a net decrease in deferred tax assets
previously recognized in relation to tax losses carried forward, par-
tially offset by an increase in recognized deferred tax assets in
relation to temporary differences.
The net non-Swiss tax benefit included a current tax expense
of CHF 476 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 1,943 million, primarily due to an increase in our
US deferred tax assets, reflecting updated profit forecasts and an
extension of the relevant taxable profit forecast period used in
valuing our deferred tax assets. Based on the performance of our
businesses, and the accuracy of historical forecasts, the deferred
tax asset forecast period for US taxable profits was extended to
seven years from six. We also consider other factors in evaluating
the recoverability of our deferred tax assets, including the remain-
ing tax loss carry-forward period, and our confidence level in
assessing the probability of taxable profit beyond the current fore-
cast period. Estimating future profitability is inherently subjective
and is particularly sensitive to future economic, market and other
conditions which are difficult to predict.
92
For 2016, notwithstanding the effects of any potential reas-
sessment of the level of deferred tax assets, we expect the effec-
tive tax rate to be in the range of 22% to 25%. Consistent with
past practice, we expect to revalue our deferred tax assets in the
second half of 2016 based on a reassessment of future profitabil-
ity taking into account updated business plan forecasts. The full-
year effective tax rate could change significantly on the basis of
this reassessment. It could also change if aggregate tax expenses
in respect of profits from branches and subsidiaries without loss
coverage differ from what is expected. Part of the aforemen-
tioned reassessment of future profitability includes consideration
of a possible further extension of the forecast period used for US
deferred tax asset recognition purposes to eight years from the
seven years used as of 31 December 2015. The determination of
whether to extend the forecast period by an additional year will
be made on the basis of all relevant facts and circumstances exist-
ing at that time. Inasmuch as the ex-ante parameters we have
established for further extending the forecast period are more
challenging to satisfy than in prior years, it is therefore less prob-
able that we will add an eighth year to the forecast period in 2016
for purposes of revaluing our US deferred tax assets.
On 16 March 2016, the UK Government announced a pro-
posed change in law which would reduce the proportion of
banks’ annual taxable profits that can be offset by UK tax losses
carried forward from 50% to 25% with effect from 1 April 2016.
The proposed change in law would also reduce the UK corporate
income tax rate from 18% to 17% with effect from 1 April 2020.
To the extent that these changes are enacted in 2016, we would
expect to incur a reduction in recognized deferred tax assets of
approximately CHF 125 million.
➔ Refer to “Note 8 Income taxes” in the “Consolidated financial
statements” 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) attrib-
uted to UBS Group AG shareholders during a period, except those
resulting from investments by and distributions to UBS Group AG
shareholders, as well as equity-settled share-based payments.
Items included in comprehensive income, but not in net profit, are
reported within 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 2015, total comprehensive income attributable to UBS
Group AG shareholders was CHF 5,698 million, reflecting net
profit of CHF 6,203 million, partly offset by negative OCI of CHF
506 million.
In 2015, OCI related to cash flow hedges was negative CHF
509 million compared with positive CHF 689 million in 2014, pri-
marily reflecting lower unrealized gains on hedging derivatives
from decreases in long-term interest rates.
Foreign currency translation OCI was negative CHF 231 mil-
lion, primarily resulting from the significant weakening of the
euro and British pound against the Swiss franc, combined with
the reclassification of net gains totaling CHF 90 million to the
income statement.
OCI associated with financial investments classified as avail-
able-for-sale was negative CHF 63 million, mainly as previously
unrealized net gains were reclassified from OCI to the income
statement upon sale of investments, partly offset by net unreal-
ized gains following decreases in long-term interest rates. We cur-
rently expect to recognize in the income statement gains of
approximately CHF 100 million, deferred in OCI, during the first
half of 2016, as transactions involving certain equity investments
classified as available-for-sale are closed. These expected gains
will be recorded in Personal & Corporate Banking and Wealth
Management and, consistent with past practice, treated as adjust-
ing items. The reclassification of gains from OCI to the income
statement will not affect shareholders’ equity, but will increase
CET1 capital.
Defined benefit plan OCI was CHF 298 million. In 2015, we
carried out a methodology review of the actuarial assumptions
used in calculating our defined benefit obligations (DBOs). This
resulted in an OCI gain of CHF 2,002 million related to the Swiss
pension plan and an OCI gain of CHF 188 million related to the
UK pension plan. Total pre-tax OCI related to UK defined benefit
plans was CHF 321 million, reflecting a net reduction in the DBO
of CHF 444 million, primarily resulting from aforementioned
changes in assumptions and an increase in the applicable discount
rate, partly offset by a decrease of CHF 123 million in the fair
value of the underlying plan assets. In addition, we recorded total
net pre-tax OCI gains of CHF 53 million on our Swiss pension
plan. This reflected an OCI gain of CHF 1,212 million related to a
net DBO reduction, primarily due to aforementioned changes in
assumptions, partly offset by a market-driven decline in the appli-
cable discount rate, as well as an OCI gain of CHF 105 million due
to an increase in the fair value of the underlying plan assets. These
OCI gains were almost entirely offset by an OCI reduction of CHF
1,265 million representing the excess of the pension surplus over
the estimated future economic benefit.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
our review of actuarial assumptions in calculating defined
benefit obligations
➔ Refer to the “Statement of comprehensive income”
in the “Consolidated financial statements” section of this
report for more information
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Consolidated financial statements” section of
this report for more information on OCI related to defined
benefit plans
93
Financial and operating performance Financial and operating performance
Group performance
Net profit attributable to preferred noteholders and
non-controlling interests
Key figures
Net profit attributable to preferred noteholders was zero in 2015
compared with CHF 142 million in the prior year. Subsequent to
the exchange offer in the fourth quarter of 2014, the preferred
notes issued by UBS AG were reclassified in 2015 to equity attrib-
utable to non-controlling interests in the UBS Group AG consoli-
dated financial statements.
Net profit attributable to non-controlling interests was CHF
183 million in 2015 compared with CHF 32 million in the prior
year. This mainly related to net profit attributable to non-control-
ling interests in UBS AG which was CHF 103 million in 2015. As a
result of the completion of the SESTA procedure in the third quar-
ter of 2015, UBS Group AG owns 100% of the issued shares of
UBS AG. Since then, profits of UBS AG were fully attributable to
UBS Group AG shareholders.
Furthermore, dividends of CHF 76 million were paid to preferred
noteholders, for which no accrual was required in a prior period.
We currently expect to attribute net profit to non-controlling
interests related to preferred notes issued by UBS AG of approxi-
mately CHF 80 million in 2016, all in the second quarter, approxi-
mately CHF 70 million in 2017 and less than CHF 10 million per
year from 2018.
Cost / income ratio
The cost / income ratio was 81.8% in 2015 compared with 91.0%
in the prior year. On an adjusted basis, the cost / income ratio was
80.6% compared with 89.8% and was above our short- to
medium-term expectation of 65% to 75%.
Return on tangible equity
The return on tangible equity (RoTE) was 13.7% in 2015 com-
pared with 8.2% in the prior year. On an adjusted basis, the RoTE
was 13.7% compared with 8.6% and was above our target of
around 10% in 2015.
Common equity tier 1 capital ratio
Our fully applied CET1 capital ratio increased 1.1 percentage
points to 14.5% as of 31 December 2015, exceeding our target
ratio of 13.0%. This increase was driven by a CHF 9.0 billion
decrease in risk-weighted assets and a CHF 1.1 billion increase in
CET1 capital.
Return on equity
CHF million, except where indicated
Net profit
Net profit attributable to UBS Group AG shareholders
Amortization and impairment of intangible assets
Pre-tax adjusting items1
Tax effect on adjusting items2
Adjusted net profit attributable to UBS Group AG shareholders3
Equity
Equity attributable to UBS Group AG shareholders
Less: goodwill and intangible assets4
Tangible equity attributable to UBS Group AG shareholders
Return on equity
Return on equity (%)
Return on tangible equity (%)
Adjusted return on tangible equity (%)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
6,203
107
135
(140)
6,305
55,313
6,568
48,745
11.8
13.7
13.7
3,466
83
305
(125)
3,729
50,608
6,564
44,044
7.0
8.2
8.6
3,172
83
869
(135)
3,989
48,002
6,293
41,709
6.7
8.0
9.8
79
29
(56)
12
69
9
0
11
1 Refer to the table “Adjusted results” in this section for more information. 2 Generally reflects an indicative tax rate of 22% on pre-tax adjusting items, apart from own credit on financial liabilities designated at fair
value, which has a lower indicative tax rate of 2%. 3 Net profit attributable to UBS Group AG shareholders excluding amortization and impairment of intangible assets, pre-tax adjusting items and tax effect on pre-tax
adjusting items. 4 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 inter-
ests in UBS AG.
94
Risk-weighted assets
Our risk-weighted assets (RWA) decreased by CHF 9.0 billion to
CHF 207.5 billion on a fully applied basis as of 31 December
2015, below our short- to medium-term expectation of around
CHF 250 billion. Credit risk RWA decreased by CHF 4.2 billion,
primarily due to derivative trade unwinds and novations in Corpo-
rate Center – Non-core and Legacy Portfolio. Market risk RWA
decreased by CHF 4.4 billion driven by risk reductions due to mar-
ket movements. Operational risk RWA decreased by CHF 1.6 bil-
lion driven by lower incremental operational risk RWA based on
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
Leverage ratio denominator
Our fully-applied LRD decreased by CHF 80 billion to CHF 898 bil-
lion as of 31 December 2015 from the pro forma comparative
number of CHF 978 billion as of 1 January 2015 and was below
our short- to medium-term expectation of around CHF 950 bil-
lion. The decrease during 2015 mainly reflected incremental net-
ting and collateral mitigation benefits of CHF 39 billion, currency
effects of CHF 24 billion and a decrease of CHF 13 billion related
to methodology changes.
➔ Refer to the “Investment Bank,” “Corporate Center” and “Capital
management” sections of this report for more information
Net new money and invested assets
Management’s discussion and analysis on net new money and
invested assets is provided in the “Wealth Management”,
“Wealth Management Americas” and “Asset Management” sec-
tions of this report.
Net new money1
CHF billion
Wealth Management
Wealth Management (adjusted)2
Wealth Management Americas
Asset Management
of which: excluding money market flows
of which: money market flows
For the year ended
31.12.15
31.12.14
31.12.13
12.9
22.8
21.3
(5.4)
(0.7)
(4.7)
34.4
34.4
9.6
15.9
22.6
(6.7)
35.9
35.9
17.6
(19.9)
(4.8)
(15.1)
1 Net new money excludes interest and dividend income. 2 Adjusted net new money excludes the negative effect on net new money in 2015 of CHF 9.9 billion from our balance sheet and capital optimization program.
Invested assets
CHF billion
Wealth Management
Wealth Management Americas
Asset Management
of which: excluding money market funds
of which: money market funds
As of
% change from
31.12.15
31.12.14
31.12.13
31.12.14
947
1,035
650
592
58
987
1,027
664
600
64
886
865
583
518
65
(4)
1
(2)
(1)
(9)
95
Financial and operating performance Financial and operating performance
Group performance
Regional performance
The operating regions shown in the “Regional performance”
table below correspond to the regional management structure of
the Group. The allocation of income and expenses to these
regions reflects, and is consistent with, the basis on which the
business is managed and its performance evaluated. These alloca-
tions involve assumptions and judgments that management con-
siders to be reasonable, and may be refined to reflect changes in
estimates or management structure.
The main principles of the allocation methodology are that
client revenues are attributed to the domicile of the client, and
trading and portfolio management revenues are attributed to the
country where the risk is managed. This revenue attribution is
consistent with the mandate of our country and regional Presi-
dents. Expenses are allocated in line with revenues. Certain reve-
nues and expenses, such as those related to Corporate Center –
Non-core and Legacy Portfolio, certain litigation expenses and
restructuring expenses and other items, are managed at the
Group level. These revenues and expenses are included in the
Global column.
Americas
Asia Pacific
For the year ended
Europe, Middle East and Africa
Switzerland
Total
Global
For the year ended
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
2.1
0.0
0.0
0.3
2.6
0.0
5.0
1.5
0.0
0.0
0.2
1.7
0.0
3.4
0.6
0.0
0.0
0.1
0.9
0.0
1.6
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
3.8
0.0
0.0
0.4
2.5
0.0
6.8
2.8
0.0
0.0
0.4
2.1
0.0
5.2
1.1
0.0
0.0
0.1
0.4
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
1.6
0.0
3.9
0.6
1.0
0.0
7.1
0.9
0.0
2.2
0.3
0.6
0.0
4.0
0.7
0.0
1.6
0.2
0.4
0.0
3.1
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
0.2
0.0
0.0
0.1
(0.1)
0.3
0.5
0.0
0.0
0.0
0.0
0.4
2.4
2.8
0.2
0.0
0.0
0.0
(0.5)
(2.0)
(2.3)
0.0
0.0
0.0
0.0
(0.1)
(0.8)
(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
0.0
(0.5)
(0.4)
0.0
0.0
0.0
0.0
0.3
3.5
3.8
0.0
0.0
0.0
0.0
(0.2)
(4.0)
(4.2)
8.2
7.4
3.9
2.1
8.8
0.3
30.6
5.5
6.7
2.2
1.5
6.9
2.4
25.1
2.7
0.7
1.6
0.6
1.9
(2.0)
5.5
7.9
7.0
3.7
1.9
8.3
(0.8)
28.0
5.6
6.1
2.2
1.4
8.4
1.8
25.6
2.3
0.9
1.5
0.5
(0.1)
(2.7)
2.5
7.6
6.5
3.8
1.9
8.4
(0.5)
27.7
5.3
5.7
2.3
1.4
6.3
3.5
24.5
2.2
0.9
1.5
0.6
2.1
(4.0)
3.3
Regional performance
CHF billion
Operating income
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
0.5
7.4
0.0
0.7
2.8
0.0
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
11.3
10.7
10.2
Operating expenses
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
Total operating expenses
Operating profit / (loss) before tax
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
Operating profit / (loss) before tax
0.4
6.7
0.0
0.5
2.1
0.0
9.6
0.1
0.7
0.0
0.2
0.7
0.0
1.7
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
96
Total operating income
11.3
10.7
10.2
Regional performance
CHF billion
Operating income
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
Operating expenses
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
Total operating expenses
Operating profit / (loss) before tax
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
Operating profit / (loss) before tax
0.5
7.4
0.0
0.7
2.8
0.0
0.4
6.7
0.0
0.5
2.1
0.0
9.6
0.1
0.7
0.0
0.2
0.7
0.0
1.7
0.5
7.0
0.0
0.7
2.6
0.0
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
6.5
0.0
0.7
2.5
0.0
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
2.1
0.0
0.0
0.3
2.6
0.0
5.0
1.5
0.0
0.0
0.2
1.7
0.0
3.4
0.6
0.0
0.0
0.1
0.9
0.0
1.6
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
3.8
0.0
0.0
0.4
2.5
0.0
6.8
2.8
0.0
0.0
0.4
2.1
0.0
5.2
1.1
0.0
0.0
0.1
0.4
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
Americas
Europe, Middle East and Africa
Switzerland
Asia Pacific
For the year ended
Global
For the year ended
Total
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
31.12.15
31.12.14
31.12.13
1.6
0.0
3.9
0.6
1.0
0.0
7.1
0.9
0.0
2.2
0.3
0.6
0.0
4.0
0.7
0.0
1.6
0.2
0.4
0.0
3.1
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
0.2
0.0
0.0
0.1
(0.1)
0.3
0.5
0.0
0.0
0.0
0.0
0.4
2.4
2.8
0.2
0.0
0.0
0.0
(0.5)
(2.0)
(2.3)
0.0
0.0
0.0
0.0
(0.1)
(0.8)
(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
0.0
(0.5)
(0.4)
0.0
0.0
0.0
0.0
0.3
3.5
3.8
0.0
0.0
0.0
0.0
(0.2)
(4.0)
(4.2)
8.2
7.4
3.9
2.1
8.8
0.3
30.6
5.5
6.7
2.2
1.5
6.9
2.4
25.1
2.7
0.7
1.6
0.6
1.9
(2.0)
5.5
7.9
7.0
3.7
1.9
8.3
(0.8)
28.0
5.6
6.1
2.2
1.4
8.4
1.8
25.6
2.3
0.9
1.5
0.5
(0.1)
(2.7)
2.5
7.6
6.5
3.8
1.9
8.4
(0.5)
27.7
5.3
5.7
2.3
1.4
6.3
3.5
24.5
2.2
0.9
1.5
0.6
2.1
(4.0)
3.3
97
Financial and operating performance
Financial and operating performance
Group performance
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 a CHF 893
million higher net charge for provisions for litigation, regulatory
and similar matters. Operating income increased by CHF 295 mil-
lion, 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
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 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 expenses of CHF 677 million and a
gain 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 tender offers
of CHF 167 million, gains on sales of subsidiaries and businesses
of CHF 89 million, a net foreign currency translation loss from the
disposal of subsidiaries of CHF 24 million and net restructuring
expenses 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 a CHF 893 million higher net
charge 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.
Operating income
Total operating income was CHF 28,027 million compared with
CHF 27,732 million. On an adjusted basis, total operating income
98
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 – Services. Net fee and commission income increased by
CHF 789 million, mainly in our wealth management businesses,
as well as in the Investment Bank. Adjusted other income
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 finan-
cial 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 lia-
bilities of CHF 283 million. Excluding the effect of own credit in
both years and a gain related to the buyback of debt in tender
offers 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.
In the Investment Bank, net interest and trading income
decreased by CHF 335 million to CHF 4,517 million. Within Inves-
tor Client Services, Foreign Exchange, Rates and Credit net inter-
est and trading income decreased by CHF 214 million, with lower
revenues across most products as client activity and volatility levels
decreased compared with 2013, reflecting the ongoing macro-
economic uncertainty. Corporate Client Solutions net interest and
trading income declined by CHF 116 million, largely due to lower
revenues within Equities Capital Markets, which included reve-
nues from a large private transaction in 2013. This was partly off-
set 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.
In Corporate Center – Non-core and Legacy Portfolio, net
interest and trading income decreased by CHF 983 million. Non-
core net interest and trading income decreased by CHF 304 mil-
lion, partly as 2014 included a net loss of CHF 175 million from
the implementation of funding valuation adjustments (FVA) on
derivatives. Further, 2014 included losses in Rates of CHF 197 mil-
lion, mainly from novation and unwind activities compared with
gains of CHF 23 million in the prior year. 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 mil-
lion resulting from the termination of certain credit default swap
(CDS) contracts and a net loss from the implementation of FVA on
derivatives of CHF 77 million.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on a
change in segment reporting related to fair value gains and
losses on certain internal funding transactions
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 Personal & Corporate Banking were
CHF 95 million compared with CHF 18 million in the prior year.
2014 included net specific credit loss allowances of CHF 105 mil-
lion 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.
Wealth Management Americas recorded a net credit loss
recovery 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 facil-
ities collateralized 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
allowances 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 due to 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
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.
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.
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 excluding 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 gain of
CHF 58 million related to the release of a provision for litigation,
regulatory and similar matters, which was recorded as other
income in Corporate Center – Services, compared with a gain 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 classified as
available-for-sale decreased by CHF 20 million.
Adjusted other income other than income related to associates
and subsidiaries and from financial investments classified as avail-
able-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 ten-
der offers of CHF 194 million in 2013 and a gain on the sale of
Asset Management’s Canadian domestic business of CHF 34 mil-
lion in 2013.
Operating expenses
Total operating expenses increased by CHF 1,106 million to CHF
25,567 million. Restructuring expenses were CHF 677 million
compared with CHF 772 million in the prior year. Personnel-
related restructuring expenses increased by CHF 171 million to
CHF 327 million, while non-personnel-related restructuring
expenses decreased by CHF 266 million to CHF 350 million.
On an adjusted basis, excluding restructuring expenses in both
years as well as gains related to changes to retiree benefit plans in
the US of CHF 41 million in 2014, total operating expenses
increased by CHF 1,242 million to CHF 24,931 million. This
increase was mainly due to a CHF 893 million higher net charge
for provisions for litigation, regulatory and similar matters as well
as CHF 381 million 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.
99
Financial and operating performance Financial and operating performance
Group performance
Personnel expenses
Personnel expenses increased by CHF 98 million to CHF 15,280
million and included CHF 327 million personnel-related restruc-
turing expenses compared with CHF 156 million in the prior year.
On an adjusted basis, excluding restructuring expenses and the
aforementioned gains 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 restructuring expenses,
decreased by CHF 79 million to CHF 6,124 million, mainly reflect-
ing an increase in the capitalization of personnel expenses related
to internally generated computer software, partly offset by
expenses for role-based allowances.
Excluding restructuring expenses, total variable compensation
expenses decreased by CHF 88 million to CHF 3,113 million.
Expenses for current year awards decreased by CHF 31 million
and expenses for prior-year awards 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, excluding restructuring expenses
and the aforementioned gains related to changes to retiree ben-
efit 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 pen-
sion and other post-employment benefits plans.
year. Further, 2014 included net expenses of CHF 120 million in
Non-core and Legacy Portfolio related to certain disputed receiv-
ables compared with an impairment charge of CHF 87 million in
the prior year.
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 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 in US
deferred tax assets.
Total comprehensive income attributable to
UBS Group AG shareholders
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 expenses of CHF 319 million in 2014 compared with
CHF 548 million in the prior year, general and administrative
expenses increased by CHF 1,236 million, mainly due to a CHF
893 million higher net charge for provisions for litigation, regula-
tory and similar matters, as well as higher costs for outsourcing of
IT and other services and higher professional fees.
Outsourcing of IT and other services, excluding restructuring
expenses, increased by CHF 240 million.
General and administrative expenses also included a net
expense of CHF 123 million for the annual UK bank levy for 2014,
mainly in the Investment Bank and in Non-core and Legacy Port-
folio, compared with a net expense of CHF 124 million in the prior
Total comprehensive income attributable to UBS Group AG share-
holders was CHF 4,920 million, reflecting net profit attributable to
UBS Group AG shareholders of CHF 3,466 million and OCI attrib-
utable to UBS Group AG shareholders of CHF 1,453 million.
In 2014, OCI included foreign currency translation gains of
CHF 1,795 million, primarily related to the significant strengthen-
ing of the US dollar against the Swiss franc. OCI related to cash
flow hedges was positive CHF 689 million, mainly reflecting
decreases in long-term interest rates across all major currencies.
OCI associated with financial investments classified as available-
for-sale was positive CHF 141 million, 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.
100
These OCI gains were partly offset by negative OCI on defined
benefit plans of CHF 1,172 million. 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 obligation, resulting
from a significant decline in the applicable discount rate, which is
linked to the returns on Swiss AA-rated corporate 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.
Net profit attributable to preferred noteholders and
non-controlling interests
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. Furthermore, the purchase of UBS AG shares by UBS
Group AG pursuant to the exchange offer caused a trigger event
which resulted in accruals for future distributions to preferred
noteholders of CHF 31 million. Subsequent to the exchange offer,
the preferred notes issued by UBS AG were reclassified to equity
attributable to non-controlling interests from a UBS Group AG
perspective.
Net profit attributable to non-controlling interests was CHF 32
million in 2014, which largely reflected net profit attributable to
non-controlling interests in UBS AG and was related to the non-
tendered or not subsequently exchanged UBS AG shares.
101
Financial and operating performance Financial and operating performance
Balance sheet
Balance sheet
As of 31 December 2015, our balance sheet assets stood at CHF 943 billion, a decrease of CHF 120 billion or 11% from
31 December 2014, mainly due to reductions in positive replacement values (PRV) in both Corporate Center – Non-core
and Legacy Portfolio and the Investment Bank. Funded assets, which represent total assets excluding PRV and collateral
delivered against over-the-counter derivatives, decreased by CHF 19 billion to CHF 756 billion, primarily due to currency
effects resulting from the strengthening of the Swiss franc against the euro and British pound. 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, equipment and software
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
102
31.12.15
31.12.14
31.12.14
% change from
91,306
11,948
25,584
67,893
124,035
51,943
167,435
23,763
6,146
311,954
62,543
954
7,695
6,568
12,835
22,160
942,819
11,836
8,029
9,653
29,137
162,430
38,282
62,995
390,185
93,147
4,164
75,652
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
885,511
1,008,110
(12)
(10)
6
(1)
(10)
(7)
(35)
(23)
24
(1)
9
3
12
(3)
16
(4)
(11)
13
(13)
(18)
4
(36)
(10)
(16)
(5)
2
(5)
6
(12)
Balance sheet (continued)
CHF million
Equity
Share capital
Share premium
Treasury shares
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
Equity attributable to UBS Group AG shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
31.12.15
31.12.14
31.12.14
% change from
385
31,164
(1,693)
29,504
(4,047)
55,313
1,995
57,308
372
32,590
(1,393)
22,134
(3,093)
50,608
3,760
54,368
942,819
1,062,478
3
(4)
22
33
31
9
(47)
5
(11)
Assets development by business division and
Corporate Center unit
Investment Bank
Investment Bank total assets decreased by CHF 39 billion to CHF
253 billion, primarily due to a CHF 26 billion reduction in PRV,
mainly within our Foreign Exchange, Rates and Credit business
and largely resulting from net maturities of foreign exchange
derivative contracts. Funded assets decreased by CHF 11 billion to
CHF 160 billion, mainly due to lower trading portfolio assets in
our Foreign Exchange, Rates and Credit business, driven by a
reduction in client activity in the fourth quarter.
Corporate Center – Non-core and Legacy Portfolio
Non-core and Legacy Portfolio total assets decreased by CHF 75
billion to CHF 94 billion, mainly reflecting CHF 62 billion lower
PRV. Within our rates portfolio, PRV decreased by CHF 57 billion,
driven by fair value decreases following interest rate movements,
as well as by our ongoing reduction activity including negotiated
bilateral settlements, third-party novations, including transfers to
central clearing houses, and agreements to net down trades with
other dealer counterparties. Collateral delivered against OTC
derivatives decreased by CHF 9 billion. Funded assets decreased
by CHF 4 billion to CHF 7 billion, mainly due to the sale of the last
remaining structured bond position in the non-linear rates port-
folio and the last collateralized loan obligation bond positions
within the securitizations portfolio, as well as a partial loan repay-
ment in credit.
Corporate Center – Group ALM
Corporate Center – Group ALM total assets were broadly
unchanged at CHF 238 billion, as a reduction in cash and balances
with central banks was mostly offset by increases in financial
investments classified as available-for-sale and reverse repurchase
agreements, mainly due to a rebalancing of our high-quality liquid
assets.
Total assets and funded assets
CHF billion
Total assets
Less: positive replacement values
Less: collateral delivered against OTC derivatives1
Funded assets
Investment
Bank
CC –
Group ALM
253.5
(83.4)
(10.2)
159.9
237.5
(0.1)
(0.1)
237.3
31.12.15
CC – Non-
core and
Legacy
Portfolio
94.4
(78.5)
(8.9)
7.0
Other
357.4
(5.4)
0.0
352.0
UBS
942.8
(167.4)
(19.2)
756.2
Investment
Bank
CC –
Group ALM
292.3
(109.2)
(12.5)
170.7
237.9
(0.1)
(0.4)
237.4
31.12.14
CC – Non-
core and
Legacy
Portfolio
169.8
(140.7)
(17.9)
11.3
Other
362.4
(7.0)
0.00
355.4
UBS
1,062.5
(257.0)
(30.7)
774.8
1 Mainly consists of cash collateral receivables on derivative instruments and reverse repurchase agreements.
103
Financial and operating performance Financial and operating performance
Balance sheet
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Other business divisions
Wealth Management and Personal & Corporate Banking total
assets decreased CHF 8 billion and CHF 3 billion to CHF 120 billion
and CHF 141 billion, respectively, mainly reflecting lower lending
balances.
Wealth Management Americas total assets increased by CHF 5
billion to CHF 61 billion primarily due to increased lending activi-
ties. Corporate Center – Services total assets increased by CHF 3
billion to CHF 23 billion, primarily due to increases in recognized
deferred tax assets and in property, equipment and software.
Asset Management total assets were broadly unchanged at
Collateral trading
Collateral trading assets, which consist of reverse repurchase
agreements and cash collateral on securities borrowed, were
broadly unchanged at CHF 93 billion as an increase in reverse
repurchase agreements in Corporate Center – Group ALM, mainly
due to the aforementioned rebalancing of our high-quality liquid
assets, was mostly offset by a client-driven reduction in reverse
repurchase agreements in the Investment Bank.
Collateral trading liabilities, which consist of repurchase agree-
ments and cash collateral on securities lent, reduced by CHF 3 bil-
lion to CHF 18 billion.
CHF 13 billion.
Assets and liabilities development by product category
Cash and balances with central banks
Cash and balances with central banks decreased by CHF 13 billion
to CHF 91 billion as of 31 December 2015, primarily due to the
aforementioned rebalancing of our high-quality liquid assets in
Corporate Center – Group ALM.
Lending
Loans decreased by CHF 4 billion to CHF 312 billion, predominantly
in Wealth Management, partly offset by an increase in Wealth
Management Americas. Interbank lending and financial assets des-
ignated at fair value were broadly unchanged at CHF 12 billion and
CHF 6 billion, respectively.
Trading portfolio
Trading portfolio assets decreased CHF 14 billion to CHF 124 bil-
lion, primarily within the Investment Bank, in both our Equities
and Rates and Credit businesses, mainly reflecting client-driven
reductions and currency effects. Trading portfolio assets within
Non-core and Legacy Portfolio continued to decline, primarily due
to the aforementioned sales and unwinds.
Trading portfolio liabilities were broadly unchanged at CHF 29
billion.
104
1300
1040
780
520
260
0
Long-term debt issued
Long-term debt outstanding, which consists of financial liabilities
designated at fair value and long-term debt issued, decreased by
CHF 4 billion to CHF 135 billion primarily resulting from the repur-
chase of certain senior and subordinated debt and covered bonds
with an aggregate principal amount equivalent to CHF 6.1 billion
through a tender offer, combined with decreases in financial lia-
bilities designated at fair value, reflecting client-driven reductions
in the Investment Bank and maturities in Non-core and Legacy
Portfolio. These decreases were partly offset by issuances of addi-
tional tier 1 capital perpetual notes and senior unsecured debt.
➔ Refer to the “Treasury management” section of this
report for more information
Other
Other assets decreased by CHF 6 billion, primarily due to a CHF 7
billion reduction in cash collateral receivables on derivative instru-
ments following the reduction in replacement values, partly offset
by a CHF 2 billion increase in recognized deferred tax assets.
Other liabilities were broadly unchanged, as a reduction in cash
collateral payables on derivative instruments was offset by an
increase in prime brokerage payables.
Replacement values
Positive and negative replacement values were lower on both
sides of the balance sheet, decreasing by CHF 90 billion and CHF
92 billion to CHF 167 billion and CHF 162 billion, respectively,
resulting from aforementioned reductions in the Investment Bank
and Non-core and Legacy Portfolio.
Financial investments classified as available-for-sale
Financial investments available-for-sale increased by CHF 5 billion
to CHF 63 billion, mainly reflecting the aforementioned rebalanc-
ing of our high-quality liquid assets.
Short-term borrowings
Short-term borrowings, which include short-term debt issued and
interbank borrowing, decreased by CHF 5 billion to CHF 33 bil-
lion, mainly due to a CHF 6 billion reduction in short-term debt
issued, primarily reflecting net maturities of both certificates of
deposit and commercial paper, partly offset by a CHF 1 billion
increase in interbank lending.
➔ Refer to the “Treasury management” section of this
report for more information
Due to customers
Customer deposits decreased by CHF 20 billion to CHF 390 bil-
lion, primarily reflecting our balance sheet and capital optimiza-
tion program in Wealth Management, lower demand deposits in
Personal & Corporate Banking and currency effects, partly offset
by net inflows in Wealth Management Americas.
➔ Refer to the “Treasury management” section of this
report for more information
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(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:14)(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)
105
1300
1040
780
520
260
0
Financial and operating performance Financial and operating performance
Balance sheet
Equity development
Equity attributable to UBS Group AG shareholders increased by
CHF 4,705 million to CHF 55,313 million as of 31 December 2015
from CHF 50,608 million a year earlier. Total comprehensive
income attributable to UBS Group AG shareholders was CHF
5,698 million, reflecting net profit of CHF 6,203 million, partly
offset by negative other comprehensive income (OCI) of CHF 506
million. The negative OCI included foreign currency translation
losses of CHF 231 million combined with negative OCI related to
cash flow hedges and financial investments available-for-sale of
CHF 509 million and CHF 63 million, respectively, partly offset by
net gains on defined benefit plans of CHF 298 million.
Share premium decreased primarily due to the distribution of
CHF 2,760 million out of the capital contribution reserve of UBS
Group AG, partly offset by employee share-based compensation
of CHF 302 million, mainly reflecting the amortization of deferred
equity compensation awards.
Net treasury share activity decreased equity attributable to UBS
Group AG shareholders by CHF 263 million, mainly reflecting the
net acquisition of treasury shares in relation to employee share-
based compensation awards.
In 2015, UBS Group AG increased its ownership interest in UBS
AG to 100% following the completion of the SESTA procedure.
This resulted in an increase of CHF 1,724 million in equity attribut-
able to UBS Group AG shareholders.
➔ Refer to the “The legal structure of UBS Group” section
of this report for more information on the establishment of
UBS Group AG
➔ Refer to the “Statement of changes in equity” in the
“Consolidated financial statements” 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 2015
CHF million
6,203
298
302
(231)
(63)
(509)
(2,760)
(263)
3
1,724
55,313
50,608
57,000
52,000
45,000
38,000
0
31.12.14
Net profit
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
shares¹
Other
31.12.15
Increase in
UBS Group
AG’s ownership
interest in
UBS AG
1 Excludes a decrease of CHF 37 million related to the increase in UBS Group AG’s ownership interest in UBS AG.
57000
52250
47500
42750
38000
106
Off-balance sheet
Off-balance sheet arrangements
In the normal course of business, we enter into transactions that
may not be recognized in whole or in part on our balance sheet
as a result of applying International Financial Reporting Standards
(IFRS). These transactions include derivative instruments, guaran-
tees and similar arrangements, as well as some purchased and
retained interests in non-consolidated structured entities (SEs),
which are transacted for a number of reasons, including market-
making and hedging activities, to meet specific needs of our cli-
ents or to offer investment opportunities to clients through enti-
ties 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”
and “Note 30 Interests in subsidiaries and other entities” in the
“Consolidated financial statements” section of this report for
more information
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 “Consolidated financial statements” section of this
report, as well as in the “UBS Group AG consolidated supplemen-
tal 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 credit, market and liquidity risk
information related to our exposures, which includes exposures to
off-balance sheet vehicles.
Support provided to non-consolidated investment funds
In 2015, 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.
Guarantees and similar arrangements
In the normal course of business, we issue various forms of guar-
antees, commitments to extend credit, standby and other letters
of credit to support our clients, commitments to enter into for-
ward starting transactions, note issuance facilities and revolving
underwriting 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 2015, the net exposure (gross values less
sub-participations) from guarantees and similar instruments was
CHF 13.3 billion, compared with CHF 14.9 billion as of 31 Decem-
ber 2014. Fee income from issuing guarantees was not significant
to total revenues in 2015.
Guarantees represent irrevocable assurances that, subject to
the satisfaction of certain conditions, require that we make pay-
ments in the event that our 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 our clients. The majority of these unutilized credit lines
range in maturity from one month to five years. If customers fail
to meet their obligations, 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 management and control framework. In 2015, we rec-
ognized a net credit loss expense of CHF 2 million related to loan
commitments and guarantees compared with a net credit loss
recovery of CHF 49 million in 2014. Provisions recognized for
guarantees and loan commitments were CHF 35 million as of
31 December 2015 and CHF 23 million as of 31 December 2014.
➔ Refer to “Note 12 Allowances and provisions for credit losses”
in the “Consolidated financial statements” section of this report
for more information on provisions for loan commitments and
guarantees
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
facility. We retain the contractual relationship with the obligor,
and the sub-participant has only an indirect relationship. We 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
indemnifications to third parties in the normal course of business.
107
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
Loan commitments
Forward starting transactions1
Reverse repurchase agreements
Securities borrowing agreements
Repurchase agreements
1 Cash to be paid in the future by either UBS or the counterparty.
31.12.15
31.12.14
Gross
Sub-participations
Net
Gross
Sub-participations
Net
6,708
3,035
6,276
16,019
56,067
6,577
6
6,323
(315)
(699)
(1,707)
(2,721)
(1,559)
6,393
2,336
4,569
13,298
54,508
7,126
3,285
7,283
17,694
50,688
10,304
125
5,368
(346)
(706)
(1,740)
(2,792)
(1,256)
6,780
2,579
5,543
14,902
49,431
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
exposed to additional financial obligations. While the member-
ship rules vary, obligations generally would arise only if the
exchange or clearing house had exhausted its resources. We con-
sider the probability of a material loss due to such obligations to
be remote.
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 2015, we considered the probability of
a material loss from our obligation to be remote.
Contractual obligations
The table below summarizes payments due by period under con-
tractual obligations as of 31 December 2015.
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
finance leases” in the “Consolidated financial statements” section
of this report.
Contractual obligations
CHF million
Long-term debt obligations
Finance lease obligations
Operating lease obligations
Purchase obligations
Total
108
Within 1 year
55,186
15
746
1,556
57,503
1–3 years
35,320
18
1,250
1,269
Payment due by period
3–5 years
Over 5 years
17,316
5
894
397
44,293
0
1,869
589
46,751
37,858
18,612
Total
152,116
38
4,759
3,811
160,725
Long-term debt obligations as of 31 December 2015 were CHF
152 billion and consisted of financial liabilities designated at fair
value (CHF 68 billion) and long-term debt issued (CHF 84 billion)
and represent both estimated future interest and principal pay-
ments on an undiscounted basis. Refer to “Note 27b Maturity
analysis of financial liabilities” in the “Consolidated financial
statements” section of this report for more information. Approxi-
mately 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 desig-
nated in fair value hedge accounting relationships, are not
included in the table on the previous page. The notional amount
of these interest rate swaps was CHF 48 billion as of 31 December
2015. Financial liabilities designated at fair value 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 interest swaps used to hedge these instru-
ments as interest rate risk inherent in respective liabilities is gener-
ally risk managed on a portfolio level.
Within purchase obligations, the obligation to employees
under mandatory notice periods is excluded (i.e., the period in
which we must pay contractually agreed salaries to employees
leaving the firm).
Our liabilities 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 “Consolidated financial
statements” section of this report for more information on these
liabilities.
109
Financial and operating performance Financial and operating performance
Cash flows
Cash flows
As a global financial institution, our cash flows are complex and often may bear little relation to our net earnings
and net assets. Consequently, we believe that a traditional cash flow analysis is less meaningful in evaluating
our liquidity position than the liquidity, funding and capital management frameworks and measures 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
31.12.15
31.12.14
3,109
(8,441)
(6,595)
(1,742)
(13,670)
103,044
7,205
2,596
2,108
8,522
20,430
116,715
2015
As of 31 December 2015, cash and cash equivalents totaled CHF
103.0 billion, a decrease of CHF 13.7 billion from 31 December
2014, driven by net cash outflows from investing and financing
activities, as described below, as well as foreign currency transla-
tion effects of CHF 1.7 billion.
Operating activities
In 2015, net cash inflows from operating activities were CHF 3.1
billion, mainly reflecting net operating cash inflows (before
changes in operating assets and liabilities and income taxes paid,
net of refunds) of CHF 7.0 billion, partly offset by net cash out-
flows of CHF 3.4 billion resulting from an overall decrease in
operating liabilities which more than offset a net decrease in
operating assets. Net operating cash inflows of CHF 7.0 billion
(before changes in operating assets and liabilities and income
taxes paid, net of refunds) were comprised of the net profit of
CHF 6.4 billion and non-cash adjusting items which were largely
offsetting. Net cash outflows related to changes in operating
assets and liabilities of CHF 3.4 billion were attributable to a
reduction in customer deposits of CHF 18.4 billion and outflows
of CHF 5.6 billion resulting from securities financing transactions,
partly offset by net cash inflows of CHF 7.8 billion from an
increase in Other liabilities, namely prime brokerage payables, a
reduction of CHF 8.1 billion in trading portfolio assets and a
decrease of CHF 3.3 billion of cash collateral receivables on deriv-
ative instruments, net of payables.
In 2014, net cash inflows from operating activities of CHF 7.2
billion were primarily driven by significant reductions in cash col-
110
lateral on securities borrowed and reverse repurchase agreements,
which resulted in a net cash inflow of CHF 32.3 billion, and a net
cash inflow from customer deposits of CHF 8.8 billion, partly off-
set by a net cash outflow of CHF 20.4 billion from an increase in
loans, as well as other net cash outflows.
Investing activities
Investing activities resulted in a net cash outflow of CHF 8.4 billion
in 2015, primarily related to a net cash outflow of CHF 7.6 billion
related to net increases in financial investments classified as avail-
able-for-sale.
Compared with 2014, the net cash flow from investing activi-
ties declined to a net outflow of CHF 8.4 billion from a net inflow
of CHF 2.6 billion, mainly related to the aforementioned increase
in financial investments classified as available-for-sale.
Financing activities
Financing activities resulted in a net cash outflow of CHF 6.6 bil-
lion in 2015, mainly due to net redemptions of short-term debt of
CHF 6.4 billion and the distribution of capital contribution reserves
to shareholders of CHF 2.8 billion, partly offset by net issuances of
long-term debt, including financial liabilities designated at fair
value, of CHF 3.6 billion.
Compared with 2014, the net cash flow from financing activi-
ties decreased to a net outflow of CHF 6.6 billion from a net
inflow of CHF 2.1 billion, mainly due to a CHF 3.5 billion increase
in net redemptions of short-term debt, CHF 3.2 billion lower net
issuances of long-term debt and a CHF 1.8 billion higher distribu-
tion of capital contribution reserves to shareholders.
Wealth Management
Profit before tax was CHF 2,689 million in 2015 compared with CHF 2,326 million in 2014. Adjusted profit before
tax increased by CHF 317 million to CHF 2,828 million, mainly due to a CHF 290 million lower net charge for provisions
for litigation, regulatory and similar matters and CHF 70 million higher operating income, mainly due to higher net
interest income. Adjusted net new money inflows were CHF 22.8 billion compared with CHF 34.4 billion, resulting in
a net new money growth rate of 2.3% compared with 3.9%.
Wealth Management1
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 and Corporate Center
of which: services from CC – Services
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses2
Business division operating profit / (loss) before tax
Key performance indicators3
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%)4
Gross margin on invested assets (bps)
Net margin on invested assets (bps)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
2,326
3,820
1,778
231
8,155
0
8,155
2,532
637
2,289
2,209
5
3
5,465
2,689
15.6
67.0
2.3
86
28
2,165
3,783
1,928
25
7,902
(1)
7,901
2,467
918
2,180
2,122
4
5
5,574
2,326
3.5
70.5
3.9
85
25
2,061
3,567
1,887
57
7,573
(10)
7,563
2,433
708
2,165
2,074
3
7
5,316
2,247
(6.6)
70.2
4.4
88
26
7
1
(8)
824
3
(100)
3
3
(31)
5
4
25
(40)
(2)
16
1
12
111
Financial and operating performance Financial and operating performance
Wealth Management
Wealth Management (continued)1
CHF million, except where indicated
Additional information
Recurring income5
Recurring income as a percentage of income (%)
Average attributed equity (CHF billion)6
Return on attributed equity (%)
Risk-weighted assets (fully applied, CHF billion)7
Risk-weighted assets (phase-in, CHF billion)7
Return on risk-weighted assets, gross (%)8
Leverage ratio denominator (fully applied, CHF billion)9
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion)
Net new money adjusted (CHF billion)10
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
31.12.15
31.12.14
31.12.13
31.12.14
6,146
75.4
3.5
77.4
25.3
25.3
31.5
119.0
1.3
12.9
22.8
947
1,122
105.2
172.3
10,239
4,019
5,949
75.3
3.4
67.9
25.4
25.8
33.8
138.3
1.4
34.4
34.4
987
1,160
112.7
191.3
10,337
4,250
5,628
74.3
3.5
64.2
20.9
21.4
38.7
122.1
1.3
35.9
35.9
886
1,023
96.8
189.4
9,988
4,164
3
3
0
(2)
(14)
(7)
(4)
(3)
(7)
(10)
(1)
(5)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 Refer to “Note 32 Changes in organization and disposals” in the “Consolidated financial statements” section of this
report for information on restructuring expenses. 3 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators. 4 Based on adjusted net new money. 5 Recur-
ring income consists of net interest income and recurring net fee income. 6 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 7 Based on the Basel III
framework as applicable for Swiss systemically relevant banks (SRBs). 8 Based on phase-in risk-weighted assets. 9 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onwards, the leverage ratio
denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital manage-
ment” section of this report for more information. 10 Adjusted net new money excludes the negative effect on net new money in 2015 of CHF 9.9 billion from our balance sheet and capital optimization program.
Regional breakdown of key figures1, 2
As of or for the year ended 31.12.15
Net new money (CHF billion)
Net new money adjusted (CHF billion)4
Net new money growth (%)5
Invested assets (CHF billion)
Gross margin on invested assets (bps)
Client advisors (full-time equivalents)
Europe
Asia Pacific
Switzerland
Emerging markets
of which: ultra
high net worth
1.9
3.5
1.0
343
80
13.7
15.7
5.8
272
78
1,367
1,092
3.6
5.5
3.1
174
92
771
(5.7)
(1.4)
(0.8)
156
96
705
16.5
23.4
4.7
505
56
7287
of which: Global
Family Office3
(0.6)
1.0
1.4
76
426
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 84 client advisors, CHF 2 billion of invested assets, and CHF 0.5 billion of adjusted net new money outflows in 2015. 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 Adjusted net new money excludes the negative effect on net new money from our balance sheet and capital
optimization program. 5 Based on adjusted net new money. 6 Gross margin includes income booked in the Investment Bank. Gross margin only based on income booked in Wealth Management is 25 basis
points. 7 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.
112
2015 compared with 2014
Results
Operating income
Total operating income increased by CHF 254 million to CHF
8,155 million. Excluding net gains of CHF 169 million on the sale
of subsidiaries and businesses and a CHF 15 million gain related
to our investment in the SIX Group, adjusted operating income
increased by CHF 70 million to CHF 7,971 million, mainly due to
higher net interest income and recurring net fee income, partly
offset by lower transaction-based income.
Net interest income increased by CHF 161 million to CHF 2,326
million, mainly due to higher lending revenues and an increase in
allocated revenues from Corporate Center – Group Asset and
Liability Management (Group ALM).
Recurring net fee income increased by CHF 37 million to CHF
3,820 million, reflecting the positive effects of a continued
increase in discretionary and advisory mandate penetration and
pricing measures, partly offset by lower income due to the ongo-
ing effects of cross-border outflows.
Transaction-based income decreased by CHF 150 million to
CHF 1,778 million across all regions, mainly due to reduced client
activity, most notably in Europe and emerging markets. The over-
all decrease was mainly related to investment funds, fixed income
cash products and structured products, partly offset by higher for-
eign exchange trading and mandate revenues. Transaction-based
revenues allocated from Group ALM also decreased. These
decreases were partly offset by a fee of CHF 45 million received
from Personal & Corporate Banking for the shift of certain clients
from Wealth Management to Personal & Corporate Banking as a
result of a detailed client segmentation review.
Other income increased by CHF 206 million to CHF 231 million,
mainly related to the aforementioned net gains.
Operating expenses
Total operating expenses decreased by CHF 109 million to CHF
5,465 million. Excluding restructuring expenses of CHF 323 mil-
lion compared with CHF 185 million, adjusted operating expenses
decreased by CHF 247 million to CHF 5,142 million, mainly as the
net charge for provisions for litigation, regulatory and similar mat-
ters declined to CHF 104 million from CHF 394 million.
Personnel expenses increased by CHF 65 million to CHF 2,532
million. Excluding restructuring expenses of CHF 20 million com-
pared with CHF 18 million, adjusted personnel expenses increased
by CHF 63 million, mainly due to higher pension-related costs and
increased expenses for variable compensation, as well as salary
increases, partly offset by favorable foreign currency translation
effects and the effect of personnel reductions.
General and administrative expenses decreased by CHF 281
million to CHF 637 million. Excluding restructuring expenses of
CHF 38 million compared with CHF 48 million, adjusted general
and administrative expenses decreased by CHF 271 million, mainly
due to the aforementioned decreased net charge for provisions
for litigation, regulatory and similar matters.
Net expenses for services from other business divisions and
Corporate Center increased by CHF 109 million to CHF 2,289 mil-
lion. Excluding restructuring expenses of CHF 265 million com-
pared with CHF 119 million, adjusted net expenses for services
decreased by CHF 37 million to CHF 2,024 million, mainly due to
lower expenses from Group Operations and Group Corporate
Services, partly offset by higher expenses from Group ALM.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio was 67.0% compared with 70.5%. On an
adjusted basis, the cost / income ratio was 64.5% compared with
68.2% and was within our target range of 55% to 65%.
Net new money
Adjusted net new money, which excludes net outflows of CHF 9.9
billion from our balance sheet and capital optimization program,
was CHF 22.8 billion and was driven by inflows in Asia Pacific,
Switzerland and Europe, partly offset by outflows in emerging
markets. This resulted in a net new money growth rate of 2.3%
compared with 3.9%, below our target range of 3% to 5%.
Adjusted net new money was negatively affected by client de-
leveraging and cross-border outflows. On a global basis, adjusted
net new money from ultra high net worth clients was CHF 23.4
billion compared with CHF 29.8 billion. On a reported basis, total
net new money was CHF 12.9 billion compared with CHF 34.4
billion. For 2016, we expect to be able to absorb the currently
anticipated headwinds, including cross-border-related outflows,
within our net new money target growth range of 3% to 5%.
Invested assets
Invested assets decreased by CHF 40 billion to CHF 947 billion as
of 31 December 2015 due to negative foreign currency transla-
tion effects of CHF 25 billion, a CHF 16 billion reduction due to
the aforementioned sale of subsidiaries and businesses that did
not affect net new money, and negative market performance of
CHF 9 billion, partly offset by net new money inflows of CHF 13
billion, which include the net outflows of CHF 10 billion from our
balance sheet and capital optimization program. Mandate pene-
tration increased to 26.4% of invested assets as of 31 December
2015 compared with 24.4% as of 31 December 2014.
113
Financial and operating performance Financial and operating performance
Wealth Management
Margins on invested assets
The net margin on invested assets increased 3 basis points to 28
basis points. On an adjusted basis, the net margin on invested
assets increased 3 basis points to 30 basis points. The gross mar-
gin on invested assets increased 1 basis point to 86 basis points
and decreased 1 basis point to 84 basis points on an adjusted
basis.
Personnel
Wealth Management employed 10,239 personnel as of 31 Decem-
ber 2015 compared with 10,337 as of 31 December 2014.
The number of client advisors decreased by 231 to 4,019 with
reductions in Europe, Asia Pacific and emerging markets, mainly
due to a reduction in the number of lower-producing advisors and
the reclassification of certain staff from client advisors to non-client
facing staff.
The number of non-client facing staff increased by 133 to 6,220,
mainly due to hiring for our strategic and regulatory priorities, the
shift of a team of real estate financing experts from Personal &
Corporate Banking to Wealth Management, and the aforemen-
tioned reclassification, partly offset by the effect of the sale of sub-
sidiaries and businesses in 2015.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
Balance sheet and capital optimization program
In the first half of 2015, Wealth Manage-
ment launched a global program intended
to optimize its leverage ratio denominator
(LRD) and liquidity coverage ratio (LCR),
adapting its business to the new regulatory
and interest rate environments. The
program was launched to mitigate the
impact of reduced and, in some cases,
negative interest rates on our performance,
particularly given the associated cost
of maintaining the high-quality liquid
assets (HQLA) required to cover regulatory
outflow assumptions embedded in the
LCR. We have changed pricing for a num-
ber of clients with a high proportion
of short-term deposits relative to
invested assets, particularly focusing on
non-operational deposits. We offered
these clients options to redeploy deposit
balances into cash alternatives and invest-
ment products, or consider repricing their
existing products. The vast majority of
these clients have chosen to retain their
relationship with us, but we recorded
a reduction in customer deposits of CHF
14 billion from affected clients. In the
second and third quarter, we recorded
total net new money outflows of CHF
9.9 billion, which we have treated as an
adjusting item.
In the aggregate, the program has reduced
the LRD and HQLA requirements for
our business. The clients in scope for this
program generated minimal economic
profit for the bank, and subsequent
to our efforts, economic profit on retained
relationships has materially improved.
114
2014 compared with 2013
Results
Operating income
Total operating income was CHF 7,901 million compared with
CHF 7,563 million, primarily due to 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 Corporate Center – Group Asset and Liability Management
(Group ALM). These effects were partly offset by lower net inter-
est income from client deposits and lower allocated revenues
from Group ALM.
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 the migration into retrocession-free prod-
ucts 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 Personal & Corporate Banking for net client shifts and
referrals.
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. Excluding restructuring
expenses of CHF 185 million compared with CHF 178 million,
adjusted operating expenses increased by CHF 251 million to CHF
5,389 million, mainly due to an increased net charge for provi-
sions for litigation, regulatory and similar matters to CHF 394 mil-
lion from CHF 89 million, while the prior year included a charge in
relation to the Swiss-UK tax agreement of CHF 107 million.
Personnel expenses increased by CHF 34 million to CHF 2,467
million. Excluding restructuring expenses of CHF 18 million com-
pared with CHF 40 million, adjusted personnel expenses increased
by CHF 56 million, mainly due to salary increases, higher variable
compensation expenses and staff hiring, partly offset by reduced
pension-related expenses.
General and administrative expenses increased by CHF 210
million to CHF 918 million. Excluding restructuring expenses of
CHF 48 million compared with CHF 35 million, adjusted general
and administrative expenses increased by CHF 197 million, mainly
due to the aforementioned increased net charge for provisions for
litigation, regulatory and similar matters, while the prior year
included a charge in relation to the aforementioned Swiss-UK tax
agreement.
Net expenses for services from other business divisions and
Corporate Center increased by CHF 15 million to CHF 2,180 mil-
lion. Excluding restructuring expenses of CHF 119 million com-
pared with CHF 104 million, adjusted net expenses were
unchanged at CHF 2,061 million. Higher charges from Group
Technology and Group Operations were offset by reduced charges
from Personal & Corporate Banking, lower pension-related
expenses and lower charges from Group Corporate Services.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio was 70.5% compared with 70.2%. The
adjusted cost / income ratio was 68.2% compared with 67.8%.
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 the strongest net inflows in Asia Pacific,
followed by Switzerland and emerging markets. Net outflows in
Europe mainly reflected 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.
115
Financial and operating performance Financial and operating performance
Wealth Management
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 foreign cur-
rency translation effects of CHF 32 billion.
Margins on invested assets
The net margin on invested assets decreased 1 basis point to 25
basis points. On an adjusted basis, the net margin on invested
assets decreased 1 basis point to 27 basis points. The gross mar-
gin on invested assets decreased 3 basis points to 85 basis points
on both a reported and an adjusted basis.
Personnel
Wealth Management employed 10,337 personnel as of 31 Decem-
ber 2014 compared with 9,988 as of 31 December 2013, reflect-
ing 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 Asia Pacific, our key strategic growth
area, partly offset by reductions in Europe. The number of non-
client facing staff increased by 263 to 6,087, mainly due to staff
hires for our strategic and regulatory priorities.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
116
Wealth Management Americas
Profit before tax was USD 754 million compared with USD 981 million, mainly reflecting a higher net charge for provi-
sions for litigation, regulatory and similar matters, and other provisions. Adjusted profit before tax decreased to
USD 874 million from USD 1,030 million. Net new money inflows were USD 21.4 billion compared with USD 10.0 billion
in the prior year, resulting in a net new money growth rate of 2.1% compared with 1.0%.
Wealth Management Americas – in US dollars1
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 compensation2
Compensation commitments with recruited financial advisors3
Salaries and other personnel costs
General and administrative expenses
Services (to) / from other business divisions and Corporate Center
of which: services from CC – Services
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses4
Business division operating profit / (loss) before tax
Key performance indicators5
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%)
Gross margin on invested assets (bps)
Net margin on invested assets (bps)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
1,215
4,795
1,614
32
7,657
(4)
7,653
4,746
2,921
761
1,064
845
1,252
1,236
3
53
6,899
754
(23.1)
90.1
2.1
74
7
1,067
4,666
1,825
33
7,590
16
7,606
4,741
2,944
733
1,063
597
1,234
1,217
0
52
6,625
981
5.8
87.3
1.0
76
10
1,014
4,109
1,946
36
7,105
(30)
7,075
4,439
2,708
690
1,041
415
1,239
1,220
0
53
6,147
927
45.3
86.5
2.3
79
10
14
3
(12)
(3)
1
1
0
(1)
4
0
42
1
2
2
4
(23)
(3)
(30)
117
Financial and operating performance Financial and operating performance
Wealth Management Americas
Wealth Management Americas – in US dollars (continued)1
USD million, except where indicated
Additional information
Recurring income6
Recurring income as a percentage of income (%)
Average attributed equity (USD billion)7
Return on attributed equity (%)
Risk-weighted assets (fully applied, USD billion)8
Risk-weighted assets (phase-in, USD billion)8
Return on risk-weighted assets, gross (%)9
Leverage ratio denominator (fully applied, USD billion)10
Goodwill and intangible assets (USD billion)
Net new money (USD billion)
Net new money including interest and dividend income (USD billion)11
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
31.12.15
31.12.14
31.12.13
31.12.14
6,010
5,733
5,122
78.5
2.6
29.3
21.9
21.9
33.9
62.8
3.7
21.4
47.8
1,033
1,084
48.7
83.1
3,179
418
13,611
7,140
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
13,322
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
13,545
7,137
5
(10)
0
0
(1)
(3)
0
0
9
13
9
12
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, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 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. 3 Compensation commitments with recruited financial advisors repre-
sents charges related to compensation commitments granted to financial advisors at the time of recruitment which are subject to vesting requirements. 4 Refer to “Note 32 Changes in organization and disposals” in
the “Consolidated financial statements” section of this report for information on restructuring expenses. 5 Refer to the “Measurement of performance” section of this report for the definitions of our key performance
indicators. 6 Recurring income consists of net interest income and recurring net fee income. 7 Refer to the “Capital management” section of this report for more information on the equity attribution frame-
work. 8 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRBs). 9 Based on phase-in risk-weighted assets. 10 Calculated in accordance with Swiss SRB rules. From 31 December
2015 onwards, the leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable.
Refer to the “Capital management” section of this report for more information. 11 Presented in line with historical reporting practice in the US market.
118
Wealth Management Americas – in Swiss francs1
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 compensation2
Compensation commitments with recruited financial advisors3
Salaries and other personnel costs
General and administrative expenses
Services (to) / from other business divisions and Corporate Center
of which: services from CC – Services
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses4
Business division operating profit / (loss) before tax
Key performance indicators5
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%)
Gross margin on invested assets (bps)
Net margin on invested assets (bps)
Additional information
Recurring income6
Recurring income as a percentage of income (%)
Average attributed equity (CHF billion)7
Return on attributed equity (%)
Risk-weighted assets (fully applied, CHF billion)8
Risk-weighted assets (phase-in, CHF billion)8
Return on risk-weighted assets, gross (%)9
Leverage ratio denominator (fully applied, CHF billion)10
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion)
Net new money including interest and dividend income (CHF billion)11
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
31.12.15
31.12.14
31.12.13
% change from
31.12.14
1,174
4,623
1,555
31
7,384
(4)
7,381
4,579
2,817
735
1,027
822
1,209
1,193
3
51
6,663
718
(20.2)
90.2
2.1
74
7
983
4,294
1,678
30
6,984
15
6,998
4,363
2,710
675
979
550
1,137
1,121
0
48
6,099
900
4.9
87.3
1.1
76
10
936
3,796
1,800
33
6,565
(27)
6,538
4,102
2,503
638
962
383
1,145
1,127
0
49
5,680
858
43.7
86.5
2.3
79
10
5,798
5,276
4,732
78.5
2.5
29.0
21.9
21.9
33.7
62.9
3.7
21.3
46.9
1,035
1,085
48.8
83.2
3,184
418
13,611
7,140
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
13,322
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
13,545
7,137
19
8
(7)
3
6
5
5
4
9
5
49
6
6
6
9
(20)
(3)
(30)
10
(7)
1
0
(1)
0
1
0
10
14
9
12
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, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 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. 3 Compensation commitments with recruited financial advisors represents
charges related to compensation commitments granted to financial advisors at the time of recruitment which are subject to vesting requirements. 4 Refer to “Note 32 Changes in organization and disposals” in the
“ Consolidated financial statements” section of this report for information on restructuring expenses. 5 Refer to the “Measurement of performance” section of this report for the definitions of our key performance
indicators. 6 Recurring income consists of net interest income and recurring net fee income. 7 Refer to the “Capital management” section of this report for more information on the equity attribution framework.
8 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRBs). 9 Based on phase-in risk-weighted assets. 10 Calculated in accordance with Swiss SRB rules. From 31 December 2015
onwards, the leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to
the “Capital management” section of this report for more information. 11 Presented in line with historical reporting practice in the US market.
119
Financial and operating performance Financial and operating performance
Wealth Management Americas
2015 compared with 2014
Results
Operating income
Total operating income increased by USD 47 million to USD 7,653
million due to higher net interest income and continued growth
in managed account fees, partly offset by lower transaction-based
income and a net credit loss expense in 2015 compared with a net
credit loss recovery in 2014.
Net interest income increased by USD 148 million to USD
1,215 million, reflecting continued growth in loan and deposit
balances. The average mortgage portfolio balance increased 16%
and the average securities-backed lending portfolio balance
increased 12%.
Recurring net fee income increased by USD 129 million to USD
4,795 million, mainly due to increased managed account fees,
reflecting higher invested asset levels.
Transaction-based income decreased by USD 211 million to
USD 1,614 million, primarily due to lower client activity.
We incurred a net credit loss expense of USD 4 million com-
pared with a net recovery of USD 16 million. The 2014 net recov-
ery 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 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 274 million to USD 6,899
million. Excluding restructuring expenses of USD 141 million com-
pared with USD 59 million, and a gain of USD 21 million com-
pared with USD 10 million related to a change to retiree benefit
plans in the US, adjusted operating expenses increased by USD
203 million to USD 6,779 million. This was primarily due to a USD
178 million higher net charge for provisions for litigation, regula-
tory and similar matters, and an increase in other provisions and
legal fees, partly offset by lower expenses from Corporate Center
– Services.
Excluding a gain of USD 20 million related to a change to
retiree benefit plans in the US compared with USD 8 million,
adjusted personnel expenses increased by USD 18 million to USD
4,766 million, mainly due to higher compensation commitments
for recruited financial advisors, partly offset by lower financial
advisor compensation, reflecting lower compensable revenues.
General and administrative expenses increased by USD 248
million to USD 845 million, mainly as the net charge for provisions
for litigation, regulatory and similar matters increased to USD 356
million from USD 178 million. Furthermore, we recorded higher
expenses for other provisions and increased legal fees.
120
Excluding restructuring expenses of USD 141 million, compared
with USD 59 million, and a gain of USD 2 million for both years
related to a change to retiree benefit plans, adjusted net expenses
for services from other business divisions and Corporate Center
decreased by USD 64 million to USD 1,113 million, reflecting lower
expenses from Corporate Center – Services.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio was 90.1% compared with 87.3%. On an
adjusted basis, the cost / income ratio was 88.5% compared with
86.6% and was above our target range of 75% to 85%.
Net new money
Net new money was USD 21.4 billion, reflecting strong inflows
from advisors who have been with the firm for more than one
year, as well as net inflows from newly recruited advisors. Net new
money growth was 2.1% compared with 1.0%, within our target
range of 2% to 4%. Including interest and dividend income, net
new money inflows were USD 47.8 billion compared with USD
37.2 billion in the prior year.
Invested assets
Invested assets were USD 1,033 billion as of 31 December 2015,
an increase of USD 1 billion from 31 December 2014, reflecting
strong net new money inflows of USD 21 billion, mostly offset by
negative market performance of USD 20 billion. Managed
account assets increased by USD 5 billion to USD 351 billion, and
comprised 34% of invested assets, unchanged from 31 December
2014.
Margins on invested assets
The net margin on invested assets was 7 basis points compared
with 10 basis points and the adjusted net margin on invested
assets decreased 2 basis points to 8 basis points. The gross margin
on invested assets decreased 2 basis points to 74 basis points.
Personnel
As of 31 December 2015, Wealth Management Americas
employed 13,611 personnel, an increase of 289 from 31 Decem-
ber 2014. Financial advisor headcount increased by 143 to 7,140
reflecting the hiring of experienced financial advisors and contin-
ued low financial advisor attrition. Non-financial advisor head-
count increased by 146 to 6,471, due to an increase in financial
advisor support staff.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
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.
Excluding restructuring expenses of USD 59 million compared
with USD 64 million, and a gain of USD 2 million in 2014 related
to a change to retiree benefit plans, net expenses for services
from other business divisions and Corporate Center increased by
USD 2 million.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
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%.
Cost / income ratio
The cost / income ratio was 87.3% compared with 86.5%. On an
adjusted basis, the cost / income ratio was 86.6% compared with
85.6%.
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.
We recorded a net credit loss recovery of USD 16 million com-
pared with a net expense of USD 30 million in the prior year. The
2014 net recovery included the full release of a loan loss allow-
ance for a single client as well as releases of loan loss allowances
on securities-backed lending facilities collateralized by Puerto Rico
municipal securities and related funds. The expenses in the prior
year were largely due to loan loss allowances on securities-backed
lending facilities collateralized 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. Excluding restructuring expenses
of USD 59 million compared with USD 64 million and a gain of
USD 10 million related to a change to retiree benefit plans in the
US, adjusted operating expenses increased by USD 493 million to
USD 6,576 million. This was primarily due to higher financial advi-
sor compensation, as well as a higher net charge for provisions for
litigation, regulatory and similar matters.
Personnel expenses increased by USD 302 million to USD 4,741
million. Excluding a gain of USD 8 million related to changes to
retiree benefit plans in the US in 2014, adjusted personnel
expenses increased by USD 309 million to USD 4,748 million,
mainly due to USD 236 million higher financial advisor compensa-
tion resulting from higher compensable revenues.
General and administrative expenses increased by USD 182
million to USD 597 million, mainly due to an increased net charge
for provisions for litigation, regulatory and similar matters of USD
178 million compared with USD 36 million.
Net new money
In 2014, net new money totaled USD 10.0 billion and was pre-
dominantly comprised 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. The net new money growth rate
was 1.0% in 2014. 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 December 2014, and comprised 34% of invested assets com-
pared with 32% as of 31 December 2013.
Margins on invested assets
The net margin on invested assets was 10 basis points, unchanged
from 2013 and the adjusted net margin on invested assets
decreased 1 basis point to 10 basis points. The gross margin on
invested assets decreased 3 basis points to 76 basis points.
Personnel
As of 31 December 2014, Wealth Management Americas
employed 13,322 personnel, a decrease of 223 from 31 Decem-
ber 2013. Financial advisor headcount decreased by 140 to 6,997
mainly due to attrition of lower-producing advisors. Non-financial
advisor headcount decreased by 83 to 6,325.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
121
Financial and operating performance Financial and operating performance
Personal & Corporate Banking
Personal & Corporate Banking
Profit before tax was CHF 1,646 million in 2015 compared with CHF 1,506 million in 2014. Adjusted profit before tax
increased by CHF 111 million to CHF 1,681 million, reflecting a lower net credit loss expense and reduced operating
expenses, as well as higher income. The net new business volume growth rate for our personal banking business
increased to 2.4% from 2.3%.
Personal & Corporate Banking1
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 and Corporate Center
of which: services from CC – Services
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses2
Business division operating profit / (loss) before tax
Key performance indicators3
Pre-tax profit growth (%)
Cost / income ratio (%)
Net interest margin (bps)
Net new business volume growth for personal banking (%)
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 (fully applied, CHF billion)7
Goodwill and intangible assets (CHF billion)
Business volume for personal banking (CHF billion)
Net new business volume for personal banking (CHF billion)
Client assets (CHF billion)
Due to customers (CHF billion)
Loans, gross (CHF billion)
Secured loan portfolio as a percentage of total loan portfolio, gross (%)
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
Personnel (full-time equivalents)
As of or for the year ended
31.12.15
2,270
544
959
140
3,913
(37)
3,877
873
264
1,077
1,180
17
0
2,231
1,646
9.3
57.0
167
2.4
3.9
41.9
34.6
34.6
11.2
153.8
0.0
148
3.4
444
132.4
135.6
93.9
0.6
5,058
31.12.14
2,184
556
1,022
75
3,836
(95)
3,741
850
293
1,074
1,196
17
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
5,206
31.12.13
2,144
511
1,034
86
3,774
(18)
3,756
843
297
1,140
1,301
19
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
5,209
% change from
31.12.14
4
(2)
(6)
87
2
(61)
4
3
(10)
0
(1)
0
0
9
5
(5)
5
1
(7)
3
2
(4)
(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, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 Refer to “Note 32 Changes in organization and disposals” in the “Consolidated financial statements” section of this
report for information on restructuring expenses. 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 (SRBs). 6 Based on phase-in risk-weighted assets.
7 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onwards, the leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance
with former Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital management” section of this report for more information.
122
2015 compared with 2014
Results
Operating income
Total operating income increased by CHF 136 million to CHF
3,877 million and included a gain of CHF 66 million related to our
investment in the SIX Group. Excluding this gain, adjusted operat-
ing income increased by CHF 70 million to CHF 3,811 million,
reflecting higher net interest income and a lower net credit loss
expense, partly offset by decreased transaction-based and recur-
ring net fee income.
Net interest income increased by CHF 86 million to CHF 2,270
million, primarily due to higher income from loans and deposits,
reflecting our pricing measures.
Recurring net fee income decreased by CHF 12 million to CHF
544 million, mainly reflecting lower fee income allocated from
Corporate Center – Group Asset and Liability Management
(Group ALM) for the provision of collateral in relation to issued
covered bonds, as well as decreased revenues from non-asset-
based products. This was partly offset by increased revenues for
account keeping, banking packages and custody services.
Transaction-based income decreased by CHF 63 million to CHF
959 million, mainly driven by a fee of CHF 45 million paid to Wealth
Management for the shift of certain clients from Wealth Manage-
ment to Personal & Corporate Banking as a result of a detailed cli-
ent segmentation review, as well as lower credit card fees.
Other income increased by CHF 65 million to CHF 140 million,
mainly due to the aforementioned gain related to our investment
in the SIX Group.
We recorded a net credit loss expense of CHF 37 million com-
pared with CHF 95 million, predominantly due to lower expenses
for newly impaired positions.
➔ Refer to the “Risk management and control” section of this
report for more information
Operating expenses
Operating expenses decreased by CHF 4 million to CHF 2,231 mil-
lion. Excluding restructuring expenses of CHF 101 million com-
pared with CHF 64 million, adjusted operating expenses decreased
by CHF 41 million to CHF 2,130 million.
Personnel expenses increased by CHF 23 million to CHF 873
million, mainly reflecting increased expenses for variable compen-
sation and higher pension-related costs.
General and administrative expenses decreased by CHF 29 mil-
lion to CHF 264 million, mainly reflecting a net release of CHF
2 million of provisions for litigation, regulatory and similar matters
compared with a net charge of CHF 59 million in the prior year.
This was partly offset by higher marketing expenses, which
included a one-time reversal of an accrual in 2014.
Net expenses for services from Corporate Center and other
business divisions increased by CHF 3 million to CHF 1,077 mil-
lion. Excluding restructuring expenses of CHF 99 million com-
pared with CHF 60 million, adjusted net expenses decreased by
CHF 36 million to CHF 978 million, reflecting lower expenses from
Group Operations and Group Corporate Services, partly offset by
higher expenses from Group Technology.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio was 57.0% compared with 58.3%. On an
adjusted basis, the cost / income ratio was 55.4% compared with
56.6% and remained within our target range of 50% to 60%.
Net interest margin
The net interest margin increased 8 basis points to 167 basis points
and remained within the target range of 140 to 180 basis points.
Net new business volume growth for personal banking
The net new business volume growth rate for our personal bank-
ing business was 2.4% compared with 2.3% and remained within
the target range of 1% to 4%. Net new client assets were positive
while net new loans were slightly negative. It is our strategy to
grow our business in high-quality loans moderately and selectively.
Personnel
Personal & Corporate Banking employed 5,058 personnel as of
31 December 2015, a decrease of 148 compared with 5,206 per-
sonnel as of 31 December 2014, reflecting the shift of a team of
real estate financing experts from Personal & Corporate Banking
to Wealth Management, as well as staff reductions, including
those related to our ongoing cost reduction programs.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
123
Financial and operating performance Financial and operating performance
Personal & Corporate Banking
2014 compared with 2013
Results
Operating income
Total operating income decreased by CHF 15 million to CHF 3,741
million, reflecting an increased net credit loss expense, as well as
lower transaction-based and other income, largely offset by
higher recurring net fee income and increased net interest income.
Net interest income increased by CHF 40 million to CHF 2,184
million, mainly due to higher revenues allocated from Group ALM
and a higher loan margin. This was partly offset by a decline in the
deposit margin, despite selective pricing measures, as the persis-
tently 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 personal 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 personal bank accounts.
This was partly offset by first-time fees received from Wealth
Management for net client shifts and referrals.
Personnel expenses increased by CHF 7 million to CHF 850 mil-
lion. Excluding restructuring expenses, adjusted personnel
expenses increased by CHF 3 million to CHF 846 million, reflecting
higher expenses for variable compensation and a smaller release
of accruals for untaken vacation, partly offset by lower pension-
related costs.
General and administrative expenses decreased by CHF 4 mil-
lion to CHF 293 million, as lower marketing expenses, which
included a one-time reversal of an accrual in 2014, were partly
offset by higher professional fees.
Net expenses for services from other business divisions and
Corporate Center decreased by CHF 66 million to CHF 1,074 mil-
lion. Excluding restructuring expenses of CHF 60 million com-
pared with CHF 54 million, adjusted net expenses decreased by
CHF 72 million to CHF 1,014 million, reflecting lower expenses
from Group Technology and Group Operations.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio was 58.3% compared with 60.9%. On an
adjusted basis excluding restructuring expenses, the cost / income
ratio was 56.6% compared with 59.5%.
Other income decreased by CHF 11 million to CHF 75 million,
mainly as 2013 included a CHF 27 million gain related to the
divestment of our participation in Euroclear Plc., partly offset by
higher income from our participation in the SIX Group in 2014.
Net interest margin
The net interest margin increased 3 basis points to 159 basis
points, reflecting the aforementioned increase in net interest
income partly offset by a slightly higher average loan volume.
The net credit loss expense was CHF 95 million in 2014 com-
pared with CHF 18 million. The 2014 net expense 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
reflected the overall improved outlook for relevant industries.
Operating expenses
Operating expenses decreased by CHF 63 million to CHF 2,235
million. Excluding restructuring expenses of CHF 64 million com-
pared with CHF 54 million, adjusted operating expenses decreased
by CHF 73 million to CHF 2,171 million.
Net new business volume growth for personal banking
The net new business growth rate for our personal banking busi-
ness was 2.3% compared with 1.9%. 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
Personal & Corporate Banking employed 5,206 personnel as of
31 December 2014, almost unchanged from 5,209 as of
31 December 2013.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
124
Asset Management
Profit before tax was CHF 584 million in 2015 compared with CHF 467 million in 2014. Adjusted profit before tax was
CHF 610 million compared with CHF 509 million, primarily reflecting higher management fees. Excluding money market
flows, net new money outflows were CHF 0.7 billion compared with net inflows of CHF 22.6 billion. 2015 included
CHF 33 billion of outflows driven by client liquidity needs, largely from lower-margin passive products.
Asset Management1
CHF million, except where indicated
Net management fees2
Performance fees
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions and Corporate Center
of which: services from CC – Services
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses3
Business division operating profit / (loss) before tax
Key performance indicators4
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth excluding money market flows (%)
Gross margin on invested assets (bps)
Net margin on invested assets (bps)
Information by business line
Operating income
Traditional Investments
O’Connor and Hedge Fund Solutions
Global Real Estate
Infrastructure and Private Equity
Fund Services
Total operating income
Gross margin on invested assets (bps)
Traditional Investments
O’Connor and Hedge Fund Solutions
Global Real Estate
Infrastructure and Private Equity
Total gross margin
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
1,903
154
2,057
729
232
502
523
2
8
1,474
584
25.1
71.7
(0.1)
32
9
1,143
198
403
57
257
2,057
21
53
84
62
32
1,756
146
1,902
643
305
478
495
2
9
1,435
467
(18.9)
75.4
4.4
31
8
1,118
210
353
42
178
1,902
21
66
84
49
31
1,739
196
1,935
609
218
521
535
4
8
1,359
576
1.2
70.2
(1.0)
33
10
1,144
266
317
38
171
1,935
22
95
76
48
33
8
5
8
13
(24)
5
6
0
(11)
3
25
3
13
2
(6)
14
36
44
8
0
(20)
0
27
3
125
Financial and operating performance Financial and operating performance
Asset Management
Asset Management (continued)1
CHF million, except where indicated
Net new money (CHF billion)
Traditional Investments
O’Connor and Hedge Fund Solutions
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 Hedge Fund Solutions
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)5
Net new assets under administration (CHF billion)6
Gross margin on assets under administration (bps)
Additional information
Average attributed equity (CHF billion)7
Return on attributed equity (%)
Risk-weighted assets (fully applied, CHF billion)8
Risk-weighted assets (phase-in, CHF billion)8
Return on risk-weighted assets, gross (%)9
Leverage ratio denominator (fully applied, CHF billion)10
Goodwill and intangible assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
(13.0)
4.3
3.4
(0.2)
(5.4)
(0.7)
(7.7)
7.0
(4.7)
(3.4)
(1.3)
550
39
52
10
650
592
58
407
24.0
5
1.6
36.5
2.6
2.6
62.1
2.7
1.4
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
2,277
2,323
2,217
(4)
11
13
11
(2)
(1)
(9)
(22)
(45)
25
(6)
(32)
(33)
(82)
(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, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 Net management fees include transaction fees, fund administration revenues (including net interest and trading income
from lending activities and foreign exchange hedging as part of the fund services offering), gains or losses from seed money and co-investments, funding costs, gains and losses on the sale of subsidiaries and businesses
and other items that are not performance fees. 3 Refer to “Note 32 Changes in organization and disposals” in the “Consolidated financial statements” section of this report for information on restructuring
expenses. 4 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators. 5 This includes UBS and third-party fund assets, for which the fund services unit pro-
vides professional services, including fund set-up, accounting and reporting for traditional investment funds and alternative funds. 6 Inflows of assets under administration from new and existing funds less outflows from
existing funds or fund exits. 7 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 8 Based on the Basel III framework as applicable for Swiss systemically
relevant banks (SRBs). 9 Based on phase-in risk-weighted assets. 10 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onwards, the leverage ratio denominator calculation is fully aligned with
the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital management” section of this report for more information.
126
2015 compared with 2014
Results
Operating income
Total operating income was CHF 2,057 million compared with
CHF 1,902 million. Excluding a gain of CHF 56 million on the sale
of our Alternative Fund Services (AFS) business, adjusted operat-
ing income was CHF 2,001 million compared with CHF 1,902 mil-
lion. Adjusted net management fees increased by CHF 91 million
to CHF 1,847 million, primarily in Global Real Estate and Fund
Services. Performance fees increased by CHF 8 million to CHF 154
million, mainly in Traditional Investments and Global Real Estate,
partly offset by lower revenues in O’Connor and Hedge Fund
Solutions.
Approximately 25% of O’Connor and Hedge Fund Solutions
performance fee-eligible assets exceeded high-water marks as of
31 December 2015, a decline from 65% as of 31 December
2014, reflecting the challenging market conditions in the second
half of 2015.
tion, regulatory and similar matters of CHF 55 million in 2014, as
well as an expense of CHF 14 million in 2014 for a provision for a
settlement related to a fund liquidation.
Net expenses for services from other business divisions and
Corporate Center were CHF 502 million compared with CHF 478
million. Excluding restructuring expenses of CHF 68 million com-
pared with CHF 30 million, as well as a CHF 4 million gain related
to retiree benefit plans in the prior year, adjusted net expenses for
services from other business divisions and Corporate Center
decreased by CHF 18 million to CHF 434 million. Lower expenses
from Group Operations were partially offset by higher expenses
from Group Technology.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio was 71.7% compared with 75.4%. On an
adjusted basis, the cost / income ratio was 69.6% compared with
73.2% and was within our target range of 60% to 70%.
Operating expenses
Total operating expenses were CHF 1,474 million compared with
CHF 1,435 million. Excluding restructuring expenses of CHF 82
million compared with CHF 50 million, as well as a gain of CHF 8
million related to changes to retiree benefit plans in the US in the
prior year, adjusted operating expenses were CHF 1,392 million,
almost unchanged from 2014.
Personnel expenses were CHF 729 million compared with CHF
643 million. Excluding restructuring expenses of CHF 4 million
compared with CHF 19 million, as well as a CHF 4 million gain
related to retiree benefit plans in the prior year, adjusted personnel
expenses increased by CHF 97 million to CHF 725 million. This was
mainly driven by higher salary-related costs as a result of increased
staffing levels, excluding the effect of the aforementioned sale of
AFS, as well as higher expenses for variable compensation.
General and administrative expenses were CHF 232 million
compared with CHF 305 million. Excluding restructuring expenses
of CHF 9 million compared with CHF 1 million, adjusted general
and administrative expenses decreased by CHF 81 million to CHF
223 million. This decrease was mainly due to a charge for litiga-
Net new money
Excluding money market flows, net new money outflows were
CHF 0.7 billion compared with net inflows of CHF 22.6 billion,
which resulted in a negative net new money growth rate of 0.1%
compared with a positive growth rate of 4.4%, below our target
range of 3% to 5%. By client segment, net outflows from third
parties were CHF 7.7 billion compared with net inflows of CHF
11.3 billion. 2015 included CHF 33 billion of outflows driven by
client liquidity needs, largely from lower-margin passive products.
Net outflows were mainly from clients serviced from Europe. Net
new money inflows from clients of UBS’s wealth management
businesses were CHF 7.0 billion compared with CHF 11.3 billion,
mainly from clients serviced from Asia Pacific and Switzerland.
Money market net outflows were CHF 4.7 billion compared
with CHF 6.7 billion. By client segment, net new money outflows
from third parties were CHF 3.4 billion compared with zero. Net
outflows from Americas, Switzerland and Europe, Middle East
and Africa were partly offset by net inflows in Asia Pacific. Net
outflows from clients of UBS’s wealth management businesses
were CHF 1.3 billion compared with CHF 6.7 billion.
127
Financial and operating performance Financial and operating performance
Asset Management
Invested assets
Invested assets were CHF 650 billion as of 31 December 2015
compared with CHF 664 billion as of 31 December 2014, reflect-
ing negative foreign currency translation effects of CHF 11 billion
and net new money outflows of CHF 5 billion, partly offset by
favorable market performance of CHF 4 billion.
As of 31 December 2015, CHF 195 billion, or 30%, of invested
assets was managed in passive strategies, and CHF 58 billion, or
9%, was money market assets. The remaining 61% of invested
assets was managed in active, non-money market strategies. On
a regional basis, 34% of invested assets related to clients serviced
from Switzerland, 23% from the Americas, 22% from Europe,
Middle East and Africa, and 21% from Asia Pacific.
Assets under administration
Net new assets under administration were CHF 24.0 billion com-
pared with CHF 43.9 billion. Total assets under administration
decreased to CHF 407 billion as of 31 December 2015 from CHF
520 billion as of 31 December 2014. This was due to a reduction
of CHF 132 billion related to the sale of our AFS business and
negative foreign currency translation effects of CHF 5 billion,
partly offset by the aforementioned inflows of CHF 24 billion.
Margins on invested assets
The net margin on invested assets was 9 basis points compared
with 8 basis points. The adjusted net margin remained unchanged
at 9 basis points. The gross margin was 32 basis points compared
with 31 basis points and the adjusted gross margin was unchanged
at 31 basis points.
Personnel
Asset Management employed 2,277 personnel as of 31 December
2015 compared with 2,323 personnel as of 31 December 2014,
mainly reflecting the aforementioned sale of our AFS business,
partly offset by increases in Traditional Investments and Global
Real Estate.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
Investment performance
Equity market conditions were increasingly volatile as the year
progressed with a notable sell-off in the second half of the year.
Overall, our active equity funds performed strongly against bench-
marks and peers, especially in Europe, Asia and emerging mar-
kets. However, a number of our intrinsic-value strategies faced
challenges as valuation spreads widened, especially in the US. Pas-
sive strategies and our growing range of alternative index or
smart beta products tracked indices closely.
For fixed income, 2015 was another challenging year for active
managers. However, our active funds demonstrated strong rank-
ings versus peers during the year. Reducing risk throughout the
year in volatile commodity related sectors within high-yield and
emerging market debt delivered positive results. Solid results in
regional markets such as Swiss bonds and US municipal bonds
contributed positively as well. Bond issuer specific risk in invest-
ment-grade markets negatively affected our overall performance
in some cases. Liquidity and passive strategies continued to
achieve their capital preservation and tracking error goals.
Our multi-asset strategies had a varied year. Both benchmark-
relative and peer-relative strategies had a wide range of active
returns, as asset allocation effects were mixed but the implemen-
tation of the strategy with specific stocks negatively affected our
overall performance. Absolute return strategies suffered from a
number of shocks to financial markets. Our risk taking in foreign
exchange added positively to our performance. Our multi-asset
fund performance remained attractive over longer horizons.
Global convertible strategies were modestly behind their bench-
marks for the year but, longer-term, continued to retain 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 challenging year for hedge funds, Hedge Fund Solutions
(HFS) delivered positive returns in core broad-based diversified
portfolios, generally outperforming relevant hedge fund bench-
marks. HFS’s performance was particularly strong in diversified
neutral portfolios.
Global Real Estate’s US composite and UK direct investment
strategies all produced double digit returns in 2015. German
direct and multi-manager indirect strategies also delivered strong
positive absolute returns for the year. Japanese real estate invest-
ment trusts produced mostly positive results whereas pan-Euro-
pean direct funds produced negative absolute returns. The Swiss
composite was slightly negative versus the market index for the
year, while the Swiss real estate securities composite was positive.
Both composites generated positive absolute returns for the year.
For our Private Equity portfolios, the momentum seen in 2014
continued until mid-2015, leading to strong performance and dis-
tributions for investors. Despite a considerable slowdown in the
second part of the year, overall performance for the year was
good. Infrastructure multi-manager portfolios saw vibrant invest-
ment activity in 2015 as well as rising distributions driven by cash
flows from underlying assets.
128
Investment performance as of 31 December 2015
Active funds versus benchmark
Percentage of fund assets equaling or exceeding benchmark
Equities1
Fixed income1
Multi-asset1
Total Traditional Investments
Real estate2
Active funds versus peers
Percentage of fund assets ranking in first or second quartile / equaling or exceeding peer index
Equities1
Fixed income1
Multi-asset1
Total Traditional Investments
Real estate2
Hedge funds3
Passive funds tracking accuracy
Percentage of passive fund assets within applicable tracking tolerance
All asset classes4
Annualized
1 year
3 years
5 years
75
56
55
61
37
73
79
43
66
59
89
84
86
56
85
74
42
80
71
75
75
88
85
93
77
65
73
70
42
75
65
78
72
88
84
92
1 Percentage of active fund assets above benchmark (gross of fees) / peer median. Universe of European domiciled active wholesale funds available to UBS’s wealth management businesses and other wholesale inter-
mediaries as of 31 December 2015. Source: versus peers: ThomsonReuters LIM (Lipper Investment Management); versus benchmark: UBS. Universe represents approximately 71% of all active fund assets and 27% of all
actively managed assets (including segregated accounts) in these asset classes. 2 Percentage of real estate fund assets above benchmark (gross of fess) / peer median. Universe (versus benchmark) includes all fully dis-
cretionary real estate funds with a benchmark representing approximately 70% of real estate gross invested assets as at 31 December 2015. Source: IPD, NFI-ODCE, SXI Real Estate Funds TR. Universe (versus peers)
includes all real estate funds with externally verifiable peer groups representing approximately 22% of real estate gross invested assets as of 31 December 2015. Source: ThomsonReuters LIM (Lipper Investment
Management). 3 Percentage of fund assets above appropriate HFRI peer indices. Universe of key hedge funds and fund-of-fund products managed on a fully discretionary basis representing approximately 35% of total
O’Connor and Hedge Fund Solutions invested assets. 4 Percentage of passive fund assets within applicable tracking tolerance on a gross of fees basis. Performance information represents a universe of European domi-
ciled institutional and wholesale funds representing approximately 46% of total passive invested assets as of 31 December 2015. Source: UBS.
129
Financial and operating performance Financial and operating performance
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 (now O’Connor and
Hedge Fund Solutions). This was partly offset by higher net man-
agement fees, which increased to CHF 1,756 million from CHF
1,739 million in 2013. Net management fees in 2013 included a
gain of CHF 34 million on the sale of our Canadian domestic busi-
ness. Excluding this gain in 2013, adjusted net management 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. Excluding restructuring
expenses of CHF 50 million in 2014 and CHF 43 million in 2013,
as well as a gain of CHF 8 million in 2014 related to changes to
retiree benefit plans in the US, adjusted operating expenses were
CHF 77 million higher at CHF 1,393 million compared with CHF
1,316 million. The increase was mainly due to a net charge for
provisions for litigation, regulatory and similar matters of CHF 55
million compared with zero in 2013.
Personnel expenses were CHF 643 million compared with CHF
609 million. Excluding restructuring expenses of CHF 19 million
compared with CHF 2 million, and a CHF 4 million gain related to
retiree benefit plans in the US in 2014, adjusted personnel
expenses were CHF 21 million higher at CHF 628 million com-
pared with CHF 607 million.
General and administrative expenses were CHF 305 million
compared with CHF 218 million. Excluding restructuring expenses
of CHF 1 million compared with zero, adjusted general and
administrative expenses were CHF 86 million higher at CHF 304
million compared with CHF 218 million. This increase was mainly
due to the aforementioned charge for provisions for litigation,
regulatory and similar matters and a provision for a possible set-
tlement related to a fund liquidation.
Net expenses for services from other divisions and Corporate
Center were CHF 478 million compared with CHF 521 million.
Excluding restructuring expenses of CHF 30 million compared
with CHF 38 million, and a CHF 4 million gain related to retiree
benefit plans in the US in 2014, adjusted net services were CHF 31
million lower at CHF 452 million in 2014, mainly due to lower
expenses from Group Operations, Group Technology and Group
Finance, as well as lower expenses for variable compensation.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio was 75.4% compared with 70.2%. The
adjusted cost / income ratio increased to 73.2% from 69.2%.
Net new money
The net new money growth rate, excluding money market flows,
was 4.4% compared 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 client segment, 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 improve-
ment mainly resulted from increased transparency around avail-
able products and better matching of attractive products to
wealth management clients’ 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 client segment, net flows from third par-
ties 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 billion compared with CHF 13.6 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 outflows of CHF 3.9
billion from money market funds managed by Asset Management
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.
130
Invested assets
Invested assets were CHF 664 billion as of 31 December 2014
compared with CHF 583 billion as of 31 December 2013. Positive
foreign 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 was managed in passive strategies and CHF 64 billion, or
10%, of invested assets was money market assets. The remaining
59% of invested assets was managed in active, non-money mar-
ket 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.
Assets under administration
Net new assets under administration were CHF 43.9 billion com-
pared 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 new assets under administration of CHF 44 billion, favorable
market performance of CHF 25 billion and positive foreign currency
translation effects of CHF 20 billion.
Margins on invested assets
The net margin on invested assets was 8 basis points compared
with 10 basis points. The adjusted net margin was 9 basis points
compared with 10 basis points. The gross margin decreased 2
basis points to 31 basis points, mainly due to lower performance
fees.
Personnel
Asset Management employed 2,323 personnel as of 31 December
2014 compared with 2,217 personnel as of 31 December 2013.
The net increase of 106 personnel primarily reflected increases in
Traditional Investments and Fund Services.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
131
Financial and operating performance Financial and operating performance
Investment Bank
Investment Bank
The Investment Bank recorded a profit before tax of CHF 1,892 million in 2015 compared with a loss before tax of CHF
84 million in 2014. On an adjusted basis, the Investment Bank recorded a profit before tax of CHF 2,288 million compared
with CHF 162 million, mainly due to a CHF 1,853 million lower net charge for provisions for litigation, regulatory and
similar matters, as well as increased revenues in Investor Client Services, partly offset by lower revenues in Corporate
Client Solutions. Fully applied risk-weighted assets decreased by CHF 4 billion to CHF 63 billion as of 31 December 2015.
The return on attributed equity for 2015 was 31.3% on an adjusted basis, above our target of over 15%.
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
2,960
709
1,047
691
441
73
5,929
3,962
1,967
8,889
(68)
8,821
3,220
841
2,817
2,731
26
24
6,929
1,892
78.0
25.9
3.2
12
3,189
708
1,021
1,005
497
(42)
5,118
3,659
1,459
8,306
2
8,308
2,964
2,671
2,711
2,658
32
15
8,392
(84)
101.0
(1.1)
3.2
12
2,983
588
1,142
888
603
(239)
5,453
3,765
1,688
8,436
2
8,438
2,899
843
2,517
2,487
28
13
6,300
2,138
481.0
74.7
26.6
3.3
13
(7)
0
3
(31)
(11)
16
8
35
7
6
9
(69)
4
3
(19)
60
(17)
0
Investment Bank1
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 and Corporate Center
of which: services from CC – Services
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses2
Business division operating profit / (loss) before tax
Key performance indicators3
Pre-tax profit growth (%)
Cost / income ratio (%)
Return on attributed equity (%)
Return on assets, gross (%)
Average VaR (1-day, 95% confidence, 5 years of historical data)
132
Investment Bank (continued)1
CHF million, except where indicated
Additional information
Total assets (CHF billion)4
Funded assets (CHF billion)5
Average attributed equity (CHF billion)6
Risk-weighted assets (fully applied, CHF billion)7
Risk-weighted assets (phase-in, CHF billion)7
Return on risk-weighted assets, gross (%)8
Leverage ratio denominator (fully applied, CHF billion)9
Goodwill and intangible assets (CHF billion)
Compensation ratio (%)
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
253.5
159.9
7.3
62.9
62.9
13.6
268.0
0.1
36.2
1.5
5,243
292.3
170.7
7.6
66.7
67.0
12.9
288.3
0.1
35.7
0.3
5,194
240.0
157.2
8.0
62.3
62.6
13.0
270.3
0.1
34.4
0.2
5,165
(13)
(6)
(4)
(6)
(6)
(7)
0
1
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 Refer to “Note 32 Changes in organization and disposals” in the “Consolidated financial statements” section of this
report for information on restructuring expenses. 3 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators. 4 Based on third-party view, i.e., without
intercompany balances. 5 Funded assets are defined as total IFRS balance sheet assets less positive replacement values (PRV) and collateral delivered against over-the-counter (OTC) derivatives. 6 Refer to the “Capital
management” section of this report for more information on the equity attribution framework. 7 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRBs). 8 Based on phase-in
risk-weighted assets. 9 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onwards, the leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are
calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital management” section of this report for more information.
133
Financial and operating performance Financial and operating performance
Investment Bank
2015 compared with 2014
Results
Operating income
Total operating income increased by CHF 513 million or 6% to
CHF 8,821 million, as revenues in Investor Client Services increased
by CHF 811 million, partly offset by CHF 229 million lower reve-
nues in Corporate Client Solutions. On an adjusted basis, exclud-
ing gains of CHF 11 million in 2015 and CHF 43 million in 2014
related to partial sales of our investment in the financial informa-
tion services company Markit, as well as an impairment loss of
CHF 48 million on a financial investment in 2014, total operating
income increased by CHF 497 million or 6% to CHF 8,810 million
from CHF 8,313 million. Net credit loss expense was CHF 68 mil-
lion, mainly related to the energy sector, compared with a recov-
ery of CHF 2 million in the prior year. In US dollar terms, adjusted
operating income increased 1%.
➔ Refer to the “Risk management and control” 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
matters. The charge for the annual UK bank levy was CHF 98 mil-
lion compared with CHF 64 million.
Net expenses for services from other business divisions and
Corporate Center increased to CHF 2,817 million from CHF 2,711
million. Excluding restructuring costs of CHF 376 million in 2015
and CHF 161 million as well as a gain of CHF 9 million related to
changes to retiree benefit plans in the US in 2014, adjusted net
expenses for services from other business divisions and Corporate
Center decreased to CHF 2,441 million from CHF 2,559 million.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on the
change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio decreased to 78.0% from 101.0%. On an
adjusted basis, the cost / income ratio decreased to 73.5% from
98.1% and was within our target range of 70% to 80%.
Return on attributed equity
Return on attributed equity (RoAE) for 2015 was 25.9%, and
31.3% on an adjusted basis, above our target of over 15%.
➔ Refer to the “Capital management” section of this report for
change in segment reporting related to fair value gains and
more information
losses on certain internal funding transactions
Operating expenses
Total operating expenses decreased by CHF 1,463 million or 17%
to CHF 6,929 million. Excluding restructuring expenses of CHF
396 million compared with CHF 261 million, an impairment loss
of CHF 11 million on an intangible asset in 2015 and gains of CHF
20 million related to changes to retiree benefit plans in the US in
2014, total adjusted operating expenses decreased by CHF 1,629
million or 20% to CHF 6,522 million, mainly as the net charge for
provisions for litigation, regulatory and similar matters decreased
to CHF 2 million from CHF 1,855 million, partly offset by higher
expenses for variable compensation, in line with improved busi-
ness performance. In US dollar terms, adjusted operating expenses
decreased 23%.
Personnel expenses increased to CHF 3,220 million from CHF
2,964 million. Excluding restructuring expenses of CHF 14 million
compared with CHF 64 million, as well as an CHF 11 million gain
related to changes to retiree benefit plans in the US in 2014, per-
sonnel expenses increased to CHF 3,206 million from CHF 2,911
million, mainly due to higher performance-related variable com-
pensation expenses.
General and administrative expenses decreased to CHF 841
million from CHF 2,671 million. Excluding restructuring expenses
of CHF 7 million in 2015 compared with CHF 30 million, general
and administrative expenses decreased to CHF 834 million from
CHF 2,641 million, mainly due to the aforementioned reduction in
the net charge for provisions for litigation, regulatory and similar
Funded assets
Funded assets decreased by CHF 11 billion to CHF 160 billion as
of 31 December 2015, mainly due to lower trading portfolio
assets in our Foreign Exchange, Rates and Credit business, driven
by a reduction in client activity in the fourth quarter.
➔ Refer to the “Balance sheet“ section of this report for more
information
Risk-weighted assets
Fully applied risk-weighted assets (RWA) decreased by CHF 4 bil-
lion to CHF 63 billion as of 31 December 2015, below our limit of
CHF 70 billion for 2015 and our short- to medium-term expecta-
tion of CHF 85 billion. The decrease was mainly due to CHF 3
billion lower market risk RWA, primarily related to a reduction in
stressed value-at-risk and risks-not-in-VaR.
➔ Refer to the “Capital management” section of this report for
more information
Leverage ratio denominator
The fully applied Swiss systemically relevant bank (SRB) leverage
ratio denominator (LRD) was CHF 268 billion as of 31 December
2015, below our short- to medium-term expectation of CHF 325
billion. From 31 December 2015 onwards, the Swiss SRB LRD cal-
culation is fully aligned with the BIS Basel III rules. Prior-period
figures are calculated in accordance with the former Swiss SRB
rules and are therefore not fully comparable.
➔ Refer to the “Capital Management“ section of this report for
more information
134
Operating income by business unit
higher revenues in Financing Services and, to a lesser extent, in
Cash, partly offset by lower revenues in Derivatives.
Corporate Client Solutions
Corporate Client Solutions revenues decreased by 7% to CHF
2,960 million from CHF 3,189 million, largely due to lower reve-
nues in Debt Capital Markets and Financing Solutions. In US dollar
terms, revenues decreased 12%.
Cash revenues increased to CHF 1,371 million from CHF 1,352
million. Excluding a gain related to a financial investment of CHF
4 million in 2014, adjusted revenues increased to CHF 1,371 mil-
lion from CHF 1,348 million, mainly due to higher commission
income as client activity levels increased.
Advisory and Equity Capital Markets revenues were both
broadly in line with 2014 at CHF 709 million and CHF 1,047 mil-
lion, respectively.
Debt Capital Markets revenues decreased 31% to CHF 691
million from CHF 1,005 million, mainly due to lower revenues
from leveraged finance following a global fee pool decline of
23%. Investment grade revenues were broadly in line with 2014.
Financing Solutions revenues decreased 11% to CHF 441 mil-
lion compared with CHF 497 million, reflecting lower volumes
and margin compression in 2015.
Risk Management revenues improved to positive CHF 73 mil-
lion from negative CHF 42 million, mainly due to gains on portfo-
lio macro hedges and lower risk management costs associated
with corporate lending.
Investor Client Services
Investor Client Services revenues increased 16% to CHF 5,929
million from CHF 5,118 million due to higher revenues in both
Equities and Foreign Exchange, Rates and Credit. In US dollar
terms, revenues increased 11%.
Equities
Equities revenues increased 8% to CHF 3,962 million from CHF
3,659 million. Excluding the aforementioned gains and impair-
ment loss on financial investments in 2014, adjusted revenues
increased 7% to CHF 3,962 million from CHF 3,703 million due to
Derivatives revenues decreased to CHF 1,046 million from CHF
1,089 million, driven by weaker performance in Europe, Middle
East and Africa, partly offset by increased revenues in the Ameri-
cas and Asia Pacific.
Financing services revenues increased to CHF 1,581 million
from CHF 1,289 million, driven primarily by increased client activ-
ity in Prime Brokerage and Equity Financing.
Foreign Exchange, Rates and Credit
Foreign Exchange, Rates and Credit revenues increased 35% to
CHF 1,967 million from CHF 1,459 million. Excluding gains related
to financial investments of CHF 11 million compared with CHF 39
million, adjusted revenues increased to CHF 1,956 million from
CHF 1,420 million, mainly due to higher revenues in our Foreign
Exchange and Rates businesses, reflecting elevated client activity
and higher volatility, particularly heightened following the Swiss
National Bank’s actions of 15 January 2015.
Personnel
The Investment Bank employed 5,243 personnel as of 31 Decem-
ber 2015, slightly up from 5,194 as of 31 December 2014.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
135
Financial and operating performance Financial and operating performance
Investment Bank
2014 compared with 2013
Results
Operating income
Total operating income decreased CHF 130 million or 2% to CHF
8,308 million from CHF 8,438 million, as revenues in Investor Cli-
ent Services declined CHF 335 million, partly offset by CHF 206
million higher revenues in Corporate Client Solutions. On an
adjusted basis, excluding an impairment loss of CHF 48 million on
a financial investment classified as available-for-sale and a gain of
CHF 43 million from the partial sale of our investment in the
financial information services company Markit, both in 2014, as
well as a CHF 55 million gain from the sale of our remaining pro-
prietary trading business in 2013, total operating income
decreased CHF 70 million or 1% to CHF 8,313 million from CHF
8,383 million. In US dollar terms, adjusted operating income was
in line with the prior year.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in segment reporting related to fair value gains
and losses on certain internal funding transactions
Operating expenses
Total operating expenses increased by CHF 2,092 million or 33%
to CHF 8,392 million compared with CHF 6,300 million. Excluding
restructuring expenses of CHF 261 million in 2014 and CHF 210
million in 2013, and gains 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 a
CHF 1,846 million higher net charge for provisions for litigation,
regulatory and similar matters, as well as higher services (to) / from
other business units and higher professional fees, and was partly
offset by lower personnel expenses. In US dollar terms, adjusted
operating expenses increased 34%.
Personnel expenses increased to CHF 2,964 million from CHF
2,899 million. Excluding restructuring expenses of CHF 64 million
and the aforementioned gains of CHF 11 million related to
changes to retiree benefit plans in the US in 2014, as well as a
restructuring-related gain of CHF 38 million in 2013, adjusted
personnel expenses decreased to CHF 2,912 million from CHF
2,937 million.
General and administrative expenses increased to CHF 2,671
million from CHF 843 million. Excluding restructuring expenses of
CHF 30 million compared with CHF 1 million, adjusted general
and administrative expenses increased to CHF 2,641 million from
CHF 842 million, mainly due to the aforementioned increase in
the net charge for provisions for litigation, regulatory and similar
matters, and higher capital tax expense, partly offset by lower
professional fees.
Net expenses for services from other business divisions and
Corporate Center increased to CHF 2,711 million from CHF 2,517
million. Excluding restructuring expenses of CHF 161 million and
a gain of CHF 9 million related to changes to retiree benefit plans
in the US in 2014, compared with restructuring expenses of CHF
247 million in 2013, adjusted net expenses for services from other
business divisions and Corporate Center increased to CHF 2,559
million from CHF 2,270 million.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Cost / income ratio
The cost / income ratio increased to 101% from 75%. On an
adjusted basis, the cost / income ratio increased to 98% from 73%.
Return on attributed equity
RoAE for 2014 was negative 1.1%, and positive 2.1% on an
adjusted basis.
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 foreign currency translation effects. Excluding foreign currency
translation effects, funded assets increased by approximately CHF
3 billion, mainly due to higher trading assets in the equities busi-
ness.
Risk-weighted assets
Fully applied risk-weighted assets (RWA) increased to CHF 67 bil-
lion as of 31 December 2014 from CHF 62 billion as of 31 Decem-
ber 2013. The increase was mainly due to CHF 6 billion higher
market 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 resulting from
the supplemental operational risk capital analysis mutually agreed
to by UBS and FINMA.
136
Operating income by business unit
Corporate Client Solutions
Corporate Client Solutions revenues increased 7% to CHF 3,189
million from CHF 2,983 million, largely due to higher revenues
in Advisory and Debt Capital Markets and lower Risk Manage-
ment charges, partly offset by lower revenues in Equity Capital
Markets and Financing Solutions. In US dollar terms, revenues
increased 8%.
Advisory revenues increased 20% to CHF 708 million from CHF
588 million, mainly reflecting an increased volume of mergers and
acquisition transactions in 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
increased 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 18% to CHF 497 mil-
lion compared with CHF 603 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 6% to CHF 5,118 mil-
lion from CHF 5,453 million, due to lower revenues in both the
equities and foreign exchange, rates and credit businesses. In US
dollar terms, revenues decreased 5%.
Equities
Equities revenues decreased 3% to CHF 3,659 million from CHF
3,765 million. Excluding the aforementioned gains and impair-
ment loss on financial investments in 2014, as well as a gain from
the sale of our remaining proprietary trading business in 2013,
adjusted revenues were CHF 3,703 million compared with CHF
3,710 million due to lower revenues in Derivatives, other equities
and Cash, largely offset by higher revenues in Financing Services.
Cash revenues decreased to CHF 1,352 million compared with
CHF 1,374 million, mainly due to lower commission income as
client activity levels declined. Excluding the gain on a financial
investment in 2014, adjusted Cash revenues decreased to CHF
1,348 million from CHF 1,374 million.
Derivatives revenues decreased to CHF 1,089 million from CHF
1,199 million, mainly as a result of lower trading revenues, reflect-
ing lower volatility levels during 2014.
Financing Services revenues increased to CHF 1,289 million
from CHF 1,084 million, mainly due to higher equity finance
revenues.
Other equities revenues were negative CHF 70 million com-
pared with positive CHF 108 million. Excluding an impairment loss
of CHF 48 million on a financial investment in 2014 and a gain
from the sale of our former proprietary trading business 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 Portfo-
lio, as well as a gain related to the divestment of our participation
in Euroclear Plc.
Foreign Exchange, Rates and Credit
Foreign Exchange, Rates and Credit revenues decreased 14% to
CHF 1,459 million from CHF 1,688 million. Excluding aforemen-
tioned gains related to a financial investment, adjusted revenues
decreased to CHF 1,420 million from CHF 1,688 million, with
lower revenues across most products, as client activity and volatil-
ity levels decreased compared with 2013.
Foreign Exchange revenues declined, mainly due to lower rev-
enues from the foreign exchange spot and options businesses,
reflecting lower client activity and volatility levels.
Rates and Credit revenues declined, primarily due to weaker
trading performance in the credit business.
Personnel
The Investment Bank employed 5,194 personnel as of 31 Decem-
ber 2014, an increase of 29 compared with 5,165 personnel as of
31 December 2013.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
137
Financial and operating performance Financial and operating performance
Corporate Center
Corporate Center
Corporate Center1
CHF million, except where indicated
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from business divisions
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses2
Operating profit / (loss) before tax
Additional information
Average attributed equity (CHF billion)3
Total assets (CHF billion)4
Risk-weighted assets (fully applied, CHF billion)5
Risk-weighted assets (phase-in, CHF billion)5
Leverage ratio denominator (fully applied, CHF billion)6
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
315
4,049
5,311
(7,894)
868
21
2,354
(2,040)
25.8
354.5
60.2
65.0
291.2
23,671
(823)
3,993
4,650
(7,580)
762
6
1,832
(2,655)
20.5
427.6
65.8
67.9
327.2
23,773
(498)
4,296
5,931
(7,488)
761
6
3,507
(4,004)
23.3
462.5
84.2
84.9
386.9
24,082
1
14
4
14
250
28
(23)
26
(17)
(9)
(4)
(11)
0
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 Refer to “Note 32 Changes in organization and disposals“ in the ”Consolidated financial statements“ section of this
report for information on restructuring expenses. 3 Refer to the ”Capital management“ section of this report for more information on the equity attribution framework. 4 Based on third-party view, i.e., without inter-
company balances. 5 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRBs). 6 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onwards, the leverage
ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the ”Capital manage-
ment" section of this report for more information.
138
Corporate Center – Services
Corporate Center – Services recorded a loss before tax of CHF 818 million in 2015 compared with a loss of CHF 652 million
in the prior year. Total operating expenses remaining in Corporate Center – Services after allocations to business divisions
and other Corporate Center units were CHF 1,059 million. Total operating income was CHF 241 million, mainly reflecting
gains on sales of real estate.
Corporate Center – Services1
CHF million, except where indicated
Total operating income
Personnel expenses
General and administrative expenses
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses before allocations to business divisions and other CC units
Services (to) / from business divisions and other CC units
of which: services to Wealth Management
of which: services to Wealth Management Americas
of which: services to Personal & Corporate Banking
of which: services to Asset Management
of which: services to Investment Bank
of which: services to CC – Group ALM
of which: services to CC – Non-core and Legacy Portfolio
Total operating expenses2
Operating profit / (loss) before tax
Additional information
Average attributed equity (CHF billion)3
Total assets (CHF billion)4
Risk-weighted assets (fully applied, CHF billion)5
Risk-weighted assets (phase-in, CHF billion)5
Leverage ratio denominator (fully applied, CHF billion)6
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
241
3,903
4,483
868
21
9,274
(8,215)
(2,209)
(1,193)
(1,180)
(523)
(2,731)
(95)
(314)
1,059
(818)
19.6
22.6
23.6
28.3
4.8
37
3,843
4,123
762
6
8,734
(8,046)
(2,122)
(1,121)
(1,196)
(495)
(2,658)
(82)
(411)
688
(652)
12.3
19.9
23.0
25.1
(2.6)
178
4,065
4,249
761
4
9,080
(8,276)
(2,074)
(1,127)
(1,301)
(535)
(2,487)
(87)
(693)
804
(626)
9.5
17.2
15.3
16.0
23,470
23,517
23,747
551
2
9
14
250
6
2
4
6
(1)
6
3
16
(24)
54
25
59
14
3
13
0
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 Refer to “Note 32 Changes in organization and disposals” in the “Consolidated financial statements” section of this
report for information on restructuring expenses. 3 Beginning in 2015, Group items are shown within Corporate Center – Services. Prior periods have been restated. Refer to the “Capital management” section of this
report for more information on the equity attribution framework. 4 Based on third-party view, i.e., without intercompany balances. 5 Based on the Basel III framework as applicable for Swiss systemically relevant
banks (SRBs). 6 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onwards, the leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calcu-
lated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital management” section of this report for more information.
139
Financial and operating performance Financial and operating performance
Corporate Center
2015 compared with 2014
Results
Operating income
Total operating income was CHF 241 million in 2015 compared
with CHF 37 million in 2014, mainly as gains on sales of real
estate increased to CHF 378 million from CHF 44 million, primarily
due to the sale of a property in Geneva, Switzerland. This was
partly offset by lower income from the investment of the Group’s
equity allocated from Corporate Center – Group Asset and Liabil-
ity Management (Group ALM). Furthermore, 2014 included a
gain 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
Operating expenses before service allocations to business
divisions and other Corporate Center units
On a gross basis, before service allocations to the business divi-
sions and other Corporate Center units, total operating expenses
increased by CHF 540 million to CHF 9,274 million. Restructuring
expenses were CHF 1,125 million compared with CHF 484 million
in the prior year, mainly related to our transitioning activities to
nearshore and offshore locations. 2015 also included a gain of
CHF 2 million related to a change to retiree benefit plans in the US
compared with a gain of CHF 16 million in 2014. Excluding these
items, adjusted operating expenses before service allocations
were CHF 8,151 million compared with CHF 8,266 million in the
prior year. This decrease of CHF 115 million was mainly due to
CHF 139 million lower personnel expenses as well as decreased
occupancy costs and professional fees. These decreases were
partly offset by a net charge for provisions for litigation, regula-
tory and similar matters of CHF 15 million compared with a net
release of provisions of CHF 125 million. Moreover, 2015 included
higher depreciation expenses related to internally generated capi-
talized software.
Personnel expenses increased by CHF 60 million to CHF 3,903
million and included restructuring expenses of CHF 406 million
compared with CHF 221 million. 2015 also included the afore-
mentioned gain of CHF 2 million related to retiree benefit plans
compared with a gain of CHF 16 million. On an adjusted basis,
personnel expenses were CHF 3,499 million compared with CHF
3,638 million, mainly as a result of outsourcing, nearshoring and
offshoring initiatives.
General and administrative expenses increased by CHF 360
million to CHF 4,483 million. On an adjusted basis, excluding net
restructuring expenses of CHF 707 million compared with CHF
240 million, general and administrative expenses decreased by
CHF 107 million, mainly due to lower occupancy costs and profes-
140
sional fees. These decreases were partly offset by the aforemen-
tioned net charge for provisions for litigation, regulatory and
similar matters compared with a net release.
Depreciation and impairment of property, equipment and soft-
ware increased to CHF 868 million from CHF 762 million, reflect-
ing increased depreciation expenses related to internally gener-
ated capitalized software.
Services to / from business divisions and other
Corporate Center units
Net expenses for services to business divisions and other Corpo-
rate Center units were CHF 8,215 million compared with CHF
8,046 million. Excluding restructuring expenses of CHF 986 mil-
lion compared with CHF 454 million and a gain of CHF 2 million
related to a change to retiree benefit plans in the US compared
with a gain of CHF 16 million, net expenses for services were CHF
7,231 million, compared with CHF 7,608 million, mainly related
to lower personnel expenses and occupancy costs, partly offset by
increased depreciation expenses.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Operating expenses after service allocations to / from business
divisions and other Corporate Center units
Operating expenses remaining in Corporate Center – Services,
after allocations relate mainly to Group governance functions and
other corporate activities, as well as to certain strategic and regu-
latory projects and certain restructuring expenses.
Total operating expenses remaining in Corporate Center – Ser-
vices after allocations increased to CHF 1,059 million compared
with CHF 688 million. This increase of CHF 371 million was mainly
due to the aforementioned net charge for provisions for litigation,
regulatory and similar matters compared with a net release, as
well as restructuring expenses of CHF 140 million compared with
CHF 30 million. Furthermore, the full-year costs incurred by Cor-
porate Center – Services exceeded the cost allocations to the busi-
ness divisions and Non-core and Legacy Portfolio which were
agreed as part of the annual business planning cycle.
Personnel
As of 31 December 2015, Corporate Center – Services employed
23,470 personnel compared with 23,517 at the end of the prior
year. The net decrease of 47 personnel was mainly related to out-
sourcing activities, largely offset by increases in risk control and in
our nearshoring and offshoring locations.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
2014 compared with 2013
Operating income
Total operating income was CHF 37 million in 2014 compared
with 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 gain 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
Operating expenses before service allocations to business
divisions and other Corporate Center units
On a gross basis, before service allocations to the business divi-
sions and other Corporate Center units, total operating expenses
decreased by CHF 346 million to CHF 8,734 million. Restructuring
expenses were CHF 484 million compared with CHF 707 million in
the prior year. 2014 also included gains of CHF 16 million related
to changes to retiree benefit plans in the US. Excluding these
items, adjusted operating expenses before service allocations
were CHF 8,266 million compared with CHF 8,373 million in the
prior year. This decrease of CHF 107 million was mainly due to
CHF 298 million lower personnel expenses and a net release of
CHF 125 million of provisions for litigation, regulatory and similar
matters compared with a net charge of CHF 187 million. 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 222 million to CHF
3,843 million. On an adjusted basis, excluding net restructuring
expenses of CHF 221 million in 2014 and CHF 129 million in
2013, as well as the aforementioned gains of CHF 16 million
related to changes to retiree benefit plans in the US, personnel
expenses were CHF 3,638 million in 2014 compared with CHF
3,936 million in the prior year. This decrease of CHF 298 million
was mainly due to outsourcing and offshoring initiatives, lower
expenses for variable compensation as well as our ongoing cost
reduction programs.
General and administrative expenses decreased by CHF 126
million to CHF 4,123 million. On an adjusted basis, excluding net
restructuring expenses of CHF 240 million compared with CHF
513 million, general and administrative expenses increased by CHF
147 million, mainly due to higher professional fees related to our
strategic and regulatory priorities as well as increased outsourcing
activities. These increases were partly offset by a net release of CHF
125 million of provisions for litigation, regulatory and similar mat-
ters compared with a net charge of CHF 187 million.
Depreciation and impairment of property, equipment and soft-
ware increased marginally to CHF 762 million, mainly reflecting
higher depreciation expenses related to internally generated capi-
talized software, largely offset by CHF 42 million lower restructur-
ing expenses.
Services to / from business divisions and other
Corporate Center units
Net expenses for services to business divisions and other Corpo-
rate Center units were CHF 8,046 million compared with CHF
8,276 million, largely related to lower restructuring expenses.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Operating expenses after service allocations to / from business
divisions and other Corporate Center units
Operating expenses remaining in Corporate Center – Services
relate mainly to Group governance functions and other corporate
activities, and certain strategic and regulatory projects.
Total operating expenses remaining in Corporate Center –
Services, after allocations to the business divisions and other
Corporate Center units, decreased to CHF 688 million from CHF
804 million. This decrease of CHF 116 million was mainly due to
the aforementioned net release of provisions for litigation, regula-
tory and similar matters compared with a net charge, partly offset
by additional expenses related to our strategic and regulatory
priorities.
Risk-weighted assets
Fully applied Basel III RWA increased by CHF 8 billion to CHF 23
billion as of 31 December 2014, primarily due to CHF 3 billion
higher incremental RWA resulting from the supplemental opera-
tional risk capital analysis mutually agreed to by UBS and FINMA
and CHF 3 billion higher market risk RWA, mainly reflecting
reduced diversification benefits.
Personnel
As of 31 December 2014, Corporate Center – Services employed
23,517 personnel compared with 23,747 personnel at the end of
the prior year. This decrease of 230 personnel was mainly related to
our ongoing cost reduction programs and outsourcing activities.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
141
Financial and operating performance Financial and operating performance
Corporate Center
Corporate Center – Group Asset and Liability Management
Corporate Center – Group Asset and Liability Management recorded a profit before tax of CHF 282 million in 2015
compared with CHF 2 million in 2014.
Corporate Center – Group ALM1
CHF million, except where indicated
Gross income excluding own credit
Allocations to business divisions and other CC units
of which: Wealth Management
of which: Wealth Management Americas
of which: Personal & Corporate Banking
of which: Asset Management
of which: Investment Bank
of which: CC – Services
of which: CC – Non-core and Legacy Portfolio
Own credit2
Total operating income
Personnel expenses
General and administrative expenses
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Services (to) / from business divisions and other CC units
of which: Wealth Management
of which: Wealth Management Americas
of which: Personal & Corporate Banking
of which: Asset Management
of which: Investment Bank
of which: CC – Services
of which: CC – Non-core and Legacy Portfolio
Total operating expenses3
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 (fully applied, CHF billion)7
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
600
(876)
(471)
(104)
(421)
(15)
211
(145)
71
553
277
30
21
0
0
(56)
(37)
(6)
(19)
0
(59)
95
(29)
(5)
282
3.3
237.5
6.0
6.0
240.2
125
831
(1,120)
(481)
(116)
(461)
(27)
100
(217)
82
292
2
26
21
0
0
(47)
(17)
(6)
(8)
(3)
(54)
82
(40)
0
2
3.2
237.9
7.1
7.1
236.3
120
363
(921)
(486)
(193)
(396)
(23)
217
(218)
179
(283)
(841)
26
14
0
0
3
(11)
(5)
(5)
(3)
(32)
87
(27)
43
(884)
3.1
230.2
5.4
5.4
113
(28)
(22)
(2)
(10)
(9)
(44)
111
(33)
(13)
89
15
0
19
118
0
138
(100)
9
16
(28)
3
0
(15)
(15)
2
4
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 Represents own credit changes on financial liabilities designated at fair value through profit or loss. The cumulative own
credit gain for such debt held on 31 December 2015 amounts to CHF 0.3 billion. This gain has reduced the fair value of financial liabilities designated at fair value recognized on our balance sheet. 3 Refer to “Note 32
Changes in organization and disposals” in the “Consolidated financial statements” section of this report for information on restructuring expenses. 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 (SRBs).
7 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onwards, the leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance
with former Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital management” section of this report for more information.
142
2015 compared with 2014
maturing long-term debt was replaced with new AT1 capital and
senior unsecured debt.
Results
Operating income
Gross income excluding own credit
Gross income excluding own credit was CHF 600 million in 2015
and included a loss of CHF 257 million related to the buyback of
debt in a tender offer, as well as a net foreign currency translation
gain of CHF 88 million related to the disposal of subsidiaries.
Excluding these items, adjusted gross income excluding own
credit was CHF 769 million compared with CHF 831 million.
Gross revenues from balance sheet risk management activities
were CHF 1,715 million compared with CHF 1,695 million. Income
related to high-quality liquid assets (HQLA) increased by CHF 216
million to CHF 296 million and revenues from banking book inter-
est rate risk management performed on behalf of Wealth Man-
agement and Personal & Corporate Banking increased by CHF 34
million to CHF 758 million. In addition, 2015 included a CHF 38
million higher gain from the Group ALM-managed monthly con-
version of non-Swiss franc profits. These increases were partly
offset by higher interest expenses arising from the issuance of
additional tier 1 (AT1) capital and senior unsecured debt during
2015 and lower income from the investment of the Group’s
equity, following the Swiss National Bank actions on 15 January
2015.
Hedging activities resulted in a gross gain of CHF 94 million
compared with a gain of CHF 73 million, largely related to gains
of CHF 169 million on cross-currency basis swaps held as eco-
nomic hedges and of CHF 66 million related to our cash flow
hedges, compared with gains of CHF 142 million and CHF 55
million, respectively. These gains were partly offset by a loss of
CHF 166 million on interest rate derivatives held to hedge HQLA,
driven by a decline in US dollar interest rates, compared with a
loss of CHF 133 million in the prior year. Unlike fair value changes
in hedging interest rate derivatives, which are recognized immedi-
ately in the income statement, the HQLA that are hedged are held
as financial investments classified as available-for-sale with unreal-
ized fair value changes recorded in other comprehensive income
within equity.
Group ALM incurred funding costs of CHF 1,039 million com-
pared with CHF 937 million. This increase was driven by a fair
value loss of CHF 19 million on certain internal funding transac-
tions compared with a gain of CHF 82 million in the previous year.
The net interest expense was stable at CHF 1,020 million as
Allocations to business divisions and other
Corporate Center units
Allocations to the business divisions and other Corporate Center
units mainly consist of income generated from interest-rate risk
management activities and the investment of the Group’s equity,
offset by charges for liquidity and funding, various collateral man-
agement activities and costs of issuance of capital instruments.
Group ALM allocated revenues of CHF 876 million compared
with CHF 1,120 million in the prior year, mainly due to lower
income from the investment of the Group’s equity and issuance
fees related to AT1 capital and senior unsecured debt.
Operating income after allocations
Group ALM retains central funding costs, certain income from
hedging activities, own credit on financial liabilities designated at
fair value, and the aforementioned loss related to the buyback of
debt and foreign currency translation gains and losses related to
the disposal of subsidiaries.
Net operating income remaining in Group ALM was CHF 277
million compared with CHF 2 million.
Own credit on financial liabilities designated at fair value was a
gain of CHF 553 million compared with a gain of CHF 292 million.
In 2015, we made further enhancements to our valuation meth-
odology for the own credit component of fair value of financial
liabilities designated at fair value. This change in accounting esti-
mate resulted in a gain of CHF 260 million.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on the
change in own credit valuation methodology
➔ Refer to Note 24 “Fair value measurement” in the “Consolidated
financial statements” section of this report for more information
on own credit
Operating expenses
Total operating expenses net of allocations were negative CHF 5
million compared with zero in the prior year, as costs allocated to
the business divisions and other Corporate Center units were
slightly higher than the actual costs incurred by Group ALM.
Balance sheet assets
Total assets were broadly unchanged at CHF 238 billion, as a
reduction in cash and balances with central banks was mostly off-
set by increases in financial investments classified as available-for-
sale and reverse repurchase agreements, mainly due to a rebal-
ancing of our HQLA.
143
Financial and operating performance Financial and operating performance
Corporate Center
2014 compared with 2013
Results
Operating income
Gross income excluding own credit
Gross income excluding own credit was CHF 831 million in 2014
compared with CHF 363 million in the prior year, which included
net losses of CHF 194 million related to the buyback of debt as
well as a foreign currency translation loss of CHF 24 million related
to the disposal of a subsidiary. Excluding these items, adjusted
gross income excluding own credit was CHF 831 million com-
pared with CHF 581 million.
Gross revenues from balance sheet risk management activities
were CHF 1,695 million compared with CHF 1,678 million. Income
related to HQLA increased by CHF 131 million to CHF 80 million
and revenues from the banking book interest rate risk manage-
ment performed on behalf of Wealth Management and Personal
& Corporate Banking increased by CHF 104 million to CHF 724
million. These increases were partly offset by higher interest
expenses due to the issuance of AT1 capital and senior unsecured
debt and lower income from the investment of the Group’s equity.
Hedging activities resulted in a gross gain of CHF 73 million
compared with a loss of CHF 361 million, largely related to gains
of CHF 142 million on cross-currency basis swaps held as eco-
nomic hedges and of CHF 55 million related to our cash flow
hedges, compared with losses of CHF 203 million and CHF 147
million, respectively. These gains were partly offset by a loss of
CHF 133 million on interest rate derivatives held to hedge HQLA,
compared with a gain of CHF 12 million in the prior year.
Group ALM incurred funding costs of CHF 937 million com-
pared with CHF 736 million, mainly as 2014 included a fair value
gain of CHF 82 million on certain internal funding transactions
compared with a gain of CHF 343 million in the previous year.
Moreover, funding costs were reduced by CHF 60 million to CHF
1,019 million, mainly related to senior unsecured debt.
Allocations to business divisions and other
Corporate Center units
Allocations to the business divisions and other Corporate Center
units mainly consist of income generated from interest-rate risk
management activities and the investment of the Group’s equity,
offset by charges for liquidity and funding, various collateral man-
agement activities and costs of issuance of capital instruments.
Group ALM allocated revenues of CHF 1,120 million compared
with CHF 921 million in the prior year, mainly due to higher
income generated from interest rate risk management activities
and decreased funding costs.
Operating income after allocations
Group ALM retains central funding costs, certain income from
hedging activities, own credit on financial liabilities designated at
fair value, and the aforementioned loss related to the buyback of
debt and foreign currency translation loss related to the disposal
of a subsidiary.
Net operating income remaining in Group ALM was positive
CHF 2 million compared with negative CHF 841 million.
Own credit on financial liabilities designated at fair value was a
gain of CHF 292 million compared with a loss of CHF 283 million.
Operating expenses
Total operating expenses net of allocations were zero compared
with CHF 43 million in the prior year, as actual costs incurred by
Group ALM were allocated to the business divisions and other
Corporate Center units in 2014 whereas expenses were retained
in 2013.
144
Corporate Center – Non-core and Legacy Portfolio
Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 1,503 million in 2015 compared with
a loss of CHF 2,005 million in 2014. Operating income was negative CHF 203 million, mainly related to losses from
unwind and novation activity. Operating expenses increased to CHF 1,301 million from CHF 1,144 million, mainly due to
a CHF 427 million higher net charge for provisions for litigation, regulatory and similar matters, partly offset by lower
net expenses for services from other Corporate Center units.
Corporate Center – Non-core and Legacy Portfolio1
CHF million, except where indicated
Income
Credit loss (expense) / recovery2
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from business divisions and other CC units
of which: services from CC – Services
Depreciation and impairment of property, equipment and software
Amortization and impairment of intangible assets
Total operating expenses3
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 (fully applied, CHF billion)7
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
(195)
(8)
(203)
116
807
378
314
0
0
1,301
(1,503)
2.9
94.4
30.7
30.7
46.2
77
(863)
2
(862)
124
507
513
411
0
0
1,144
(2,005)
4.9
169.8
35.7
35.7
93.4
137
163
3
166
205
1,668
785
693
0
2
2,660
(2,494)
10.8
215.1
63.5
63.5
160.0
222
(77)
(76)
(6)
59
(26)
(24)
14
(25)
(41)
(44)
(14)
(14)
(51)
(44)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to the retrospective adoption of new
accounting standards or changes in accounting policies, and events after the reporting period. 2 Includes credit loss (expense) / recovery on reclassified and acquired securities. 3 Refer to “Note 32 Changes in orga-
nization and disposals” in the “Consolidated financial statements” section of this report for information on restructuring expenses. 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 (SRBs). 7 Calculated in
accordance with Swiss SRB rules. From 31 December 2015 onwards, the leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former
Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital management” section of this report for more information.
145
Financial and operating performance Financial and operating performance
Corporate Center
2015 compared with 2014
Results
Operating income
Operating income was negative CHF 203 million in 2015 and
mainly related to losses from novation and unwind activities, and
to valuation losses on financial assets designated at fair value.
In the prior year, revenues were negative CHF 862 million,
mainly due to a net loss of CHF 345 million related to funding and
debit valuation adjustments (FVA / DVA) on derivatives, of which
CHF 252 million was recorded upon the implementation of FVA.
In addition, 2014 included negative revenues of CHF 197 million
due to novation und unwind activity in Rates, a loss of CHF 108
million resulting from the termination of certain credit default
swap contracts and a loss of CHF 97 million in structured credit as
a result of exiting the majority of the correlation trading portfolio.
Operating expenses
Total operating expenses increased to CHF 1,301 million from
CHF 1,144 million in the prior year, largely as the net charge for
provisions for litigation, regulatory and similar matters increased
by CHF 427 million to CHF 620 million. This increase was partly
offset by CHF 135 million lower net expenses for services from
business divisions and other Corporate Center units as a result of
reduced consumption of shared services. Moreover, 2014 included
CHF 120 million in net expenses related to certain disputed receiv-
ables. 2015 included a charge of CHF 50 million for the annual
UK bank levy compared with CHF 52 million in 2014.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Balance sheet assets
During 2015, balance sheet assets decreased to CHF 94 billion
from CHF 170 billion, mainly reflecting CHF 62 billion lower posi-
tive replacement values (PRV). Within our rates portfolio, PRV
decreased by CHF 57 billion, driven by fair value decreases follow-
ing interest rate movements, as well as by our ongoing reduction
activity including negotiated bilateral settlements (unwinds),
third-party novations, including transfers to central clearing
houses (trade migrations) and agreements to net down trades
with other dealer counterparties (trade compressions). Collateral
delivered against over-the-counter (OTC) derivatives decreased by
CHF 9 billion. Funded assets decreased by CHF 4 billion to CHF 7
billion, mainly due to the sale of the last remaining structured
bond position in the non-linear rates portfolio and the last collat-
eralized loan obligation bond positions within the securitizations
portfolio, as well as a partial loan repayment in credit.
Funded assets and PRV classified as Level 3 in the fair value
hierarchy totaled CHF 2 billion as of 31 December 2015.
Risk-weighted assets
Risk-weighted assets (RWA) decreased by CHF 5 billion to CHF 31
billion, mainly as a result of reductions of outstanding OTC deriva-
tive transactions, reflecting negotiated bilateral settlements with
specific counterparties, third-party novations and trade compres-
sions.
Leverage ratio denominator
The fully applied Swiss systemically relevant bank (SRB) leverage
ratio denominator (LRD) was CHF 46 billion as of 31 December
2015. From 31 December 2015 onwards, the Swiss SRB LRD cal-
culation is fully aligned with the BIS Basel III rules. Prior-period
figures are calculated in accordance with the former Swiss SRB
rules and are therefore not fully comparable.
Personnel
As of 31 December 2015, a total of 77 front-office personnel
were employed within Non-core and Legacy Portfolio compared
with 137 at the end of the prior year.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
146
Composition of Non-core and Legacy Portfolio
An overview of the composition of Non-core and Legacy Portfolio
is presented in the table below.
The groupings of positions by category and the order in which
these are listed are not necessarily representative of the magni-
tude of the risks associated with them, nor do the metrics shown
in the tables necessarily represent the risk measures used to
manage and control these positions. The funded assets and PRV
measures presented are intended to provide additional transpar-
ency regarding progress in the execution of our strategy to exit
these positions.
CHF billion
Exposure category
Description
RWA 1
Funded assets 2
PRV 3
LRD 4
Rates (linear)
Rates (non-linear)
Credit
Securitizations
Consists of linear OTC products (primarily
vanilla interest rate, inflation, basis and cross-
currency swaps for all major currencies and
some emerging markets) and non-linear OTC
products (vanilla and structured options).
More than 95% of gross PRV is collateralized.
Uncollateralized exposures are well diversified
across counterparties, of which the majority
is rated investment grade. More than 50% of
gross PRV is due to mature by end-2021.
Consists primarily of a residual structured
credit book that is largely hedged against
market risk. The remaining counterparty risk
is fully collateralized and diversified across
multiple names. The residual structured credit
book is expected to materially run off by end-
2018. Also includes corporate lending and
residual distressed credit positions, with a
similar expected run-off profile.
Consists primarily of a portfolio of CDS
positions referencing ABS assets with related
cash and synthetic hedges to mitigate the
impact of directional movements. The majority
of the positions are expected to run off by
end-2018.
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
3.6
6.0
0.9
0.4
48.8
88.3
17.8
47.4
0.7
1.2
0.1
0.7
20.5
38.3
2.8
12.8
0.5
1.0
0.4
1.1
1.4
3.7
7.0
13.7
1.5
3.9
1.2
2.6
0.5
1.1
1.9
4.6
Auction preferred stock
(APS) and auction rate
securities (ARSs)
Portfolio of long-dated APS and municipal
ARSs. All APS were rated A or above and all
ARS exposures were rated Ba1 or above as of
31 December 2015.
Muni swaps and
options
Other
Swaps and options with US state and local
governments. Over 95% of the PRV is with
counterparties that were rated investment
grade as of 31 December 2015.
Exposures to CVA and related hedging activity,
as well as a diverse portfolio of smaller
positions.
0.9
0.9
2.8
3.0
–
–
2.8
2.9
0.5
0.6
–
–
3.4
4.2
2.5
2.8
1.8
2.8
1.5
3.4
4.0
5.1
11.3
9.2
Operational risk
Operational risk RWA allocated to Non-core and
Legacy Portfolio.
21.1
19.3
–
–
–
–
–
–
Total
30.7
35.7
7.0
11.3
78.5
140.7
46.2
93.4
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 OTC derivatives (CHF 8.9 billion as of 2015
and CHF 17.9 billion as of 2014). 3 Positive replacement values (gross exposure excluding the effect of any counterparty netting). 4 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onwards,
the leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the
“Capital management” section of this report for more information.
147
Financial and operating performance Financial and operating performance
Corporate Center
2014 compared with 2013
Results
Operating income
Income was negative CHF 862 million in 2014, mainly due to a
net loss of CHF 345 million related to funding and debit valuation
adjustments (FVA / DVA) on derivatives, of which CHF 252 million
was recorded upon the implementation of FVA. In addition, 2014
included negative revenues of CHF 197 million, mainly due to
novation and unwind activity in Rates, a loss of CHF 108 million
resulting from the termination of certain CDS contracts, 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 valuation gain of CHF 68 million on certain
equity positions.
In the prior year, revenues were CHF 166 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.
Operating expenses
Total operating expenses decreased to CHF 1,144 million from
CHF 2,660 million in the prior year, largely as the net charge for
provisions for litigation, regulatory and similar matters declined by
CHF 1,127 million to CHF 193 million. Furthermore, restructuring
expenses declined by CHF 204 million to CHF 31 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 expenses related to certain disputed receivables
compared with CHF 88 million in 2013.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
the change in presentation of service allocations from Corporate
Center – Services to business divisions and other Corporate
Center units
Balance sheet assets
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. During 2014, we executed a series of risk
transfers to exit the majority 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 balance sheet via novations to third parties,
thereby transferring credit risk, and reducing PRV by approxi-
mately CHF 11 billion. The originally targeted novations were thus
completed. 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 loan repayment 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 repurchase agreement 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 facing monolines that were terminated during 2014
and a number of smaller position reductions.
Risk-weighted assets
RWA decreased significantly by CHF 28 billion to CHF 36 billion,
mainly as a result of reductions of outstanding OTC derivative
transactions by means of negotiated bilateral settlements with
specific counterparties, third-party novations or trade compres-
sions. In addition, the aforementioned exit of the majority of the
correlation trading portfolio and termination of certain CDS con-
tracts as well as the sale of the remaining student loan auction
rate securities positions resulted in lower RWA. Furthermore,
incremental RWA resulting from the supplemental operational
risk capital analysis mutually agreed to by UBS and FINMA
decreased by CHF 4 billion.
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.
Personnel
As of 31 December 2014, a total of 137 front-office personnel
were employed within Non-core and Legacy Portfolio compared
with 222 at the end of the prior year.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
personnel allocations from Corporate Center – Services to
business divisions and other Corporate Center units
148
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 “Consolidated financial statements” 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
152
153
Implementation of EDTF recommendations
EDTF index
160
Key developments
204 Market risk
204 Main sources of market risk
204
Overview of measurement, monitoring and management
techniques
215
214
212
205 Market risk exposures arising from our business activities
207 Market risk stress loss
Value-at-risk
207
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
224
224 Macroeconomic developments during the period
224
216
217
217
222
Country risk framework
Country risk exposure
Operational risk
Compliance and operational risk control developments
during the period
Operational risk framework
Advanced measurement approach model
Treasury management
Liquidity and funding management
Strategy and objectives
Governance
224
229
229
230
232
234
234
234
234
163
163
165
166
168
169
170
172
173
173
175
176
176
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
177
177 Main sources of credit risk
177
Overview of measurement, monitoring and management
techniques
Credit risk profile of the Group – IFRS view
Impaired financial instruments
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
177
181
186
187
187
194
196
198
202
150
235
235
238
240
241
241
242
244
244
245
247
247
247
247
248
248
248
249
249
250
250
251
251
251
Liquidity
Liquidity coverage ratio
Asset encumbrance
Stress testing
Funding
Internal funding and funds transfer pricing
Changes in sources of funding during the reporting
period
Net stable funding ratio
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
Capital planning
Capital management activities
Financial resource optimization
Active management of sensitivity to currency move-
ments
Consideration of stress scenarios
Swiss SRB capital framework
Regulatory framework
Proposed changes to capital requirements and
regulation
252
Capital requirements
254
254
255
255
257
260
260
261
262
267
267
267
267
267
268
270
271
272
272
275
276
276
279
280
282
282
282
283
284
Swiss SRB capital information (UBS Group)
Capital ratios
Eligible capital
Tier 1 capital
Tier 2 capital
Advanced measurement approach model
Additional capital information
Differences between Swiss SRB and BIS Basel III capital
Risk-weighted assets (UBS Group)
RWA developments in 2015
Credit risk
Non-counterparty-related risk
Market risk
Operational risk
Key drivers of RWA movement by risk type
Leverage ratio framework
Proposed changes to leverage ratio requirements
Leverage ratio information
Swiss SRB leverage ratio
BIS leverage ratio
UBS AG (consolidated) capital and leverage ratio
information
Capital information
Leverage ratio information
Equity attribution framework
UBS shares
UBS Group AG shares
UBS AG shares
Holding of UBS Group AG shares
Listing of UBS shares
151
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 disclosure can
be enhanced to help restore investor confidence in banks. 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 capi-
tal 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. Moreover, they require that disclo-
sures 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
disclosure principles of transparency, consistency, simplicity, rele-
vance and best practice.
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
established 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 2015 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 satisfy Basel Pillar 3 disclosure
requirements, respectively. A “triangle”
symbol – – indicates the end of the
signpost.
152
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
Consolidated financial
statements
Additional regulatory
information
General
1. Presentation of related
information
Table with cross-references to the
locations of the disclosures in our
Annual Report 2015 and Pillar 3
section
➔ EDTF index p. 153–159
–
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. 165
➔ Risk concentrations p. 176
➔ Accounting for expected credit losses under
–
IFRS 9, Financial Instruments p. 82–84
Risk measures
➔ Risk measurement p. 173–176
Key parameters
and measurement
models
➔ Credit risk: Credit risk models p. 198;
Probability of default p. 199; Key features of
our main credit risk models, Internal UBS
rating scale and mapping of external ratings
p. 198; Loss given default, Exposure at
default, Expected loss p. 199, Stress loss
p. 200
➔ Market risks: Market risk stress loss,
Value-at-Risk (VaR) p. 207; Stressed VaR
p. 212; Incremental risk charge p. 215;
Comprehensive risk measure p. 216
➔ Country risk exposure measure p. 224
➔ Operational risk: Advanced measurement
approach model p. 232–233
➔ Liquidity coverage ratio 235–237
➔ Net stable funding ratio p. 244
➔ Asset funding p. 243
➔ Business risk: Measurement of performance
p. 39–40
➔ Risk factors p. 59–74
➔ Risk, treasury and capital management:
Key developments p. 160–162
➔ Top and emerging risks p. 166–167
➔ Accounting for expected credit losses under
IFRS 9, Financial Instruments p. 82–84
Liquidity and
funding
➔ Strategy and objectives p. 234
➔ Liquidity coverage ratio p. 235–237
➔ Net stable funding ratio p. 244
–
–
–
–
Capital
➔ Proposed new requirements for Swiss SRB
–
p. 26–27
➔ Capital management activities p. 249
➔ Our capital requirements p. 252
➔ Capital ratios p. 254
➔ Leverage ratio framework p. 270–271
➔ Leverage ratio information p. 272–274
3. Top and emerging risks
Qualitative and quantitative descrip-
tion of top and emerging risks in
relation to our business activities and
developments of such risks during the
reporting period
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
–
–
–
–
–
–
–
153
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
Consolidated financial
statements
Additional regulatory
information
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
➔ Risk definitions p. 165
➔ Risk governance p. 168–169
Processes for
managing key
risks
➔ Risk appetite framework p. 169–173
➔ Overview of measurement, monitoring and
management techniques: Credit risk
p. 177; Market risk p. 204–205
➔ Country risk framework p. 224
➔ Operational risk framework p. 230–231
➔ Accounting for expected credit losses under
IFRS 9, Financial Instruments p. 82–84
–
–
6. Risk culture
Overview of our principles with respect
to risk-taking measures in place to
maintain the desired risk culture
Risk culture
➔ Risk principles and risk culture p. 170–172
–
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, Compensation
Committee, Risk Committee) p. 307–308
➔ UBS and Society p. 325–330
➔ Qualitative measures used in determining
compensation p. 348, 354, 359 and 364
–
➔ Risk factors p. 59–74
➔ Overview of risks arising from our business
–
activities p. 163
➔ Key risks, risk measures and performance by
business division and Corporate Center unit
p. 164
➔ Risk measures and performance p. 164
➔ Main sources of credit risk p. 177
➔ Main sources of market risk p. 204
➔ Currency management p. 247
Risk appetite in
the context of the
business model
➔ Risk, treasury and capital management:
Key developments p. 160–162
➔ Risk appetite framework p. 169–173
Market risks:
➔ Market risk exposures arising from our
business activities p. 205–206
Risk measures and
relation of risk
measures to line
items in the
balance sheet and
income statement
–
–
–
–
–
–
–
–
Credit risks:
➔ Table 3: Regulatory
credit risk exposure
and RWA
➔ Table 4: Regulatory
gross credit risk
exposure by
geographical region
➔ Table 5: Regulatory
gross credit risk
exposure by
counterparty type
➔ Table 6: Regulatory
gross credit risk
exposure by residual
contractual maturity
➔ Table 16: Equity
154
instruments in the
banking book
EDTF recommendations and
our disclosures
Location of the disclosures
Operating environment and strategy / risk,
treasury and capital
management / corporate governance,
responsibility and compensation
Consolidated financial
statements
Additional regulatory
information
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
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
11. Flow statement of capital
Tabular information in prescribed
format
12. Strategic and capital planning
Management’s view on the required or
targeted level of capital and how this
will be established
➔ Risk appetite framework p. 169–173
➔ Stress testing p. 173–175
➔ Credit risk: stress loss p. 200
➔ Market risk stress loss p. 207
➔ Stress testing – liquidity and funding p. 240
–
➔ Regulatory framework, Capital requirements
–
p. 251–253
➔ Swiss SRB capital information (UBS Group)
p. 254–255
➔ FINMA increment to our AMA based
operational risk-related RWA p. 232
➔ Eligible capital p. 255–257
➔ Reconciliation IFRS equity to Swiss SRB
capital p. 257
➔ Additional tier 1 and tier 2 capital
instruments p. 258–259
➔ Swiss SRB capital movement p. 256
–
–
➔ Proposed new requirements for Swiss SRB
–
p. 26–27
➔ Our strategy p. 34–36
➔ Capital management objectives p. 248
➔ Capital planning p. 248
➔ Capital management activities p. 249–250
13. Risk-weighted assets and
related business activities
Information on our RWA, and related
capital requirements together with
underlying exposures
➔ Information on Corporate Center RWA in
the table Composition of Non-core and
Legacy Portfolio p. 147
➔ Risk-weighted assets (UBS Group)
p. 262–269
14. Capital requirements for each
risk type
Quantitative information accompanied
by reference to significant models used
Overview:
➔ Risk-weighted assets (UBS Group)
p. 262–269
Market risks:
➔ Derivation of regulatory VaR-based RWA
and related calculations p. 211–212
➔ Derivation of SVaR-based RWA and related
calculations p. 212
➔ Derivation of RWA add-on for risks-not-in-
VaR and related calculations p. 214
➔ Derivation of IRC-based RWA and related
calculations p. 215
➔ Derivation of CRM-based RWA and related
calculations p. 216
–
–
–
–
➔ Table 30: Composition
of capital
–
–
➔ Table 2: Detailed
segmentation of
exposures and
risk-weighted assets
➔ Table 3: Regulatory
credit risk exposure
and RWA
➔ Table 2: Detailed
segmentation of
exposures and
risk-weighted assets
➔ Table 3: Regulatory
credit risk exposure
and RWA
155
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
Consolidated financial
statements
Additional regulatory
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. 198
Regulatory net credit risk
exposure, weighted
average PD, LGD and
RWA by internal UBS
ratings:
➔ Table 9a: Sovereigns
– Advanced IRB
approach
➔ Table 9b: Banks – Ad-
vanced 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 risk exposure:
➔ Table 10a: by risk
weight under the
standardized approach
➔ Table 10b: under the
standardized approach
risk-weighted using
external ratings
–
➔ Table 13: Total actual
and expected credit
losses
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
➔ Risk-weighted assets movement by key
–
driver – fully applied p. 266
➔ Risk-weighted assets by exposure segment
p. 263–265
➔ RWA development in 2015, Definition of
key RWA movement driver categories
p. 267–269
➔ Credit risk model confirmation p. 200
➔ Backtesting, Main credit models backtesting
by regulatory exposure segment p. 200–201
➔ Changes to models and model parameters
–
during the period p. 201
156
EDTF recommendations and
our disclosures
Location of the disclosures
Operating environment and strategy / risk,
treasury and capital
management / corporate governance,
responsibility and compensation
Consolidated financial
statements
Additional regulatory
information
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
19. Encumbered and
unencumbered assets
Available and unrestricted assets to
support potential funding and
collateral needs
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
21. Funding strategy
Description of our approach to
funding, available funding sources,
dependencies and concentrations
Market risk
22. Market risk linkage to the
balance sheet
Presentation of trading and non-trad-
ing market risk factors relevant to the
UBS business, including quantitative
and qualitative information on the risk
factors
23. Market risk analysis
Qualitative and quantitative break-
downs of significant trading and
non-trading market risk factors
➔ Strategy and objectives p. 234
➔ Liquidity p. 235–240
➔ Stress testing p. 240
➔ High-quality liquid assets and LCR 235– 237
➔ Asset encumbrance p. 238–239
➔ Governance p. 234
➔ Internal funding and funds transfer pricing
–
p. 241
➔ Asset encumbrance p. 238–239
➔ Credit ratings p. 244
➔ Note 25 Restricted and
transferred financial
assets p. 504 – 507
➔ Maturity analysis of assets and liabilities
–
p. 245–246
➔ Long-term debt – contractual maturities
p. 242
➔ Stress testing p. 240
➔ Funding by product and currency p. 241
➔ Internal funding and funds transfer pricing
–
p. 241
➔ Changes in sources of funding during the
reporting period p. 242–243
➔ Funding by currency p. 242
➔ Asset funding p. 243
➔ Market risk exposures arising from our
–
business activities p. 205–206
➔ Effect of interest rate changes on
shareholders’ equity and CET1 capital
p. 218–219
➔ 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. 207–217
➔ Interest rate risk in the banking book
p. 217–221
➔ Other market risk exposures p. 222–223
–
–
–
–
–
–
157
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
Consolidated financial
statements
Additional regulatory
information
➔ Value-at-Risk p. 207–213
➔ VaR limitations p. 210
➔ Backtesting of VaR p. 210–211
➔ Development of backtesting revenues
against backtesting VaR p. 210
➔ VaR model confirmation p. 211
➔ Market risk stress loss p. 207
➔ Stressed VaR p. 212–213
➔ Risks-not-in-VaR p. 214
➔ Incremental risk charge p. 215
➔ Comprehensive risk measure p. 216
–
–
–
–
➔ Credit risk profile of the Group – IFRS view
–
p. 177–186
➔ Credit risk profile of the Group – Internal
risk view p. 187–195
➔ Exposures to selected eurozone countries
➔ Due from banks and
loans p. 846–847
p. 225–226
➔ Exposure from single-name credit default
swaps referencing to Greece, Italy, Ireland,
Portugal or Spain p. 227
➔ Emerging markets net exposure by internal
UBS country rating category p. 227
➔ Emerging market net exposures by major
geographical region and product type
p. 228
➔ Policies for past due, non-performing and
➔ Allowances and
–
impaired claims p. 202–203
provisions for credit
losses in Note 1
Summary of significant
accounting policies
p. 415–416
➔ Impaired financial instruments p. 181–185
➔ Past due but not impaired loans p. 186
➔ Note 12 Allowances
and provisions for
credit losses
p. 447
➔ Impaired and
non-performing loans
p. 848
➔ Summary of
movements in
allowances and
provisions for credit
losses p. 850
➔ Allocation of the
allowances and
provisions for credit
losses p. 851
24. Market risk measurement
model performance
Qualitative and quantitative informa-
tion on our primary market risk
measurement models VaR and market
risk stress loss, their methodology,
assumptions, model limitations and
back testing
25. Other market risk management
techniques
Qualitative and quantitative informa-
tion on each of our complementary
market risk measurement models,
methodology, assumptions, model
limitations and back testing
Credit risk
26. Analysis of credit risk
exposures
Presentation of the credit risk profile
and of significant credit risk compo-
nents in each business division by
relevant parameters such as region,
industry sector or banking products
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
28. Analysis of impaired and non-
performing loans
Overview of balances and develop-
ment of claims which meet the criteria
in our policies for non-performing or
impaired loans
158
EDTF recommendations and
our disclosures
Location of the disclosures
Operating environment and strategy / risk,
treasury and capital
management / corporate governance,
responsibility and compensation
Consolidated financial
statements
Additional regulatory
information
➔ Traded products p. 194–195
➔ Note 14 Derivative
➔ Table 14 Credit risk
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
➔ Maximum exposure to credit risk
p. 177–179
➔ Credit risk mitigation p. 196–197
exposure of derivative
instruments
instruments and hedge
accounting p. 449–456
➔ Note 26 Offsetting
financial assets and
financial liabilities
p. 507
–
➔ Note 11 Cash collateral
on securities borrowed
and lent, reverse
repurchase and
repurchase agreements,
and derivative
instruments p. 446
➔ Note 26 Offsetting
financial assets and
financial liabilities
p. 507
Other risks
31. Other risks
Description of how we identify,
measure and manage risks consequen-
tial 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. 59–74
➔ UBS and Society p. 325–330
➔ Risk categories p. 165
–
➔ Operational risk: Compliance and
operational risk control developments
during the period p. 229–230
➔ Note 22 Provisions and
contingent liabilities
p. 466 – 477
➔ Note 37 Events after
the reporting period
p. 557
–
–
159
Risk, treasury and capital management Risk, treasury and capital management
Key developments
Key developments
Our credit risk profile has remained stable over the year and our net credit loss expense remained low relative to the
size of our lending portfolios. We continued to manage market risks at low levels. We concluded our program to
combine the Compliance and Operational Risk Control functions and maintained our focus on enhancing our operational
risk framework. Notwithstanding these developments, operational risks remain elevated for UBS and the industry.
Credit risks
EDTF | Gross banking products exposure was CHF 485 billion com-
pared with CHF 497 billion at the end of 2014. Gross impaired
exposure increased slightly by CHF 0.1 billion to CHF 1.5 billion,
and net credit loss expense totaled CHF 117 million for the year
compared with CHF 78 million, which continued to be low rela-
tive to the size of our lending portfolios.
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 linked to the condition of
the Swiss economy. These domestic lending portfolios have con-
tinued to perform well, with net credit loss expense and delin-
quency levels remaining low. Nevertheless, we remain mindful
that the continued strength of the Swiss franc could have a nega-
tive effect on the economy, in particular on exporters, and we
continue to closely monitor developments in the Swiss economy.
Were these negative effects to materialize, they could adversely
affect some of our counterparties and lead to an increase in credit
loss expense in future periods.
Due to the current low-price environment in commodities,
exposures to certain counterparties in the energy sector currently
carry more risk than in prior periods. As of 31 December 2015,
our total net banking products exposure to the oil and gas sector,
predominantly recorded within the Investment Bank, was CHF 6.1
billion, including both funded and unfunded exposures, mainly in
North America. About half of this exposure was to the integrated
and mid-stream segments, which we expect to be less affected by
the currently low energy price levels. Exposures potentially vulner-
able to low energy prices are closely monitored and we have
macro hedges in place to mitigate some of this risk. Specific
allowances for these energy-related exposures totaled CHF 40
million as of 31 December 2015. A sustained period of depressed
energy prices could result in an increased credit loss expense for
this sub-segment of our portfolio in future periods.
Loan underwriting activity in the Investment Bank, which gives
rise to concentrated exposure of a temporary nature, was muted
for much of 2015, but picked up toward the end of the year. The
increase in activity was predominantly investment grade business,
driven by strategic mergers and acquisitions. While distribution of
these investment grade exposures has been sound, conditions in
the sub-investment grade markets have remained challenging
such that some lower-rated deals have not been distributed as
planned, leading to a buildup in the level of our exposures
intended for syndication. These exposures are classified as held
for trading, with fair values reflecting the market conditions at the
end of the year.
The global market sell-off in the third quarter of 2015 led to a
higher level of margin calls within our security-backed lending
businesses, although margin calls were largely resolved within the
normal process and did not result in any material losses.
➔ Refer to “Credit risk” in the “Risk management and control”
section of this report for more information
➔ Refer to “Investment Bank” under “Credit risk” in the
“Risk management and control” section of this report for
more information on our exposures to the energy sector
Market risks
EDTF | We continued to manage market risks in our trading busi-
nesses at low levels. We continued to see some volatility in our
risk profile and value-at-risk, largely driven by positions arising
from client facilitation, as well as option expiries.
➔ Refer to “Market risk” in the “Risk management and control”
section of this report for more information
160
Consequential risks
EDTF | In 2015, we concluded our program to combine the Compli-
ance and Operational Risk Control functions in order to manage
the Group’s compliance, conduct and operational risks in a fully
integrated manner. This transformation has resulted in a strength-
ened control environment, the introduction of globally consistent
processes, substantial enhancements to our detective control
capabilities, and a well-defined operating model which is aligned
to the Group’s strategy and evolving regulatory requirements.
We continued to invest significantly in dedicated security pro-
grams to strengthen our cyber defense. The threats faced across
the financial industry are broadly similar and include data theft,
increasingly by criminal organizations, disruption of service, such
as so-called distributed denial of service attacks, and cyber fraud,
often through business email compromise and phishing attacks.
To effectively address the challenges posed by the dynamic exter-
nal environment and our own technological innovation, we have
recently appointed a Head of Cyber Risk. The role will focus on
enterprise governance for cyber-related activities, and will include
regular assessments of cyber threat intelligence, analysis of the
effectiveness of our controls, and progress in improving our cyber
defense capability.
We have substantially completed a program of remediation
work that has focused on further strengthening our front-office
processes and controls within the FX business. In addition, our
systems have been enhanced to better segregate sensitive infor-
mation, and our monitoring and surveillance capability was sig-
nificantly enhanced so that we can more proactively detect
unusual patterns of employee behavior and improper business
and employee practices. This program also meets the specific
undertakings made to the U.S. Commodity Futures Trading Com-
mission, the Connecticut Department of Banking, the U.S. Depart-
ment of Justice, the UK Financial Conduct Authority, the Swiss
Financial Market Supervisory Authority and the Federal Reserve
Bank of New York, as part of the resolution of the FX matter.
Where applicable we are applying similar control and monitoring
enhancements across our other trading businesses including the
Rates and Credit, Equities and Non-Core and Legacy businesses.
The management of conduct risks has been central to our
remediation activities and we have implemented a firm-wide con-
duct risk framework that is embedded into the existing opera-
tional risk framework. This framework includes conduct-related
management information which is reviewed at business and
regional governance forums, providing metrics on employee con-
duct, clients and markets, with employee conduct a central con-
sideration in the annual compensation process. We also signifi-
cantly strengthened our oversight controls regarding personal
account dealing for our personnel by centralizing all accounts
either within UBS, or into a number of defined brokers.
Other key developments included the consolidation of related
operational resilience disciplines into a single function, continued
enhancement of our monitoring and surveillance capabilities with
a focus on more powerful and versatile enterprise-wide analytics
systems and centralized services, and the completion of a capabil-
ity enhancement program for our financial crime risk control envi-
ronment.
We will maintain our focus on enhancing the operational risk
control environment, with our strategy for 2016 focusing on con-
tinued development of our core capabilities in the prevention of
financial crime, monitoring and surveillance and conduct risk,
while strengthening our control frameworks for cyber threats,
vendor management and transformational change.
Financial crime is particularly noteworthy given the current
volatility in the geopolitical and associated sanctions environment,
which continues to reinforce the importance of a robust, sophisti-
cated and agile anti-financial crime framework.
➔ Refer to “Anti-money laundering and anti-corruption” in the
“Regulation and supervision” section of this report for more
information
➔ Refer to “Note 22b Litigation, regulatory and similar matters” in
the “Consolidated financial statements” section of this report for
more information
Liquidity management
EDTF | We continued to maintain a sound liquidity position through-
out the year. Our high-quality liquid assets increased to CHF 208
billion from CHF 188 billion in 2014, and our three-month aver-
age liquidity coverage ratio was 124% for the fourth quarter.
➔ Refer to the “Treasury management” section of this report for
more information
Funding management
EDTF | We further strengthened our funding profile through the
issuance of loss absorbing capital in the form of additional tier 1
capital and senior unsecured notes. As of 31 December 2015, our
pro forma net stable funding ratio was stable at 105% compared
with 31 December 2014. As part of optimizing our interest
expense, while maintaining our strong liquidity, funding and cap-
ital position, in December 2015, we successfully executed a cash
tender offer to repurchase certain senior and subordinated debt
and covered bonds with an aggregate principal repurchase
amount equivalent to approximately CHF 6.1 billion.
➔ Refer to the “Treasury management” section of this report for
more information
161
Risk, treasury and capital management Risk, treasury and capital management
Key developments
Capital management
EDTF | Our strong capital position provides us with a solid founda-
tion for growing our business and enhancing our competitive
positioning. At the end of 2015, our common equity tier 1 (CET1)
capital ratio increased to 14.5% on a fully applied basis, the high-
est fully applied capital ratio in our peer group of large global
banks. On a phase-in basis, our CET1 capital ratio was 19.0%. As
of 31 December 2015, our Swiss SRB leverage ratio was 5.3% on
a fully applied basis and 6.2% on a phase-in basis. Effective
31 December 2015, our Swiss SRB leverage ratio denominator
calculation is fully aligned with the Bank for International Settle-
ments (BIS) Basel III definition. In 2015, we issued the equivalent
of CHF 5.2 billion of additional tier 1 perpetual capital notes, as
well as CHF 5.6 billion of senior unsecured debt which will con-
tribute to our total loss-absorbing capacity in anticipation of inter-
national regulatory developments, including revisions to the Swiss
too big to fail framework.
➔ Refer to the “Capital management” section of this report for
more information
162
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 between 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
report, 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, the Swiss SRB leverage ratio
denominator (LRD) and risk-based capital (RBC), an internal mea-
sure of risk similar to economic capital, as three key drivers for the
allocation of tangible equity to our business divisions and Corpo-
rate Center. In addition to tangible equity, we allocate equity to
support goodwill and intangible assets as well as certain capital
deduction items to arrive at total equity attributed to the business
divisions and Corporate Center.
For each of our business divisions and Corporate Center units,
the table on the next page presents the correlation between their
risk exposures, the measures described above and their perfor-
mance. In addition to the key risks inherent in each business divi-
sion and Corporate Center unit, the table presents an overview of
the key drivers of tangible attributed equity (RWA, LRD and RBC),
as well as tangible attributed equity, total assets and adjusted
operating profit before tax. We present tangible attributed equity,
because 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 it explains the performance of the business divisions
and Corporate 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 “Adjusted results” table in the “Group performance”
section of this report for more information
163
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Key risks, risk measures and performance by business division and Corporate Center unit
Business
divisions and
Corporate
Center
Key risks
arising from
business
activities
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CC – Services
CC – Group
ALM
Credit risk from
lending against
securities
collateral and
mortgages, and
a small amount
of derivatives
trading activity.
Minimal
contribution to
market risk
Credit risk from
lending against
securities
collateral and
mortgages
Market risk
from municipal
securities and
closed-end
fund secondary
trading
Credit risk from
retail business,
mortgages,
secured and
unsecured corpo-
rate lending, and
a small amount
of derivatives
trading activity.
Minimal
contribution to
market risk
Small amounts
of creditand
market risk
Credit risk
from lending,
derivatives
trading and
securities
financing
Market risk
from tradingin
equities, fixed
income, foreign
exchange (FX)
and commodities
No material risk
exposures
Credit and
market risks
arising from
management of
the Group’s
balance sheet,
capital, and
profit and loss
Central manage-
ment of liqui-
dity, funding
and structural
FX risk
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
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CC –
Services
CC –
Group
ALM
CC –
Non-core
and Legacy
Portfolio
31.12.15
CHF billion, as of or for the year ended
Risk-weighted assets (fully applied)1
of which: credit risk
of which: market risk
of which: operational risk
Leverage ratio denominator (fully applied)3
Risk-based capital4
Average tangible attributed equity5
Total assets
Operating profit / (loss) before tax (adjusted)6
25.3
12.6
0.0
12.6
119.0
1.0
2.8
119.9
2.8
21.9
8.5
1.0
12.4
62.9
1.3
1.9
61.0
0.8
34.6
32.9
0.0
1.6
153.8
2.9
3.9
141.2
1.7
2.6
1.7
0.0
0.9
2.7
0.3
0.4
12.9
0.6
62.9
35.5
10.5
16.8
268.0
6.1
7.2
253.5
2.3
23.6
1.3
(2.9)2
9.5
4.8
12.6
15.9
22.6
(1.1)
6.0
5.0
0.9
0.1
240.2
3.6
3.2
237.5
(0.1)
30.7
6.9
2.6
21.1
46.2
2.7
2.9
94.4
(1.4)
Group
207.5
104.4
12.1
75.1
897.6
30.3
38.2
942.8
5.6
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CC –
Services
CC –
Group
ALM
CC –
Non-core
and Legacy
Portfolio
Group
31.12.14
CHF billion, as of or for the year ended
Risk-weighted assets (fully applied)1
of which: credit risk
of which: market risk
of which: operational risk
Leverage ratio denominator (fully applied)3
Risk-based capital4
Average tangible attributed equity5
Total assets
Operating profit / (loss) before tax (adjusted)6
1 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRBs). 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 – Services. 3 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the leverage ratio denominator calculation is fully aligned with the BIS Basel III
rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. 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 Refer to the “Capital management” section of this report for more information on our
equity attribution framework. 6 Adjusted results are non-GAAP financial measures as defined by SEC regulations. Refer to the “Adjusted results” table in the “Group performance” section of this report for more infor-
mation.
3.8
3.0
0.0
0.8
14.9
0.3
0.5
15.2
0.5
66.7
35.0
13.6
18.1
288.3
6.8
7.4
292.3
0.2
23.0
1.1
(4.5)2
12.1
(2.6)
9.1
8.8
19.9
(0.7)
7.1
4.3
2.7
0.1
236.3
4.3
3.2
237.9
(0.3)
35.7
12.8
3.6
19.3
93.4
3.6
4.9
169.8
(1.9)
216.5
108.6
16.5
76.7
997.8
29.5
33.7
1,062.5
2.8
33.1
31.4
0.0
1.6
165.9
3.0
4.1
143.7
1.6
25.4
12.3
0.0
12.9
138.3
1.3
2.7
127.6
2.5
21.7
8.7
1.0
11.9
63.3
1.1
2.1
56.0
0.9
164
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 that involve exchange of value where we
must fulfill our obligation to deliver without first being able to determine with certainty that we will
receive the countervalue
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
Country risk: the risk of losses resulting from country-specific events. It includes transfer risk, whereby
a country’sauthoritiespreventorrestrictthepaymentofanobligation,aswellassystemicriskevents
arising from country-specific political or macroeconomic developments
Risk managed by
Independent
oversight by
Captured in our risk
appetite framework
Business management
Risk Control
Business management
Risk Control
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, including cyber risk. Operational risk includes, among others, legal risk,
conduct risk and compliance risk:
Legal risk: (i) the financial risk resulting from the non-enforceability of a contract or the failure to
assert non-contractual rights, or (ii) the financial or reputational risk resulting from UBS being held
liable for a contractual or legal claim, or otherwise being subject to a penalty or liability in a legal
action, based on a contractual or other legal claim, violation of law, or regulation, or infringement of
intellectual property rights, or failing to manage litigation or other actions appropriately or effectively
Conduct risk: Conduct risk is the risk that the conduct of the firm or its individuals unfairly impacts
clients or counterparties, undermines the integrity of the financial system or impairs effective competition
to the detriment of consumers.
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 “UBS and Society” section of this report for more information
Business management
Risk Control
Legal
Risk Control
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 they are not offset by a decrease in expenses
Business management
Finance
Reputational 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
165
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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 that we
currently think have the potential to significantly affect the Group
and which could materialize within one year. Investors should also
carefully consider all information set out in the “Risk factors” sec-
tion of this report, where we discuss the top and emerging risks
in more detail, as well as other risks we currently consider mate-
rial, that may impact our ability to execute our strategy and may
affect our business activities, financial condition, results of opera-
tions 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 also some that
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 legis-
lative 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
difficult to manage a global institution and potentially putting us at
a disadvantage to those peers operating either in only one jurisdic-
tion or in jurisdictions where the regulatory environment is consid-
ered to be less stringent. Moreover, managing the risk profile of a
subsidiarized organization results in increased effort and complex-
ity. While we aim to leverage Group-wide global frameworks and
processes, local regulatory requirements can result in potential inef-
ficiencies such as, for example, the application of different models
for the same risk, the retention of buffer capital in subsidiaries that
impede on the free flow of capital across the Group, and the
requirement for staff to be resident in the local jurisdiction.
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
authorities and developing internal assessment and implementa-
tion plans. During 2015, our more active programs included those
relating to resolution planning and resolvability, changes to our
legal entity structure and operating model, and new and revised
capital, liquidity and funding-related regulations, as well as
requirements related to risk data aggregation and reporting. We
have made good progress across all of these programs in prepar-
ing for their implementation, including the establishment of UBS
Group AG as the holding company of the UBS Group and the
successful establishment of UBS Switzerland AG.
➔ 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
Legal and regulatory enforcement risks: EDTF | We are subject to
a large number of claims, disputes, legal proceedings and govern-
ment investigations and we anticipate that our ongoing business
activities will continue to give rise to such matters in the future.
We continue to work on enhancing our operational risk frame-
work and our relationships with regulatory authorities and on
resolving open matters in a manner most beneficial to our stake-
holders. Information on those litigation, regulatory and similar
matters currently considered significant by management is dis-
closed in Note 22 of the “Consolidated financial statements” sec-
tion 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 3.0 billion as of 31 December 2015. At this point in time,
we believe that the industry continues to operate in an environ-
ment where the net charge associated with litigation, regulatory
and similar matters will remain elevated for the foreseeable future,
and we will 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 gen-
eral market conditions. These external pressures may have a sig-
nificant adverse effect on our business activities and related finan-
cial results, primarily through reduced margins, asset impairments
and other valuation adjustments. Accordingly, these macroeco-
nomic factors are considered in our development of stress testing
scenarios for our ongoing risk management activities.
166
Management continues to consider developments in the euro-
zone to be of greatest significance to us, but we also perceive a
growing risk from the macroeconomic developments in China
and emerging markets more broadly, as well as the weakening of
commodity prices, particularly oil. These factors have given rise to
increased market volatility in 2015, which could well persist
throughout 2016. In addition, as our strategic plans depend heav-
ily upon our ability to generate growth and revenue in emerging
markets, we are monitoring developments in these regions very
closely. The potential effects of a China-led global economic slow-
down have been captured in the calculation of our post-stress
fully applied common equity tier 1 (CET1) capital ratio following
the replacement of the Eurozone Crisis scenario with a new Global
Recession scenario as the binding scenario in our combined stress
testing framework.
Given the limited negative fallout from recent experiences in
Europe and Japan, there is a growing perception that negative
interest rates have become a conventional policy tool, and there
is a strong possibility that rates will be cut further in the coming
months. Prolonged negative rates could lead to unpredictable
structural shifts in behavior and economic and financial distor-
tions.
We continue to closely monitor developments in our domestic
economy, which is heavily reliant on exports, and for which the
continued strength of the Swiss franc could have a negative
effect.
➔ Refer to “Interest rate risk in the banking book” in this section
and to the “Risk factors” section of this report for more
information on negative interest rates
➔ Refer to “Performance in the financial services industry is
affected by market conditions and the macroeconomic climate”
and “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” in the “Risk factors” section of this report for more
information
➔ 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 and emerging markets
countries
Reputational risk: EDTF | Our reputation is critical to achieving our
strategic goals and financial targets, and damage to it can have
fundamental negative effects on our business and prospects. This
has been emphasized for us in recent years, following events such
as the matters related to LIBOR and investigations into our foreign
exchange business. This has triggered an enhanced focus on
improving and sustaining a strong risk culture and UBS behaviors
across the Group, the implementation of a coherent and holistic
conduct risk framework, and the continuing development of our
surveillance and monitoring 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
Cyber risk: EDTF | One of the most critical and constantly evolv-
ing risks facing the broader industry is the threat of cyber- attacks.
Along with the rest of the industry we face ongoing threats, such
as data theft, disruption of service and cyber fraud, all of which
have the potential for extremely significant impact. We continue
to invest significantly in dedicated security programs to strengthen
our cyber defense. We have recently appointed a Head of Cyber
Risk to effectively address the challenges posed by the dynamic
external environment and our own technology innovation. The
role will focus on enterprise governance for cyber-related activi-
ties, and will include regular assessments of cyber threat intelli-
gence, analysis of the effectiveness of our controls, and progress
on improving our capability. To further enhance our resilience,
our cyber response framework, comprising ”Analyze,“ "Protect,“
”Detect“ and ”Respond / Recover“ capabilities, will be further
strengthened through a dedicated program and will include
assessments of our vendor’s capabilities.
➔ 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.
However, in line with the industry, some areas retain an elevated
level of inherent risk, specifically financial crime, anti-money laun-
dering / know your client, internal and external fraud, and anti-
bribery and corruption. Our operational risks management frame-
work has been significantly enhanced following the unauthorized
trading incident in 2011. In view of the changing nature of opera-
tional risks and the environment within which we operate, we
continuously review our associated control frameworks to allow
us to make enhancements where necessary. Our strategy for
2016 will focus on continued development of our core capabilities
in the prevention of financial crime and monitoring and surveil-
lance. In addition, conduct risk will remain a high priority to
ensure that we treat clients and the markets in which we operate
appropriately. We will continue to strengthen our control frame-
works for vendor management and transformational change.
➔ Refer to “Operational risks affect our business” in the “Risk
factors” section of this report for more information
➔ Refer to “Operational risk” in this section for more information
on our management of operational risk
167
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Risk governance
EDTF | Pillar 3 | Our risk governance framework operates along three
lines of defense. Business management, as the first line of defense,
owns its respective risk exposures and is required to maintain
effective processes and systems to manage their risks, including
robust and comprehensive internal controls and documented pro-
cedures. Business management must also have appropriate super-
visory controls and review processes in place to identify control
weaknesses, inadequate processes and unexpected events. Con-
trol functions act as the second line of defense, providing inde-
pendent oversight of primary and consequential 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, evaluating the overall effective-
ness of governance, risk management and the control environ-
ment, 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: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: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)
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(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)
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168
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 Culture and Responsibility Committee supports the
BoD in fulfilling its duty to safeguard and advance the Group’s
reputation for responsible and sustainable conduct. It reviews and
assesses stakeholder concerns and expectations pertaining to the
societal performance of UBS and the development of UBS’s cor-
porate culture and their possible consequences for UBS, and rec-
ommends appropriate 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
approved by the BoD within the business divisions and Corporate
Center.
Business management comprises business division and regional
Presidents. The business division Presidents are accountable for
the results of their business divisions. This includes actively man-
aging their risk exposures, and ensuring profit potential, risk, bal-
ance sheet and capital usage are balanced. The regional Presi-
dents coordinate and implement UBS’s strategy in their region,
jointly with the business division Presidents and heads of the con-
trol and support functions. They have a veto power over decisions
with respect to all business activities that may have a negative
regulatory or reputational effect 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 throughout the Group. Risk Control provides
independent oversight of all primary and most consequential risks
as outlined in the “Risk categories” section above. This includes
establishing methodologies to measure and assess risk, setting
risk limits, and developing and operating an appropriate risk con-
trol infrastructure. The risk control process is supported by a
framework of policies and authorities. Business division, regional
and legal entity Chief Risk Officers have delegated authority for
their respective divisions, regions and entities. Moreover, authori-
ties are delegated to risk officers according to their expertise,
experience and responsibilities.
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,
including management of funding and liquidity risk and UBS’s
regulatory capital ratios. The Group CFO is also responsible for
implementation 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
implementing the Group’s risk management and control princi-
ples 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, business division and regional levels, including compliance
with legal, regulatory and statutory requirements, as well as with
internal policies and contracts. GIA has a functional reporting line
to the Audit Committee.
Risk appetite framework
EDTF | Pillar 3 | Our risk appetite is defined at the aggregate level
and reflects the types of risk that we are willing to accept or
intend to avoid. It is established via a complementary set of
qualitative and quantitative objectives defined on a Group-wide
level and embedded throughout our business divisions and
legal entities through Group, business division and legal entity
policies, limits and authorities. These objectives are a critical
foundation to maintaining a robust risk culture throughout our
organization. The “Risk appetite framework” chart depicts the
key elements of this framework, which are described in more
detail below.
Qualitative statements, reflected in the Group’s Risk Manage-
ment and Control Principles, and various policies and initiatives,
aim to ensure we maintain the desired risk culture.
Quantitative risk appetite objectives relate Group-wide risk
exposure to our risk capacity and are designed to enhance the
Group’s resilience against the impact of potential severe adverse
economic or geopolitical events. They cover areas such as the
Group’s capital buffer, solvency, earnings, leverage, liquidity and
funding, and are subject 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 that
exceed risk tolerances set according to predetermined percent-
ages of the firm’s operating income must be escalated to the busi-
ness division President or higher, as appropriate.
169
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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(cid:86)(cid:86)
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, escalation triggers embedded in the firm’s Recov-
ery Plan are drawn from the set of risk limits that management
monitors on a routine basis.
Our risk appetite framework is encompassed in a single over-
arching policy and conforms to the Financial Stability Board’s
“Principles for An Effective Risk Appetite Framework” published
on 18 November 2013.
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 goals
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.
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.
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, leading to appropriate risk taking and
establishing robust risk management and control processes.
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 asoundriskculture
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 exposurestoensurethatrisk
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
170
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
unremitting focus on the long-term objectives and success of
UBS, thereby safeguarding the firm’s reputation, our most valu-
able asset.
Risk Management and Control Principles
EDTF | These principles highlight the key aspects of our risk man-
agement and control philosophy and are consistent with our
three-lines-of-defense model.
Code of Business Conduct and Ethics
EDTF | The Code of Business Conduct and Ethics (Code) outlines
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 process.
Included in the Code are requirements covering laws, rules and
regulations, ethical and responsible behavior, information man-
agement, the work environment, social responsibility and disci-
plinary 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
efforts 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,
team, business division and Group performance, and clearly links
their pay to performance, not simply the delivery of business tar-
gets, but also how those results were achieved through our
employees’ behaviors. As explained in more detail in the “Com-
pensation” section of this report, the performance of GEB mem-
bers is assessed through both quantitative and qualitative factors.
Qualitative factors include reinforcing a culture of accountability
and responsibility, demonstrating commitment to being a respon-
sible 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 decided and shows how the
individual’s contribution to promoting our principles and stan-
dards of behaviors is factored into the compensation process. The
process includes an examination of the individual’s efforts to
actively manage risk, striking an appropriate balance between risk
and reward, and to what extent the individual exhibited profes-
sional and ethical behavior. Forfeiture provisions enable the firm
to forfeit some, or all, of any unvested deferred portion of com-
pensation should an employee commit certain harmful acts and in
other select circumstances.
➔ Refer to the “Our employees” and “Compensation” sections of
this report for more information
In embedding the desired risk culture within the Group, these
principles are supported by a range of initiatives covering employ-
ees 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. Introduced in
September 2014, the UBS House View on Leadership is a set of
explicit expectations for leaders that establishes consistent leader-
ship standards across UBS. It was developed by a cross-business
group of employees and external experts, led by the Group Execu-
tive Board. In 2015, the House View of Leadership was integrated
into all promotion, hiring and development processes for posi-
tions at Director level and higher. The aim is to improve hiring
decisions, and to support the development and promotion of
present and future UBS leaders. It is also used as a basis for leader-
ship development programs and initiatives.
Principles of good supervision
EDTF | The Group has defined principles of good supervision, which
establish clear expectations of managers and employees with
respect to supervisory responsibilities, specifically: to take respon-
sibility, to organize their business, to know their employees and
what they do, to know their business, to create a good compli-
ance culture 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. We have established frameworks intended
to ensure adherence to these principles.
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 employ-
ees to raise concerns, either openly or anonymously, about sus-
pected breaches of laws, regulations, rules and other legal
requirements to which the Group is subject, or our Code of Busi-
ness Conduct and Ethics, policies, or any relevant professional
standards. Raising employee awareness through training and
communication is an integral part of our approach. We have
established procedures which are intended to ensure that whistle-
blowing concerns are investigated, and appropriate and consis-
tent action is taken.
171
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Compliance and risk training
EDTF | We have a mandatory training program in place for all
employees covering a range of compliance and risk-related topics,
including anti-money laundering and operational risk. In addition,
more specialized training is provided for employees depending on
their specific roles and responsibilities, such as training on credit
risk and market risk for those working in trading areas. During
2015, our employees and external staff were required to com-
plete over 800,000 mandatory training sessions, an increase of
approximately 14% from 2014. Approximately 65% of these ses-
sions were produced by Compliance and Operational Risk Control
(C&ORC), as we continue to focus on strengthening our risk cul-
ture. 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 the
given deadline results in consequences including disciplinary
action. In 2015, our ultimate completion rate for these mandatory
training sessions was 100%.
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
liquidity to protect our business franchises and exceed minimum
regulatory requirements under a severe stress event. The risk
appetite 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 frameworks
capture exposures to all material primary and consequential risks
across our business divisions and Corporate Center units.
➔ Refer to “Risk measurement” in this section for more informa-
tion on our stress test and statistical frameworks
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(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:85)(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:78)(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:75)(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:75)(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:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(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)
172
EDTF | Pillar 3 | Risk appetite objectives at the business division level
are logically derived from and must conform to the Group-wide
objectives. They may also comprise objectives specific to the divi-
sion, related to the specific activities and risks in that division. Risk
appetite 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, complexity and 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 plan assets and liabilities, and accru-
als for capital returns to shareholders.
The chart on the previous page provides an overview of our
quantitative risk appetite objectives.
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
independent verification.
Applied models and methodologies must be approved and
regularly reviewed in accordance with regulatory requirements as
well as internal policies to test that models perform as expected,
produce results comparable with actual events and values, and
reflect best-in-practice approaches as well as recent academic
developments. Accordingly, we assess whether the model is per-
forming satisfactorily, whether additional analysis is required, and
whether recalibration or redevelopment needs to be performed.
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 confirming 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 result
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, business
division, legal entity and portfolio levels. Stress test results are regu-
larly reported to the BoD, the Risk Committee and the GEB. We
also provide detailed stress loss analyses to the Swiss Financial Mar-
ket Supervisory Authority (FINMA) in accordance with its require-
ments. As described in the “Risk appetite framework” 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.
173
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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.
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 macroeco-
nomic and geopolitical environment, our current and planned
business activities, and actual or potential risk concentrations and
vulnerabilities in our portfolios. The ESC meets at least quarterly
and is comprised of Group, business division and legal entity rep-
resentatives of Risk Control. In executing its responsibilities, the
ESC considers input from the Risk “Think Tank,” a panel of senior
representatives from the business divisions, Risk Control and eco-
nomic research, which meets quarterly to review the current and
possible future market environment, with the aim of identifying
potential stress scenarios which could materially affect 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 effect of the
stress scenario on our portfolios. These include gross domestic
product (GDP), equity indices, interest rates, foreign exchange
rates, commodities, 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 exposure at default, and resulting in higher predicted credit
losses in the stress scenario. We also capture the business risk
resulting from lower fee, interest and trading income, and lower
expenses. These effects are measured across all material risk types
and all businesses to calculate the aggregate estimated effect of
the scenario on profit and loss, other comprehensive income,
RWA, Swiss SRB leverage ratio denominator (LRD) and, ultimately,
our capital and leverage ratios. The assumed changes in macro-
economic variables are updated periodically to take account of
changes in the current and possible future market environment.
Through 2015, the binding scenario for CST was the internal
Eurozone Crisis scenario, which assumed a sharp deterioration in
the eurozone economy triggering sovereign and bank defaults in
certain 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
were routinely monitored throughout 2015.
– 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
industrialized 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 the resulting impact on the global economy,
particularly emerging markets.
– Middle East / North Africa scenario represents a spill-over of
political 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 Eurozone Crisis scenario. Additional
peripheral countries default and exit the eurozone, and
advanced economies are pulled into a prolonged period of
economic stagnation.
174
As a result of the recent market developments, the main stress
scenario used in our business planning process is a new Global
Recession scenario, which combines elements of the Eurozone
Crisis and China Hard Landing scenarios. The Global Recession
scenario assumes that a hard landing in China would lead to
severe contagion of Asian and emerging markets economies,
while multiple debt restructurings in Europe, related direct losses
for European banks and fear of a eurozone breakup would
severely affect developed markets such as Switzerland, the UK
and the US. This Global Recession scenario has replaced the Euro-
zone Crisis scenario in our suite of combined stress testing sce-
narios, and was adopted as the binding scenario at the end of
2015, ensuring that the potential effects of a China-led global
economic slowdown are captured in the calculation of our post-
stress fully applied common equity tier 1 (CET1) capital ratio.
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 expected market movements within our
liquidity adjusted stress metric are derived using a combination of
historical market behavior, based on an analysis of historical
events, and forward-looking analysis including consideration of
defined scenarios that have not occurred historically. Results 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
intended to complement forward stress tests by assuming “what
if” outcomes that could extend beyond the range normally con-
sidered, 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 effect of increases or
decreases in interest rates and changes in the structure of yield
curves.
Moreover, Group Treasury perform stress testing to determine
the optimum asset and liability structure that allows us to main-
tain an appropriately balanced liquidity and funding position
under various scenarios. These scenarios differ from those out-
lined above, because they are focused on specific situations which
could generate liquidity and funding stress, as opposed to the
scenarios used in the CST framework, which focus on the impact
on profit and loss and capital.
Most major financial firms employ stress tests, but their
approaches vary significantly, having been tailored to their indi-
vidual business models and portfolios. Moreover, there is a lack of
industry standards defining stress scenarios or the way they
should be applied to a firm’s risk exposures. Consequently, com-
parisons of stress test results between firms can be misleading
and, therefore, like many of our peers, we do not publish quanti-
tative 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 in combi-
nation with the firm’s actual risk exposures, considering effects on
both income and expenses. From this we determine earnings-at-
risk (EaR), which measures the potential shortfall in earnings (i.e.,
the deviation from forecasted earnings) at a 95% confidence level
and is evaluated over a one-year horizon. EaR is used for the
assessment of the earnings objectives in our risk appetite frame-
work.
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 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
risk appetite objectives, and we derive our CaR solvency measure
at a 99.9% confidence level for the assessment of our solvency
risk appetite objective.
The CaR solvency measure is also used as the basis to derive
the contributions of business divisions and Corporate Center to
risk-based capital (RBC), which is a core component of our equity
attribution framework. RBC measures the potential capital
impairment from an extreme stress event at a 99.9% confidence
level to estimate the capital required to absorb unexpected loss
while remaining able to fully repay all creditors. We revised sev-
eral elements of the RBC model during the year. The net effect of
these model changes was a moderate increase in the overall level
of RBC.
➔ Refer to the “Capital management” section of this report for
more information on the equity attribution framework
175
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Portfolio and position limits
EDTF | The Group-wide stress and statistical metrics are comple-
mented by lower-level portfolio and position limits, triggers and
targets. The combination of these measures provides for a com-
prehensive, granular control framework which is applied to our
business divisions and Corporate Center, as well as the significant
legal entities 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 controls for
net interest income sensitivity, mark-to-market losses on available-
for-sale portfolios, and the effect of foreign exchange movements
on capital and capital ratios.
Portfolio measures are supplemented with position-level con-
trols. Risk measures for position controls are based on market risk
sensitivities 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 controls for the Investment
Bank and Corporate Center – Group Asset and Liability Manage-
ment and Non-core and Legacy Portfolio on a daily basis. Coun-
terparty measures capture the current and potential future expo-
sure to an individual counterparty taking into account collateral
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 hedging instru-
ment 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
176
Credit risk
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
income-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. Loan underwriting activity gives rise
to concentrated exposure of a temporary nature.
– 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.
– Our wealth management businesses conduct securities-based
Credit risk profile of the Group – IFRS view
lending and mortgage lending.
– Credit risk within Non-core and Legacy Portfolio relates to
derivatives transactions, predominantly carried out on a cash-
collateralized basis, and securitized positions.
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 related
counterparties 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 Chief
Executive Officer, Group Chief Risk Officer and divisional Chief
Risk Officers based on risk exposure amounts and internal
credit rating.
– Limits apply not only to the current outstanding amount, but
also to contingent commitments and the potential future
exposure 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.
Maximum exposure to credit risk
Audited | EDTF | The tables on the following pages provide the Group’s
maximum exposure to credit risk by class of financial instrument
and the respective collateral and other credit enhancements miti-
gating credit risk for these classes of financial instruments. This
view is in accordance with International Financial Reporting Stan-
dards (IFRS). The maximum exposure to credit risk includes the
carrying amounts of financial instruments recognized on the bal-
ance 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
177
Risk, treasury and capital management 31.12.15
Collateral
Credit enhancements
Maximum
exposure to
credit risk
Cash
collateral
received
Collateral-
ized by
securities
Secured by
real estate
Other
collateral1
Netting
Credit
derivative
contracts Guarantees
13.1
89.8
11.9
312.0
25.6
67.9
23.8
20.0
164.4
15.2
0.4
0.1
2.9
4.6
164.4
19.8
0.2
101.0
25.1
62.8
11.1
200.1
5.8
3.5
9.3
0.0
13.1
1.2
0.0
209.4
164.4
0.2
1.7
2.1
1.8
6.6
1.2
14.3
10.5
220.0
1.9
166.3
0.1
0.1
19.8
1.5
8.7
10.2
30.1
12.4
12.4
142.7
142.7
155.2
0.0
155.2
0.4
3.0
0.6
0.6
1.0
0.1
6.9
7.0
8.1
0.0
3.0
3.0
2.0
5.0
8.0
Total financial assets measured at amortized cost
550.9
13.1
Risk, treasury and capital management
Risk management and control
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 banks2
Loans
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments3
Other assets
Financial assets measured at fair value on the
balance sheet
Positive replacement values4
Trading portfolio assets – debt instruments5, 6
Financial assets designated at fair value – debt instruments7
Financial investments available-for-sale – debt instruments7
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
167.4
29.0
5.6
61.7
263.7
814.7
16.0
56.1
6.6
78.6
893.3
178
Maximum exposure to credit risk (continued)
CHF billion
Financial assets measured at amortized cost on the
balance sheet
Balances with central banks
Due from banks2
Loans
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments3
Other assets
Total financial assets measured at amortized cost
Financial assets measured at fair value on the
balance sheet
Positive replacement values4
Trading portfolio assets – debt instruments5, 6
Financial assets designated at fair value – debt instruments7
Financial investments available-for-sale – debt instruments7
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
102.3
13.3
315.8
24.1
68.4
31.0
21.2
576.1
257.0
31.8
4.3
56.2
349.4
925.4
17.7
50.7
10.4
Total maximum exposure to credit risk not reflected
on the balance sheet
Total9
78.8
1,004.2
31.12.14
Collateral
Credit enhancements
Maximum
exposure to
credit risk
Cash
collateral
received
Collateral-
ized by
securities
Secured by
real estate
Other
collateral1
Netting
Credit
derivative
contracts
Guarantees
14.3
14.4
0.0
14.4
1.4
0.1
1.4
15.8
0.2
94.8
23.8
63.2
12.7
194.7
5.7
3.3
9.0
203.6
1.7
3.8
10.4
16.0
219.6
166.1
21.2
4.7
166.1
25.9
0.1
0.1
26.0
1.9
9.2
11.1
37.1
0.0
166.1
0.2
1.9
2.1
168.2
20.4
20.4
223.9
223.9
244.2
0.7
0.7
0.7
0.7
1.4
0.8
8.5
0.0
244.2
9.3
10.7
0.2
2.6
0.0
2.8
0.0
2.8
3.1
1.6
4.7
7.5
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 with 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” 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 “Consolidated financial statements” section of this report for more information. 5 These positions are generally managed under the market risk frame-
work 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 “Guarantees” column largely relates to sub-participations. Refer to the “Off-balance sheet” section in this report for more informa-
tion. 9 As of 31 December 2015, total maximum exposure to credit risk for UBS AG (consolidated) was CHF 0.7 billion higher than for UBS Group, all related to unsecured “Loans”. 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.”
179
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 category1
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 instruments2
Financial investments available-for-sale – debt instruments3
Other financial instruments4
Guarantees, commitments and forward starting transactions
Guarantees
Loan commitments
Forward starting reverse repurchase agreements
Forward starting securities borrowing agreements
Total5
CHF billion
Rating category1
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 instruments2
Financial investments available-for-sale – debt instruments3
Other financial instruments4
Guarantees, commitments and forward starting transactions
Guarantees
Loan commitments
Forward starting reverse repurchase agreements
Forward starting securities borrowing agreements
Total5
0–1
87.9
1.3
31.9
21.7
20.7
8.4
14.2
52.4
0.3
2.2
1.8
2–3
1.3
8.8
132.1
40.2
116.9
10.2
8.6
9.2
2.7
7.1
22.4
6.5
4–5
0.6
1.1
67.5
20.1
23.2
4.7
3.1
8.6
3.6
19.6
31.12.15
6–8
9–13
defaulted
0.7
61.4
11.2
5.9
0.4
1.9
11.0
2.2
6.1
0.0
17.7
1.4
0.4
0.7
0.1
1.2
2.7
0.7
6.2
0.4
0.3
0.0
Total
89.8
11.9
312.0
93.5
167.4
23.8
29.0
61.7
25.6
16.0
56.1
6.6
0.0
242.6
366.0
152.1
100.8
29.6
2.2
893.3
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
0.5
66.6
11.4
7.8
0.7
2.6
13.0
3.1
6.4
4–5
2.9
61.2
11.7
26.3
5.0
3.5
0.1
8.5
3.3
8.1
0.5
9–13
defaulted
0.1
17.8
1.2
0.8
2.6
0.1
0.7
6.4
1.2
0.3
0.1
0.2
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
1 Refer to the “Internal UBS 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 December 2015, total financial assets subject to credit risk for UBS AG (consolidated) was CHF 0.7 billion higher than for UBS Group, all related to “Loans” in rating categories 4–5. As of 31 December 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 cat-
egories 6–8.
180
Impaired financial instruments
Audited | EDTF | Pillar 3 | The following tables show impaired financial
instruments, comprising loans, guarantees and loan commit-
ments, and securities financing transactions. Gross impaired
financial instruments increased slightly by CHF 0.1 billion to CHF
1.5 billion as of 31 December 2015. After deducting the esti-
mated liquidation proceeds of collateral and specific allowances
and provisions, net impaired financial instruments was CHF 0.6
billion as of 31 December 2015 compared with CHF 0.5 billion at
the end of the prior year.
The table on the next page provides a breakdown of move-
ments in the specific and collective allowances and provisions for
impaired financial instruments.
➔ Refer to the “Investment Bank, Non-Core and Legacy Portfolio,
and Group ALM: distribution of net OTC derivatives and SFT
exposure across internal UBS ratings and loss given default
(LGD) buckets” table in this section for OTC derivative exposures
in the Investment Bank and 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 financial instruments by type
CHF million
Loans (including due from banks)
Guarantees and loan commitments
Defaulted securities financing transactions
Total impaired financial instruments
Gross impaired
financial instruments
31.12.15
31.12.14
Allowances and provisions1
31.12.14
31.12.15
Estimated liquidation
proceeds of collateral2
31.12.15
31.12.14
Net impaired
financial instruments
31.12.15
31.12.14
1,226
292
1,518
1,204
187
5
1,396
(692)
(35)
(727)
(708)
(23)
(4)
(735)
(163)
(4)
(168)
(180)
(1)
(1)
(182)
371
252
623
316
162
0
479
1 Includes CHF 6 million in collective loan loss allowances (31 December 2014: CHF 8 million). 2 Does not include oil and gas reserves related to reserve-based lending.
EDTF | Pillar 3 |
Impaired financial instruments by geographical region
CHF million
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Total 31.12.15
Total 31.12.14
Impaired financial
instruments
Specific
allowances and
provisions
Impaired financial
instruments net of
specific allowances
and provisions
Collective
allowances
Total allowances
and provisions
31.12.15
Total allowances
and provisions
31.12.14
92
29
12
229
924
231
1,518
1,396
(58)
(21)
(6)
(107)
(364)
(165)
(721)
(727)
34
9
6
123
559
66
797
668
0
0
0
(2)
(4)
0
(6)
(8)
(58)
(21)
(6)
(108)
(369)
(165)
(727)
(38)
(19)
(22)
(50)
(411)
(194)
(735)
181
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
EDTF | Pillar 3 |
Impaired financial instruments by exposure segment
CHF million
Sovereigns
Banks
Corporates
Central Counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving other retail exposures
Other retail
Non allocated segment1
Total 31.12.15
Total 31.12.14
Impaired financial
instruments
Specific
allowances and
provisions
Collective
allowances
Total allowances
and provisions
31.12.15
Write-offs for the
year ended
31.12.15
12
7
1,236
0
125
63
24
51
0
1,518
1,396
(14)
(6)
(589)
0
(40)
(47)
(17)
(9)
(721)
(727)
0
0
0
0
0
0
(6)
(6)
(8)
(14)
(6)
(589)
0
(40)
(47)
(17)
(9)
(6)
(727)
(1)
0
(136)
0
0
(2)
(24)
(2)
0
(164)
(154)
Total allowances
and provisions
31.12.142
(14)
(15)
(609)
0
(39)
(19)
(16)
(15)
(8)
(735)
1 With the exception of Wealth Management Americas Lombard lending, collective loan loss allowances are not allocated to individual counterparties. 2 Following improvements in data sourcing, the allocation to the
exposure segments for 31 December 2014 have been restated to ensure comparability with the figures as of 31 December 2015.
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) recognized in the income statement
Foreign currency translation
Other
Balance at the end of the year
Specific allowances and pro-
visions for banking products
and securities financing
Collective allowances
For the year ended
31.12.15
For the year ended
31.12.14
727
(162)
48
117
(11)
2
721
8
(2)
0
0
0
0
6
735
(164)
48
117
(11)
2
727
750
(154)
29
78
21
11
735
182
Impaired loans
EDTF | Pillar 3 | Gross impaired loans (including due from banks)
increased slightly to CHF 1,226 million as of 31 December 2015
from CHF 1,204 million at the end of the prior year. The majority
of this exposure relates to loans in our Swiss domestic business,
although also reflects new impairments related to lending to the
energy sector in the Investment Bank. The ratio of impaired loans
to total loans remained unchanged at 0.4%.
Audited | As of 31 December 2015, collateral held against our
impaired loan exposure mainly consisted of real estate and securi-
ties. It is our policy to dispose of foreclosed real estate as soon as
practicable. The carrying amount of foreclosed property recorded
in our balance sheet under Other assets at the end of 2015 and
2014 amounted to CHF 44 million and CHF 43 million, respec-
tively. 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.
Specific and collective allowances and provisions for credit
losses decreased slightly by CHF 8 million to CHF 727 million as of
31 December 2015. This includes collective loan loss allowances
of CHF 6 million, a reduction of CHF 2 million from the prior year.
The “Loss history statistics” table 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 to “Note 10 Due from banks and
loans (held at amortized cost)” and “Note 12 Allowances and
provisions for credit losses” in the “Consolidated financial
statements” 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 losses1, 2
of which: allowances for due from banks and loans1
Net write-offs3
of which: net write-offs for due from banks and loans
Credit loss (expense) / recovery4
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
31.12.15
324,594
1,226
1,630
31.12.14
329,800
1,204
1,602
31.12.13
301,601
1,241
1,582
31.12.12
301,849
1,606
1,516
31.12.11
290,664
2,155
1,529
727
692
116
116
(117)
(117)
0.4
0.5
0.2
0.0
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
1 Includes collective loan loss allowances. 2 Includes provisions for loan commitments and allowances for securities financing transactions. 3 Includes net write-offs for loan commitments and securities financing
transactions. 4 Includes credit loss (expense) / recovery for loan commitments and securities financing transactions.
183
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Pillar 3 |
Allowances and provisions for credit losses1
CHF million, except where indicated
IFRS exposure, gross2
31.12.14
31.12.15
Impaired exposure, gross
31.12.15
31.12.14
Estimated liquidation
proceeds of collateral3
31.12.14
31.12.15
Allowances and provisions
for credit losses4
Impairment ratio (%)
31.12.15
31.12.14
31.12.15
31.12.14
89,776
11,951
102,303
13,347
1
312,643
316,452
1,225
16,019
17,694
56,067
486,4565
50,688
500,4835
256
36
11
1,192
180
7
1,518
1,391
1,344
1,107
320
1,326
105,167
112,701
109
2,267
1,270
2,021
1,960
111,155
118,328
109
0
1,899
48,754
747
279
0
2,074
44,356
756
293
51,678
47,480
0
0
1,493
1,773
135,616
137,417
7,900
8,463
8,670
8,352
29
29
1
870
255
20
81
81
26
26
11
1,035
180
5
153,473
156,211
1,146
1,231
163
4
168
19
19
180
1
181
3
3
0
0
144
4
149
176
1
178
3
689
32
3
727
89
1
90
28
28
3
496
31
530
13
695
23
731
70
1
70
27
27
13
568
23
603
0.0
0.4
1.6
0.1
0.3
0.1
0.4
1.0
0.0
0.3
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.6
3.2
0.2
0.7
0.6
0.8
2.1
0.1
0.8
0
433
11
0
0
443
345
4,177
13,088
4,958
44,648
67,217
0
566
364
0
0
930
76
4,505
12,033
5,902
36,333
58,848
0
0
0
0
0
0
0.0
0.0
202
1
15
219
38
2
41
62
3
65
24
24
1.5
0.0
0.0
0.3
0.3
0.0
0.1
0
0
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
Personal & Corporate Banking
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
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
184
Allowances and provisions for credit losses (continued)
CHF million, except where indicated
IFRS exposure, gross2
31.12.14
31.12.15
Impaired exposure, gross
31.12.15
31.12.14
Estimated liquidation
proceeds of collateral3
31.12.14
31.12.15
Allowances and provisions
for credit losses4
Impairment ratio (%)
31.12.15
31.12.14
31.12.15
31.12.14
CC – Services
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
CC – Group ALM
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
0
0
0
0
0
0
0
576
36
11
0
623
0
413
31
11
0
454
88,087
101,907
2,210
6,788
0
0
2,563
5,291
0
0
97,086
109,761
0
0
0
0
0
CC – Non-core and Legacy Portfolio
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
0
56
3,183
137
1,406
4,782
0
127
4,260
335
3,750
8,471
15
15
12
12
14
14
0
0
0
0
0
6
6
0.0
0.0
0.0
0.0
0.5
0.3
0.3
0.1
1 Excludes allowances for securities financing transactions (31 December 2015: CHF 0 million, 31 December 2014: CHF 4 million). 2 The measurement requirements of IFRS differ in certain respects from our internal
management view of credit risk. 3 Does not include oil and gas reserves related to reserve-based lending. 4 Includes CHF 6 million (31 December 2014: CHF 8 million) in collective loan loss allowances for credit
losses. 5 As of 31 December 2015, total IFRS exposure of UBS AG (consolidated) was CHF 0.7 billion higher than the exposure of UBS Group, related to receivables of UBS AG and UBS Switzerland AG against UBS
Group AG.
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
Foreign currency translations and other adjustments
Balance at the end of the year
1 Does not include CHF 2 million in write-offs charged directly to collective loan loss allowances.
For the year ended
31.12.15
1,204
465
71
(354)
(162)1
2
1,226
31.12.14
1,241
388
124
(403)
(154)
6
1,204
185
Risk, treasury and capital management
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 Personal & Corporate Banking, where
delayed payments are routinely observed and, to a lesser extent,
Wealth 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 “Consolidated financial statements”
section of this report for more information on our impairment
policies
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
31.12.15
31.12.14
141
69
37
16
663
529
927
92
74
18
9
769
646
961
31.12.15
31.12.14
Total
mortgage loans
153,044
of which:
past due > 90 days
but not impaired
529
Total
mortgage loans
154,689
of which:
past due > 90 days
but not impaired
646
186
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
respects 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,
exchange-traded derivatives (ETD) and securities financing trans-
actions (SFTs), 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 CDSs, is not reflected. Guarantees and loan
commitments are shown on a notional basis, without applying
credit conversion factors.
Total gross banking products exposure decreased to CHF 485
billion as of 31 December 2015 compared with CHF 497 billion at
the end of 2014, mainly due to decreases in balances with central
banks in Corporate Center – Group ALM, partly offset by an
increase in loan underwriting exposure at the end of the year in
the Investment Bank.
EDTF |
Banking products exposure by business division and Corporate Center unit
CHF million
Balances with central banks
Due from banks
Loans1
Guarantees
Loan commitments
Banking products exposure2
Banking products exposure, net4
Wealth
Manage-
ment
1,344
1,107
105,167
2,267
1,270
111,155
111,065
Wealth
Manage-
ment
Americas
0
1,899
48,754
747
279
51,678
51,650
31.12.15
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
CC –
Services
CC –
Group ALM
0
1,493
135,616
7,900
8,463
153,473
152,943
0
433
11
0
0
443
443
345
9,544
15,464
5,607
37,867
68,828
61,207
31.12.14
0
576
36
11
0
623
623
88,087
2,210
6,788
0
0
97,086
97,086
CHF million
Balances with central banks
Due from banks
Loans1
Guarantees
Loan commitments
Banking products exposure2
Banking products exposure, net4
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CC –
Services
320
1,326
112,701
2,021
1,960
118,328
118,257
0
2,074
44,356
756
293
47,480
47,453
0
1,773
137,417
8,670
8,352
156,211
155,608
0
566
364
0
0
930
930
76
9,272
15,688
6,501
28,308
59,845
50,986
0
413
31
11
0
454
454
CC –
Group ALM
101,907
2,563
5,291
0
0
109,761
109,761
CC –
Non-core
and Legacy
Portfolio
0
35
100
84
1,472
1,692
1,180
CC –
Non-core
and Legacy
Portfolio
0
137
199
234
3,454
4,024
2,622
Group
89,776
17,297
311,937
16,616
49,352
484,9783
476,196
Group
102,303
18,123
316,046
18,193
42,367
497,0333
486,071
1 Does not include reclassified securities and similar acquired securities in our CC – Non-core and Legacy Portfolio. 2 Excludes loans designated at fair value. 3 As of 31 December 2015, total banking products expo-
sure of UBS AG (consolidated) was CHF 0.7 billion higher than the exposure of UBS Group, related to receivables of UBS AG and UBS Switzerland AG against UBS Group AG. 4 Net of allowances, provisions, and hedges.
187
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Wealth Management
EDTF | Gross banking products exposure within Wealth Manage-
ment decreased to CHF 111 billion as of 31 December 2015 com-
pared with CHF 118 billion as of 31 December 2014, as a result of
client deleveraging in the Lombard book and due to a CHF 2 bil-
lion shift of Swiss-booked wealth management mortgage expo-
sure to Personal & Corporate Banking.
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 2015, based on our internal
ratings, unchanged from 31 December 2014.
The portfolio of mortgage loans secured by properties outside
Switzerland increased to CHF 6.0 billion as of 31 December 2015
from CHF 5.8 billion at the end of the prior year. The overall qual-
ity of this portfolio remained high, with an average loan-to-value
(LTV) ratio of 56% in Europe and 42% in Asia Pacific.
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
Total loans, gross
Total loans, net of allowances
188
Wealth Management Americas
EDTF | Gross banking products exposure within Wealth Manage-
ment Americas increased to CHF 52 billion as of 31 December
2015 from CHF 47 billion as of 31 December 2014, driven by
increased loan origination. This exposure largely relates to loans
secured by securities and residential mortgage loans.
Out of the loans secured by securities, 96% were rated invest-
ment grade as of 31 December 2015, based on our internal rat-
ings, unchanged compared with 31 December 2014. As of
31 December 2015, these investment grade loans reflect 80% of
the total loan portfolio, compared with 81% as of 31 December
2014.
The mortgage loan portfolio consists primarily of residential
mortgages offered in the US. Gross exposure increased to CHF 8.4
billion as of 31 December 2015 from CHF 7.6 billion at the end of
the prior year. The overall quality of this portfolio remained high
with an average LTV of 58%, unchanged from 2014, and we have
experienced negligible credit losses since the inception of the
mortgage program in 2009. The five largest geographic concen-
trations in the portfolio were in California (30%), New York
(16%), Florida (9%), Texas (4%) and New Jersey (4%).
The amount of impaired loans increased to CHF 29 million as
of 31 December 2015 from CHF 26 million at the end of the prior
year, with most of the impairment relating to securities-backed
loan facilities collateralized by Puerto Rico municipal securities
and related funds.
31.12.15
CHF million
34,004
1,998
11,859
50,123
6,851
333
105,167
105,078
31.12.15
CHF million
8,378
0
1,020
37,092
1,959
305
48,754
48,726
%
32.3
1.9
11.3
47.7
6.5
0.3
100.0
%
17.2
0.0
2.1
76.1
4.0
0.6
100.0
31.12.14
CHF million
36,018
2,205
13,354
49,464
11,147
514
112,701
112,631
31.12.14
CHF million
7,558
0
796
33,983
1,746
274
44,356
44,329
%
32.0
2.0
11.8
43.9
9.9
0.5
100.0
%
17.0
0.0
1.8
76.6
3.9
0.6
100.0
Personal & Corporate Banking
EDTF | As of 31 December 2015, gross banking products exposure
within Personal & Corporate Banking was CHF 153 billion, a
decrease of CHF 3 billion compared with 31 December 2014. Net
banking products exposure also decreased by CHF 3 billion to CHF
153 billion, approximately 64% of which was classified as invest-
ment grade compared with 63% in the prior year. More than
80% of the exposure is categorized in the lowest loss given
default (LGD) bucket of 0% to 25%.
The size of Personal & Corporate Banking’s gross loan portfolio
decreased slightly by CHF 2 billion to CHF 136 billion. At year-end
2015, 94% 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 18% related to lending to public authorities.
Based on our internal ratings, 52% of the unsecured loan portfo-
lio was rated investment grade compared with 53% in 2014.
Our Swiss mortgage portfolio, including Swiss mortgage loans
originating from our Wealth Management business, is discussed
further below.
Our Swiss corporate banking products portfolio, which totaled
CHF 24.4 billion as of 31 December 2015 compared with CHF
25.5 billion as of 31 December 2014, consists of loans, guaran-
tees and loan commitments to multinational and domestic coun-
terparties. Although this portfolio is well diversified across indus-
tries, these Swiss counterparties are, in general, highly reliant on
the domestic economy and the economies 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.
While credit loss expense for this portfolio has remained low in
2015, given the reliance of the Swiss economy on exports, the
continuing strength of the Swiss franc may have a negative effect
on the Swiss economy, which could affect some of the counter-
parties within our domestic 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
impaired loans to total loans, was 0.7% for the corporate loan
portfolio as of 31 December 2015 compared with 0.6% as of
31 December 2014.
➔ Refer to “Credit risk models” in this section for more information
on LGD, rating grades and rating agency mappings
EDTF | Our mortgage loan portfolio secured by residential and
commercial real estate in Switzerland continues to be our largest
loan portfolio. These mortgage loans, totaling CHF 138 billion as
of 31 December 2015, mainly originate from Personal & Corpo-
rate Banking, but also include mortgage loans originating from
Wealth Management. As of 31 December 2015, the majority of
these mortgage loans, CHF 124 billion related to residential prop-
erties that the borrower was either occupying or renting out, and
where there was full recourse to the borrower. Of this CHF 124
billion, approximately CHF 88 billion related to properties occu-
pied by the borrower, with an average LTV ratio of 51% as of
31 December 2015 compared with 52% as of 31 December
2014. The average LTV for newly originated loans for this portion
was 62% in 2015, unchanged compared with 2014. The remain-
ing CHF 36 billion of the Swiss residential mortgage loan portfolio
relates to properties rented out by the borrower and the average
LTV of this portfolio was 56% as of 31 December 2015, unchanged
compared with 31 December 2014. The average LTV for newly
originated Swiss residential mortgage loans was 57% in 2015
compared with 55% in 2014.
As illustrated in the “Swiss mortgages: distribution of net expo-
sure at default (EAD) across exposure segments and loan-to-value
(LTV) buckets,” table, over 99% of the aggregate amount of Swiss
residential mortgage loans would continue to be covered by the
real estate collateral even if the value assigned to that collateral
were to decrease by 20%, and more than 98% would remain cov-
ered by the real estate collateral even if the value assigned to that
collateral were to decrease 30%. In this table, the amount of each
mortgage loan is allocated across the LTV buckets to indicate the
portion at risk at the various value levels shown. For example, a
loan of CHF 75 billion with an LTV ratio of 75% (collateral value of
CHF 100 billion) would result in allocations of CHF 30 billion in the
less-than-30% bucket, CHF 20 billion in the 31–50% bucket, CHF
10 billion in the 51–60% bucket, CHF 10 billion in the 61–70%
bucket and CHF 5 billion in the 71–80% bucket.
EDTF |
Personal & Corporate Banking: 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
31.12.15
CHF million
100,181
19,641
242
693
6,607
8,252
135,616
135,120
%
73.9
14.5
0.2
0.5
4.9
6.1
100.0
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
189
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF |
Personal & Corporate Banking: distribution of banking products exposure across internal UBS ratings
and loss given default (LGD) buckets
CHF million, except where indicated
Internal UBS rating1
Investment grade
Sub-investment grade
of which: 6−9
of which: 10−12
of which: 13 and defaulted
Exposure
98,283
55,190
48,543
4,628
2,019
0–25%
83,011
44,298
40,012
4,133
153
Total exposure before deduction of allowances and provisions
153,473
127,309
22,693
Less: allowances and provisions
Net banking products exposure
(530)
152,943
31.12.15
LGD buckets
26–50%
51–75%
76–100%
13,163
9,531
7,450
414
1,667
1,945
1,312
1,074
39
199
3,257
164
50
7
42
214
Weighted
average
LGD (%)
16
18
17
14
38
17
31.12.142
Weighted
average
LGD (%)
16
18
17
14
38
17
Exposure
97,763
58,448
52,254
4,156
2,038
156,211
(603)
155,608
1 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale and mapping of external ratings” table in the “Credit risk models” section of
this report. 2 Following improvements in data sourcing, the rating split and weighted average LGD for 31 December 2014 have been restated to ensure comparability with the figures as of 31 December 2015.
EDTF |
Personal & Corporate Banking: 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
31.12.15
CHF million
113
1,203
69
1,204
1,313
1,461
120
1,181
1,405
183
8,252
%
1.4
14.6
0.8
14.6
15.9
17.7
1.5
14.3
17.0
2.2
100
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
EDTF |
Swiss mortgages: distribution of net exposure at default (EAD) across exposure segments
and loan-to-value (LTV) buckets
CHF billion, except where indicated
31.12.15
LTV buckets
Exposure segment
≤30% 31–50% 51–60% 61–70% 71–80% 81–100%
>100%
Net EAD
Residential mortgages
as a % of row total
Income-producing real estate (IPRE)
as a % of row total
Net EAD
Corporates
Other segments
Net EAD
as a % of row total
Net EAD
as a % of row total
Net EAD
Mortgage-covered exposure
as a % of total
Mortgage-covered exposure 31.12.14
as a % of total
Net EAD
69.9
61
11.5
61
4.7
60
0.7
68
86.8
61
86.7
60
30.6
27
5.0
26
2.0
26
0.2
20
37.9
27
39.3
27
8.1
7
1.4
8
0.6
7
0.1
5
10.1
7
10.9
8
3.8
3
0.7
4
0.3
3
0.0
3
4.8
3
5.3
4
1.2
1
0.2
1
0.1
2
0.0
2
1.6
1
1.7
1
0.2
0
0.1
0
0.1
1
0.0
1
0.3
0
0.4
0
0.0
0
0.0
0
0.1
1
0.0
0
0.1
0
0.1
0
31.12.14
Total
115.2
19.9
8.2
1.1
144.4
Total
113.8
100
19.0
100
7.9
100
1.0
100
141.6
100
144.4
100
190
Asset Management
Gross banking products exposure within Asset Management was
less than CHF 1 billion as of 31 December 2015.
Investment Bank
EDTF | The Investment Bank’s lending activities are largely associ-
ated with corporates and non-bank financial institutions. The
business is broadly diversified across industry sectors, but concen-
trated in North America.
The gross banking products exposure of the Investment Bank
increased to CHF 69 billion as of 31 December 2015 compared
with CHF 60 billion as of 31 December 2014. The increase in
exposure was due to an increase in temporary loan underwriting
activity toward the end of the year, which was predominantly
investment grade and driven by strategic mergers and acquisi-
tions. While distribution of these investment grade exposures has
been sound, conditions in the sub-investment grade markets have
remained challenging, such that some lower-rated deals have not
been distributed as planned, leading to a buildup in the level of
our exposures intended for syndication. These exposures are clas-
sified as held for trading, with fair values reflecting the market
conditions at the end of the year.
The Investment Bank actively manages the credit risk of this
portfolio and, as of 31 December 2015, held CHF 7.6 billion of
single-name credit default swaps (CDSs) hedges against its expo-
sures to corporates and other non-banks, a decrease of CHF 1.3
billion compared with 2014. In addition, the Investment Bank
held CHF 276 million of loss protection from the subordinated
tranches of structured 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
allowances, provisions and hedges, increased to CHF 53.0 billion
as of 31 December 2015 from CHF 42.9 billion at the end of
2014, driven by the aforementioned higher level of loan under-
writing at the end of 2015. At the end of the year, and based on
our internal ratings, 63% of the Investment Bank’s net banking
products exposure was classified as investment grade compared
with 59% at the end of the prior year. The majority of the Invest-
ment Bank’s net banking products exposure had estimated LGD
of between 0% and 50%.
Due to the current low price environment in commodities,
exposures to certain counterparties in the energy sector currently
carry more risk than in prior periods. As of 31 December 2015
our total net banking products exposure to the oil and gas sector,
mainly in North America, was CHF 6.1 billion, including both
funded and unfunded exposures, of which CHF 5.9 billion was
recorded within the Investment Bank and the remaining exposure
within Corporate Center – Non-core and Legacy Portfolio. Of
this, CHF 2.5 billion was related to the infrastructure-like mid-
stream sub-sector, which we expect to be less affected by lower
energy prices, because revenues for transportation are largely fee
or volume based. Less than CHF 0.5 billion of this midstream
exposure is to counterparties we rate as sub-investment grade.
Exposure to the exploration & production (E&P) sub-sector
amounted to CHF 2.0 billion, almost evenly split between oil and
gas. This is one of the sub-sectors we consider to be most directly
exposed to prolonged low commodity prices. The largest compo-
nent of this E&P-related exposure is reserve-based lending with
counterparties we rate as sub-investment grade, secured by
proven reserves, typically revalued on a semi-annual basis. Refin-
ing-related exposure totaled CHF 0.8 billion, predominantly in
asset-based lending. Our exposure to the integrated sub-sector
was CHF 0.5 billion, entirely with counterparties we rate as high
investment grade. The exposure to the services & supply sub-
sector was CHF 0.4 billion. We also consider this one of the sub-
sectors most directly exposed to prolonged low commodity
prices, as revenues are driven by the level of exploration and pro-
duction activity and as security is typically equipment that has
low recovery values in distress.
Using an assumed average oil price of USD 25 per barrel
through the end of 2017, we estimate that we could incur an
additional credit loss expense of approximately CHF 100 million.
In arriving at this estimate we have considered, among other
things, the estimated effect of the decline in the value of oil and
gas reserves pledged in support of reserve-based loans in the
exploration and production segment, assumed higher default
rates and lower recoveries for the oilfield services segment and
made other significant assumptions. We have not taken into
account any broader macroeconomic effects of a prolonged
period of depressed energy prices, nor have we considered indi-
rect effects. All of these factors may result in actual losses being
materially higher or lower than this estimate, and there can be no
certainty over the timing of recognition of actual losses.
Specific allowances for these energy-related exposures totaled
CHF 40 million as of 31 December 2015. A sustained period of
depressed energy prices could result in an increased credit loss
expense for this sub-segment of our portfolio in future periods.
➔ Refer to “Credit risk models” in this section for more information
on LGD, rating grades and rating agency mappings
191
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF |
Investment Bank: banking products1
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
31.12.15
60,628
(59)
(7,555)
53,014
31.12.14
51,744
(19)
(8,835)
42,890
1 Internal risk view, excludes balances with central banks, internal risk adjustments and the vast majority of due from banks exposures. 2 The effects of portfolio hedges, such as index credit default swaps (CDSs), 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 rating1
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
31.12.15
LGD buckets
Exposure
33,465
19,548
13,365
5,949
234
0–25%
7,136
12,814
9,698
2,941
175
26–50%
51–75%
76–100%
14,632
8,288
3,409
5,234
2,753
2,428
53
506
486
20
0
994
427
561
6
53,014
19,950
19,866
8,794
4,404
Weighted
average
LGD (%)
49
22
20
27
14
39
31.12.14
Weighted
average
LGD (%)
44
19
19
21
23
34
Exposure
25,177
17,713
11,951
5,647
115
42,890
1 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale and mapping of external ratings“ table in the “Credit risk models“ section of
this report.
192
EDTF |
Investment Bank: net banking products exposure by geographical region
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Net exposure
31.12.15
CHF million
2,168
132
27
44,419
163
6,103
53,014
%
4.1
0.2
0.1
83.8
0.3
11.5
100.0
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
Manufacturing1
Mining1
Public authorities
Real estate and construction
Retail and wholesale
Technology and communications
Transport and storage1
Other
Net exposure1
of which: oil and gas1
31.12.15
CHF million
2,468
636
3,173
19,990
6,794
3,331
2,451
4,487
681
3,847
4,005
1,150
53,014
5,930
%
4.7
1.2
6.0
37.7
12.8
6.3
4.6
8.5
1.3
7.3
7.6
2.2
100.0
11.2
31.12.14
CHF million
2,272
1,295
2,465
14,482
4,8582
6,160
1,3022
4,678
855
1,838
1,5602
1,1262
42,890
6,564
%
4.3
0.5
0.2
80.4
0.5
14.0
100.0
%
5.3
3.0
5.7
33.8
11.3
14.4
3.0
10.9
2.0
4.3
3.6
2.6
100.0
15.3
1 As of 31 December 2015, the CHF 5.9 billion Investment Bank net banking product exposure to the oil and gas sector comprised CHF 2.6 billion related to mining, CHF 2.5 billion related to transport and storage and
CHF 0.8 billion related to manufacturing. As of 31 December 2014, the CHF 6.6 billion Investment Bank net banking products exposure to the oil and gas sector comprised CHF 5.5 billion related to mining, CHF 0.4 bil-
lion related to transport and storage and CHF 0.7 billion related to manufacturing. 2 Prior year numbers were restated to account for enhanced sector granularity.
193
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Corporate Center – Group Asset and Liability Management
EDTF | Gross banking products exposure within Corporate Center
– Group Asset and Liability Management (Group ALM), which
arises primarily in connection with treasury activities, decreased by
CHF 13 billion to CHF 97 billion. This was driven by a decrease in
balances with central banks of CHF 14 billion, largely due to the
rebalancing of our high-quality, liquid assets managed centrally 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
the “Financial and operating performance” section of this report
for more information
Traded products
EDTF | Traded products include OTC derivatives exposures, as well as
SFT and ETD exposures. Credit risk arising from traded products,
after the effects of master netting agreements but excluding credit
valuation adjustments and hedges, decreased by CHF 4 billion to
CHF 45 billion as of 31 December 2015. OTC derivatives accounted
for CHF 22 billion, exposures from SFTs were CHF 14 billion, and
ETD exposures amounted to CHF 8 billion. OTC derivatives expo-
sures are generally measured as net positive replacement values
after the application of legally enforceable netting agreements and
the deduction of cash and marketable securities held as collateral.
SFT exposures are reported taking into account collateral received,
and ETD exposures take into account collateral margin calls.
The majority of the traded products exposures, totaling CHF 35
billion, were within the Investment Bank, Non-Core and Legacy
Portfolio and Group ALM. Of this, CHF 0.3 billion was related to
counterparties in the energy sector, predominantly rated invest-
ment grade. As counterparty risk for traded products is managed
at counterparty level, no further split between exposures in the
Investment Bank and those in Non-core and Legacy Portfolio and
Group ALM is provided. The traded products exposure includes
OTC derivative exposures of CHF 16 billion in the Investment Bank
and Non-core and Legacy Portfolio, a decrease of CHF 5 billion
from the prior year, primarily due to our ongoing reduction activ-
ity in Non-core and Legacy Portfolio and client-driven reductions
in the Investment Bank. The SFT exposures, which arise mainly
within the Investment Bank and Group ALM, amounted to CHF
14 billion and the ETD exposures were CHF 6 billion. The tables on
the following pages provide more information on the OTC deriva-
tives and SFT exposures of the Investment Bank, Non-Core and
Legacy Portfolio and Group ALM.
EDTF |
Investment Bank, Non-core and Legacy Portfolio and Group ALM: traded products exposure
CHF million
Total exposure, before deduction of credit valuation adjustments and hedges
Less: credit valuation adjustments and allowances
Less: credit protection bought (credit default swaps, notional)
Net exposure after credit valuation adjustments, allowances and hedges
OTC derivatives1
SFT
31.12.15
ETD
Total
15,502
(470)
(1,076)
13,955
13,657
6,099
13,657
6,099
35,258
(470)
(1,076)
33,712
1 Net replacement value includes the effect of netting agreements (including cash collateral) in accordance with Swiss federal banking law.
Total
31.12.14
39,875
(700)
(998)
38,177
194
EDTF |
Investment Bank, Non-Core and Legacy Portfolio, and Group ALM: distribution of net OTC derivatives and
SFT exposure across internal UBS ratings and loss given default (LGD) buckets
CHF million, except where indicated
Internal UBS rating1
Net OTC derivatives exposure
Investment grade
Sub-investment grade
of which: 6−9
of which: 10−12
of which:13 and defaulted
Total net OTC exposure, after credit valuation
adjustments and hedges
Net SFT exposure
Investment grade
Sub-investment grade
Total net SFT exposure
31.12.15
LGD buckets
Exposure
0–25%
26–50%
51–75%
76–100%
13,176
4,380
7,865
558
779
343
92
344
63
31
31
0
655
252
60
342
9
8
0
0
13,955
4,443
8,520
566
13,531
126
13,657
6,520
3
6,524
6,234
9
6,243
269
12
280
373
53
51
0
2
426
508
102
610
Weighted
average
LGD (%)
30
36
48
30
26
31
27
89
28
31.12.14
Weighted
average
LGD (%)
29
38
39
31
39
30
33
81
34
Exposure
18,040
913
445
114
355
18,953
11,674
399
12,073
1 The ratings of the major credit rating agencies, and their mapping to our internal rating masterscale, are shown in the “Internal UBS rating scale and mapping of external ratings“ table in the “Credit risk models“ section
of this report.
EDTF |
Investment Bank, Non-Core and Legacy Portfolio, and Group ALM: net OTC derivatives and
SFT exposure by geographical region
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Net exposure
Net OTC derivatives
Net SFT
31.12.15
31.12.14
31.12.15
31.12.14
CHF million
1,194
51
132
4,878
512
7,189
13,955
%
8.6
0.4
0.9
35.0
3.7
51.5
100.0
CHF million
% CHF million
%
CHF million
2,956
171
157
6,704
811
8,153
15.6
0.9
0.8
35.4
4.3
43.0
1,661
117
740
2,929
1,275
6,935
12.2
0.9
5.4
21.5
9.3
50.8
2,123
122
900
2,927
1,252
4,750
%
17.6
1.0
7.5
24.2
10.4
39.3
18,953
100.0
13,657
100.0
12,073
100.0
%
33.3
EDTF |
Investment Bank, Non-Core and Legacy Portfolio, and Group ALM: net OTC derivatives and SFT exposure by industry
Net OTC derivatives
Net SFT
31.12.15
31.12.14
31.12.15
31.12.14
CHF million
%
CHF million
% CHF million
%
CHF million
Banks
Chemicals
Electricity, gas, water supply
Financial institutions, excluding banks
Manufacturing
Mining
Public authorities
Retail and wholesale
Transport, storage and communication
Other
Net exposure
4,621
28
306
5,336
564
178
2,085
15
285
537
33.1
0.2
2.2
38.2
4.0
1.3
14.9
0.1
2.0
3.8
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
4,995
36.6
4,025
8,151
59.7
7,176
59.4
509
2
1
3.7
0.0
0.0
871
0
1
7.2
0.0
0.0
13,955
100.0
18,953
100.0
13,657
100.0
12,073
100.0
195
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
reduced 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 | The value assigned by UBS to each property is based on
the lowest value determined from internally calculated valuations,
the purchase price and, in some cases, an additional external valu-
ation.
We use two separate models provided by a market-leading
external 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
addition to the model-derived values, valuations for ORP are
updated quarterly throughout the lifetime of the loan by using
region-specific real estate price indices. The price indices are
sourced from an external vendor and are subject to internal vali-
dation and benchmarking 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 migration and behavioral information) to identify
higher-risk loans, which are then reviewed individually by client
advisors and credit officers, with actions taken where they are
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 in the vacancy rate can trigger an
interim reappraisal.
To take market developments into account for these models,
the external vendor regularly updates the parameters and / or
refines the architecture for each model. Model changes and
parameter updates are subject to the same validation procedures
as for our internally developed models.
Audited | 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: maximum loan amounts, maturities and LTV
limits by type of property, debt-to-income limits, required 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 prop-
erty type and overall loan size.
➔ Refer to “Personal & Corporate Banking” in “Credit risk profile of
the Group – Internal risk view” in this section for more informa-
tion 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
actively 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 period and confidence level. For less liquid instruments such
as structured products and certain bonds, and for products with
long redemption 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 guaran-
tees / letters of credit, haircuts are determined on a product / cli-
ent-specific basis.
196
Audited | EDTF | Pillar 3 | We also consider concentration risks across
collateral posted on a divisional level, and additionally perform
targeted Group-wide reviews of concentrations. A concentration
of collateral in single securities, issuers or issuer groups, industry
sectors, countries, regions or currencies may result in higher risk
and reduced liquidity. In such cases, the lending value of the col-
lateral, 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-
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.
➔ Refer to “Stress loss” in “Credit risk models” in this section for
Credit hedging
Audited | EDTF | Pillar 3 | We utilize single-name credit default swaps
(CDSs), credit index CDSs, bespoke protection, and other instru-
ments to actively manage credit risk in the Investment Bank and
Non-core and Legacy Portfolio. This is aimed at reducing concen-
trations of risk from specific counterparties, sectors or portfolios.
We maintain strict guidelines for taking credit hedges into
account 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
CDSs. 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
effectiveness of the credit protection. Mismatches are routinely
reported to credit officers and mitigating actions are taken when
considered necessary.
➔ Refer to “Note 14 Derivative instruments and hedge accounting”
in the “Consolidated financial statements” section of this report
more information on our stress testing
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
exchange 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. However, the mitiga-
tion of settlement risk through Continuous Linked Settlement
membership and other means does not fully 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.
Audited | EDTF | Pillar 3 | Trading in OTC derivatives is conducted
through central counterparties (CCPs) where practicable. Where
CCPs are not used, we have clearly defined processes for enter-
ing into netting and collateral arrangements, including the
requirement to have a legal opinion on the enforceability of con-
tracts in relevant jurisdictions in the case of insolvency. Trading is
generally conducted under bilateral International Swaps and
Derivatives Association (ISDA) or ISDA-equivalent master netting
agreements, which allow for the close-out and netting of all
transactions in the event of default. For most major market par-
ticipant counterparties, we may in addition use two-way collat-
eral agreements under which either party can be required to pro-
vide collateral in the form of cash or marketable securities,
typically limited to well-rated government debt, when the expo-
sure exceeds specified levels.
➔ Refer to “Note 14 Derivative instruments and hedge accounting”
in the “Consolidated financial statements” section of this report
for more information on our OTC derivatives settled through
central counterparties
➔ Refer to “Note 26 Offsetting financial assets and financial
liabilities” in the “Consolidated financial statements” section of
this report for more information on the effect of netting and
collateral arrangements on our derivative exposures
197
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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 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
EDTF | Pillar 3 |
Key features of our main credit risk models
ratings-based approach of the Basel III framework governing
international convergence of capital. We also use models to
derive the portfolio credit risk measures of expected loss, statisti-
cal loss and stress loss.
The “Key features of our main credit risk models” table sum-
marizes the key features of the models that we use to derive PD,
LGD and EAD for our main portfolios and is followed by more
detailed explanations of these parameters.
➔ 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
Portfolio in scope
Model approach Main drivers
Number of
years loss data
Probability of default
Loss given default
Swiss owner-occupied mortgages
Income-producing real estate mortgages
Lombard lending
Score card
Transaction rating
Merton type
Personal & Corporate Banking – Corporates
Score card
Investment Bank – Banks
Investment Bank – Corporates
Score card
Score card / market
data
Swiss owner-occupied mortgages
Income-producing real estate mortgages
Lombard lending
Personal & Corporate Banking – Corporates
Actuarial model
Actuarial model
Actuarial model
Actuarial model
Investment Bank – all counterparties
Actuarial model
Exposure at default
Banking products
Traded products
Statistical model
Statistical model
Audited | EDTF | Pillar 3 |
Internal UBS rating scale and mapping of external ratings
Behavioral data, affordability relative to income,
property type, loan-to-value
Loan-to-value, debt-service-coverage
Loan-to-value, portfolio volatility
Financial data including balance sheet ratios and
profit and loss, and behavioral data
Financial data including balance sheet ratios and
profit and loss
Financial data including balance sheet ratios and
profit and loss, and market data
Historical observed loss rates, loan-to-value,
property type
Historical observed loss rates
Historical observed loss rates
Historical observed loss rates
Counterparty- and facility-specific, including
industry segment, collateral, seniority, legal
environment and bankruptcy procedures
Exposure type (committed credit lines, revocable
credit lines, contingent products)
Product-specific market drivers, e.g., interest rates
Internal UBS rating
0 and 1
2
3
4
5
6
7
8
9
10
11
12
13
Counterparty is in default (CDF)
198
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
0.50–0.80
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
Description
Investment grade
Sub-investment grade
Defaulted
Moody’s Investors
Service mapping
Aaa
Aa1 to Aa3
A1 to A3
Baa1 to Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa
Ca to C
Standard & Poor’s
mapping
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
21
21
10–15
21
5–10
5–10
21
21
10–15
17
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
Probability of default
EDTF | Pillar 3 | The probability of default (PD) is an estimate of the
likelihood of a counterparty defaulting on its contractual obliga-
tions over the next 12 months. PD ratings are used for credit risk
measurement and are an important input for determining credit
risk approval authorities.
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, 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 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 probabilities that we
determine through our various rating tools by means of distinct
classes, whereby each class incorporates a range of default prob-
abilities. 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 avail-
able 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 rat-
ing of a counterparty may, therefore, diverge from one or more
of the correlated 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’ aver-
age 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 work-out costs, including the
cost of carrying an impaired position during the work-out 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
scenario 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 effect of market moves over the potential time
it would take to close out our positions. For exchange-traded
derivatives, our calculation of EAD takes into account collateral
margin calls. When measuring individual counterparty exposure
against credit limits, we consider the maximum likely exposure
measured to a high level of confidence. However, when aggre-
gating 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) generated
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
become impaired. The expected loss for a given credit facility is a
product 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 pro-
file 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 counterpar-
ties and to systematic default relationships among counterparties
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.
199
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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 sys-
temic events, and varying in time horizon. For example, for our
loan underwriting 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 representing instantaneous market shocks to all collat-
eral and exposure positions, taking into consideration their liquid-
ity and potential concentrations. The portfolio-specific stress test
for our mortgage lending business 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 exposure 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
quantitative methods,
including monitoring compositional
changes in the portfolios and the results of backtesting, and qual-
itative assessments, 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
EDTF | Pillar 3 |
Main credit models backtesting by regulatory exposure segment
Length of time series
used for the calibration
(in years)
Actual rates in %
Average of last
5 years1
Min. of last
5 years2
Max. of last
5 years2
Estimated average rates
at the start of
the period in %
Probability of default
Sovereigns
Banks3
Corporates4
Retail
Residential mortgages
Lombard lending
Other retail
Loss given default
Sovereigns
Banks3, 5
Corporates
Retail
Residential mortgages
Lombard lending
Other retail
Credit conversion factor
Corporates
>10
>10
>10
>20
>10
>10
>10
>10
>10
>20
>10
>10
>10
0.00
0.08
0.22
0.15
0.01
0.29
12.71
24.60
1.60
22.61
18.77
21.53
0.00
0.06
0.19
0.13
0.00
0.16
14.33
0.24
6.23
0.11
9.75
0.00
0.13
0.28
0.19
0.02
0.45
30.28
2.23
6.23
30.69
44.32
0.22
0.61
0.55
0.52
0.13
1.01
41.11
37.71
20.80
6.61
20.00
43.03
33.45
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 observa-
tions occurred during that year. 3 Includes central counterparties. 4 Reported averages are low due to the effect of managed funds, which have relatively low default rates. 5 For Banks, no minimum / maximum LGDs
are reported, since there were less than 5 observations in each year between 2011 and 2015.
200
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. To assess the predictive power
of our credit exposure models for traded products such as OTC
derivatives and ETD products, we statistically compare the pre-
dicted future exposure distributions at different forecast horizons
with the realized values.
For PD, we use statistical modeling to derive a predicted distri-
bution of the number of defaults. The observed number of
defaults is then compared with this distribution, allowing us to
derive a statistical level of confidence in the model conservative-
ness. 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 rating tool is, as a general rule, recalibrated.
For LGD, the backtesting statistically tests whether the mean
difference between the observed and predicted LGD is zero. If the
test rejects, then there is evidence that our predicted LGD is too
low. In such cases, models are recalibrated where these differ-
ences are outside expectations.
Credit conversion factors (CCFs), used for the calculation of
EAD for undrawn facilities with corporate counterparties, are
dependent on several contractual dimensions of the credit facility.
We compare the predicted amount drawn with observed histori-
cal utilization of such facilities for defaulted counterparties. If any
statistically significant deviation is observed, the relevant CCFs are
redefined.
The table on the previous page compares the current model
calibration for PD, LGD and CCFs 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 were modified over the course of 2015. For the Swiss
small and medium corporate clients, a revised rating tool was
implemented in 2015, which includes behavioral information as
an additional rating driver. Moreover, this rating tool was recali-
brated based on an extended data history.
Revised rating methodologies for banks and leveraged corpo-
rates were introduced by combining a purely quantitative rating
based on the empirical regression between counterparty financial
characteristics and default events with a structured qualitative
overlay, which allows for Risk Officers expert opinion to be included
in the rating assessment. Where required, changes to models and
model parameters were approved by the Swiss Financial Market
Supervisory Authority (FINMA) prior to implementation.
201
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Policies for past due, non-performing and impaired claims
EDTF | Pillar 3 | The diagram “Exposure categorization” illustrates how
we categorize banking products and securities financing transac-
tions (SFTs) as performing, non-performing or impaired.
Audited | For products accounted for on a fair value basis, such as
OTC derivatives, credit deterioration is recognized through a
credit valuation adjustment (CVA), and these products are there-
fore not subject to the below impairment framework.
We consider a claim at amortized cost (loan, guarantee, loan
commitment or SFT) 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 obli-
gations 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 restructuring
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, post-
ponement of interest or principal payments, modification of the
schedule of repayments, subordination 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.
Individual and collective impairment assessments
Audited | EDTF | Pillar 3 | Claims are assessed individually for impairment
where there are indicators that an impairment may exist. Otherwise
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 non-performing
claims are assessed individually for impairment. However, an
impairment 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 the cli-
ent’s bankruptcy, debt moratorium or financial reorganization.
Individual claims are assessed for impairment based on the
borrower’s overall financial condition, resources and payment
record, the prospects of support from contractual guarantors and,
where applicable, the realizable value of any collateral. The recov-
erable 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 have established processes to determine the carrying val-
ues of impaired claims in compliance with IFRS requirements. Our
credit controls applied to valuation processes and workout agree-
ments are the same for credit products measured at amortized
cost and fair value. Our workout strategy and estimation of recov-
erable amounts are independently approved in accordance with
our credit authorities.
202
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
impaired 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 impair-
ment 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.
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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 as a
credit valuation adjustment in the income statement in Net trad-
ing income.
➔ Refer to “Note 1 Summary of significant accounting policies”
and “Note 24a Valuation principles” in the “Consolidated
financial statements” section of this report for more information
on allowances and provisions for credit losses and credit
valuation adjustments
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(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)
203
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Market risk
Audited | EDTF | Pillar 3 | Main sources of market risk
Audited | EDTF | Pillar 3 | Overview of measurement, monitoring
and management techniques
– 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, from remaining
positions within Non-core and Legacy Portfolio and also from
our municipal securities trading business within Wealth Man-
agement Americas.
– Non-trading market risk arises predominantly in the form of
interest rate and foreign exchange risks in connection with
personal banking and lending in our wealth management busi-
nesses, our personal and corporate banking businesses in Swit-
zerland and the Investment Bank’s lending business, in addi-
tion to treasury activities.
– Corporate Center – Asset and Liability Management (Group
ALM) assumes market risks in the process of managing interest
rate risk, structural foreign exchange risks and the liquidity and
funding 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.
– 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-
adjusted 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 gran-
ular limits for general and specific market risk factors. Our trad-
ing businesses are subject to multiple market risk limits. These
limits take into account the extent of market liquidity and vola-
tility, available operational capacity, valuation uncertainty, 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.
204
Our Treasury Risk Control function applies a holistic risk frame-
work which sets the appetite for treasury-related risk-taking activ-
ities across the Group. A key element of the framework is an over-
arching economic value sensitivity limit, set by the BoD. This limit
is linked to the level of Basel III common equity tier 1 (CET1) capi-
tal 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 ana-
lyze the outlook and volatility of net interest income based on
market expected interest rates. Limits are also set by the BoD to
balance the impact of foreign exchange movements on our CET1
capital and CET1 capital ratio. Non-trading interest rate and for-
eign exchange risks are included in our Group-wide statistical and
stress testing metrics which flow into our risk appetite framework.
Equity and debt investments are subject to a range of risk con-
trols including pre-approval of new investments by business man-
agement and Risk Control and regular monitoring and reporting.
They are also included in our Group-wide statistical and stress test-
ing metrics which flow into our risk appetite framework.
➔ Refer to the “Treasury management” section of this report for
more information on Group ALM’s management of foreign
exchange risks
➔ 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 in 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
positions classified within the trading book in accordance with
regulatory requirements (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 (IRC), the com-
prehensive risk measure (CRM) for the correlation portfolio and
the securitization framework for securitization positions in the
trading book. More information on each of these components is
detailed in the “Market risk exposures arising from our primary
business activities” table on the next page.
205
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Market risk exposures arising from our primary business activities
31.12.15, in CHF billion
Market risk type
Trading book market risk
RWA category
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0.0 0.0
0.2 0.4
0.0
0.4
0.0 0.0
0.0 0.0
A
W
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0.0
1.0
0.0
0.0
1.6 2.9
3.3
2.5
0.0
0.2 10.5
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
Trading portfolio assets and liabilities
Municipal securities and closed-end
funds trading
Personal & Corporate Banking 1
Asset Management
Investment Bank
Investor Client Services
Fixed income, equities, foreign exchange and
commodities, securities and derivatives
Structured notes
Trading portfolio assets and liabilities,
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 – Group ALM 1
Centralized liquidity and funding
Trading portfolio assets
Loans
Trading book
Banking book
Financial assets designated at fair value
Banking book
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
Assetsandderivativesconsideredto be
non-core
Structured notes
Trading portfolio assets and liabilities,
positive and negative replacement values
Financialliabilitiesdesignatedatfair value
Trading book
Counterparty CVA management 4
Positiveandnegativereplacement values
Trading book
0.1 0.2
0.1 0.5
0.9
0.4 0.6
0.8
0.2
0.1
0.5 2.6
Reclassified held for trading assets, and
corporate and asset-based lending
Loans
Portfolio diversification effect 5
Total
Key contributor
Less significant contributor
Banking book
(0.8) (1.4) 0.0 (0.8) 0.0
0.0 (2.9)
1.5 2.8 4.2 2.7 0.1 0.7 12.1
1 Interest rate risk from Wealth Management and Personal & Corporate Banking loans and deposits is transferred to Corporate Center – Group ALM. 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 risk on loan underwriting is captured through, and reported as part of, credit risk RWA.
4 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. 5 Negative market risk RWA are due to diversification effects which are allocated to
Corporate Center – Services.
206
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, which we continuously evaluate in order to
ensure that any losses resulting from an extreme, yet plausible,
event do not exceed our risk appetite.
Liquidity adjusted stress
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 reduce or hedge the risk of posi-
tions in each major risk factor in a stressed environment, assum-
ing maximum 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 framework” in this section for more
information
➔ 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
internal 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 asso-
ciated 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.
Additionally, the population of the portfolio within manage-
ment and regulatory VaR is slightly different. The population
within regulatory VaR meets minimum regulatory requirements
for inclusion in regulatory 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.
207
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 unit, and by general market risk type. Market risk, mea-
sured as 1-day, 95% confidence level management VaR continued
to be managed at low levels and average VaR remained stable in
2015 compared with the prior year. With VaR at such low levels,
we continued to observe large relative changes driven by positions
arising from client facilitation, as well as option expiries, the effect
of which can be seen 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 unit and general market risk type1
For the year ended 31.12.15
CHF million
Total management VaR, Group
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
CC – Services
CC – Group ALM2
CC – Non-core and Legacy Portfolio
Diversification effect3, 4
CHF million
Total management VaR, Group
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
CC – Core Functions2
CC – Non-core and Legacy Portfolio
Diversification effect3, 4
Min.
10
0
0
0
0
7
0
4
5
Min.
10
0
0
0
0
7
3
6
Max.
Average
31.12.15
25
0
1
0
0
22
0
16
9
15
0
0
0
0
12
0
8
6
(12)
13
0
0
0
0
10
0
6
5
(9)
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
7
18
11
9
4
9
6
4
1
11
4
3
Average (per business division and risk type)
0
1
0
0
6
0
8
4
0
1
0
0
3
0
0
5
0
0
0
0
4
0
1
1
(9)
(4)
(1)
0
5
2
1
0
0
0
0
2
0
0
0
0
Equity
5
23
9
7
0
0
0
0
9
0
0
0
0
For the year ended 31.12.14
Equity
Interest rates
Credit
spreads
Foreign
exchange
Commodities
Max.
Average
23
0
2
0
0
24
7
11
31.12.14
17
0
1
0
0
17
5
6
(12)
14
0
1
0
0
12
4
8
(11)
5
24
9
14
0
0
0
0
9
0
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
5
0
2
0
0
5
0
7
0
0
0
0
3
1
1
(2)
(8)
(5)
(1)
1
3
2
1
0
0
0
0
2
0
0
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 timeseries, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Following changes in the organization of Corporate Center units as of 1 January 2015, amounts previously reported under CC – Core Func-
tions are now reported under CC – Group ALM. 3 Difference between the sum of the standalone VaR for the business divisions and Corporate Center units and the VaR for the Group as a whole. 4 As the minimum
and maximum occur on different days for different business divisions and Corporate Center, it is not meaningful to calculate a portfolio diversification effect.
208
Regulatory VaR for the period
EDTF | Pillar 3 | The tables below show minimum, maximum, average
and period-end regulatory VaR by business division and Corporate
Center unit, and by general market risk type. Regulatory VaR
exhibits a similar pattern to management VaR, with a more pro-
nounced variability reflected in the reported maximum levels due
to the 10-day holding period used.
EDTF | Pillar 3 |
Regulatory value-at-risk (10-day, 99% confidence, 5 years of historical data) by business division and
Corporate Center unit and general market risk type1
CHF million
Total regulatory VaR, Group
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
CC – Services
CC – Group ALM2
CC – Non-core and Legacy Portfolio
Diversification effect3, 4
CHF million
Total regulatory VaR, Group
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
CC – Core Functions2
CC – Non-core and Legacy Portfolio
Diversification effect3, 4
For the year ended 31.12.15
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Average
31.12.15
45
0
5
0
0
43
0
19
14
(36)
32
0
4
0
0
33
0
2
10
(16)
22
66
35
27
0
0
0
0
35
0
0
0
0
14
42
28
16
14
40
24
14
6
72
25
20
Average (per business division and risk type)
0
5
0
0
21
0
17
10
(26)
0
4
0
0
16
0
1
12
(10)
0
0
0
0
24
0
4
4
(7)
4
20
9
6
0
0
0
0
8
0
0
4
(3)
For the year ended 31.12.14
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
23
60
33
46
0
0
0
0
33
0
2
(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
15
(34)
0
7
0
0
31
2
28
(23)
0
0
0
0
21
4
9
(10)
5
32
12
7
0
0
0
0
11
0
2
(1)
Average
31.12.14
50
0
5
0
0
45
15
28
(43)
60
0
6
0
0
57
19
16
(38)
Min.
Max.
28
77
0
3
0
0
26
0
1
8
2
6
1
0
74
0
43
27
Min.
Max.
31
104
0
3
0
0
29
6
15
0
11
0
0
87
35
48
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 timeseries, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Following changes in the organization of Corporate Center units as of 1 January 2015, amounts previously reported under CC – Core Func-
tions are now reported under CC – Group ALM. 3 Difference between the sum of the standalone VaR for the business divisions and Corporate Center units and the VaR for the Group as a whole. 4 As the minimum
and maximum occur on different days for different business divisions and Corporate Center, it is not meaningful to calculate a portfolio diversification effect.
209
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.
framework which ensures material completeness of risk identifica-
tion and measurement. As a statistical aggregate risk measure, VaR
supplements our comprehensive stress testing framework.
Moreover, 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.
– 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
period.
– 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
included 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 affect our VaR for a longer period of time. Similarly, follow-
ing 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
entirety of risks associated with a position or portfolio. Conse-
quently, we employ a suite of various metrics with both overlap-
ping and complementary characteristics in order to create a holistic
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
exclude 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
exceptions, respectively. Accordingly, Group-level backtesting
exceptions are investigated, as are exceptional positive backtest-
ing revenues, with results being reported to senior business man-
agement, 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.
(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:23)(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:23)
(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:24)(cid:18)
(cid:19)(cid:20)(cid:18)
(cid:26)(cid:18)
(cid:22)(cid:18)
(cid:18)
(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)
210
(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:15)
(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:24)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:21)(cid:21)(cid:16)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)
(cid:19)(cid:18)(cid:24)(cid:16)(cid:24)(cid:24)(cid:24)(cid:24)(cid:24)(cid:25)
(cid:23)(cid:21)(cid:16)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)
(cid:20)(cid:24)(cid:16)(cid:24)(cid:24)(cid:24)(cid:24)(cid:24)(cid:25)
150
100
50
0
-50
-100
(cid:26)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
The “Group: development of backtesting revenues against
backtesting VaR” chart on the previous page shows the 12-month
development of backtesting VaR against the Group’s backtesting
revenues for 2015. The chart shows both the negative and posi-
tive tails of the backtesting VaR distribution at 99% confidence
intervals representing, respectively, the losses and gains that could
potentially be realized over a one-day period at that level of con-
fidence. Although less pronounced than in previous years, the
asymmetry between the negative and positive tails is due to the
long gamma risk profile that has been run historically 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 Non-core
and Legacy Portfolio for 2015. This includes, in addition to back-
testing revenues, revenues such as commissions and fees, reve-
nues for intraday trading and own credit.
There were four Group VaR negative backtesting exceptions
during 2015, all of which occurred in the second half of the year.
The trading losses that caused the two exceptions in the period
from August to mid-September, as well as the three positive back-
testing revenue spikes during this period, were primarily driven by
the onshore / offshore Chinese foreign exchange basis risk. UBS is
exposed to this risk from its allocated Qualified Foreign Institu-
tional Investor (QFII) quota, which allows foreign investors to
access the onshore capital markets. The volatility in this currency
basis increased substantially after the People’s Bank of China
unexpectedly and significantly weakened its daily fixing for the
Chinese yuan against the US dollar on 11 August 2015. In
response to these extreme market moves outside the 99th per-
centile of the historical VaR time series, UBS significantly reduced
its Chinese onshore / offshore foreign exchange basis exposure.
The two exceptions at the end of September and November were
driven by a combination of (i) a contraction in the aforementioned
foreign exchange basis and further market moves and (ii) adjust-
ments to trading revenues resulting from month-end or other
non-daily valuation adjustments which partly map to risks
accounted for in the capital underpinning for risk-not-in-VaR.
We do not believe that the recent increase in the number of
downside exceptions indicates a material deficiency in our VaR
model, given the specific circumstances outlined above and the
statistical expectation of two to three exceptions per year.
The positive backtesting revenue in January, as shown in the
chart, resulted from significant market volatility following the
Swiss National Bank’s decision to discontinue its exchange rate
floor for the Swiss franc against the euro. Extreme market moves,
particularly in foreign exchange markets, were observed far out-
side the 99th percentile of the historical VaR timeseries.
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 2015
Audited | EDTF | Pillar 3 | We made no significant changes to the VaR
model during 2015, although we improved the VaR model by
integrating selected risks-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, as shown in the
“Capital management” section of this report as well as 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 VaR
multiplier set by FINMA. The VaR multiplier, which was three as of
31 December 2015, is dependent upon the number of VaR back-
testing exceptions within a 250 business day window. When the
number of exceptions is greater than four, the multiplier increases
gradually from three to a maximum of four if 10 or more back-
testing exceptions occur. This is then multiplied by a risk weight
factor of 1,250% to determine RWA. This calculation is set out in
the table on the next page.
EDTF | Pillar 3 |
Backtesting regulatory value-at-risk (1-day, 99% confidence, 5 years of historical data)
For the year ended 31.12.15
For the year ended 31.12.14
CHF million
Group
Min.
14
Max.
35
Average
31.12.15
21
18
Min.
15
Max.
38
Average
31.12.14
22
20
211
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF | Pillar 3 |
Calculation of regulatory VaR-based RWA as of 31 December 2015
CHF million
Period end
regulatory VaR
(A)
60-day average
regulatory VaR
(B)
VaR multiplier
(C)
Max (A, B x C)
(D)
Risk weight factor
(E)
Basel III RWA
(D x E)
32
41
3.0
122
1,250%
1,528
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
financial crisis is no longer contained in the historical 5-year 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
2015.
Regulatory trading book
EDTF | Pillar 3 | Stressed VaR (SVaR) adopts broadly the same methodol-
ogy as regulatory VaR and is calculated using the same population,
holding period (10-day) and confidence level (99%). However,
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.
Derivation of SVaR-based RWA
EDTF | Pillar 3 | SVaR is used to derive the SVaR component of the
market risk Basel III RWA as shown in the “Capital management“
section of this report as well as 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 2015
CHF million
Period end SVaR
(A)
60-day average SVaR
(B)
58
76
VaR multiplier
(C)
3.0
Max (A, B x C)
(D)
Risk weight factor
(E)
Basel III RWA
(D x E)
227
1,250%
2,835
212
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 unit and general market risk type1
For the year ended 31.12.15
CHF million
Total stressed VaR, Group
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
CC – Services
CC – Group ALM2
CC – Non-core and Legacy Portfolio
Diversification effect3, 4
CHF million
Total stressed VaR, Group
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
CC – Core Functions2
CC – Non-core and Legacy Portfolio
Diversification effect3, 4
Min.
54
0
7
0
0
48
0
5
15
Min.
63
0
9
0
0
50
29
23
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
25
131
58
56
46
113
74
48
11
156
55
31
Average (per business division and risk type)
0
9
0
0
49
0
40
24
(64)
0
15
0
0
50
0
5
24
(21)
0
0
0
0
56
0
7
7
(15)
7
63
20
16
0
0
0
0
18
0
0
7
(5)
Equity
46
274
87
57
0
0
0
0
87
0
0
0
0
Average
31.12.15
96
0
11
0
0
92
0
42
32
(81)
58
0
10
0
0
63
0
8
20
(41)
For the year ended 31.12.14
Equity
Interest rates
Credit
spreads
Foreign
exchange
Commodities
Average
31.12.14
94
0
14
0
0
86
44
54
(104)
105
0
15
0
0
101
44
30
(85)
46
348
71
103
0
0
0
0
70
0
9
(8)
18
156
67
32
74
233
121
98
9
281
56
45
Average (per business division and risk type)
0
8
0
0
50
41
46
(78)
0
22
0
0
89
6
56
(52)
0
0
0
0
51
6
17
(18)
9
84
29
16
0
0
0
0
28
0
3
(2)
Max.
291
3
18
2
0
306
0
75
66
Max.
373
0
22
0
0
381
66
115
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 timeseries, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Following changes in the organization of Corporate Center units as of 1 January 2015, amounts previously reported under CC – Core Func-
tions are now reported under CC – Group ALM. 3 Difference between the sum of the standalone VaR for the business divisions and Corporate Center units and the VaR for the Group as a whole. 4 As the minimum
and maximum occur on different days for different business divisions and Corporate Center, it is not meaningful to calculate a portfolio diversification effect.
213
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.
RniV arises from approximations made by the VaR model to
quantify the effect 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 annually. The assessment is
made in terms of a 10-day 99%-VaR measure applied to the dif-
ference 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 calculation. 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 con-
siderations 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 regula-
tory 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 applied 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.
Following the annual calibration of the ratios in the third quar-
ter of 2015, FINMA confirmed that the RniV VaR and SVaR capital
ratios remained unchanged at 105% and 92%, respectively.
FINMA continues to require that RniV stressed VaR capital is
floored at RniV VaR capital.
Based on the regulatory VaR and SVaR RWA noted above, the
RniV RWA add-ons as of 31 December 2015 reduced to CHF 1.6
billion and CHF 2.6 billion, respectively, compared with CHF 2.1
billion and CHF 3.8 billion as of 31 December 2014, following the
reduction in VaR and SVaR.
214
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
migration events (defaults and rating changes) for all issuers in
the IRC portfolio, based on a Merton-type model. For each posi-
tion, default losses are calculated based on the maximum default
exposure measure (the loss in the case of a default event assum-
ing zero recovery) and a random recovery concept. To account for
potential basis risk between instruments, different recovery values
may be generated for different instruments even if they belong to
the same issuer. To calculate rating migration losses, a linear
(delta) approximation is used. A loss due to a rating migration
event is calculated as the estimated change in credit spread due to
the change in rating migration, multiplied by the corresponding
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 Cen-
ter unit. The reduction in the Group’s period-end IRC was mainly
driven by a risk reduction in the Group ALM liquidity asset buffer
and a model change applied in the fourth quarter of 2015.
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, as shown in the “Capital management” section of this
report as well as in “Table 2: Detailed segmentation of Basel III
exposures and risk-weighted assets” in the “UBS Group AG con-
solidated 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 VaR multiplier, and is
shown below.
EDTF | Pillar 3 |
Incremental risk charge by business division and Corporate Center unit
CHF million
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
CC – Services
CC – Group ALM1
CC – Non-core and Legacy Portfolio
Diversification effect2, 3
Total incremental risk charge, Group
For the year ended 31.12.15
For the year ended 31.12.14
Min.
Max.
Average
31.12.15
Min.
Max.
Average
31.12.14
19
67
40
30
11
28
19
27
128
53
15
159
197
116
51
235
161
81
29
(106)
205
197
60
27
(95)
219
130
102
31
93
300
165
92
264
182
197
131
57
(213)
175
108
46
(135)
243
1 Following changes in the organization of Corporate Center units as of 1 January 2015, amounts previously reported under CC – Core functions are now reported under CC – Group ALM. 2 Difference between the
sum of the standalone IRC for the business divisions and Corporate Center units and the IRC for the Group as a whole. 3 As the minimum and maximum occur on different days for different business divisions and Cor-
porate Center, it is not meaningful to calculate a portfolio diversification effect.
EDTF | Pillar 3 |
Calculation of IRC-based RWA as of 31 December 2015
CHF million
Period end IRC
(A)
219
Average of last
12 weeks IRC
(B)
201
Max (A, B)
(C)
219
Risk weight factor
(D)
1,250%
Basel III RWA
(C x D)
2,732
215
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 CRM portfolio across credit spread, correla-
tion and recovery, measured over a one-year time horizon at a
99.9% confidence level. The calculation of the measure assumes
that all positions in the CRM portfolio have a one-year liquidity
horizon and are kept unchanged over this time period. The model
scope covers collateralized debt obligation (CDO) swaps, credit-
linked notes (CLNs), 1st and nth-to-default swaps and CLNs and
hedges for these positions, including credit default swaps (CDSs),
CLNs and index CDSs.
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.
Since the exit of the Non-core correlation trading portfolio
market risk in 2014, the CRM for the Group has remained at low
levels, as shown in the table below.
➔ 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, and the results are used to
derive the CRM-based component of the market risk Basel III
RWA, as shown in the “Capital management” section of this
report as well as in “Table 2: Detailed segmentation of Basel III
exposures and risk-weighted assets” in the “UBS Group AG con-
solidated supplemental disclosures required under Basel III Pillar 3
regulations” section of this report. The calculation is subject to a
floor equal to 8% of the equivalent capital charge under the spe-
cific 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.
4
Max.
12
Average
31.12.15
8
5
Min.
5
Max.
335
Average
31.12.14
120
6
For the year ended 31.12.15
For the year ended 31.12.14
EDTF | Pillar 3 |
Calculation of CRM-based RWA as of 31 December 2015
CHF million
Period end CRM
(A)
5
Average of last
12 weeks CRM
(B)1
7
1 CRM = Max (CRM model result, 8% of equivalent charge under the SRM).
Max (A, B)
(C)
Risk weight factor
(D)
Basel III RWA
(C x D)
7
1,250%
84
216
Securitization positions in the trading book
EDTF | Pillar 3 | Our exposure to securitization positions in the trad-
ing book is limited and relates primarily to positions in Corporate
Center – Non-core and Legacy Portfolio which we continue to
wind down. A small amount of exposure also arises from sec-
ondary trading in commercial mortgage-backed securities in the
Investment Bank. 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 infor-
mation.
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
deposits and Debt issued, Available-for-sale instruments, certain
Instruments designated at fair value through profit or loss, deriva-
tives 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 income or profit or loss, depending on their
accounting treatment.
Our largest banking book interest rate exposures arise from
client deposits and lending products in both our wealth manage-
ment businesses and Personal & Corporate Banking. For Wealth
Management and Personal & Corporate Banking, the inherent
interest rate risks are transferred either by means of back-to-back
transactions or, in the case of products with no contractual matu-
rity date or direct market-linked rate, by replicating portfolios
from the originating business into Group ALM, 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 Personal & Corporate Banking that are
not transferred to Group ALM are managed locally and are sub-
ject to independent monitoring and control both in the locations
by local risk control units as well as centrally by Market Risk Con-
trol. To manage the interest rate risk centrally, Group ALM utilizes
derivative instruments, most 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 investment and refinancing of non-monetary corpo-
rate balance sheet items that have indefinite maturities, such as
equity, goodwill and real estate. For these items, senior manage-
ment has defined specific target durations based on which we
fund and invest as applicable. These targets are defined by repli-
cation portfolios, which establish rolling benchmarks to execute
against. Group ALM also maintains a portfolio of available-for-
sale debt investments to meet the Group’s liquidity needs. In the
first quarter of 2015, we shortened the target duration for the
investment of our Swiss franc-denominated equity, primarily in
response to the prevailing negative Swiss franc interest rate envi-
ronment. This resulted in an initial increase in negative interest
rate sensitivity in Group ALM. This exposure was subsequently
reduced as Group ALM rebalanced the banking book to meet the
new target duration of equity. As of 31 December 2015, our con-
solidated equity was invested as follows: in Swiss francs with an
average duration of approximately two years and fair value sensi-
tivity of CHF 4 million per basis point; in US dollars with an aver-
age duration of approximately five years and a sensitivity of CHF
10 million per basis point. The sensitivities relate directly to the
chosen durations.
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
account 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.
Corporate Center – Non-core and Legacy Portfolio assets that
were reclassified 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.
217
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Effect of interest rate changes on shareholders’ equity and
CET1 capital
EDTF | The “Accounting and capital effect of changes in interest
rates” table below illustrates the accounting and CET1 capital
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). For assets and liabilities held at amortized cost, a change in
interest rates does not result in a change in the carrying amount
of the instruments, but could affect the amount of interest income
or expense recognized over time in the Income statement. Typi-
cally, increases in interest rates would lead to an immediate reduc-
tion 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 “Reconciliation IFRS equity to Swiss SRB capital” in the
“Capital management” section of this report for more informa-
tion
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 available-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 significant 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 example, exhibit an ini-
tial 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 compen-
sated over time by increased NII once increases in interest rates
affect the shorter end of the yield curve in particular. The effect on
CET1 capital would be similar, albeit less pronounced, as gains
and losses on interest rate swaps designated as cash flow hedges
are not recognized 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 effect on
expected NII over both a 1-year and a 3-year time horizon assum-
ing constant business volumes. We also consider the effect of the
interest rate movements in each scenario on the fair value recog-
nized through OCI of the available-for-sale debt portfolios and
cash flow hedges managed by Group ALM. The scenario assess-
ment also includes the estimated effect through OCI on share-
holders’ equity and CET1 capital from pension fund assets and
liabilities. While select standard scenarios, such as a parallel rise in
all yield curves of 100 basis points, are retained and regularly
used, other scenarios are adopted as a function of changing mar-
ket conditions.
EDTF | Pillar 3 |
Accounting and capital effect of changes in interest rates1
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
Recognition
Location
OCI
Income statement
OCI2
Income statement
Shareholders’ equity
CET1 capital
Gains
l
l
l
l
Losses
l
l
l
l
Gains
l
l
Losses
l
l
l
1 Refer to the “Reconciliation IFRS equity to Swiss SRB capital” table in the “Capital management” section of this report for more information on the differences between shareholders’ equity and CET1 capital. 2 Exclud-
ing hedge ineffectiveness which is recognized in the income statement in accordance with IFRS.
218
At the end of 2015, the following scenarios were analyzed in
detail:
– Negative IR (NIR) then Recovery: euro and Swiss franc yield
curves drop 50 basis points in parallel during the first three
months with no zero-floor applied, and therefore become neg-
ative, or more negative. Yield curves in US dollars and other
currencies, on the other hand, drop 25 basis points in parallel,
but remain floored at zero. Thereafter, all rates recover accord-
ing 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
recover 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 100 basis points
in parallel.
– 2015 CCAR Adverse: Federal Reserve Comprehensive Capital
Analysis and Review (CCAR) – Adverse Scenario.
– 2015 CCAR Severely Adverse: Federal Reserve CCAR – Severely
Adverse Scenario.
– Quantitative Easing then Recovery: Central banks keep mar-
kets flooded with liquidity, pinning down short-end rates (zero
or negative interest rate policy). Bond markets / investors subse-
quently take fright over inflation fears, resulting in long-end
rates spiking up sharply (resulting in 5-year forward rates
reaching pre-2008 levels); short-end rates eventually follow
suit.
– Flattener: yield curves across all currencies undergo a sharp rise
for short tenors, with only a modest rise in the long end of the
yield curve: +200 basis points for tenors up to 1 year, +100
basis points for 5 years and +20 basis points for 8-year to
10-year tenors.
– 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 effects on baseline NII
range between a deterioration of 4% and 17% over a 1-year and
3-year horizon, respectively, and an improvement of approximately
17% over both a 1-year and a 3-year horizon. The most adverse
scenario is the NIR then Constant scenario over a 1-year horizon
and the CCAR Severely Adverse scenario over a 3-year horizon.
The most beneficial scenario over a 1-year scenario is the Flattener
and the Parallel +100 basis points scenario over a 3-year horizon.
In addition to the above scenario analysis, we also monitor the
sensitivity of the NII to immediate parallel shocks of –200 and
+200 basis points compared with baseline NII (again, under the
assumption of a constant balance sheet volume and structure).
Any resulting reduction in first-year NII relative to the baseline NII
is subject to predefined threshold levels to monitor the extent to
which the NII is exposed to an adverse movement in market rates.
As of 31 December 2015, the baseline NII would have been
approximately 11% less under a parallel shock of –200 basis
points, whereas under a parallel +200 basis point shock, the base-
line NII would have been approximately 31% higher.
A key factor in our ability to improve our NII throughout 2015,
despite the low and negative interest rate environment in Swiss
francs in particular, has been the large degree of self-funding of
our lending businesses through our deposit base in Wealth Man-
agement and Personal & Corporate Banking, along with appropri-
ate adjustments to our interest rate product pricing. Should we
lose this equilibrium on the balance sheet due to, for example,
unattractive pricing relative to our peers for either our mortgages
or our deposits, this could have consequences for our ability to
maintain our NII at current levels in a persistently low and negative
interest rate environment. Because we assume constant business
volumes, these risks do not manifest themselves in the above-
mentioned interest rate scenarios.
Moreover, should the low and negative interest rate environ-
ment persist or worsen, this could lead to additional pressure on
our NII. While our NII in Swiss francs would remain largely insu-
lated from a further decrease in Swiss franc interest rates, assum-
ing we succeed in maintaining the aforementioned equilibrium,
we could face additional costs to hold our Swiss franc high-quality
liquid asset portfolio. A reduction of the Swiss National Bank’s
deposit exemption threshold for banks would also lead to
increased costs that we might not be able to offset by, for exam-
ple, passing on some of the costs to our depositors. Should euro
interest rates also become significantly negative, this could like-
wise increase our liquidity costs and put our NII generated from
euro-denominated loans and deposits at risk to volume imbal-
ances occurring. Depending on the overall economic and market
environment, sustained and significant negative rates could also
lead to our Wealth Management and Personal & Corporate Bank-
ing clients paying down their loans together with reducing any
excess cash they hold with us as deposits. This would reduce the
underlying business volume and lower NII accordingly.
A net decrease in deposits would require replacement funding
at a relative cost increase that would depend on various factors,
including the term and nature of the replacement funding,
whether such funding is raised in the wholesale markets, or
whether such funding is raised from swapping with available
funding denominated in another currency. On the other hand,
imbalances leading to an excess deposit position could require
investments at negative yields, which we might not be able to
sufficiently compensate for as a result of our excess deposit bal-
ance charging mechanisms.
219
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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 2015, the economic-value effect of
an adverse parallel shift in interest rates of ±200 basis points on
our banking book interest rate risk exposures is significantly below
the threshold of 20% of eligible capital recommended by regula-
tors.
The interest rate risk sensitivity figures presented in the “Inter-
est rate sensitivity – banking book” table on the next page repre-
sent the effect of +1, ±100 and ±200-basis-point parallel moves in
yield curves on present values of future cash flows, irrespective of
accounting treatment. For some portfolios, the +1-basis-point sen-
sitivity has been estimated by dividing the +100-basis-point sensi-
tivity by 100. In the prevailing negative interest rate environment
for the Swiss franc in particular, and to a lesser extent for the euro,
interest rates for Wealth Management and Personal & Corporate
Banking client transactions are generally being floored at non-
negative levels. Accordingly, for the purposes of this disclosure
table, downward moves of 100 / 200 basis points are floored to
ensure that the resulting shocked interest rates do not turn nega-
tive. The flooring results in nonlinear sensitivity behavior.
The sensitivity of the banking book to rising rates increased
year on year by negative CHF 3.4 million per basis point. This was
mainly due to an increased negative sensitivity in Wealth Manage-
ment Americas due to higher short-term US dollar market rates
on its modeled deposit duration, resulting in a lower (i.e., less
positive) sensitivity contribution from the liability side of its bank-
ing book. The sensitivity of the banking book to rising rates
includes the interest rate sensitivities arising from debt invest-
ments classified as Financial investments available-for-sale and
their associated hedges. The sensitivity of these positions (exclud-
ing hedges and excluding investments in funds accounted for as
available-for-sale) to a 1-basis-point parallel increase in the yields
of the respective instruments is approximately negative CHF 9 mil-
lion, 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
reclassified from Equity to profit or loss. These swaps are predom-
inantly denominated in US dollars, euros, British pounds and
Swiss francs. As of 31 December 2015, the fair value of these
interest rate swaps amounted to CHF 2.3 billion (positive replace-
ment values) and CHF 0.2 billion (negative replacement values).
The effect of a 1-basis-point increase of underlying LIBOR curves
would have decreased equity by approximately CHF 22 million,
excluding adjustments for tax.
➔ Refer to “Note 15 Financial investments available-for-sale” in
the “Consolidated financial statements” section of this report
for more information
220
Audited | EDTF | Pillar 3 |
Interest rate sensitivity – banking book1
CHF million
CHF
EUR
GBP
USD
Other
Total effect on interest rate-sensitive banking book positions
of which: Wealth Management Americas
of which: Investment Bank
of which: CC – Group ALM2
of which: CC – Non-core and Legacy Portfolio
CHF million
CHF
EUR
GBP
USD
Other
Total effect on interest rate-sensitive banking book positions
of which: Wealth Management Americas
of which: Investment Bank
of which: CC – Core Functions2
of which: CC – Non-core and Legacy Portfolio
–200 bps
–100 bps
+1 bp
+100 bps
+200 bps
31.12.15
(33.9)
27.0
(165.5)
838.7
(1.2)
665.0
806.5
28.9
(168.6)
(2.8)
(33.9)
26.2
(42.4)
438.8
(2.1)
386.5
440.1
18.0
(73.6)
1.2
(0.2)
(0.3)
0.1
(3.8)
0.1
(4.1)
(3.7)
(0.2)
(0.2)
(0.1)
(15.5)
(29.7)
(0.8)
(380.4)
8.2
(418.3)
(365.3)
(18.9)
(19.2)
(9.6)
(29.1)
(55.5)
(15.6)
(763.4)
16.5
(847.0)
(732.5)
(39.7)
(43.7)
(20.5)
–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)
1 Does not include interest rate sensitivities for credit valuation adjustments on monoline credit protection, US and non-US reference-linked notes. 2 Following changes in the organization of the Corporate Center units
as of 1 January 2015, amounts previously reported under CC – Core Functions are now reported under CC – Group ALM.
221
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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.
We will adopt the own credit presentation requirements of
IFRS 9 in the first quarter of 2016. Under this aspect of IFRS 9,
changes in the fair value of financial liabilities designated at fair
value through profit and loss related to own credit will be recog-
nized in Other comprehensive income (OCI) and will not be reclas-
sified to the Income statement.
➔ Refer to “Note 24 Fair value measurement” in the “Consolidated
financial statements” 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
exchange 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 rec-
ognized in Other comprehensive income and therefore affect
shareholders’ equity and CET1 capital.
Group ALM 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
Equity investments
Audited | EDTF | Under IFRS, equity investments not in the trading
book may be classified as financial investments classified as avail-
able-for-sale, Financial assets designated at fair value or Invest-
ments in associates.
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 influenced 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. However, such equity
investments are 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
included in our Group-wide statistical and stress testing metrics
which flow into our risk appetite framework.
As of 31 December 2015, we held equity investments totaling
CHF 1.6 billion, of which CHF 0.6 billion were classified as Finan-
cial investments available-for-sale, and CHF 1.0 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 subsidiaries and other entities” in the
“Consolidated financial statements” 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 and interest rate sensitivity analysis.
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 61.9 billion as of 31 December 2015
compared with CHF 56.5 billion as of 31 December 2014.
➔ Refer to “Note 15 Financial investments available-for-sale” in the
“Consolidated financial statements” section of this report for
more information
➔ 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
222
Pension risk
EDTF | We provide a number of pension plans for past and current
employees, some of which are classified as defined benefit pen-
sion plans under IFRS. These defined benefit plans can have a
material effect on our IFRS equity and CET1 capital.
In order to meet the expected future benefit payments, the
plans invest employee and employer contributions in various asset
classes. The funded status of the plan is the difference between
the fair value of these assets and the present value of the expected
future benefit payments to plan members (the defined benefit
obligation).
Under IFRS, a negative funded status (where the fair value of
the assets is insufficient to meet the defined benefit obligation) is
recognized on our balance sheet as a liability. It is also deducted
from CET1 capital.
A positive funded status is recognized as an asset on the balance
sheet, but it is capped at the economic benefit available to UBS, as
described in “Note 1a item 24 Pension and other post-employment
benefit plans” in the “Consolidated financial statements” section
of this report. It cannot be recognized in CET1 capital.
At each balance sheet date, the fair value of the assets and the
defined benefit obligation are remeasured, with changes in value
recognized through other comprehensive income, subject to the
aforementioned cap on a positive funded status.
Important risk factors affecting the present value of the
expected future benefit payments include high-grade bonds
yields, interest rates, inflation rates and life expectancy.
Pension risk is included in our Group-wide statistical and stress
testing metrics that flow into our risk appetite framework. The
potential effects are thus captured in the calculation of our post-
stress fully applied CET1 capital ratio.
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Consolidated financial statements” section of this
report for more information on defined benefit plans
➔ Refer to “Stress testing” in the “Risk management and control”
section of this report for more information on our stress testing
framework
➔ Refer to “Consideration of stress scenarios” in the “Capital
management” section of this report for more information on our
post-stress fully applied CET1 capital ratio
➔ Refer to “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” and “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
Pension risk is the risk that the funded status of defined benefit
plans might decrease, negatively affecting our IFRS equity and / or
our CET1 capital. This can arise either from a fall in the plan assets’
value or in the investment returns, an increase in defined benefit
obligations, or a combination of these.
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.
Important risk factors affecting the fair value of the plan assets
are, among others, equity market returns, interest rates, bond
yields, and real estate prices.
➔ Refer to “Holding of UBS Group AG shares” in the “Capital
management” section of this report for more information
223
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Country risk
Macroeconomic developments during the period
Continued weak commodity prices and the Federal Reserve rate
hike put pressure on a number of key emerging markets. Our
largest emerging markets exposure is to China, where growth
continued to be moderate in 2015, and financial markets experi-
enced episodes of extreme volatility. Eurozone concerns and Euro-
pean Central Bank policy included the prospect of a Greek exit
from the common currency, and a migrant / refugee crisis driven
by turmoil in the Middle East and in North Africa.
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
issuer 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
expressed by statistically derived default probabilities as described
in the “Probability of default” section. Based on this internal anal-
ysis we also define the probability of a transfer event occurring
and establish rules as to how the aspects of “other” country risk
should be incorporated into the analysis of the counterparty rat-
ing of entities that are domiciled in the respective country.
Our risk exposure to foreign countries considers the credit rat-
ings assigned to those countries. A country risk ceiling (i.e., maxi-
mum aggregate exposure) applies to our exposures to counter-
parties or issuers of securities and financial 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 exposure to a counterparty is other-
wise 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 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, determining potential losses and making assumptions
about recovery rates depending on the types of credit transac-
tions 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 com-
bined stress testing as well, whereby we apply market shock fac-
tors to equity indices, interest and currency rates in all relevant
countries and consider the potential liquidity of the instruments.
Country risk exposure
Country risk exposure measure
EDTF | 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 expo-
sures. In addition to the classification of exposures into banking
products and traded products as defined in the “Credit risk profile
of the Group – Internal risk view” section, we classify within trad-
ing 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, loan or security underwriting commitments pending
distribution and single-stock margin loans for syndication.
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
reporting 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
account on a notional basis when determining the Net of hedges
exposures.
224
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
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 for 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 credit
default swaps (CDSs) and other credit derivatives.
As a basic example: if 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 any exposure arising
from securities held and issued by the same entity as the refer-
ence 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 ref-
erencing 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 cor-
responding reference asset (or assets) issued by that entity. Expo-
sures 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, a eurozone crisis remains a
core part of the new binding Global Recession scenario for Com-
bined Stress Test purposes, making it central to the regular moni-
toring of risk exposure against the minimum capital, earnings and
leverage ratio objectives in our risk appetite framework.
The “Exposures to selected eurozone countries” table 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 2015. 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 companies and
funds). Exposures to Andorra, Cyprus, Estonia, Latvia, Lithuania
(after euro adoption on 1 January 2015), Malta, Monaco, Monte-
negro, San Marino, Slovakia and Slovenia are grouped in Other.
Pillar 3 | CDSs are primarily bought and sold in relation to our
trading businesses, but are also used to hedge parts of our risk
exposure, including that related to select eurozone countries. As
of 31 December 2015, and not taking into account the risk-reduc-
ing effect of master netting agreements, we had purchased
approximately CHF 20 billion gross notional of single name CDS
protection on issuers domiciled in Greece, Italy, Ireland, Portugal
or Spain (GIIPS) and had sold CHF 19 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 approximately CHF 4 billion notional purchased and CHF 3 bil-
lion notional sold. More than 99% of gross protection purchased
was from investment grade counterparties (based on our internal
ratings) and on a collateralized basis. The vast majority of this was
from financial institutions domiciled outside the eurozone.
Approximately CHF 0.1 billion of the gross protection purchased
was from counterparties domiciled in a GIIPS country with just
over CHF 40 million from counterparties domiciled in the same
country as the reference entity.
225
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF |
Exposures to selected eurozone countries
CHF million
Total
Traded products
(counterparty risk from derivatives
and securities financing)
after master netting agreements
and net of collateral
Trading inventory
(securities and potential
benefits / remaining
exposure from derivatives)
Banking products
(loans, guarantees, loan commitments)
Exposure
before
hedges
1,284
14
Net of
hedges1
963
14
of which:
unfunded
469
Net of
hedges
1,392
38
57
209
1,087
933
1
Net of
hedges1
6,004
3,577
60
365
2,003
5,895
3,799
Net long
per issuer
3,649
3,524
2
19
103
3,921
3,791
Exposure
before hedges
1,399
45
57
209
1,087
1,207
1
23
355
216
805
370
893
52
474
732
377
474
458
377
35
998
239
1
370
1,317
52
55
514
1,687
55
183
1,263
35
1,479
570
1
137
1,132
1,522
7
137
812
1,041
7
347
30
350
62
77
32
180
250
108
347
30
293
4
77
32
180
143
0
6,331
3,583
60
365
2,323
6,650
3,799
53
78
674
38
1
61
574
48
1
2
13
33
1,215
1,094
0
118
3
83
18
562
1,534
1,290
39
1
463
788
1,605
5
79
415
1,106
1,410
1,094
0
289
27
1,287
18
562
2,289
1,621
39
1
463
1,119
2,086
62
79
415
1,530
1,518
1,202
0
289
27
1,287
18
31.12.15
France
Sovereign, agencies and central bank
Local governments
Banks
Other2
Netherlands
Sovereign, agencies and central bank
Local governments
Banks
Other2
Spain
Sovereign, agencies and central bank
Local governments
Banks
Other2
Italy
Sovereign, agencies and central bank
Local governments
Banks
Other2
Austria
Sovereign, agencies and central bank
Local governments
Banks
Other2
Ireland3
Sovereign, agencies and central bank
Local governments
Banks
Other2
Finland
Sovereign, agencies and central bank
Local governments
Banks
Other2
Belgium
Sovereign, agencies and central bank
Local governments
Banks
Other2
Portugal
Sovereign, agencies and central bank
Local governments
Banks
Other2
Greece
Sovereign, agencies and central bank
Local governments
4
Banks
Other2
0
Other4
105
1 Not deducted from the “Net of hedges” exposures are total allowances and provisions for credit losses of CHF 52 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, Lithuania,
Malta, Monaco, Montenegro, San Marino, Slovakia and Slovenia.
35
1,233
1,091
622
22
329
119
514
218
11
188
97
138
1
35
1,233
1,058
622
22
329
86
514
218
11
188
97
73
1
11
54
883
622
12
243
6
199
183
11
1
4
19
1
9
84
23
116
35
9
84
23
116
35
11
127
9
1
31
21
294
31
21
294
140
3
910
140
3
910
178
21
119
2
56
199
2
89
199
4
4
123
4
4
123
4
0
105
9
901
117
9
901
117
10
109
5
178
21
53
16
279
91
16
279
58
1
18
4
1
11
62
9
1
0
3
15
9
72
0
9
72
0
10
44
5
0
0
0
0
0
0
174
52
0
3
2
3
8
5
0
0
226
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
82
15,163
909
718
3,008
19,879
RV
(1)
(22)
(21)
(16)
306
245
Notional
0
52
11
0
70
133
RV
0
(1)
0
0
(1)
(1)
Notional
RV
Notional
0
30
0
0
10
40
0
0
0
0
0
0
(129)
(14,731)
(865)
(741)
(2,313)
(18,779)
RV
(1)
(63)
25
13
29
3
Buy
notional
Sell
notional
0
(47)
2,163
(1,730)
443
260
1,473
4,338
(399)
(283)
(778)
(3,237)
PRV
1
59
11
10
385
466
NRV
(4)
(144)
(7)
(13)
(49)
(217)
CHF million
31.12.15
Greece
Italy
Ireland
Portugal
Spain
Total
Pillar 3 | Holding CDSs for credit default protection does not nec-
essarily protect the buyer of protection against losses, as the con-
tracts will only pay out under certain scenarios. The effectiveness
of our CDS protection as a hedge of default risk is influenced by a
number 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.
Exposure to emerging market countries
The “Emerging markets net exposure by major geographical
region and product type” table on the following page shows the
five largest emerging market country exposures in each major
geographical area by product type as of 31 December 2015 com-
pared with 31 December 2014. Based on the sovereign rating
categories, as of 31 December 2015, 83% of our emerging mar-
ket country exposure was rated investment grade compared with
94% as of 31 December 2014.
Our direct net exposure to Russia was CHF 0.7 billion as of
31 December 2015, approximately half of which related to mar-
gin loans to Russian borrowers which are secured by global
depository receipts issued by Russian companies. Our direct net
exposure to China was CHF 6.6 billion as of 31 December 2015,
approximately 80% of which related to the trading inventory cat-
egory, which is measured at fair value. Of that trading inventory
exposure, the majority is a result of managing our Qualified For-
eign Institutional Investor (QFII) quota through short-term fund
placements.
EDTF |
Emerging markets net exposure1 by internal UBS country rating category
CHF million
Investment grade
Sub-investment grade
Total
31.12.15
31.12.14
14,274
2,906
17,180
18,993
1,107
20,101
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 91 million are not deducted (31 December 2014: CHF 83 million).
227
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
EDTF |
Emerging market net exposures by major geographical region and product type
CHF million
Emerging America
Brazil
Mexico
Colombia
Argentina
Venezuela
Other
Emerging Asia
China
Hong Kong
South Korea
India
Taiwan
Other
Emerging Europe
Russia
Turkey
Azerbaijan
Croatia
Hungary
Other
Middle East and Africa
South Africa
Saudi Arabia
Kuwait
United Arab Emirates
Israel
Other
Total
Total
Net of hedges1
Banking products
(loans, guarantees, loan
commitments)
Net of hedges1
Traded products
(counterparty risk from derivatives
and securities financing)
after master netting agreements
and net of collateral
Net of hedges
Trading inventory
(securities and potential
benefits / remaining
exposure from derivatives)
Net long per issuer
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
1,304
953
168
59
28
23
73
1,850
1,250
300
94
40
20
145
12,023
13,807
6,603
1,224
1,223
1,223
712
1,038
1,611
697
472
135
66
43
198
2,242
678
399
382
243
172
369
6,982
2,000
1,680
1,227
923
996
1,728
886
374
153
11
41
264
2,716
470
576
445
464
203
559
437
213
111
46
21
0
44
4,202
1,020
864
554
988
184
593
962
217
409
122
66
1
147
861
79
169
16
176
87
334
537
227
165
49
23
0
73
4,151
1,341
574
323
949
229
734
922
317
276
147
10
1
171
1,012
80
148
12
247
48
479
396
363
21
9
3
1,134
160
163
405
180
199
27
64
29
15
13
0
7
914
240
231
365
61
5
11
548
400
66
27
54
2,730
378
1,052
713
235
266
85
77
28
27
5
8
9
1,093
52
428
433
122
13
45
472
377
35
3
7
23
26
6,687
5,423
196
264
56
330
418
585
451
48
0
41
44
467
359
5
80
24
765
623
68
19
17
20
19
6,927
5,263
373
643
43
428
177
729
541
70
1
1
32
84
611
339
0
0
95
142
35
17,180
20,101
6,461
6,622
2,508
4,447
8,211
9,032
1 Not deducted are total allowances and provisions for credit losses of CHF 91 million (31 December 2014: CHF 83 million).
228
Operational risk
Compliance and operational risk control developments
during the period
EDTF | In 2015, we concluded our program to combine Compliance
and Operational Risk Control (C&ORC) in order to manage the
Group’s compliance, conduct and operational risks in a fully inte-
grated manner. This transformation has resulted in a strength-
ened control environment, the introduction of globally consistent
processes, substantial enhancements to our detective control
capabilities, and an operating model which is well-defined, agile
and aligned to the Group’s strategy and evolving regulatory
requirements. Additionally, as an integrated function, we are able
to give a broader, more consistent view of the operational risks
we face and provide more coherent challenge to the business.
Throughout 2015, we took a number of concrete steps to
strengthen the management of operational risk, including imple-
mentation of a common risk assessment methodology which
enables better data analytics and comparisons to be made across
and between businesses. We also took on a broader scope of risk
assessments led by the business divisions, and strengthened the
control environment through review of our key controls across the
most critical risk themes.
While we have completed many enhancements during the
Compliance and Operational Risk Control integration, best prac-
tices across the industry are continually evolving, new risks con-
tinue to emerge and threats continue to change. Our strategy for
2016 will, therefore, focus on continued development of our core
capabilities in the prevention of financial crime, monitoring and
surveillance, and conduct risk, while strengthening our control
frameworks for cyber threats, vendor management and transfor-
mational change. Moreover, we will continue to work proactively
to identify and tackle emerging risks, while refining the operating
model to increase effectiveness and deliver efficiency.
The development of our monitoring and surveillance capabili-
ties continues with a focus on more powerful and versatile Group-
wide analytics systems and centralized services. The benefits of
our automated monitoring capabilities for electronic and audio
communications and sophisticated client, trade and cross-border
surveillance are starting to become evident. They have allowed us
to swiftly identify relevant policy breaches and suspicious patterns
of activity. Continuing focus in this area remains vital as regulatory
expectations increase and technology capability continues to
develop. Our geographical and business coverage will be increased
and we will enhance our analytical capabilities to ensure best use
of data and optimized delivery of insights.
In 2015, we strengthened our operational resilience function
with the integration of the Group Technology Risk organization
into C&ORC. Increasing the operational resilience of the firm will
remain a key focus for 2016 with continued enhancements to our
vendor framework, cyber defense and transformational change
risk management framework.
We continue to invest significantly in dedicated security pro-
grams to strengthen our cyber defense. The threats faced across
the financial industry are broadly similar and include data theft
committed increasingly by criminal organizations, disruption of
service, such as distributed denial of service attacks, and cyber
fraud, often through business email compromise and phishing
attacks. We have recently appointed a Head of Cyber Risk in order
to effectively address the challenges posed by the dynamic exter-
nal environment and our own technology innovation. The role
focuses on the enterprise governance for cyber-related activities,
and includes regular assessments of cyber threat intelligence,
analysis of the effectiveness of our controls, and progress on
improving our cyber defense capability. To further enhance our
resilience against one of the most critical, constantly evolving risks
facing the broader industry, we continue to strengthen our cyber
response framework, comprising “Analyze,” “Protect,” “Detect”
and “Respond / Recover” capabilities, through a dedicated pro-
gram. The cyber response framework also includes assessments of
our vendors’ capabilities.
229
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Ensuring that the financial crime risk control environment
remains effective and is constantly updated to reflect new threats
is critical to protecting client and firm assets. This is particularly
important given the current volatility in the geopolitical and asso-
ciated sanctions environment, which continues to reinforce the
importance of a robust, sophisticated and agile anti-financial
crime framework. The completion of a capability enhancement
program in 2015 allowed us to make significant progress, for
example through the introduction of enhanced payments moni-
toring capability. We continue to develop our core systems for
financial crime prevention and protection against fraud, including
an enhanced global anti-money laundering risk assessment and
control framework, new capabilities in the monitoring of business
relationships and improved detection of potential bribery and cor-
ruption risks. Given the rapidly changing and developing geopo-
litical environment, we will need to further integrate these solu-
tions and adapt their ability to detect and respond to changes in
clients’ behavior and risk characteristics. The ongoing changes in
the geopolitical environment also mean that we continue to
closely monitor the international sanctions regimes, and ensure
that our anti-terrorist financing controls are as robust as possible.
Suitability risk, quality of advice and price transparency will
remain areas of heightened focus for the financial industry, as low
interest rates and major legislative change programs, such as the
Markets in Financial Instruments Directive II in the EU, continue.
These developments are in addition to intensified regulatory inter-
est in product tailoring and cross-divisional service offerings. We
continue to enhance the governance and controls around our
suitability and product risk taxonomies to sustainably support the
Group’s growth strategy and product innovation. Our suitability
and product control frameworks are designed to set clear stan-
dards in line with applicable laws and client requirements effec-
tively communicate our suitability strategy and continuously mon-
itor and enforce adherence to suitability standards and controls.
Cross-border risk remains an area of regulatory attention for
global financial institutions, with a strong focus on fiscal transpar-
ency and increased legislation, such as the automatic exchange of
information. We continue to adapt our cross-border control
framework in response to regulatory developments and to facili-
tate compliant client-driven cross-border business.
We have substantially completed a program of remediation
work that has focused on further strengthening our front-office
processes and controls within the FX business. In addition, our
systems have been enhanced to better segregate sensitive infor-
mation, and our monitoring and surveillance capability was sig-
nificantly enhanced so that we can more proactively detect
unusual patterns of employee behavior and improper business
and employee practices. This program also meets the specific
undertakings made to the U.S. Commodity Futures Trading Com-
mission, the Connecticut Department of Banking, the U.S. Depart-
ment of Justice, the UK Financial Conduct Authority, the Swiss
Financial Market Supervisory Authority (FINMA) and the Federal
Reserve Bank of New York, as part of the resolution of the FX mat-
ter. Where applicable we are applying similar control and monitor-
ing enhancements across our other trading businesses including
the Rates and Credit, Equities and Non-Core and Legacy busi-
nesses.
Achieving the fairest outcomes for our clients and safeguard-
ing market integrity are of critical importance to the firm. The
management of conduct risks has been central to our remediation
activities and we have implemented a firm-wide conduct risk
framework that is embedded into the existing operational risk
framework. This framework includes conduct-related manage-
ment information which is reviewed at business and regional gov-
ernance forums, providing metrics on employee conduct, clients
and markets, with employee conduct a central consideration in
the annual compensation process. We also significantly strength-
ened our oversight controls regarding personal account dealing
for our personnel by centralizing all accounts either within UBS, or
into a number of defined brokers.
In addition to the developments and areas of key focus noted
above, we have made further progress in supplementing our risk
assessment processes with a forward-looking view of the broader
risk environment in which UBS operates. Consideration of key
drivers of change such as the UBS strategy, the macroeconomic
outlook, technical innovation and regulatory developments allow
us to refine our global risk assessment and planning activities. In
acknowledgement of the dynamic industry and the environment
in which we operate, we will continue to refine and strengthen
our risk framework to ensure it is agile and aligned with the
Group’s strategy, is responsive to regulatory requirements and
supports forward-looking risk identification.
We are continuously enhancing our stakeholder engagement
as an important complement to our risk assessment processes. In
2015, we reinforced and clarified the mission and mandate for
C&ORC through the establishment of a comprehensive service
delivery and operating model, with clear distinction between the
risk responsibilities of the control functions (second line of
defense) and the business functions (first line of defense). Work to
increase the effectiveness of challenge from the second line of
defense and support the first line of defense in their risk manage-
ment responsibilities will continue throughout 2016. Part of this
strategy is to transform the way we respond to enquiries, manage
approvals and handle incidents leveraging firm-wide standard
solutions.
Operational risk framework
EDTF | Pillar 3 | Operational risk is an inherent part of our business.
Losses can result from inadequate or flawed internal processes,
decisions and systems, or from external events. We provide a
framework that supports the identification and assessment of
material operational risks and their potential concentrations, in
order to achieve an appropriate balance between risk and return.
230
The business division Presidents and the Corporate Center func-
tion heads are ultimately accountable for the effectiveness of oper-
ational risk management and for the implementation of the opera-
tional risk framework. Management in all functions is responsible
for ensuring an appropriate operational risk management environ-
ment, including 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
adequacy 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 framework
facilitates the identification of SOX 404-relevant controls for inde-
pendent testing, functional assessments, management affirma-
tion and where necessary, remediation tracking. UBS employs a
consistent global framework to assess the aggregated impact of
control deficiencies and the adequacy of remediation efforts.
The UBS risk assessment approach covers all business activities
and internal as well as external factors posing a threat to UBS
Group. Aggregated with any weaknesses in the control environ-
ment, the risk assessment articulates the current operational risk
exposure against agreed risk tolerance levels.
Significant control deficiencies that surface during the internal
control and risk assessment processes must be reported in the
operational risk inventory, and sustainable remediation must be
defined and executed. All significant issues are assigned to own-
ers at the senior management level and must be reflected in the
respective manager’s annual performance measurement and
management objectives. To assist with prioritization of all known
operational risk issues, irrespective of origin, a common rating
methodology is adopted by all internal control functions and both
internal and external audit. Group Internal Audit conducts an
issue assurance process after a risk issue has been closed, in order
to maintain rigorous management discipline in the sustainable
mitigation and control of operational risk issues.
Responsibility for the front-to-back control environment and
risk management is held by the Chief Operating Officers and sup-
ported by our transparent reporting.
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.
231
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 detailed above is
aligned to and underpins the calculation of regulatory capital,
which in turn allows us to quantify operational risk and set effec-
tive management incentives.
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. The operational risk regula-
tory capital requirements for the new banking subsidiary of UBS
AG in Switzerland were determined and finalized in 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 from a methodological and calibration process
perspective, with adaptations where necessary. Following finaliza-
tion, the output was presented to FINMA and approved for use.
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 aggre-
gated losses over one year is derived by modeling severities and
frequencies separately and then combining them. This is referred
to as a loss distribution approach and is used to project future
total losses based on historical experience and to determine the
expected loss portion of our capital requirement.
The scenario component takes a forward-looking view of
potential operational losses that may occur, taking into account
the operational risk issues facing the Group. The aim is to deter-
mine a reasonable estimate of unexpected or tail loss exposure
(corresponding to a low-frequency / high-severity event). At this
point, 20 AMA Units of Measures (UoM) are utilized by the cur-
rent model and all are aligned to the operational risk framework
taxonomy.
For each of the models UoM, three frequency / severity pairs
are defined, representing the base, stress and worst case. Calibra-
tion and adjustments to the scenario component parameters are
based on internal extreme losses, loss data from peer banks, out-
puts of the integrated risk assessments, including consideration of
the business and internal control environment, as well as exten-
sive annual verification by internal subject matter experts. The
chart below provides a high-level overview of the model compo-
nents and their respective inputs into the calculation.
The AMA model adds the sampled annual losses from the his-
torical and the scenario component to derive the regulatory capi-
232
(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)
tal figure which equals the 99.9% quantile of the overall annual
operational risk loss distribution.
Currently, we do not reflect mitigation through insurance or
any other risk transfer mechanism in our AMA model.
In 2015, the Group AMA model design, methodology and
calibration were subject to significant redevelopment. We submit-
ted all revisions to FINMA with the intention of implementing
them in 2016 following regulatory approval. The changes focus
on model construct, initial calibration, business environment and
internal control factors, diversification, a litigation specific compo-
nent and combining internal / external losses.
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 2015. As
mutually agreed between UBS and FINMA, the incremental OR
RWA was subject to recalculations based on supplemental analy-
sis performed each quarter. The incremental OR RWA calculated
based upon this supplemental analysis as of 31 December 2015
was CHF 13.3 billion, a decrease of CHF 4.2 billion compared with
31 December 2014. In 2016, the aim is to replace the incremental
OR RWA and have the total OR RWA calculated by the upgraded
AMA. Stress litigation assessments will be an inherent part of the
upgraded AMA.
We continued to allocate operational risk regulatory capital to
the business divisions and Corporate Center based on historical
losses.
AMA model confirmation
EDTF | Pillar 3 | The Group AMA model is subject to an annual quan-
titative 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
Control and supplemented with additional sensitivity and bench-
marking analysis.
AMA future developments
In 2015, the Basel Committee on Banking Supervision announced
that significant changes regarding the calculation of operational
risk capital were being drafted. In March 2016, a consultation
document was issued that proposed replacing the AMA with a
Standardized Measurement Approach. UBS is currently reviewing
the proposals and will participate in the consultation process.
➔ 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
➔ Refer to “If we are unable to maintain our capital strength, this
may adversely affect our ability to execute our strategy, client
franchise and competitive position” in the “Risk factors” section
of this report for more information
233
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
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. We
employ a number of measures to monitor our liquidity and fund-
ing positions under normal and stressed conditions. In particular,
we use stress scenarios to apply behavioral adjustments to our
balance sheet and calibrate the results from these internal stress
models with external measures, primarily the evolving regulatory
requirements for the liquidity coverage ratio (LCR) and the net
stable funding ratio (NSFR).
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 liquidity and funding, and our contingency planning
and stress testing.
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), a committee of the Group
Executive Board, and overseen by the Risk Committee of the
Board of Directors.
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. Group Treasury reports on the Group’s overall liquid-
ity and funding position, including funding status and concentra-
tion risks, at least monthly to the Group ALCO and the Risk Com-
mittee. This enables close control of both our cash and collateral,
including our stock of high-quality liquid assets (HQLA), and
ensures that the Group’s general access to wholesale cash mar-
kets is centralized in Corporate Center – Group Asset and Liability
Management (Group ALM). In addition, should a crisis require
contingency funding measures to be invoked, Group Treasury is
responsible for coordinating liquidity generation with representa-
tives of the relevant business areas.
Audited | 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 Chief Financial Officer, the Group Treasurer and
the business divisions, taking into consideration current and pro-
jected business strategy and risk tolerance. The principles underly-
ing our limit and target framework are designed to maximize and
sustain the value of our business franchise and maintain an appro-
priate balance in the asset and liability structure. Structural limits
and targets focus on the structure and composition of the balance
sheet, while supplementary 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,
including stress testing, for periods of up to one year. To comple-
ment and support 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
situations for potential threats. Treasury Risk Control provides
independent oversight over liquidity and funding risks.
➔ Refer to the “Corporate governance” section of this report for
more information
234
Liquidity
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 environ-
ment, 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.
Our Group contingency funding plan is an integral part of our
global crisis management concept, which covers various types of
crisis events. This contingency funding plan contains an assess-
ment of contingent funding sources in a stressed environment,
liquidity status indicators and metrics, and contingency proce-
dures. 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 fund-
ing sources include a large, multi-currency portfolio of unencum-
bered, high-quality assets managed centrally by Group ALM, a
majority of which is short-term, available and unutilized liquidity
facilities at several major central banks, and contingent reductions
of liquid trading portfolio assets.
Liquidity coverage ratio
EDTF | The LCR measures the short-term resilience of a bank’s
liquidity profile by comparing whether sufficient high-quality liq-
uid assets (HQLA) are available to survive expected net cash out-
flows from a significant liquidity stress scenario, as defined by the
relevant regulator.
The Basel Committee on Banking Supervision (BCBS) standards
require an LCR of at least 100% by 2019, with a phase-in period
starting from 2015. Since 1 January 2015, UBS, as a Swiss sys-
temically relevant bank, has been required to maintain a total LCR
of at least 100%, as well as a Swiss franc-denominated LCR of at
least 100%. In addition, both UBS AG and UBS Switzerland AG
are subject to minimum LCR requirements on a standalone basis.
In a period of financial stress, the Swiss Financial Market Super-
visory Authority (FINMA) may allow banks to use their HQLA and let
their LCR temporarily fall below the minimum threshold of 100%.
We monitor the LCR in Swiss francs and in all other significant
currencies in order to manage any currency mismatches between
HQLA and the net expected cash outflows in times of stress.
HQLA are low-risk unencumbered assets under the control of
the Group Treasurer, which are easily and immediately convertible
into cash at little or no loss of value, to meet liquidity needs in a
thirty-calendar-day liquidity stress scenario. The HQLA stock at
UBS consists primarily of assets that qualify as Level 1 in the LCR
framework, including cash, central bank reserves and govern-
ment bonds.
Beginning in 2015, FINMA rules require us to publicly disclose
the LCR on a quarterly basis, calculated based on the three-month
average of the LCR components. Our 3-month average LCR for
the fourth quarter of 2015 was 124%. Figures disclosed as of
31 December 2014 are provided on a pro forma basis. As these
are calculated on a spot basis, prior period figures are not fully
comparable.
Pillar 3 | Additional information on the UBS Group AG (consoli-
dated) LCR can be found in the document “UBS Group AG (con-
solidated) regulatory information” which is provided in “Quarterly
reporting” at www.ubs.com/investors.
➔ Refer to the “Legal entity financial and regulatory information”
section of this report for more information
EDTF | Pillar 3 |
Liquidity coverage ratio
CHF billion, except where indicated
High-quality liquid assets
Net cash outflows
Liquidity coverage ratio (%)
Average 4Q151
Total adjusted value2
208
167
124
31.12.14
Pro forma
188
152
123
1 The average fourth quarter 2015 net cash outflows and liquidity coverage ratio disclosed in our fourth quarter 2015 earnings release were adjusted from CHF 163 billion and 128% to CHF 167 billion and 124%,
respectively. 2 Calculated after the application of haircuts and cash inflow and outflow rates as well as, where applicable, caps on Level 2 assets and cash inflows.
235
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
EDTF |
High-quality liquid assets
CHF billion
Cash and balances with central banks
Securities recognized as financial investments available-for-sale
Securities received as collateral (off-balance sheet)
Total high-quality liquid assets
1 Calculated after the application of haircuts.
EDTF |
Cash outflows and inflows
CHF billion, except where indicated
Cash outflows
Retail deposits and deposits from small business customers
of which: stable deposits
of which: less stable deposits
Unsecured wholesale funding
of which: operational deposits (all counterparties)
of which: non-operational deposits (all counterparties)
of which: unsecured debt
Secured wholesale funding
Additional requirements:
of which: outflows related to derivatives and other transactions
of which: outflows related to loss of funding on debt products2
of which: committed credit and liquidity facilities
Other contractual funding obligations
Other contingent funding obligations
Total cash outflows
Cash inflows
Secured lending
Inflows from fully performing exposures
Other cash inflows
Total cash inflows
Level 1 weighted
liquidity value
117
50
31
198
Average 4Q15
Level 2 weighted
liquidity value1
0
Total weighted
liquidity value1
117
6
4
10
55
36
208
Total
carrying value
117
56
36
210
Average 4Q15
Unweighted value
Weighted value1
218
35
183
200
34
148
18
159
97
0
62
20
222
181
59
23
263
24
1
23
124
8
98
18
39
59
39
0
20
19
10
275
53
31
23
107
1 Calculated after the application of haircuts and cash inflow and outflow rates. 2 Includes outflows related to loss of funding on asset-backed securities, covered bonds, other structured financing instruments, asset-
backed commercial papers, structured entities (conduits), securities investment vehicles and other such financing facilities.
236
EDTF |
Liquidity coverage ratio
The liquidity coverage ratio (LCR) measures the short-term resilience of a bank’s liquidity profile by comparing whether sufficient
high-quality liquid assets (HQLA) are available to survive the expected net cash outflows from a significant liquidity stress scenario,
as defined by the relevant regulator. Therefore, the LCR is a key metric used by banks and regulators within a liquidity management
framework.
Components of LCR
The LCR consists of the following main components:
LCR =
HQLA
Required:
≥ 100%
Expected cash outflows
Expected cash inflows 1
1 Capped at 75% of expected cash outflows
High-quality liquid assets
HQLA must be easily and immediately
convertible into cash at little or no loss of
value, especially during a time of stress.
HQLA are assets which are of low risk and
are unencumbered. Further characteristics
of HQLA are ease and certainty of valua -
tion, low correlation with risky assets,
listing on a developed and recognized
exchange, an active and sizeable market
and low volatility. Based on these charac-
teristics, HQLA are categorized as Level 1
(primarily central bank reserves and
government bonds) or Level 2 (primarily
US and European agency bonds as well
as non-financial corporate covered bonds).
Level 2 assets are subject to regulatory
haircuts and caps.
Expected cash outflows and inflows
Expected cash outflows and cash inflows
are calculated on the basis of balance
sheet and off-balance sheet information,
as well as stress events, such as outflows
from non-contractual obligations or
rating downgrades. These data are
categorized and weighted depending on
the expected effect of a liquidity stress
scenario, as defined by the relevant
regulator, over a thirty-calendar-day hori-
zon. Expected cash inflows can be taken
into account up to a cap of 75% of
the expected cash outflows. The main
cate go ries are described below.
The weighting of cash outflows and
inflows is prescribed by FINMA, based on
Bank for International Settlements (BIS)
guidance, and depends on criteria such as
maturity, counterparty and industry type,
stability of deposits, opera tional purpose
of the balance for a client, covering of
short positions, encumbrance, netting
agreements, volatility and collateral
requirements. Consequently, the same
balance sheet item may result in a different
outcome in the calculation of LCR. For
example, a deposit from a financial corpo-
rate client has a higher expected cash
outflow rate than a deposit of similar size
from a non-financial corporate client,
which in turn has a higher expected cash
outflow rate than a deposit of similar size
from a high net worth individual.
Expected cash outflows within 30 days from
• Retail deposits (e.g., saving accounts of private retail
or wealth management customer)
• Unsecured wholesale funding (e.g., current account
ofanon-financialcorporate)
• Secured wholesale funding (e.g., repurchase
agreements and securities lending)
•Derivativesandcollateral(e.g.,expectedoutflowdue
to rating downgrades)
•Structuredfinancingtransactions(e.g.,lossoffunding
on asset-backed securities)
• Committed credit and liquidity facilities
• Other contractual obligations (e.g., contractual interest
payments)
• Other contingent funding obligations (e.g., guarantees,
letters of credit)
Expected cash inflows within 30 days from
• Secured lending (e.g., reverse repurchase agreements,
collateral swaps)
•Inflowsfromfullyperformingexposures(e.g.,loansand
receivables)
•Othercashinflows(e.g.,derivativestransactions)
237
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
Asset encumbrance
EDTF | Part of our future funding and collateral needs are supported
by assets that are currently available and unrestricted. The table
on the next page presents both total International Financial
Reporting Standards (IFRS) on-balance sheet assets and off-bal-
ance 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 not
available for the purpose of securing additional 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 liabilities to the policy holders, assets held in certain
jurisdictions to comply with explicit minimum local asset mainte-
nance requirements and assets held in consolidated bankruptcy
remote entities, such as certain investment funds and other struc-
tured entities.
➔ Refer to “Note 25 Restricted and transferred financial assets” in
the “Consolidated financial statements” section of this report for
more information
Assets that cannot be pledged as collateral represent those
assets that are not encumbered, but by their nature, are not con-
sidered available to secure funding or to meet collateral needs.
These mainly include secured financing receivables, positive
replacement values for derivatives, cash collateral receivables,
deferred tax assets, goodwill and intangible assets. All other
assets are presented as Unencumbered. Shown separately are
those assets that are considered to be readily available to secure
funding or to meet collateral needs, and consist of cash and secu-
rities 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 managed centrally
by Group ALM, a majority of which are short term, and unencum-
bered positions in our trading portfolio.
The majority of unencumbered assets not considered readily
available to secure funding or to meet collateral needs are loans.
This category also includes assets held by our subsidiaries and
branches of UBS AG that are available to meet funding and col-
lateral needs in certain jurisdictions, but are not readily available
for use by the Group as a whole. This may be as a result of local
regulatory requirements, including liquidity requirements and
large exposure limitations. Readily available unencumbered assets
held by our subsidiaries and branches of UBS AG may also be sub-
ject to restrictions that limit the total amount of, or terms under
which, assets may be made available to other Group entities.
238
EDTF |
Asset Encumbrance
CHF million
Balance sheet as of 31 December 2015
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, equipment and software
Goodwill and intangible assets
Deferred tax assets
Other assets
Other
Total assets 31.12.15
Total assets 31.12.14
CHF million
Off-balance sheet as of 31 December 2015
Fair value of assets received as collateral which can be sold or
repledged
Total off-balance sheet 31.12.15
Total off-balance sheet 31.12.14
Total balance sheet and off-balance sheet for UBS
Group AG (consolidated) as of 31.12.15
of which: fair value of assets available to secure funding in
UBS AG (standalone)2
of which: fair value of assets available to secure funding in
UBS Switzerland AG (standalone)2, 3
Total balance sheet and off-balance sheet for UBS Group AG
(consolidated) as of 31.12.14
of which: fair value of assets available to secure funding in
UBS AG (standalone)2
of which: fair value of assets available to secure funding in
UBS Switzerland AG (standalone)2, 3
Encumbered
Unencumbered
Total Group
assets (IFRS)
Assets pledged
as collateral
Assets otherwise re-
stricted and not avail-
able to secure funding
Cash and securi-
ties available
to secure funding
Other realizable
assets
91,306
11,948
6,146
311,954
163,091
330,048
25,584
67,893
93,477
108,516
16,193
9,026
2,585
11,928
1,159
508
63,984
3,642
15,519
167,435
62,543
23,763
954
7,695
6,568
12,835
22,160
73,975
942,819
1,062,478
24,980
24,980
24,980
57,0231
5,786
2,506
4,237
223
134
44,271
632
82,635
92,144
3,285
337
3,622
1,099
1,099
8,869
4,031
3,130
1,557
152
15,519
502
7,104
480
7,584
37,196
38,997
Assets that
cannot be
pledged as
collateral
3
1
2,130
7,327
9,458
25,584
66,794
92,378
86,325
36,350
5,882
2,332
5,869
786
225
17,840
3,642
4,979
8,662
3,678
279,647
138,112
291,987
6,273
494
1,058
2,585
265
149
149
1,722
51,482
9,927
954
7,695
174,158
179,074
8,648
321,814
330,224
167,435
16,659
6,568
12,835
21,680
57,742
327,017
422,058
Encumbered
Unencumbered
Fair value of
assets received
which can be sold
or repledged
Fair value of assets
received that have
been sold or re-
pledged as collateral
Fair value of assets
received otherwise re-
stricted and not avail-
able to secure funding
Fair value of as-
sets available to
secure funding
Fair value of
other realizable
assets
401,511
401,511
388,855
286,757
286,757
271,963
369,392
10,432
10,432
9,681
47,628
80,476
80,476
89,371
23,846
23,846
17,841
254,635
345,659
327,017
157,531
80,282
364,108
48,678
268,444
348,064
422,058
241,661
1 Includes CHF 51,943 million assets pledged as collateral which may be sold or repledged by counterparties. 2 Assets held by subsidiaries and branches of UBS AG may be subject to restrictions that limit the total
amount of, or terms under which, assets may be made available to other Group entities. 3 UBS Switzerland AG was established in 2015. Refer to “The legal structure of the UBS Group” section of this report for more
information.
239
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
EDTF |
Assets available to secure funding by currency
CHF million
Swiss franc
US dollar
Euro
Other
Total
31.12.15
53,831
85,359
43,259
72,185
254,635
31.12.14
38,525
124,113
39,861
65,945
268,444
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.
Stressed scenario
EDTF | As 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-specific. In addi-
tion to the loss of ability to replace maturing wholesale funding,
it assumes a gradual decline of otherwise stable client deposits
and liquidity outflows corresponding to a two-notch downgrade.
We use a cash capital model, which incorporates the stress
scenario and measures the amount of long-term funding available
to fund illiquid assets. The illiquid portion of assets is the differ-
ence (the haircut) between the carrying value of an asset on the
balance sheet and its effective cash value when used as collateral
in a secured funding transaction. Long-term funding used as cash
capital to support illiquid assets is comprised of unsecured fund-
ing with a remaining time to maturity of at least one year, share-
holders’ 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.
Acute scenario
EDTF | 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
deposits, mainly due on demand, inability to renew or replace
maturing unsecured wholesale funding, unusually large draw-
downs on loan commitments, reduced capacity to generate liquid-
ity from trading assets, liquidity outflows corresponding to a three-
notch downgrade triggering contractual obligations to unwind
derivative positions or to deliver additional collateral and additional
collateral 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.
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.
➔ Refer to “Risk measurement” in the “Risk management and
control” section of this report for more information on stress
testing
240
Funding
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 Personal & Cor-
porate Banking provide significant, cost-efficient and reliable
sources of funding. These include core deposits and our portfolio
of Swiss residential mortgages, a portion of which is pledged as
collateral to generate long-term funding through Swiss Pfand-
briefe. In addition, we have a number of short-, medium- and
long-term funding programs under which we issue senior unse-
cured and structured notes, as well as short-term secured debt,
generally for the highest-quality assets. These programs allow
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 fund-
ing stability.
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
demands 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 businesses in sur-
plus to those that have a shortfall. Funding is internally transferred
or allocated among businesses at rates and tenors that reflect each
business’s asset composition, liquidity and reliable external fund-
ing. We regularly review our internal funds transfer pricing mecha-
nisms, and make enhancements where appropriate to help better
accomplish our liquidity and funding management objectives.
In 2015 we continued to improve our fund transfer pricing
methodologies, ensuring that divisions share in the benefits of
raising liabilities and originating assets, with the pricing curve
incentivizing a balanced funding position from a currency and
tenor perspective. Funds transfer pricing falls under the gover-
nance of Group Treasury.
EDTF |
Funding by product and currency
Securities lending
Repurchase agreements
Due to banks
Short-term debt issued2
Retail savings / deposits
Demand deposits
Fiduciary deposits
Time deposits
Long-term debt issued3
Cash collateral payables on
derivative instruments
Prime brokerage payables
Total
In CHF billion
All currencies
31.12.15 31.12.14
8.0
9.7
11.8
21.2
161.8
173.2
6.1
49.0
9.2
11.8
10.5
27.4
156.4
186.7
14.8
52.3
134.9
139.1
38.3
45.3
42.4
38.6
All currencies1
31.12.15 31.12.14
CHF1
31.12.15 31.12.14
EUR1
31.12.15 31.12.14
USD1
31.12.15 31.12.14
Others1
31.12.15 31.12.14
1.2
1.5
1.8
3.2
24.5
26.3
0.9
7.4
20.5
5.8
6.9
1.3
1.7
1.5
4.0
22.7
27.1
2.1
7.6
20.2
6.1
5.6
0.0
0.0
0.4
0.1
0.1
0.0
0.4
0.2
13.8
13.4
7.9
0.1
1.7
2.3
0.2
0.1
7.9
0.1
1.3
2.6
0.3
0.0
0.2
0.6
0.1
0.4
0.8
5.2
0.1
0.1
5.7
2.1
1.0
0.2
0.4
0.1
0.3
0.8
5.3
0.5
0.2
5.5
2.6
0.7
0.7
0.7
0.7
2.4
9.9
9.7
0.6
3.8
10.8
2.7
4.4
46.5
0.9
0.5
0.5
3.1
8.5
10.0
1.2
3.8
10.2
2.4
4.0
45.1
0.2
0.2
0.5
0.4
0.0
3.5
0.1
1.8
1.7
0.8
1.3
0.2
0.8
0.5
0.4
0.0
3.9
0.4
2.3
1.9
0.8
0.9
10.6
12.0
659.4
689.2
100.0
100.0
26.6
26.2
16.3
16.7
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.
241
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
Changes in sources of funding during the reporting period
EDTF | In 2015, total customer deposits decreased to CHF 390 bil-
lion from CHF 410 billion, or 59.2% of our total funding sources.
Our ratio of customer deposits to outstanding loan balances was
125% compared with 130% as of 31 December 2014.
Long-term debt excluding structured debt, which is comprised
of senior and subordinated debt and is presented within Debt
issued on the balance sheet, increased to CHF 71.9 billion as of
31 December 2015 from CHF 63.8 billion as of 31 December
2014, primarily due to an increase in our senior debt, which is
comprised of both publicly and privately placed notes and bonds as
well as covered bonds, to CHF 54.2 billion from CHF 47.7 billion.
During 2015, we issued senior unsecured debt totaling the
equivalent of CHF 13.6 billion, which consisted of USD 7.9 billion
and EUR 5.3 billion, with tenors between 18 months and five
years without any optional calls, bearing both floating- and fixed-
rate coupons. We also contributed to our loss-absorbing capital
by issuing additional tier 1 perpetual capital notes equivalent to
CHF 3.5 billion and CHF 1.5 billion in February and August 2015,
respectively. In September and November 2015, we issued US dol-
lar- and euro-denominated senior unsecured debt that will con-
tribute to our total loss-absorbing capacity, equivalent to CHF 4.2
billion and CHF 1.4 billion, respectively. During the year, we also
continued to raise medium- and long-term funds through
medium-term notes and private placements and through CHF 0.8
billion of Swiss Pfandbriefe issuances. These issuances were partly
offset by CHF 7.1 billion in redemptions of senior and subordi-
nated debt and covered bonds. In addition, as part of optimizing
our interest expense, while maintaining our strong liquidity, fund-
ing and capital position, we successfully executed a cash tender
offer in December 2015 to repurchase certain senior and subordi-
nated debt and covered bonds with an aggregate principal repur-
chase amount equivalent to approximately CHF 6.1 billion.
As shown on the long-term debt contractual maturities chart
below, CHF 8.4 billion, or 12%, of outstanding long-term debt
excluding structured debt will mature within one year compared
with CHF 8.4 billion, or 13%, in the prior year. In addition, CHF
0.2 billion of subordinated debt has an early call date in 2016.
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(cid:18)
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(cid:21)
(cid:20)
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(cid:19)(cid:22)
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242
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(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:20)(cid:18)
(cid:19)(cid:23)
(cid:19)(cid:18)
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(cid:18)
Our short-term interbank deposits (presented as Due to banks
on the balance sheet), together with our outstanding short-term
debt, represented 5.0% of total funding sources compared with
5.5% as of 31 December 2014.
Secured financing, in the form of repurchase agreements and
securities lent against cash collateral received, represented 2.7%
of our funding sources as of 31 December 2015 compared with
3.0% as of 31 December 2014. As of 31 December 2015, we
were borrowing CHF 76 billion less cash on a collateralized basis
than we were lending, slightly higher than the difference of CHF
71 billion as of 31 December 2014.
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(cid:21)(cid:19)(cid:20)
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(cid:26)(cid:23)
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(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:26)(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:38)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(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: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:21)(cid:27)(cid:18)
(cid:19)(cid:21)(cid:23)
(cid:19)(cid:20)
(cid:20)(cid:19)
(cid:20)(cid:27)
(cid:19)(cid:26)
(cid:19)(cid:25)(cid:21)
(cid:22)(cid:27)
(cid:24)
(cid:19)(cid:24)(cid:20)
(cid:24)(cid:21)
(cid:25)(cid:20)
(cid:19)(cid:19)(cid:26)
(cid:23)(cid:25)
(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)
(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)
243
(cid:18)
(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)
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
Net stable funding ratio
EDTF | In June 2015, the BCBS issued its guidance on “Net stable
funding ratio (NSFR) disclosure standards,” which are intended to
provide a common disclosure framework for banks to disclose the
calculation of the NSFR adopted by the BCBS in October 2014.
Internationally active banks must comply with the NSFR and dis-
closure requirements from 1 January 2018, subject to national
adoption requirements.
EDTF |
Pro forma net stable funding ratio
CHF billion, except where indicated
Available stable funding
Required stable funding
Pro forma net stable funding ratio (%)
31.12.15
426
403
105
31.12.14
372
352
106
EDTF | The NSFR framework is intended to limit over-reliance on
short-term wholesale funding to encourage a better assessment
of funding risk across all on- and off-balance sheet items, and to
promote funding stability. NSFR consists of two components: the
available stable funding (ASF) and the required stable funding
(RSF). ASF is defined as the portion of capital and liabilities
expected to be available over the period of one year. RSF is a func-
tion of the maturity, encumbrance and other characteristics of
assets held and off-balance sheet exposures. The BCBS NSFR reg-
ulatory framework requires a ratio of at least 100% from 2018.
We report our estimated pro forma NSFR based on current guid-
ance from FINMA and will adjust our NSFR reporting according to
the final implementation of the BCBS NSFR disclosure standards
in Switzerland. On 31 December 2015, our estimated pro forma
NSFR was stable at 105% compared with 31 December 2014.
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
creditworthiness and setting credit ratings. These include the
company’s strategy, its business position and franchise value, sta-
bility and quality of earnings, capital adequacy, risk profile and
management, 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.
Pillar 3 | In evaluating our liquidity requirements, we consider the
potential impact of a reduction in UBS’s long-term credit ratings
and a corresponding reduction in short-term ratings. If our credit
ratings were to be downgraded, “rating trigger” clauses, espe-
cially 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’s credit ratings as of 31 December 2015, contrac-
tual liquidity outflows of approximately CHF 0.7 billion, CHF 2.2
billion and CHF 2.6 billion would have been required in the event
of a one-notch, two-notch and three-notch reduction in long-
term credit ratings, respectively. Of these outflows, the portion
related to over-the-counter transactions is approximately CHF 0.2
billion, CHF 1.6 billion and CHF 1.9 billion, respectively.
There were a number of rating actions on UBS AG’s and UBS
Group AG’s solicited credit ratings in 2015. Moody’s Investors Ser-
vice (Moody’s) placed UBS AG’s long-term senior debt rating on
review for possible downgrade following the publication of
Moody’s new bank rating methodology on 17 March 2015, but
subsequently affirmed UBS AG’s rating on 8 July 2015. On
12 October 2015, Moody’s placed UBS AG’s long-term senior
debt rating under review for possible upgrade, and subsequently
upgraded it to A1 from A2 (stable outlook) on 11 January 2016.
Standard & Poor’s affirmed UBS AG’s long-term counterparty
credit rating at A and UBS Group AG’s rating at BBB+, and revised
the outlook from stable to positive on 2 December 2015. Fitch
Ratings affirmed UBS AG’s and UBS Group AG’s long-term issuer
default rating at A, and revised the outlook from stable to positive
on 8 December 2015.
➔ Refer to “Liquidity and funding management are critical to our
ongoing performance” in the “Risk factors” section of this report
for more information
244
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
Enhanced Disclosure Task Force and differs from “Note 27b Matu-
rity analysis of financial liabilities” in the “Consolidated financial
statements” section of this report, which is presented on an
undiscounted basis, as required by IFRS.
Derivative replacement values and trading portfolio assets and
liabilities are assigned to the column Due less than 1 month,
although the respective contractual maturities may extend over
significantly longer periods.
Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the Perpetual / Not appli-
cable 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
included 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 gen-
erally included in the Perpetual / Not applicable time bucket.
Loan commitments are classified on the basis of the earliest
date they can be drawn down.
245
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
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
91.3
10.8
25.6
42.4
124.0
51.9
167.4
23.8
0.4
110.3
13.4
3.4
81.4
12.1
0.6
16.5
0.0
50.1
27.8
7.5
12.0
2.7
Financial investments available-for-sale
0.9
5.2
Investments in associates
Property, equipment and software
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets 31.12.15
Total assets 31.12.14
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 31.12.15
Total liabilities 31.12.14
17.3
614.3
746.1
8.1
5.7
7.9
29.1
162.4
38.3
14.9
371.8
6.5
4.2
71.6
720.4
823.5
Guarantees, commitments and forward starting transactions
Loan commitments
Guarantees
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.15
Total 31.12.14
246
55.7
15.9
6.6
0.0
78.1
78.3
0.0
72.4
67.0
2.3
1.3
1.4
15.8
13.1
9.4
2.7
46.0
50.0
0.2
0.0
0.2
0.1
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 within
1 month
Due over
5 years
Perpetual/
Not applicable
Total
0.2
5.6
0.1
1.3
0.3
13.4
6.1
1.2
4.4
1.7
5.8
0.9
7.1
2.5
0.4
2.5
1.8
14.0
0.1
1.0
0.5
7.8
2.6
0.7
2.8
1.7
6.0
0.0
25.4
25.1
0.0
23.5
16.7
0.0
15.4
18.3
0.8
1.0
0.1
7.0
3.7
9.9
22.6
19.8
0.1
0.0
0.2
0.1
0.1
0.0
3.0
0.6
4.8
8.6
9.6
0.0
0.0
0.0
0.0
0.1
0.0
2.9
0.3
0.3
3.6
8.0
0.0
0.0
0.0
0.0
0.0
0.0
0.5
0.0
0.6
1.1
20.8
13.3
1.5
1.8
4.0
0.1
9.2
0.3
31.8
34.6
0.3
0.0
6.1
0.1
11.1
0.1
17.7
16.9
0.0
0.0
0.1
0.1
2.0
53.8
34.9
4.0
1.9
13.0
0.0
16.9
2.6
75.8
73.2
0.1
5.3
0.4
22.3
0.8
28.8
38.8
0.4
48.7
41.0
2.9
0.1
2.0
2.7
3.8
1.9
54.9
54.2
0.0
0.1
8.0
0.1
23.8
0.2
32.3
39.7
0.1
0.0
0.1
0.1
0.0
0.0
91.3
11.9
25.6
67.9
124.0
51.9
167.4
23.8
6.1
312.0
141.6
21.5
107.0
39.0
2.8
62.5
1.0
7.7
6.6
12.8
22.2
0.5
0.0
0.8
1.0
7.7
6.6
12.8
29.4
27.2
942.8
1,062.5
5.2
0.3
5.4
1.9
11.8
8.0
9.7
29.1
162.4
38.3
63.0
390.2
93.1
4.2
75.7
885.5
1,008.1
56.1
16.0
6.6
0.0
78.7
78.8
Currency management
EDTF | Pillar 3 | Our Group currency management activities are
designed to reduce adverse currency effects on our reported
financial results in Swiss francs, within limits set by the Board of
Directors. Corporate Center – Group Asset and Liability Manage-
ment (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.
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 transla-
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.
➔ Refer to “Note 1a Summary of significant accounting policies”
and “Note 14 Derivative instruments and hedge accounting” in
the “Consolidated financial statements” section of this report for
more information
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. Income statement items of foreign sub-
sidiaries and branches with a functional currency other than the
Swiss franc are translated into Swiss francs on a monthly basis
using the relevant month-end rate. Weighted average rates for a
year represent an average of 12 month-end rates, weighted
according to the income and expense volumes of all foreign sub-
sidiaries and branches with the same functional currency for each
month. To reduce earnings volatility on the translation of previ-
ously recognized earnings in foreign currencies, Group ALM cen-
tralizes 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 follow a similar monthly sell-down process into their own
reporting currencies. Retained earnings in operating entities with
a reporting currency other than the Swiss franc are integrated and
managed as part of net investment hedge accounting.
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
currency movements and its effect on our key ratios
247
Risk, treasury and capital management Risk, treasury and capital management
Capital management
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 2015, our common equity tier 1 (CET1) capital ratio1 increased to 14.5% on a fully applied
basis, the highest fully applied capital ratio in our peer group of large global banks. On a phase-in basis, our CET1
capital ratio was 19.0%. As of 31 December 2015, our Swiss SRB leverage ratio was 5.3% on a fully applied basis and
6.2% on a phase-in basis. Effective 31 December 2015, our Swiss SRB leverage ratio denominator calculation is fully
aligned with the BIS Basel III definition. In 2015, we issued the equivalent of CHF 5.2 billion of additional tier 1 perpetual
capital notes, as well as CHF 5.6 billion of senior unsecured debt that will contribute to our total loss-absorbing capacity
in anticipation of international regulatory developments, including revisions to the Swiss too big to fail framework.
Capital management objectives
Audited | EDTF | Adequate capital is a prerequisite to conduct our
business activities, in accordance with both our own internal
assessment and regulatory requirements. We are committed to
maintaining a strong capital position and sound capital ratios at
all times, to support the growth of our businesses as well as to
meet potential regulatory changes in future capital requirements.
We intend to do so mainly through a combination of our retained
earnings and the issuance of additional tier 1 (AT1) capital, includ-
ing Deferred Contingent Capital Plan (DCCP) grants, as well as
the issuance of instruments which will contribute to our total loss-
absorbing capacity (TLAC).
Ongoing compliance with regulatory capital requirements and
target capital ratios is central to our capital adequacy manage-
ment. As of 31 December 2015, our fully applied CET1 capital
ratio was above our target of at least 13% and was above the
Swiss Financial Market Supervisory Authority’s (FINMA) require-
ments for Swiss systemically relevant banks (SRBs), which are
stricter than the Basel Committee on Banking Supervision (BCBS)
requirements.
Our capital targets and expectations for 2016 and beyond
Group
Common equity tier 1 capital ratio
(fully applied) 1
Risk-weighted assets
(fully applied) 1
Leverage ratio denominator
(fully applied) 1
Investment Bank
at least 13% 2
Expectation: around CHF 250 billion
short / medium term
Expectation: around CHF 950 billion
short / medium term
Risk-weighted assets
(fully applied) 1
Leverage ratio denominator
(fully applied) 1
1 Based on the currently applicable rules. 2 Our capital returns policy is also subject to our objective of
maintaining a post-stress fully applied CET1 capital ratio of at least 10%.
Expectation: around CHF 325 billion
short / medium term
Expectation: around CHF 85 billion
short / medium term
We believe that our capital strength provides great comfort to
our stakeholders, contributes to UBS’s strong credit ratings and is
the foundation of our success.
➔ Refer to the “Our strategy” section of this report for more
information on our performance targets and expectations
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on proposed revisions to the Swiss
too big to fail framework
➔ Refer to the “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 on the risks related to our capital
ratios
Capital planning
Audited | EDTF | The annual strategic planning process includes a cap-
ital planning component and is key in defining mid and longer-
term capital targets. It is based on an attribution of Group risk-
weighted assets (RWA) and leverage ratio denominator (LRD)
limits to the business divisions. These resource allocations in turn
affect 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
plans for and monitors consolidated RWA, LRD and capital devel-
opments. Capital planning and monitoring is also done at the
legal entity level for those entities subject to prudential supervi-
sion. Our monitoring may inform a need for us to make adjust-
ments to RWA or LRD limits, to take actions related to the issu-
ance or redemption of capital instruments, or to make other
decisions. Any breach of the limits in place triggers the imposition
of a series of required remediating actions necessary to return the
exposures to a limit-compliant level. Monitoring activities also
consider developments in capital regulations.
1 Unless otherwise indicated, all information in this section is based on the Basel III framework as applicable for Swiss systematically relevant banks (SRBs).
248
Capital management activities
future capital
Audited | EDTF | Pillar 3 | During 2015, we managed our capital in accor-
dance with our performance targets and expectations. In the tar-
get-setting process, we take into account the current and poten-
tial
including capital buffer
requirements. We also consider our aggregate risk exposure in
terms of capital-at-risk, the views of rating agencies, comparisons
with peer institutions and the effect of expected accounting pol-
icy changes.
requirements,
Our progress in 2015 toward meeting the Swiss SRB fully
applied capital requirements was supported by a series of capital
transactions, including:
– the issuance of AT1 perpetual capital notes, consisting of USD
1.25 billion high-trigger loss-absorbing notes, USD 1.25 billion
low-trigger loss-absorbing notes and EUR 1.0 billion low-trig-
ger loss-absorbing notes in February 2015, and USD 1.58 bil-
lion high-trigger loss-absorbing notes in August 2015; and
– an increase of CHF 0.5 billion in high-trigger loss-absorbing
capital related to DCCP grants for the performance year 2015,
qualifying as Swiss SRB-compliant AT1 capital.
In anticipation of international regulatory developments, includ-
ing revisions to the Swiss too big to fail (TBTF) framework, we
began to issue instruments in 2015 which will contribute to our
TLAC and completed our inaugural issuances of TLAC-eligible
senior unsecured debt, successfully placing CHF 5.6 billion of notes.
We have additionally taken a series of measures intended to
improve our resolvability and we expect that the Group will qual-
ify for a rebate on the gone concern requirements under the new
Swiss TBTF proposal. The amount and timing of any such rebate
will depend on the actual execution of these measures and can
therefore only be specified once all measures are implemented.
Subject to market and other conditions, we currently expect to
replace maturing senior debt with TLAC-eligible senior debt, and
maturing tier 2 instruments with AT1 instruments. As previously
TBTF-compliant AT1 and tier 2 instruments will remain eligible for
capital treatment under the new regime on a grandfathering
basis, we do not intend to use the proposed changes in the TBTF
regime as a trigger to exercise our right to call outstanding tier 2
and low-trigger AT1 instruments. The total amount of TLAC we
issue will be affected by any reduction in the gone concern
requirement we are granted for improved resolvability. The pro-
posed Swiss TBTF ordinance would permit a reduction of up to
2% of the LRD and 5.7% of RWA gone concern requirements for
measures taken to improve resolvability. The amount and timing
of any such reduction will be determined by FINMA as such mea-
sures are implemented.
➔ Refer to the “Treasury management” section of this report for
more information on our debt issuances in 2015
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on proposed revisions to the Swiss
too big to fail framework
➔ Refer to the “The legal structure of UBS Group” section of this
report for more information on changes to our legal structure
Financial resource optimization
EDTF | Pillar 3 | We manage our balance sheet, RWA and LRD levels
within our regulatory limits and internal targets. Our strategic
focus continues to be on achieving an optimal attribution and
utilization of financial resources between our business divisions
and Corporate Center, as well as between our legal entities, while
remaining within the prescribed limits on a Group and divisional
level.
During the year, we managed our RWA and LRD within our
defined thresholds. As of 31 December 2015, we were within
both our short- to medium-term RWA expectation of around CHF
250 billion and our short- to medium-term LRD expectation of
around CHF 950 billion. The Investment Bank was also within the
short- to medium-term RWA expectation of around CHF 85 billion
and the short- to medium-term LRD expectation of around CHF
325 billion at the end of the year.
249
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Active management of sensitivity to currency movements
EDTF | Pillar 3 | Corporate Center – Group Asset and Liability Manage-
ment (Group ALM) is mandated with the task of minimizing
adverse effects from changes in currency rates on our fully applied
CET1 capital and CET1 capital ratio. A significant portion of our
capital and RWA is denominated in US dollars, euros, British
pounds and other foreign currencies. In order to hedge the CET1
capital ratio, CET1 capital needs to have foreign currency expo-
sure, leading to currency sensitivity of CET1 capital. As a conse-
quence, it is not possible to simultaneously fully hedge the capital
and the capital ratio. As the proportion of RWA denominated in
foreign currencies outweighs the capital in these currencies, a sig-
nificant appreciation of the Swiss franc against these currencies
could benefit our capital ratios, while a significant depreciation of
the Swiss franc against these currencies could adversely affect our
capital ratios. The Group Asset and Liability Management Com-
mittee, a committee of the UBS Group Executive Board, can adjust
the currency mix in capital, within limits set by the Board of Direc-
tors, to balance the effect of foreign exchange movements on the
fully applied CET1 capital and capital ratio. Limits are in place for
the sensitivity of both CET1 capital and the capital ratio to an
appreciation or depreciation of 10% in the value of the Swiss
franc against other currencies.
We estimate that a 10% depreciation of the Swiss franc
against other currencies would have increased our fully applied
RWA by CHF 9.1 billion and our fully applied CET1 capital by CHF
933 million as of 31 December 2015 (31 December 2014: CHF
10.5 billion and CHF 1,007 million, respectively) and reduced our
fully applied CET1 capital ratio by 17 basis points (31 December
2014: 17 basis points). Conversely, we estimate that a 10%
appreciation of the Swiss franc against other currencies would
have reduced our fully applied RWA by CHF 8.2 billion and our
fully applied CET1 capital by CHF 844 million (31 December 2014:
CHF 9.5 billion and CHF 911 million, respectively) and increased
our fully applied CET1 capital ratio by 17 basis points (31 Decem-
ber 2014: 17 basis points).
Our leverage ratio is also sensitive to foreign exchange move-
ments due to the currency mix of our capital and LRD. When
adjusting the currency mix in capital, potential effects on the lever-
age ratios are taken into account and the sensitivity of the leverage
ratio to an appreciation or depreciation of 10% in the value of the
Swiss franc against other currencies is actively monitored.
We estimate that a 10% depreciation of the Swiss franc
against other currencies would have increased our fully applied
leverage ratio denominator (LRD) by CHF 70 billion and reduced
our fully applied Swiss SRB leverage ratio by 11 basis points. Con-
versely, we estimate that a 10% appreciation of the Swiss franc
against other currencies would have reduced our fully applied LRD
by CHF 63 billion and increased our fully applied Swiss SRB lever-
age ratio by 12 basis points.
These sensitivities do not consider foreign currency translation
effects related to defined benefit plans other than those related
to the currency translation of the net equity of foreign opera-
tions.
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 assess
the impact of a severe stress event at an aggregate, Group-wide
level. We are committed to total capital returns to shareholders of
at least 50% of net profit attributable to shareholders, provided
that we maintain a fully applied CET1 capital ratio of at least 13%
and consistent with our objective of maintaining a post-stress fully
applied CET1 capital ratio of at least 10%. Our post-stress CET1
capital ratio exceeded the 10% objective as of 31 December
2015.
➔ 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 on the calculation of our post-stress CET1
capital ratio and related risks
➔ Refer to the “Risk management and control” section of this
report for more information on our risk appetite and combined
stress test framework
250
Swiss SRB capital framework
EDTF | UBS is considered a systemically relevant bank (SRB) under
Swiss banking law and both UBS Group and UBS AG are, on a
consolidated basis, required to comply with regulations based on
the Basel III framework as applicable for Swiss SRBs. All our capital
disclosures therefore focus on Swiss SRB capital information. Dif-
ferences between Swiss SRB and BIS capital information on a UBS
Group level are outlined in the “Differences between Swiss SRB
and BIS capital” section.
Proposed changes to capital requirements and regulation
EDTF | In December 2015, the Swiss Federal Department of Finance
published for consultation a draft revised TBTF ordinance based
on the cornerstones announced by the Swiss Federal Council in
October 2015. In line with the announced cornerstones, the pro-
posal would revise the capital and leverage ratio requirements for
Swiss systemically relevant banks and includes new gone concern
requirements.
➔ Refer to the “Legal entity financial and regulatory information”
section of this report for information on capital requirements for
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the proposed revisions to the
UBS AG and UBS Switzerland AG on a standalone basis
Swiss TBTF framework
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 deduc-
tions for deferred tax assets (DTAs) recognized for tax loss carry-
forwards, DTAs on temporary differences that exceed a certain
threshold and effects related to defined benefit plans. As these
filters are being phased in between 2014 and 2018, their effects
are gradually factored into our calculations of capital, 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 2015, we deducted from our phase-in CET1 capital 40%
(2014: 20%) of: (i) DTAs recognized for tax loss carry-forwards, (ii)
DTAs on temporary differences that exceed the threshold of 10%
of CET1 capital before deduction of DTAs on temporary differ-
ences and (iii) the effects related to net defined benefit pension
plan assets under IAS 19 (revised).
In 2015, we accelerated the phase-in of the cumulative differ-
ence between the IAS 19 (revised) accounting applied for fully
applied CET1 calculations and the pro forma IAS 19 treatment
applied for CET1 phase-in calculations.
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 por-
tion of these capital instruments not yet phased out. Our capital
and capital ratios on a fully applied basis do not include these
capital instruments.
In 2015, the BCBS continued its review of the capital frame-
work to balance simplicity and risk sensitivity, and to promote
comparability. The BCBS released a second consultative document
on revisions to the standardized approach for credit risk in Decem-
ber 2015. The proposal would reintroduce the use of external
credit ratings for exposures to banks and corporates and adopt a
loan-to-value approach to risk weighting of real estate loans. The
BCBS intends to finalize the revisions by the end of 2016.
In January 2016, the BCBS published a revised market risk
framework, which defines minimum capital requirements for
market risk exposures. The market risk framework includes stricter
rules on the designation of instruments as either trading or bank-
ing book, a more prescriptive internal-model approach aimed at
increasing consistency across banks, as well as a revised and more
risk-sensitive standardized approach, which may also be used as a
fall back to the internal-model approach. The BCBS will conduct
further quantitative impact studies in order to monitor the effect
of the capital requirements and to ensure consistency in the appli-
cation of the framework. We expect Switzerland to finalize these
changes in the domestic regulations no later than 1 January 2019,
the deadline set by the BCBS.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information
251
Risk, treasury and capital management Risk, treasury and capital management
Capital management
EDTF | Our capital requirements1
Phase-in
Fully applied
28.6%3, 4
14.3%
Gone
concern4
11.1%2
2.5%
1.8%
2.9%
4.0%
12.6%2
2.8%
2.3%
3.0%
4.5%
14.3%2
14.4%2
3.4%
2.6%
3.8%
4.5%
Gone
concern
Going
concern
3.5%
2.6%
3.8%
4.5%
Gone
concern4
Going
concern
17.5%3, 4
4.5%
3.0%
5.5%
4.5%
Gone
concern4
Going
concern
0.8%
3.5%
5.5%
4.5%
Going
concern
31.12.14
31.12.15
From 1.1.16
(current)
20168
(proposed)
31.12.19
(current)
1.1.2020
(proposed)
Base: CET1 capital
Buffer: CET1 capital
Buffer: high-trigger loss-absorbing capital5
Base: high-trigger additional tier 1 capital6
Buffer: high-trigger additional tier 1 capital6
Progressive buffer: low-trigger loss-absorbing capital
TLAC-eligible senior unsecured debt7
1 In percent of risk-weighted assets (RWA). Proposed requirements for Swiss SRBs are based on the draft revised too big to fail ordinance from the Federal Department of Finance. 2 Includes the effect of the countercyclical buffer
requirement. 3 Does not include a countercyclical buffer requirement as potential future requirements cannot be accurately predicted. 4 This requirement may be reduced by a resolvability rebate. 5 CET1 capital can be substituted
by high-trigger loss-absorbing capital up to the stated percentage. 6 Low-trigger additional tier 1 capital instruments will continue to qualify as going concern capital until their first call date. 7 Any high- and low-trigger tier 2
capital instruments remaining after 2019 will qualify for the gone concern requirement until one year before maturity. 8 Based on the draft ordinance which proposes an effective date of 1 July 2016. ▲
Capital requirements
EDTF | As of 31 December 2015, our total capital requirement for
both UBS Group and UBS AG (consolidated) was 12.6% of RWA
compared with 11.1% as of 31 December 2014. The requirement
as of 31 December 2015 consisted of: (i) base capital of 4.5%, (ii)
buffer capital of 5.3%, of which 0.2% was attributable to the
countercyclical buffer capital requirement and (iii) progressive buf-
fer capital of 2.8%. We satisfied the base and buffer capital
requirements, including the countercyclical buffer, through our
CET1 capital. In addition, since 31 March 2015, high-trigger loss-
absorbing capital is included in the buffer capital. Low-trigger
loss-absorbing capital satisfied 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 has activated a countercy-
clical buffer requirement of 2% of RWA for mortgage loans on
residential property in Switzerland, applicable since 30 June 2014.
In 2016, we will begin to apply additional countercyclical buffer
requirements introduced for other Basel Committee member
jurisdictions. The requirements will be phased-in and become fully
effective on 1 January 2019.
Our requirement for the progressive buffer is dynamic and
depends on our leverage ratio denominator (LRD) and our market
share in the loans and deposits business in Switzerland. In the
second quarter of 2015, the progressive buffer requirement for
2019 was reduced to 4.5% from 5.4%, reflecting updated LRD
and market share information for 2014 provided by FINMA in
June 2015. As a result, our total 2015 capital requirement on a
phase-in basis decreased to 12.6% from the previously reported
13.0%.
252
30
25
20
15
10
5
0
Moreover, banks governed under the Swiss SRB framework are
eligible for a capital rebate on the progressive buffer if they take
actions that facilitate recovery and resolvability beyond the mini-
mum requirements to ensure the integrity of systemically impor-
tant functions in the case of an impending insolvency. We have
taken a series of measures to improve our resolvability. We are
confident that the establishment of UBS Group AG and UBS Swit-
zerland AG, along with our other announced measures as
described in the “The legal structure of UBS Group” section of this
report, will substantially enhance the resolvability of the Group.
FINMA has confirmed that these measures were in principle suit-
able to warrant a rebate under the current Swiss capital regula-
tion. Therefore, we expect that the Group will qualify for a rebate
on the gone concern requirements under the new Swiss TBTF
framework proposal. The amount and timing of any such rebate
will depend on the actual execution of these measures and can
therefore only be specified once all measures are implemented.
Similar to the other capital component requirements, the pro-
gressive buffer requirement is phased in gradually until 2019. As
of 31 December 2015, the progressive buffer requirement was
2.8% compared with 2.5% as of 31 December 2014.
➔ Refer to the “The legal structure of UBS Group” section of this
report for more information on changes to our legal structure
The Financial Stability Board (FSB) determined that UBS is a
global systemically important bank (G-SIB), using an indicator-
based methodology adopted by the BCBS. Based on published
indicators, G-SIB are subject to additional CET1 capital buffer
requirements in the range of 1.0% to 3.5%. These requirements
will be phased in from 1 January 2016 to 31 December 2018, and
will become fully effective on 1 January 2019. As our aforemen-
tioned Swiss SRB capital requirements exceed the BCBS require-
ments including the G-SIB buffer, UBS is not affected by the above
additional G-SIB requirements.
EDTF | Pillar 3 |
Swiss SRB capital ratio requirements and information (phase-in)
CHF million, except where indicated
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital and high-trigger
loss-absorbing capital)
of which: effect of countercyclical buffer
Progressive buffer capital (low-trigger loss-absorbing capital)
Phase-out capital (tier 2 capital)
Total
Requirement1
31.12.15
Capital ratio (%)
Capital
Actual2, 3
Requirement
Eligible2, 3
31.12.15
31.12.14
4.5
5.34
0.2
2.8
12.6
4.5
16.8
0.2
5.0
0.5
26.8
4.0
15.4
0.1
5.2
0.9
25.5
31.12.15
9,554
31.12.15
9,554
11,236
356
6,011
26,800
35,564
356
10,679
996
56,792
31.12.14
8,835
34,027
322
11,398
2,050
56,310
1 Prior to the implementation of the Swiss SRB framework, FINMA also defined a total capital ratio target for UBS Group of 14.4%, which will be effective until it is exceeded by the Swiss SRB phase-in require-
ment. 2 Swiss SRB CET1 capital exceeding the base capital requirement is allocated to the buffer capital. 3 From 31 March 2015 onward, high-trigger loss-absorbing capital (LAC) is included in the buffer capital.
Prior to 31 March 2015, high-trigger LAC was included in the progressive buffer capital. 4 CET1 capital can be substituted by high-trigger loss-absorbing capital up to 2.3% in 2015.
253
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Swiss SRB capital information (UBS Group)
In this section, we disclose capital information on a consolidated
UBS Group basis. Capital information for UBS AG on a consoli-
dated basis is provided in the “UBS AG (consolidated) capital and
leverage ratio information” section of this report.
Capital ratios
EDTF | Our fully applied CET1 capital ratio increased 1.1 percentage
points to 14.5% as of 31 December 2015, exceeding our target
ratio of 13.0%. This increase was driven by a CHF 9.0 billion
decrease in risk-weighted assets (RWA) and a CHF 1.1 billion
increase in CET1 capital. On a phase-in basis, our CET1 capital
ratio decreased 0.4 percentage points to 19.0% as of 31 Decem-
ber 2015, mainly due to a decrease of CHF 2.5 billion in CET1
capital, partly offset by a decrease of CHF 8.6 billion in RWA.
Our tier 1 capital ratio increased 3.8 percentage points to
17.4% on a fully applied basis and 1.6 percentage points to
21.0% on a phase-in basis. Both increases resulted from the
aforementioned changes in RWA and CET1 capital, as well as the
aforementioned issuances of low- and high-trigger loss-absorbing
AT1 capital in February and August 2015 and DCCP awards
granted for the performance year 2015.
Our fully applied total capital ratio increased 4.0 percentage
points to 22.9% as of 31 December 2015 and 1.3 percentage
points to 26.8% on a phase-in basis.
(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(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)
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(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)
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(cid:19)(cid:27)(cid:16)(cid:22)
(cid:19)(cid:26)(cid:16)(cid:24)
(cid:19)(cid:26)(cid:16)(cid:20)
(cid:19)(cid:26)(cid:16)(cid:21)
(cid:19)(cid:27)(cid:16)(cid:18)
(cid:19)(cid:21)(cid:16)(cid:22)
(cid:19)(cid:21)(cid:16)(cid:25)
(cid:19)(cid:22)(cid:16)(cid:22)
(cid:19)(cid:22)(cid:16)(cid:21)
(cid:19)(cid:22)(cid:16)(cid:23)
(cid:20)(cid:23)(cid:16)(cid:23)
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(cid:20)(cid:23)(cid:16)(cid:18)
(cid:20)(cid:23)(cid:16)(cid:26)
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(cid:20)(cid:18)(cid:16)(cid:24)
(cid:20)(cid:19)(cid:16)(cid:20)
(cid:20)(cid:20)(cid:16)(cid:18)
(cid:20)(cid:24)(cid:16)(cid:26)
(cid:20)(cid:20)(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:22)
(cid:21)(cid:19)(cid:16)(cid:21)(cid:16)(cid:19)(cid:23)
(cid:21)(cid:18)(cid:16)(cid:24)(cid:16)(cid:19)(cid:23)
(cid:21)(cid:18)(cid:16)(cid:27)(cid:16)(cid:19)(cid:23)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:23)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:22)
(cid:21)(cid:19)(cid:16)(cid:21)(cid:16)(cid:19)(cid:23)
(cid:21)(cid:18)(cid:16)(cid:24)(cid:16)(cid:19)(cid:23)
(cid:21)(cid:18)(cid:16)(cid:27)(cid:16)(cid:19)(cid:23)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:23)
(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)
254
(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 capital information
CHF million, except where indicated
Common equity tier 1 capital
Common equity tier 1 capital
Additional tier 1 capital
High-trigger loss-absorbing capital1
Low-trigger loss-absorbing capital2
Total additional tier 1 capital3
Tier 1 capital
Tier 2 capital
High-trigger loss-absorbing capital
Low-trigger loss-absorbing capital
Phase-out capital
Total tier 2 capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
Phase-in
Fully applied
31.12.15
31.12.14
31.12.15
31.12.14
40,378
42,863
30,044
28,941
3,828
353
4,181
44,559
912
10,325
996
12,233
56,792
19.0
21.0
26.8
212,302
0
0
0
42,863
946
10,451
2,050
13,448
56,310
19.4
19.4
25.5
220,877
3,828
2,326
6,154
36,198
912
10,325
11,237
47,435
14.5
17.4
22.9
207,530
467
0
467
29,408
946
10,451
11,398
40,806
13.4
13.6
18.9
216,462
1 As of 31 December 2014, on a phase-in basis, high-trigger loss-absorbing capital of CHF 467 million was fully offset by required deductions for goodwill. 2 Consists on a phase-in basis of low-trigger loss-absorbing
capital (31 December 2015: CHF 2,326 million) partly offset by required deductions for goodwill (31 December 2015: CHF 1,973 million). 3 Includes on a phase-in basis hybrid capital subject to phase-out (31 Decem-
ber 2015: CHF 1,954 million and 31 December 2014: CHF 3,210 million), fully offset by required deductions for goodwill.
Eligible capital
Tier 1 capital
EDTF | Pillar 3 | Our tier 1 capital consists of CET1 capital and AT1
capital. The analysis of our 2015 tier 1 capital movement is pro-
vided in the “Swiss SRB capital movement” table.
Audited | Our CET1 capital mainly consists of share capital, share
premium, which consists primarily of additional paid-in capital
related to shares issued, and retained earnings. A detailed recon-
ciliation of IFRS equity to CET1 capital is provided in the “Recon-
ciliation IFRS equity to Swiss SRB capital” table.
Our fully applied CET1 capital increased by CHF 1.1 billion to
CHF 30.0 billion, mainly reflecting the 2015 operating profit
before tax excluding own credit, partly offset by accruals for pro-
posed dividends to shareholders and current tax effects. Our
phase-in CET1 capital decreased by CHF 2.5 billion to CHF 40.4
billion, primarily as the 2015 operating profit before tax excluding
own credit was more than offset by accruals for proposed divi-
dends to shareholders, a reduction related to the accelerated
application of the IAS 19 (revised) treatment of defined benefit
plans and a decrease related to the additional phase-in effect of
capital deductions on deferred tax assets for tax loss carry-
forwards, which increased from 20% to 40% effective 1 January
2015.
255
Risk, treasury and capital management Risk, treasury and capital management
Capital management
EDTF | Pillar 3 |
Swiss SRB capital movement
CHF million
Common equity tier 1 capital at the beginning of the year
Operating profit / (loss) before tax
Current tax effect
Deferred tax assets recognized for tax loss carry-forwards, additional phase-in effect 1
Deferred tax assets recognized for tax loss carry-forwards
Deferred tax assets recognized for temporary differences
Defined benefit pension plans, acceleration and phase-in effect
Defined benefit pension plans
Own credit related to financial liabilities designated at fair value and replacement value, net of tax
Compensation and own shares-related capital components (including share premium)
Goodwill, net of tax, less hybrid capital and loss-absorbing capital
Foreign currency translation effects
Accruals for proposed dividends to shareholders
Other
Total movement
Common equity tier 1 capital at the end of the year
Additional tier 1 capital at the beginning of the year
Issuance of high-trigger loss-absorbing capital
Issuance of low-trigger loss-absorbing capital
Call of hybrid capital
Goodwill, net of tax, offset against hybrid capital and loss-absorbing capital
Foreign currency translation effects and other
Total movement
Additional tier 1 capital at the end of the year
Tier 2 capital at the beginning of the year
Issuance of loss-absorbing capital
Repurchase of capital instruments
Foreign currency translation effects and other
Total movement
Tier 2 capital at the end of the year
Total capital at the end of the year
2015
2014
Phase-in
Fully applied
42,863
5,306
(715)
(1,467)
(359)
1,602
(3,334)2
295
(578)
(208)
281
(257)
(3,188)
136
(2,485)
40,378
0
3,381
2,266
(1,040)
(251)
(175)
4,181
4,181
13,448
0
(690)
(525)
(1,214)
12,233
56,792
28,941
5,306
(715)
310
265
(578)
(208)
30
(234)
(3,188)
114
1,102
30,044
467
3,381
2,266
40
5,687
6,154
11,398
0
(161)
(161)
11,237
47,435
Phase-in
42,179
2,286
(476)
(1,333)
690
754
(699)1
144
(168)
420
590
1,188
(2,827)
113
683
42,863
0
467
0
0
(563)
96
0
0
8,636
4,567
(1,211)
1,456
4,812
13,448
56,310
Fully applied
28,908
2,286
(476)
150
(461)
(168)
420
27
948
(2,827)
133
33
28,941
0
467
0
0
467
467
5,665
4,567
1,166
5,733
11,398
40,806
1 31 December 2015 reflects the 20% additional phase-in effect, resulting in an increase from 20% to 40%. 31 December 2014 reflects the phase-in effect of 20%. 2 Includes the effect of accelerating the phase-in
of the cumulative difference between IAS19 (revised) and IAS19, as well as the associated reversal of deferred tax assets recognized for tax loss carry-forwards.
Audited | EDTF | Our AT1 capital increased by CHF 5.7 billion to
CHF 6.2 billion on a fully applied basis, mainly due to the afore-
mentioned issuances of AT1 capital in 2015. As of 31 December
2015, our high-trigger loss-absorbing AT1 capital amounted to
CHF 3.8 billion and our low-trigger loss-absorbing AT1 capital
amounted to CHF 2.3 billion. High-trigger loss-absorbing AT1
capital as of 31 December 2015 included CHF 1.0 billion of DCCP
awards granted for the performance years 2015 and 2014.
On a phase-in basis, our AT1 capital was CHF 4.2 billion as of
31 December 2015, consisting of the aforementioned high-trig-
ger and low-trigger loss-absorbing capital of CHF 3.8 billion and
CHF 2.3 billion, respectively, as well as CHF 2.0 billion in hybrid
capital subject to phase-out. Low-trigger loss-absorbing capital
and hybrid capital were partly offset by required deductions of
CHF 3.9 billion related to goodwill.
➔ Refer to the “Additional tier 1 and tier 2 capital instruments”
table on the following pages for details on the write-down
triggers of our AT1 and tier 2 capital instruments
256
Tier 2 capital
Audited | EDTF | Pillar 3 | During 2015, our tier 2 capital decreased by
CHF 0.2 billion to CHF 11.2 billion on a fully applied basis and by
CHF 1.2 billion to CHF 12.2 billion on a phase-in basis. The
decrease in phase-in tier 2 capital was due to the repurchase of
certain tier 2 capital instruments in December 2015 as part of a
tender offer, as well as currency translation effects.
As of 31 December 2015, tier 2 capital included CHF 10.3 bil-
lion of low-trigger loss-absorbing capital, consisting of one euro-
denominated and four US dollar-denominated subordinated
notes. Moreover, our tier 2 capital included high-trigger loss-
absorbing capital of CHF 0.9 billion, as outstanding DCCP awards
granted for the performance years 2012 and 2013 qualify as tier
2 loss-absorbing capital.
The remainder of phase-in tier 2 capital of CHF 1.0 billion con-
sisted of outstanding tier 2 instruments which will be phased out
by 2019.
➔ Refer to the “Additional tier 1 and tier 2 capital instruments”
table on the following pages for details on the write-down
triggers of our tier 2 capital instruments
Audited | EDTF | Pillar 3 |
Reconciliation IFRS equity to Swiss SRB capital
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, phase-in2
Deferred tax assets recognized for tax loss carry-forwards (before phase-in, as applicable)
Deferred tax assets recognized for tax loss carry-forwards, phase-in2
Deferred tax assets on temporary differences, excess over threshold
Goodwill, net of tax, less hybrid capital and loss-absorbing capital3
Intangible assets, net of tax
Unrealized (gains) / losses from cash flow hedges, net of tax
Compensation and own shares-related capital components (including share premium)
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
Accruals for proposed dividends to shareholders
Other4
Common equity tier 1 capital
High-trigger loss-absorbing capital
Low-trigger loss-absorbing capital
Hybrid capital subject to phase-out
Goodwill, net of tax, offset against hybrid capital and loss-absorbing capital
Additional tier 1 capital
Tier 1 capital
Tier 2 capital
Total capital
Phase-in
Fully applied
31.12.15
31.12.14
31.12.15
31.12.14
55,313
1,995
57,308
(1,995)
(20)
(2,988)
(702)
(2,618)
(323)
(1,638)
(1,383)
(442)
(402)
(83)
(130)
(3,188)
(1,018)
40,378
3,828
2,326
1,954
(3,927)
4,181
44,559
12,233
56,792
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
467
0
3,210
(3,677)
0
42,863
13,448
56,310
55,313
1,995
57,308
(1,995)
(50)
50,608
1,702
2,058
54,368
(2,058)
0
(7,468)
(8,047)
(2,598)
(6,545)
(323)
(1,638)
(1,383)
(442)
(402)
(83)
(130)
(3,188)
(1,018)
30,044
3,828
2,326
6,154
36,198
11,237
47,435
(604)
(6,687)
(410)
(2,156)
(1,219)
136
(384)
(123)
(88)
(2,827)
(959)
28,941
467
0
467
29,408
11,398
40,806
1 Phase-in number net of tax, fully applied number pre-tax. 2 As of 31 December 2015, the phase-in deduction applied was 40%; as of 31 December 2014, the phase-in deduction applied was 20%. 3 Includes good-
will related to significant investments in financial institutions of CHF 360 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.
257
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
EDTF | Pillar 3 |
Additional tier 1 and tier 2 capital instruments1
Additional tier 1 capital instruments (Swiss SRB compliant)
CHF million, except where indicated
No.
1
2
3
4
5
6
Issuer
UBS Group AG, Switzerland, or employing subsidiaries3
UBS Group AG, Switzerland
UBS Group AG, Switzerland
UBS Group AG, Switzerland
UBS Group AG, Switzerland
UBS Group AG, Switzerland, or employing subsidiaries3
Total additional tier 1 capital
ISIN
Issue date
Outstanding amount
as of 31.12.15
Amount recognized
in regulatory capital
as of 31.12.15
CH0271428309
CH0271428317
CH0271428333
CH0286864027
31.12.14
19.02.15
19.02.15
19.02.15
07.08.15
31.12.15
CHF 474
EUR 1,000
USD 1,250
USD 1,250
USD 1,575
CHF 518
CHF 474
CHF 1,081
CHF 1,249
CHF 1,245
CHF 1,587
CHF 518
CHF 6,154
High-trigger loss-absorbing tier 2 capital instruments (Swiss SRB compliant)
CHF million, except where indicated
No.
1
2
Issuer
UBS Group AG, Switzerland, or employing subsidiaries3, 4
UBS Group AG, Switzerland, or employing subsidiaries3, 4
Total high-trigger loss-absorbing tier 2 capital
Low-trigger loss-absorbing tier 2 capital instruments (Swiss SRB compliant)
CHF million, except where indicated
ISIN
Issue date
31.12.12
31.12.13
Outstanding amount
as of 31.12.15
Amount recognized
in regulatory capital
as of 31.12.15
CHF 434
CHF 478
CHF 434
CHF 478
CHF 912
No.
Issuer
1
2
3
4
5
UBS AG, Switzerland, Jersey branch
UBS AG, Switzerland, Stamford branch
UBS AG, Switzerland
UBS AG, Switzerland
UBS AG, Switzerland
Total low-trigger loss-absorbing tier 2 capital
Phase-out tier 2 capital instruments
CHF million, except where indicated
No.
Issuer
1
2
3
4
5
6
7
UBS AG, Switzerland, New York branch
UBS AG, Switzerland, New York branch
UBS AG, Switzerland, New York branch
UBS AG, Switzerland, Jersey branch
UBS AG, Switzerland, Jersey branch
UBS AG, Switzerland, Jersey branch
UBS AG, Switzerland
Total phase-out tier 2 capital
ISIN
XS0747231362
US90261AAB89
CH0214139930
CH0236733827
CH0244100266
Issue date
22.02.12
17.08.12
22.05.13
13.02.14
15.05.14
Outstanding amount
as of 31.12.15
Amount recognized
in regulatory capital
as of 31.12.15
USD 2,000
USD 2,000
USD 1,500
EUR 2,000
USD 2,500
CHF 2,004
CHF 1,959
CHF 1,482
CHF 2,279
CHF 2,602
CHF 10,325
ISIN
Issue date
Outstanding amount
as of 31.12.15
Amount recognized
in regulatory capital
as of 31.12.15
US870836AC77
US870845AC84
US87083KAM45
XS0062270581
XS0257741834
XS0331313055
CH0035789210
21.07.95
03.09.96
20.06.97
18.12.95
21.06.06
19.11.07
27.12.07
USD 251
USD 218
USD 220
GBP 61
GBP 113
GBP 130
CHF 192
CHF 251
CHF 215
CHF 44
CHF 91
CHF 166
CHF 190
CHF 39
CHF 996
1 Refer to “Bondholder information” at www.ubs.com/investors for more information on the key features of the hybrid capital instruments subject to phase-out under Swiss SRB rules and outstanding as of 31 December
2015. 2 The capital instruments would be written down due to a viability event, as defined in the terms and conditions of the instruments, if FINMA determined that a write-down were necessary to ensure UBS’s via-
bility, or UBS received a commitment of governmental support that FINMA determined to be necessary to ensure UBS’s viability. Refer to “Bondholder information” at www.ubs.com/investors for more information on
the terms and conditions of the instruments and refer to item 23 in “Note 1a Significant accounting polices" in the “Consolidated financial statements” section of this report for more information on the accounting
treatment of such instruments. 3 Relates to DCCP awards. 4 Issued by UBS AG and transferred in the fourth quarter of 2014 to UBS Group AG as part of the Group reorganization. 5 CET1 write-down thresholds
are set on UBS AG (consolidated) level.
258
Coupon rate and frequency of payment
Maturity date
Optional call date
Issues in CHF: 4%, issues in USD: 7.125%, annually
5.75% / Reset Interest Rate, annually
7.125% / Reset Interest Rate, annually
7.00% / Reset Interest Rate, annually
6.875% / Reset Interest Rate, annually
Issues in CHF: 4.15%, issues in USD: 7.35%, annually
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
01.03.20
19.02.22
19.02.20
19.02.25
07.08.25
01.03.21
Write-down trigger2
CET1 ratio < 7 / 10% or viability event
CET1 ratio < 5.125% or viability event
CET1 ratio < 7% or viability event
CET1 ratio < 5.125% or viability event
CET1 ratio < 7% or viability event
CET1 ratio < 7 / 10% or viability event
Coupon rate and frequency of payment
Maturity date
Optional call date
Issues in CHF: 5.40%, issues in USD: 6.25%, annually
Issues in CHF: 3.5%, issues in USD: 5.125%, annually
01.03.18
01.03.19
Write-down trigger2
CET1 ratio < 7% or viability event
CET1 ratio < 7 / 10% or viability event
Coupon rate and frequency of payment
Maturity date
Optional call date
7.25% / 6.061% + Mid Market Swap Rate from 22 February 2017, 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
7.625%, semi-annually
5.125%, annually
Write-down trigger2, 5
CET1 ratio < 5% or viability event
CET1 ratio < 5% or viability event
CET1 ratio < 5% or viability event
CET1 ratio < 5% or viability event
CET1 ratio < 5% or viability event
22.02.22
17.08.22
22.05.23
12.02.26
12.05.24
15.07.25
01.09.26
15.06.17
18.12.25
21.06.21
19.11.24
27.12.17
22.02.17
22.05.18
12.02.21
21.06.16
19.11.19
Coupon rate and frequency of payment
Maturity date
Optional call date
7.5%, semi-annually
7.75%, semi-annually
7.375%, semi-annually
8.75%, annually
5.25% / 3-month Sterling LIBOR + 1.29%, annually / quarterly
6.375% / 3-month Sterling LIBOR + 2.10%, annually / quarterly
4.125%, annually
Additional tier 1 and tier 2 capital instruments1
Additional tier 1 capital instruments (Swiss SRB compliant)
CHF million, except where indicated
No.
Issuer
UBS Group AG, Switzerland, or employing subsidiaries3
UBS Group AG, Switzerland
UBS Group AG, Switzerland
UBS Group AG, Switzerland
UBS Group AG, Switzerland
UBS Group AG, Switzerland, or employing subsidiaries3
Total additional tier 1 capital
High-trigger loss-absorbing tier 2 capital instruments (Swiss SRB compliant)
CHF million, except where indicated
No.
Issuer
UBS Group AG, Switzerland, or employing subsidiaries3, 4
UBS Group AG, Switzerland, or employing subsidiaries3, 4
Total high-trigger loss-absorbing tier 2 capital
Low-trigger loss-absorbing tier 2 capital instruments (Swiss SRB compliant)
CHF million, except where indicated
1
2
3
4
5
6
1
2
1
2
3
4
5
1
2
3
4
5
6
7
No.
Issuer
UBS AG, Switzerland, Jersey branch
UBS AG, Switzerland, Stamford branch
UBS AG, Switzerland
UBS AG, Switzerland
UBS AG, Switzerland
Total low-trigger loss-absorbing tier 2 capital
Phase-out tier 2 capital instruments
CHF million, except where indicated
No.
Issuer
UBS AG, Switzerland, New York branch
UBS AG, Switzerland, New York branch
UBS AG, Switzerland, New York branch
UBS AG, Switzerland, Jersey branch
UBS AG, Switzerland, Jersey branch
UBS AG, Switzerland, Jersey branch
UBS AG, Switzerland
Total phase-out tier 2 capital
ISIN
Issue date
as of 31.12.15
as of 31.12.15
Outstanding amount
in regulatory capital
Amount recognized
CH0271428309
CH0271428317
CH0271428333
CH0286864027
31.12.14
19.02.15
19.02.15
19.02.15
07.08.15
31.12.15
CHF 474
EUR 1,000
USD 1,250
USD 1,250
USD 1,575
CHF 518
Amount recognized
Outstanding amount
in regulatory capital
as of 31.12.15
as of 31.12.15
ISIN
Issue date
31.12.12
31.12.13
CHF 434
CHF 478
ISIN
Issue date
as of 31.12.15
as of 31.12.15
Outstanding amount
in regulatory capital
Amount recognized
XS0747231362
US90261AAB89
CH0214139930
CH0236733827
CH0244100266
22.02.12
17.08.12
22.05.13
13.02.14
15.05.14
USD 2,000
USD 2,000
USD 1,500
EUR 2,000
USD 2,500
ISIN
Issue date
as of 31.12.15
as of 31.12.15
Outstanding amount
in regulatory capital
Amount recognized
US870836AC77
US870845AC84
US87083KAM45
XS0062270581
XS0257741834
XS0331313055
CH0035789210
21.07.95
03.09.96
20.06.97
18.12.95
21.06.06
19.11.07
27.12.07
USD 251
USD 218
USD 220
GBP 61
GBP 113
GBP 130
CHF 192
CHF 474
CHF 1,081
CHF 1,249
CHF 1,245
CHF 1,587
CHF 518
CHF 6,154
CHF 434
CHF 478
CHF 912
CHF 2,004
CHF 1,959
CHF 1,482
CHF 2,279
CHF 2,602
CHF 10,325
CHF 251
CHF 215
CHF 44
CHF 91
CHF 166
CHF 190
CHF 39
CHF 996
1 Refer to “Bondholder information” at www.ubs.com/investors for more information on the key features of the hybrid capital instruments subject to phase-out under Swiss SRB rules and outstanding as of 31 December
2015. 2 The capital instruments would be written down due to a viability event, as defined in the terms and conditions of the instruments, if FINMA determined that a write-down were necessary to ensure UBS’s via-
bility, or UBS received a commitment of governmental support that FINMA determined to be necessary to ensure UBS’s viability. Refer to “Bondholder information” at www.ubs.com/investors for more information on
the terms and conditions of the instruments and refer to item 23 in “Note 1a Significant accounting polices" in the “Consolidated financial statements” section of this report for more information on the accounting
treatment of such instruments. 3 Relates to DCCP awards. 4 Issued by UBS AG and transferred in the fourth quarter of 2014 to UBS Group AG as part of the Group reorganization. 5 CET1 write-down thresholds
are set on UBS AG (consolidated) level.
Coupon rate and frequency of payment
Maturity date
Optional call date
Issues in CHF: 4%, issues in USD: 7.125%, annually
5.75% / Reset Interest Rate, annually
7.125% / Reset Interest Rate, annually
7.00% / Reset Interest Rate, annually
6.875% / Reset Interest Rate, annually
Issues in CHF: 4.15%, issues in USD: 7.35%, annually
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
01.03.20
19.02.22
19.02.20
19.02.25
07.08.25
01.03.21
Write-down trigger2
CET1 ratio < 7 / 10% or viability event
CET1 ratio < 5.125% or viability event
CET1 ratio < 7% or viability event
CET1 ratio < 5.125% or viability event
CET1 ratio < 7% or viability event
CET1 ratio < 7 / 10% or viability event
Coupon rate and frequency of payment
Maturity date
Optional call date
Issues in CHF: 5.40%, issues in USD: 6.25%, annually
Issues in CHF: 3.5%, issues in USD: 5.125%, annually
01.03.18
01.03.19
Write-down trigger2
CET1 ratio < 7% or viability event
CET1 ratio < 7 / 10% or viability event
Coupon rate and frequency of payment
Maturity date
Optional call date
7.25% / 6.061% + Mid Market Swap Rate from 22 February 2017, 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
7.625%, semi-annually
5.125%, annually
22.02.22
17.08.22
22.05.23
12.02.26
12.05.24
22.02.17
22.05.18
12.02.21
Write-down trigger2, 5
CET1 ratio < 5% or viability event
CET1 ratio < 5% or viability event
CET1 ratio < 5% or viability event
CET1 ratio < 5% or viability event
CET1 ratio < 5% or viability event
Coupon rate and frequency of payment
Maturity date
Optional call date
7.5%, semi-annually
7.75%, semi-annually
7.375%, semi-annually
8.75%, annually
5.25% / 3-month Sterling LIBOR + 1.29%, annually / quarterly
6.375% / 3-month Sterling LIBOR + 2.10%, annually / quarterly
4.125%, annually
15.07.25
01.09.26
15.06.17
18.12.25
21.06.21
19.11.24
27.12.17
21.06.16
19.11.19
259
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Advanced measurement approach model
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 consolidated
financial statements. For this purpose, we have used 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 hori-
zon. The methodology takes into consideration UBS and industry
experience for the AMA operational risk categories to which those
matters correspond, as well as the external environment affecting
risks of these types, in isolation from other areas. On this stand-
alone 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 3.7 billion as of 31 Decem-
ber 2015. Because this estimate is based upon historical data for
the relevant risk categories, it does not constitute 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 these matters may be
materially more or materially less than this estimated amount.
In accordance with FINMA requirements, we reviewed the
methodology and calibration of our AMA model for operational
risk during 2015. Subject to FINMA approval, we anticipate that
we will implement the revised model in the first quarter of 2016
and expect that the estimated capital loss described in the para-
graphs above would be greater under the revised model.
➔ Refer to “Note 22 Provisions and contingent liabilities” in the
“Consolidated financial statements” section of this report for
more information
groups to disclose the main features of eligible capital instruments
and their terms and conditions.
➔ Refer to “Bondholder information” at www.ubs.com/investors
for more information on the capital instruments of UBS Group
and of UBS AG both on a consolidated and a standalone basis
In order to fulfill BIS and FINMA Pillar 3 composition of capital
disclosure requirements, we disclose a full reconciliation of all
regulatory capital elements to the published IFRS balance sheet.
➔ Refer to the “UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3 regulations” section
of this report for more information
BIS and Swiss SRB rules require banks to disclose differences
between the accounting scope of consolidation and the regula-
tory 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.
➔ Refer to “Note 1 Summary of significant accounting policies” and
“Note 30 Interests in subsidiaries and other entities” in the
“Consolidated financial statements” section of this report for
more information on the IFRS scope of consolidation and the list
of significant subsidiaries included as of 31 December 2015
➔ Refer to the “UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3 regulations” section
of this report for more information on entities that are treated
differently under the regulatory and the IFRS scope of consolida-
tion
Additional capital information
Pillar 3 | In order to ensure the consistency and comparability of
regulatory capital instruments disclosures for all market partici-
pants, BIS and FINMA Pillar 3 rules require banks and banking
Capital information for UBS AG, UBS Switzerland AG and UBS
Limited on a standalone basis is disclosed in the “Legal entity
financial and regulatory information” section of this report.
260
Differences between Swiss SRB and BIS capital
Our Swiss SRB and BIS capital is the same on both a fully applied
and a phase-in basis, except for two specific tier 2 capital items.
First, as of 31 December 2015, the amount of our tier 2 high-
trigger loss-absorbing capital, in the form of DCCP awards for
2012 and 2013, was CHF 452 million higher under Swiss SRB
rules than under BIS rules. Second, a portion of unrealized gains
on financial investments classified as available-for-sale, totaling
CHF 202 million as of 31 December 2015, was recognized as
tier 2 capital under BIS rules, but not under Swiss SRB regula-
tions.
Differences between Swiss SRB and BIS capital information
As of 31.12.15
CHF million, except where indicated
Common equity tier 1 capital
Common equity tier 1 capital
Additional tier 1 capital
High-trigger loss-absorbing capital
Low-trigger loss-absorbing capital
Total additional tier 1 capital
Tier 1 capital
Tier 2 capital
High-trigger loss-absorbing capital
Low-trigger loss-absorbing capital
Phase-out capital and other tier 2 capital
Total tier 2 capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
Phase-in
Fully applied
Swiss SRB
BIS
Differences Swiss
SRB versus BIS
Swiss SRB
BIS
Differences Swiss
SRB versus BIS
40,378
40,378
3,828
353
4,181
3,828
353
4,181
44,559
44,559
912
10,325
996
12,233
56,792
19.0
21.0
26.8
460
10,325
1,198
11,983
56,542
19.0
21.0
26.6
212,302
212,302
0
0
0
0
0
452
0
(202)
250
250
0.0
0.0
0.2
0
30,044
30,044
3,828
2,326
6,154
3,828
2,326
6,154
36,198
36,198
912
10,325
11,237
47,435
14.5
17.4
22.9
460
10,325
202
10,987
47,185
14.5
17.4
22.7
207,530
207,530
0
0
0
0
0
452
0
(202)
250
250
0.0
0.0
0.2
0
261
Risk, treasury and capital management Fully applied risk-weighted assets
CHF billion
300
240
180
120
60
0
216
77
16
15
109
216
79
15
15
108
210
75
13
15
107
216
75
17
16
108
207
75
12
16
104
31.12.14
31.3.15
30.6.15
30.9.15
31.12.15
Credit risk
Non-counterparty-related risk
Market risk
Operational risk
Risk, treasury and capital management
Capital management
Risk-weighted assets (UBS Group)
EDTF | Our risk-weighted assets (RWA) are the same under Swiss
SRB and BIS rules. Moreover, RWA on a fully applied basis are the
same as on a phase-in basis, except for differences related to
defined benefit plans and deferred tax assets (DTAs) on temporary
differences.
On a fully applied basis, any net defined benefit pension asset
recognized in accordance with IAS 19 (revised) is fully deducted
from CET1 capital. On a phase-in basis, the deduction of net
defined benefit pension assets from capital is phased in, and the
portion of the net defined benefit pension asset that is not yet
deducted from CET1 capital is risk weighted at 100%.
On a fully applied basis, DTAs on temporary differences below
the fully applied deduction threshold are risk weighted at 250%.
On a phase-in basis, the amount that is risk weighted at 250% is
higher due to the higher deduction threshold.
Due to the aforementioned differences, as of 31 December
2015, our phase-in RWA were CHF 4.8 billion higher than our
fully applied RWA, entirely attributable to non-counterparty-
related risk RWA.
RWA decreased by CHF 9.0 billion to CHF 207.5 billion on a
fully applied basis as of 31 December 2015, below our short- to
medium-term expectation of around CHF 250 billion. On a phase-
in basis, RWA decreased by CHF 8.6 billion to CHF 212.3 billion as
of 31 December 2015. The “Risk-weighted assets by exposure
segment” and “Risk-weighted assets movement by key driver –
fully applied” tables on the following pages provide additional
granularity on RWA movements.
➔ Refer to “Table 2: Detailed segmentation of 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
262
EDTF | Pillar 3 |
Risk-weighted assets by exposure segment
CHF billion
Credit risk
Advanced IRB approach
Sovereigns
Banks
Corporates
Retail
Other2
Standardized approach
Sovereigns
Banks
Corporates
Central counterparties
Retail
Other2
Non-counterparty-related risk
Deferred tax assets recognized for
temporary differences
Property, equipment and software
Other
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 RWA4
Total RWA, phase-in
Phase-out items5
Total RWA, fully applied
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
CC –
Services
CC –
Group
ALM
CC – Non-
core and
Legacy
Portfolio
31.12.15
12.6
8.5
0.0
0.0
0.5
7.4
0.6
4.1
0.2
0.1
1.2
0.0
2.3
0.3
0.1
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
12.6
5.5
25.3
0.0
25.3
8.5
3.4
0.0
0.0
0.0
3.3
0.1
5.1
0.0
0.4
1.2
0.0
3.4
0.1
0.0
0.0
0.0
0.0
1.0
0.2
0.4
0.0
0.4
0.0
0.0
12.4
1.7
21.9
0.0
21.9
32.9
31.2
0.1
1.1
15.1
13.6
1.4
1.7
0.0
0.1
0.1
0.0
0.1
1.4
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.6
0.5
34.6
0.0
34.6
1.7
1.0
0.0
0.0
0.0
0.0
1.0
0.7
0.0
0.1
0.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.0
2.6
0.0
2.6
35.5
32.0
0.5
5.1
23.5
0.0
2.9
3.6
0.0
0.1
1.7
1.8
0.0
(0.1)
0.1
0.0
0.0
0.0
10.5
1.6
2.9
3.3
2.5
0.0
0.2
16.8
0.0
62.9
0.0
62.9
1.3
0.2
0.0
0.0
0.0
0.0
0.1
1.1
0.0
0.1
1.0
0.0
0.0
0.0
20.5
12.9
7.5
0.0
(2.9)3
(0.8)
(1.4)
0.0
(0.8)
0.0
0.0
9.5
3.0
28.3
4.7
23.6
5.0
3.9
2.0
0.9
1.0
0.0
0.1
1.0
0.0
0.0
0.3
0.7
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.1
0.2
0.1
0.5
0.0
0.0
0.1
0.0
6.0
0.0
6.0
6.9
5.0
0.1
0.8
1.7
0.0
2.3
2.0
0.0
0.2
1.0
0.3
0.0
0.4
0.0
0.0
0.0
0.0
2.6
0.4
0.6
0.8
0.2
0.1
0.5
21.1
2.6
30.7
0.0
30.7
Total capital
requirement1
13.2
10.8
0.3
1.0
5.3
3.1
1.1
2.4
0.0
0.1
0.9
0.4
0.7
0.3
2.6
1.6
1.0
0.0
1.5
0.2
0.4
0.5
0.3
0.0
0.1
9.5
1.7
26.8
Total
RWA
104.4
85.2
2.7
7.9
41.8
24.2
8.6
19.2
0.3
1.1
7.1
2.8
5.8
2.1
20.7
12.9
7.6
0.2
12.1
1.5
2.8
4.2
2.7
0.1
0.7
75.1
13.3
212.3
4.8
207.5
1 Calculated based on our Swiss SRB total capital requirement of 12.6% of RWA. 2 Includes securitization / re-securitization exposures in the banking book, equity exposures in the banking book according to the sim-
ple risk weight method, credit valuation adjustments, settlement risk and business transfers. 3 Corporate Center – Services market risk RWA were negative, as they included the effect of portfolio diversification across
businesses. 4 Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA. 5 Phase-out items are entirely related to non-counterparty-related risk
RWA.
263
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
EDTF | Pillar 3 |
Risk-weighted assets by exposure segment (continued)
CHF billion
Credit risk
Advanced IRB approach
Sovereigns
Banks
Corporates
Retail
Other2
Standardized approach
Sovereigns
Banks
Corporates
Central counterparties
Retail
Other2
Non-counterparty-related risk
Deferred tax assets on temporary
differences
Property, equipment and software
Other3
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 RWA5
Total RWA, phase-in
Phase-out items6
Total RWA, fully applied
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
CC –
Services
CC –
Group
ALM
CC – Non-
core and
Legacy
Portfolio
31.12.14
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
0.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
12.9
5.5
25.8
0.4
25.4
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
0.0
0.0
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
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
0.1
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
0.0
0.1
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
1.1
0.2
0.0
0.1
0.0
0.0
0.1
0.9
0.0
0.1
0.8
0.0
0.0
0.0
16.4
8.9
6.6
0.9
(4.5)4
(1.0)
(2.4)
0.0
(1.1)
0.0
0.0
12.1
6.0
25.1
2.1
23.0
4.3
4.2
0.4
1.7
2.0
0.0
0.0
0.1
0.0
0.5
1.2
0.8
0.0
(2.5)
0.0
0.0
0.0
0.0
2.7
0.5
1.2
0.1
1.0
0.0
0.0
0.1
0.0
7.1
0.0
7.1
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
0.0
0.0
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
requirement1
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
1.0
0.8
0.4
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
8.9
6.8
3.4
16.5
2.0
4.1
5.9
3.0
0.1
1.3
76.7
17.5
220.9
4.4
216.5
1 Calculated based on our Swiss SRB total capital requirement of 11.1% of RWA. 2 Includes securitization / re-securitization exposures in the banking book, equity exposures in the banking book according to the sim-
ple risk weight method, credit valuation adjustments, settlement risk and business transfers. 3 Primarily relates to defined benefit plans. 4 Corporate Center – Services market risk RWA were negative, as they included
the effect of portfolio diversification across businesses. 5 Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA. 6 Phase-out items are entirely
related to non-counterparty-related risk RWA.
264
EDTF | Pillar 3 |
Risk-weighted assets by exposure segment (continued)
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
Deferred tax assets on temporary differences
Property, equipment and software
Other
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
0.3
0.3
0.0
0.0
0.1
0.3
0.0
0.0
0.1
(0.1)
0.1
0.0
0.1
(0.2)
(0.5)
0.0
0.0
(0.5)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.3)
0.0
(0.5)
(0.4)
(0.1)
Wealth
Manage-
ment
Americas
(0.2)
0.4
0.0
0.0
0.0
0.4
0.0
(0.6)
0.0
(0.5)
(1.8)
0.0
1.7
0.0
(0.2)
0.0
0.0
(0.2)
0.0
0.0
(0.1)
0.0
0.1
0.0
0.0
0.5
0.0
0.0
(0.2)
0.2
31.12.15 vs. 31.12.14
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
CC –
Services
CC –
Group
ALM
CC – Non-
core and
Legacy
Portfolio
1.5
1.4
0.0
0.0
(0.3)
1.7
0.1
0.0
0.0
0.0
(0.2)
0.0
0.0
0.3
(1.3)
0.0
0.0
(1.4)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.2
(1.4)
1.5
(1.3)
(0.5)
0.0
0.0
0.0
0.0
(0.5)
(0.8)
0.0
0.0
(0.8)
0.0
0.0
0.0
(0.1)
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
(1.3)
(0.1)
(1.2)
0.5
2.7
(0.2)
1.4
2.5
0.0
(1.0)
(2.1)
0.0
(0.1)
(0.1)
1.1
0.0
(3.1)
(0.2)
0.0
(0.1)
(0.3)
(3.1)
(0.2)
(1.1)
(1.7)
0.0
0.0
(0.1)
(1.3)
(1.2)
(4.1)
(0.2)
(3.8)
0.2
0.0
0.0
(0.1)
0.0
0.0
0.0
0.2
0.0
0.0
0.2
0.0
0.0
0.0
4.1
4.0
0.9
(0.9)
1.6
0.2
1.0
0.0
0.3
0.0
0.0
(2.6)
(3.0)
3.2
2.6
0.6
0.7
(0.3)
1.6
(0.8)
(1.0)
0.0
0.1
0.9
0.0
(0.5)
(0.9)
(0.1)
0.0
2.5
0.0
0.0
0.0
0.0
(1.8)
(0.4)
(1.0)
0.0
(0.5)
0.0
0.0
0.0
0.0
(1.1)
0.0
(1.1)
(5.9)
(5.2)
0.0
(0.6)
(0.6)
0.0
(4.1)
(0.6)
0.0
(0.1)
0.0
0.3
0.0
(0.9)
0.0
0.0
0.0
0.0
(1.0)
(0.1)
(0.2)
(0.1)
(0.2)
0.0
(0.5)
1.8
0.0
(5.0)
0.0
(5.0)
Total
RWA
(4.2)
(1.1)
1.4
(0.2)
0.7
2.3
(5.3)
(3.1)
0.1
(1.3)
(3.5)
1.3
1.8
(1.5)
1.6
4.0
0.8
(3.2)
(4.4)
(0.5)
(1.3)
(1.7)
(0.3)
0.0
(0.6)
(1.6)
(4.2)
(8.6)
0.4
(9.0)
265
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
EDTF | Pillar 3 |
Risk-weighted assets movement by key driver – fully applied
Wealth
Manage-
ment
Americas
Personal &
Corporate
Banking
Asset
Manage-
ment
21.7
(0.2)
0.0
0.0
0.0
0.0
(0.3)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.5
0.0
0.5
33.1
1.5
2.3
0.5
0.0
0.0
(1.1)
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.8
(1.3)
0.0
0.0
(0.8)
0.0
(0.4)
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.1
Investment
Bank
66.7
CC -
Services
23.0
0.5
3.4
0.0
0.0
0.0
(2.2)
(0.7)
(0.1)
0.0
0.0
(3.1)
0.0
(1.5)
(0.6)
(1.0)
(1.3)
(1.2)
(0.1)
0.2
0.0
0.0
0.0
0.0
0.5
(0.3)
1.4
1.5
(0.1)
1.61
0.0
1.5
0.1
(0.1)
(2.6)
(3.0)
0.3
0.6
23.6
0.2
21.9
1.5
34.6
(1.2)
2.6
(3.8)
62.9
CC –
Group
ALM
CC – Non-
core and
Legacy
Portfolio
7.1
0.7
0.9
0.0
0.0
0.0
(0.3)
0.1
0.0
0.0
0.0
(1.8)
0.0
0.0
0.0
(1.8)
0.0
0.0
0.1
(1.1)
6.0
35.7
(5.9)
0.0
0.0
0.0
0.8
(6.1)
(0.6)
0.0
0.1
(0.1)
(1.0)
0.0
0.1
0.5
(1.6)
1.8
0.0
1.8
(5.0)
30.7
Group
216.5
(4.2)
7.1
0.5
(0.8)
0.7
(9.9)
(2.0)
1.4
1.5
(0.1)
(4.4)
0.0
0.1
0.0
(4.5)
(1.6)
(4.2)
2.6
(9.0)
207.5
CHF billion
Total RWA as of 31.12.14
Credit risk RWA movement during the year 2015:
Methodology and policy changes
Model updates
Acquisitions and disposals of business operations
Credit quality
Asset size
Foreign exchange movements
Non-counterparty-related risk RWA movement during the year
2015:
Exposure movements
Foreign exchange movements
Market risk RWA movement during the year 2015:
Methodology changes
Model updates
Regulatory add-ons
Movement in risk levels
Operational risk RWA movement during the year 2015:
Incremental operational risk
Other model updates
Total movement
Total RWA as of 31.12.15
1 Includes the effect of portfolio diversification across businesses.
Wealth
Manage-
ment
25.4
0.3
0.5
0.0
0.0
0.0
0.0
(0.3)
(0.1)
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
(0.3)
0.0
(0.2)
(0.1)
25.3
266
RWA development in 2015
EDTF | Refer to “Definition of key RWA movement driver catego-
ries” in this section for information about the definition of key
driver categories and underlying judgments and assumptions.
Credit risk
Credit risk RWA decreased by CHF 4.2 billion to CHF 104.4 billion
as of 31 December 2015. The decrease was mainly driven by asset
size reductions of CHF 9.9 billion and currency effects of CHF 2.0
billion, partly offset by a CHF 7.6 billion effect from methodology
and policy changes mandated by our regulator.
Asset size
The decrease in credit risk RWA due to asset size reductions of
CHF 9.9 billion was driven by decreases in Corporate Center –
Non-core and Legacy Portfolio, the Investment Bank and Personal
& Corporate Banking.
A decrease of CHF 6.1 billion in Corporate Center – Non-core
and Legacy Portfolio was mainly due to a decrease of CHF 1.3 bil-
lion in credit risk RWA from derivative exposures within the Banks
and Corporates exposure segments, mainly due to derivative
trade unwinds and novations as part of our ongoing reduction
activity, as well as a corresponding decrease of CHF 2.6 billion,
reported within the category “Other,” due to lower advanced and
standardized credit valuation adjustments (CVAs). A further
decrease of CHF 1.7 billion resulted from the sale of banking book
securitization positions.
In the Investment Bank, a decrease in asset size of CHF 2.2 bil-
lion within the category “Other” was mainly due to client-driven
exposure reductions, primarily in derivatives, resulting in lower
advanced and standardized credit valuation adjustments (CVAs).
In addition, credit risk RWA decreased by CHF 1.1 billion in
Personal & Corporate Banking, mainly due to lower client activity
in 2015, resulting in a reduction in loan exposures.
Methodology and policy changes
The increase in credit risk RWA from methodology and policy
changes of CHF 7.6 billion was driven by an additional CHF 3.4
billion from an increase in the internal ratings-based multiplier on
Investment Bank exposures to corporates, and by an additional
CHF 2.8 billion in Personal & Corporate Banking resulting from an
increase in the multipliers on income-producing real estate and
Swiss residential mortgages, with an effect of CHF 1.0 billion and
CHF 1.8 billion, respectively.
Credit quality
A reduction in credit hedges in Corporate Center – Non-core and
Legacy Portfolio resulted in an increase in credit risk RWA of CHF
0.8 billion.
Acquisitions and disposals of business operations
The decrease of CHF 0.8 billion in credit risk RWA in Asset Man-
agement was related to the disposal of our Alternative Fund Ser-
vices business.
Non-counterparty-related risk
Phase-in non-counterparty-related risk RWA increased by CHF 1.6
billion to CHF 20.7 billion. This was mainly due to an increase of
CHF 4.1 billion in Corporate Center – Services, driven by addi-
tional DTAs on temporary differences, as well as property, equip-
ment and software recognized in the year. This was partly offset
by decreases of CHF 1.4 billion, CHF 0.9 billion and CHF 0.5 billion
in Personal & Corporate Banking, Corporate Center – Services
and Wealth Management, respectively, driven by the accelerated
application of the IAS 19 (revised) treatment of defined benefit
plans.
Fully applied non-counterparty-related risk RWA increased by
CHF 1.4 billion to CHF 15.9 billion, driven by the increase in DTAs
on temporary differences and property, equipment and software
as noted above.
➔ Refer to the “Group performance” section of this report for more
information on deferred tax assets
Market risk
Market risk RWA decreased by CHF 4.4 billion to CHF 12.1 billion.
The decrease was mainly due to reductions in value-at-risk (VaR)
and stressed VaR of CHF 0.5 billion and CHF 1.3 billion, respec-
tively, related to lower exposure in the 60-day average calculation,
as well as a corresponding decrease of CHF 1.7 billion in the add-
on for risks-not-in-VaR. These decreases were driven by risk reduc-
tions due to market movements, primarily within Group ALM and
the Investment Bank, as well as actively reduced securitization and
re-securitization exposures in Corporate Center – Non-core and
Legacy portfolio.
➔ Refer to the “Risk management and control” section of this
report for more information on market risk developments,
including stressed VaR and the risks-not-in-VaR framework
Operational risk
Operational risk RWA decreased by CHF 1.6 billion to CHF 75.1
billion. Incremental operational risk RWA based on the supple-
mental operational risk capital analysis mutually agreed to by UBS
and FINMA decreased by CHF 4.2 billion to CHF 13.3 billion as of
31 December 2015. Of this decrease, CHF 3.0 billion was attribut-
able to Corporate Center – Services and CHF 1.2 billion to the
Investment Bank. This effect was partly offset by a CHF 2.6 billion
increase in operational risk RWA, mainly arising from an update to
the parameters of our advanced measurement approach model
used for the calculation of operational risk capital during 2015.
267
Risk, treasury and capital management Risk, treasury and capital management
Capital management
EDTF | Definition of key RWA movement driver categories
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, substantia-
tion 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 methodology.
Movements
Key driver description
Credit risk RWA movements
Methodology and policy
changes
Model updates
Represents RWA movements due to methodological changes in calculations driven by regulatory policy changes, including
revisions to existing regulations, new regulations and add-ons mandated by our regulator. The effect of methodology and
policy changes on RWA is estimated based on the portfolio at the time of the implementation of the change.
Represents RWA movements arising from the implementation of new models and from parameter changes to existing
models. The RWA effect of model updates 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. Acquisitions and
disposals of exposures in the ordinary course of business are reflected under asset size.
Credit quality
Asset size
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 all RWA movements that are not attributable to the other key drivers. This includes movements arising in the
normal course of business, such as growth in credit exposures or reduction in asset size from sales and write-offs.
The amounts reported for each business division and Corporate Center unit may also include the effect of transfers and
allocations of exposures between business divisions reflected in the period.
Foreign exchange movements
Represents RWA movements as a result of changes in exchange rates of the transaction currencies versus the Swiss franc.
Non-counterparty-related risk
RWA movements
Exposure movements
Represents RWA movements arising from changes in deferred tax assets on temporary differences as well as from the
purchase or sale of property, equipment, software and other underlying exposures.
Foreign exchange movements
Represents RWA movements as a result of changes in exchange rates of the transaction currencies versus the Swiss franc.
268
Market risk RWA movements
Methodology changes
Model updates
Regulatory add-ons
Movement in risk levels
Operational risk RWA movements
Incremental operational risk
Represents methodology changes to the calculation driven by regulatory and internal policy decisions. In some cases, the
effects of methodology changes are assessed at the time of implementation, and may not reflect the effects for the
entire year. Moreover, 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.
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.
Represents the “Risks-not-in-VaR” add-on described in the “Risk management and control” section of this report.
The effect of recalibrations are calculated by applying the old and new multiplication factors to the year-end VaR and
SVaR-based RWA.
Represents changes as a result of movements in risk levels that are derived after accounting for the movements in the
abovementioned 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 Corporate Center unit may also include
the effect of transfers and allocations of exposures between business divisions reflected in the period.
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.
Other model updates
Represents RWA movements arising from the regular update of the parameters of our advanced measurement approach
(AMA) model.
269
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Leverage ratio framework
EDTF | Our total Swiss SRB leverage ratio requirements1
Phase-in
Fully applied
2.6%
0.6%
0.4%
0.7%
1.0%
3.0%
0.7%
0.5%
0.7%
1.1%
3.4%
0.8%
0.6%
0.9%
1.1%
Gone
concern
Going
concern
4.0%
1.0%
0.7%
0.8%
1.5%
Gone
concern2
Going
concern
4.2%2
1.1%
0.7%
1.3%
1.1%
Gone
concern2
Going
concern
10%2
5.0%
1.5%
2.0%
1.5%
Gone
concern2
Going
concern
31.12.14
31.12.15
From 1.1.16
(current)
20166
(proposed)
31.12.19
(current)
1.1.2020
(proposed)
Base: CET1 capital
Buffer: CET1 capital
Buffer: high-trigger loss-absorbing capital3
Base: high-trigger additional tier 1 capital4
TLAC-eligible senior unsecured debt 5
Progressive buffer: low-trigger loss-absorbing capital
1 In percent of the leverage ratio denominator (LRD). Proposed requirements for Swiss SRBs are based on the draft revised too big to fail ordinance from the Federal Department of Finance. 2 This requirement may be reduced by
a resolvability rebate. 3 CET1 capital can be substituted by high-trigger loss-absorbing capital up to the stated percentage. 4 Low-trigger additional tier 1 capital instruments will continue to qualify as going concern capital until
their first call date. 5 Any high- and low-trigger tier 2 capital instruments remaining after 2019 will qualify for the gone concern requirement until one year before maturity. 6 Based on the draft ordinance which proposes an
effective date of 1 July 2016. ▲
EDTF | In November 2014, FINMA published the circular “Lever-
age ratio – banks”, which aligned the calculation of the lever-
age ratio denominator (LRD) with the rules issued by the Bank
for International Settlements (BIS) in the “Basel III leverage ratio
framework and disclosure requirements” document issued in
January 2014.
Effective 31 December 2015, we implemented the guidance of
this FINMA circular, ahead of its mandatory effective date of
1 January 2016. The Swiss SRB leverage ratio and Swiss SRB LRD
for periods prior to 31 December 2015 are calculated in accor-
dance with the former Swiss SRB denominator definition and are
therefore not fully comparable with 31 December 2015 figures.
However, comparable figures as of 1 January 2015 are provided
on a pro forma basis at the Group level.
The new Swiss SRB leverage ratio is calculated by dividing the
sum of period-end CET1, AT1 and other loss-absorbing capital by
the period-end BIS leverage ratio denominator (LRD). There is no
change to the calculation of the leverage ratio numerator under
the new Swiss SRB rules. Under BIS rules, only CET1 and AT1
capital are included in the numerator, whereas under Swiss SRB
rules, other loss-absorbing capital is also included.
The BIS LRD consists of IFRS on-balance sheet assets and off-
balance sheet items. Derivative exposures are adjusted for a num-
ber of items, including replacement value and eligible cash varia-
tion margin netting, the current exposure method add-on and net
notional amounts for written credit derivatives. Moreover, the BIS
LRD includes an additional charge for counterparty credit risk
related to securities financing transactions.
270
10
8
6
4
2
0
The transition to the new Swiss SRB LRD rules resulted in an
overall reduction of our LRD calculated on a spot basis, mainly
due to positive effects from off-balance sheet items, as well as
from changes in the scope of consolidation. These positive effects
were partly offset by the effect of more stringent requirements
on the treatment of securities financing transactions and deriva-
tive exposures.
In line with FINMA disclosure requirements, we disclose both
the new Swiss SRB leverage ratio and the BIS leverage ratio.
The Swiss SRB leverage ratio requirement is equal to 24% of
the capital ratio requirements, excluding the countercyclical buf-
fer requirement. As of 31 December 2015, the effective total
leverage ratio requirement was 3.0%. Our CET1 capital covered
the leverage ratio requirements for the base and buffer capital
components and the low-trigger loss-absorbing capital satisfied
our leverage ratio requirement for the progressive buffer compo-
nent. In addition, high-trigger loss-absorbing capital is included in
the buffer capital component for UBS Group.
➔ Refer to the “Legal entity financial and regulatory information”
section of this report for more information on leverage ratio
requirements on a legal entity level
Proposed changes to leverage ratio requirements
As previously noted, in December 2015, the Swiss Federal Depart-
ment of Finance published for consultation a draft revised TBTF
ordinance based on the cornerstones announced by the Swiss
Federal Council in October 2015. In line with the announced cor-
nerstones, the proposal would revise the capital and leverage
ratio requirements for Swiss systemically relevant banks and
includes new gone concern requirements.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the proposed revisions to the
Swiss TBTF framework
EDTF |
Swiss SRB leverage ratio requirements and information (phase-in)
CHF million, except where indicated
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital and high-trigger loss-
absorbing capital)
Progressive buffer capital (low-trigger loss-absorbing capital)
Total
Swiss SRB leverage ratio (%)
Actual2, 3, 4
Requirement1
31.12.15
Swiss SRB leverage ratio capital
Eligible2, 3, 4
Requirement
31.12.15
31.12.14
31.12.15
31.12.15
31.12.14
1.1
1.25
0.7
3.0
1.1
3.9
1.2
6.2
1.0
3.3
1.1
5.4
9,763
9,763
9,647
11,119
6,143
27,026
35,354
10,679
55,796
33,216
11,398
54,260
1 Requirements for base capital (24% of 4.5%), buffer capital (24% of 5.1%) and progressive buffer capital (24% of 2.8%). The total leverage ratio requirement of 3.0% is the current phase-in requirement according
to the Swiss Capital Adequacy Ordinance. In addition, FINMA defined a total leverage ratio target of 3.5%, which will be effective until it is exceeded by the Swiss SRB phase-in requirement. 2 Swiss SRB CET1 capital
exceeding the base capital requirement is allocated to the buffer capital. 3 Since 31 March 2015, high-trigger loss-absorbing capital (LAC) is included in the buffer capital. As of 31 December 2014, high-trigger LAC
was included in the progressive buffer capital. 4 The leverage ratio denominator (LRD) used to calculate the requirements is calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, these are
fully aligned to the BIS Basel III rules and the LRD is reported on a spot basis. Prior to the alignment to BIS rules, the LRD was calculated based on former FINMA rules and reported on a 3-month average basis. 5 CET1
capital can be substituted by high-trigger LAC up to 0.5% in 2015.
271
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Leverage ratio information
Swiss SRB leverage ratio
As of 31 December 2015, our Swiss SRB leverage ratio was 5.3%
on a fully applied basis and 6.2% on a phase-in basis. The fully-
applied LRD decreased by CHF 80 billion to CHF 898 billion from
the pro forma comparative number of CHF 978 billion as of 1 Jan-
uary 2015 and was below our short- to medium-term expectation
of around CHF 950 billion. The decrease during 2015 mainly
reflected incremental netting and collateral mitigation benefits of
CHF 39 billion, currency effects of CHF 24 billion and a decrease
of CHF 13 billion related to other methodology changes. Addi-
tional reductions totaling CHF 5 billion were due to changes in
book size and other effects.
The decrease in LRD related to improvements in incremental
netting and collateral mitigation benefits mainly reflected
improved netting of long and short written credit derivative posi-
tions, as well as increased netting of eligible cash variation mar-
gin. In the aggregate, these changes resulted in CHF 22 billion
lower derivative exposures. In addition, counterparty credit risk
for securities financing transactions decreased by CHF 14 billion
due to the consideration of incremental collateral.
The methodology changes that contributed to a decrease in
LRD relate to the exclusion of uncommitted security-based lend-
ing credit facilities in our wealth management businesses, fol-
lowing a reassessment that we are not committed to extend
credit under these contracts. Moreover, it included the effect
from a reassessment of the treatment of forward-starting trans-
actions.
➔ Refer to the “Balance sheet” section of this report for more
information on balance sheet movements
272
EDTF |
Swiss SRB leverage ratio1
Swiss SRB (new)
Swiss SRB (former)
Pro forma as
of 1.1.15
1,062,478
Average 4Q14
1,057,361
CHF million, except where indicated
As of 31.12.15
Total IFRS assets
Difference between IFRS and regulatory scope of consolidation2
Less derivative exposures and securities financing transactions3
On-balance sheet exposures (excluding derivative exposures and securities financing transactions)
Derivative exposures3
Securities financing transactions3
Off-balance sheet items
Other adjustments4
Items deducted from Swiss SRB tier 1 capital, phase-in
Total exposures (leverage ratio denominator), phase-in5
Additional items deducted from Swiss SRB tier 1 capital, fully applied
Total exposures (leverage ratio denominator), fully applied5
942,819
(16,763)
(300,834)
625,222
128,866
120,086
41,132
(11,291)
904,014
(6,407)
897,607
(18,602)
(396,295)
647,581
161,415
135,707
54,839
(14,879)
984,663
(7,047)
977,617
Phase-in
Common equity tier 1 capital
Loss-absorbing capital
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio (%)
Fully applied
Common equity tier 1 capital
Loss-absorbing capital
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio (%)
31.12.15
31.12.14
40,378
15,418
55,796
6.2
42,863
11,398
54,260
5.5
31.12.15
31.12.14
30,044
17,391
47,435
5.3
28,941
11,865
40,806
4.2
(18,525)
(394,192)
644,644
169,267
97,905
88,750
19,184
(14,879)
1,004,869
(7,047)
997,822
31.12.14
42,863
11,398
54,260
5.4
31.12.14
28,941
11,865
40,806
4.1
1 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the Swiss SRB leverage ratio denominator (LRD) calculation is fully aligned to the BIS Basel III rules and the LRD is reported on a spot
basis. For comparison purposes, the equivalent number for 1 January 2015 is provided on a pro forma basis. Prior to the alignment to BIS rules, the LRD was calculated based on former FINMA rules and reported on a
3-month average basis and is therefore not fully comparable to the LRD reported for 31 December 2015, although the presentation format was aligned. 2 Represents the difference between the IFRS and the regula-
tory scope of consolidation, which is the applicable scope for the LRD calculation. 3 Consists of positive replacement values, cash collateral receivables on derivative instruments, cash collateral on securities borrowed,
reverse repurchase agreements, margin loans and prime brokerage receivables related to securities financing transactions in accordance with the regulatory scope of consolidation, which are presented separately under
derivative exposures and securities financing transactions in this table. 4 Includes assets of entities consolidated under IFRS but not in regulatory scope of consolidation, which were included under the former Swiss
SRB LRD calculation rules. 5 In accordance with former Swiss SRB LRD calculation rules, 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.
EDTF |
Changes in fully applied leverage ratio denominator by key driver1
CHF billion
On-balance sheet exposures (excluding derivative exposures and
securities financing transactions)2
Derivative exposures2
Securities financing transactions2
Off-balance sheet items
Deduction items
Total
Pro forma
LRD as of
1.1.15
Currency
effects
Incremental
netting and
collateral
mitigation
Other
methodology
changes
Book size and
other
LRD as of
31.12.15
648
161
136
55
(22)
978
(11)
(9)
(3)
(1)
(24)
(4)
(22)
(14)
(39)
(13)
(13)
(8)
(1)
1
4
(5)
625
129
120
41
(18)
898
1 The leverage ratio denominator (LRD) is calculated in accordance with Swiss SRB rules based on the regulatory scope of consolidation. From 31 December 2015 onward, these are fully aligned to the BIS Basel III rules
and the LRD is reported on a spot basis. This table compares the 31 December 2015 LRD with the equivalent 1 January 2015 LRD, provided on a pro forma basis. 2 Excludes positive replacement values, cash collateral
receivables on derivative instruments, cash collateral on securities borrowed, reverse repurchase agreements, margin loans and prime brokerage receivables related to securities financing transactions, which are presented
separately under derivative exposures and securities financing transactions in this table.
273
Risk, treasury and capital management Risk, treasury and capital management
Capital management
EDTF |
Leverage ratio denominator by business division and Corporate Center unit1
CHF billion
Total IFRS assets
Difference between IFRS and regulatory scope of
consolidation2
Less derivative exposures and securities financing
transactions3
On-balance sheet exposures (excluding derivative
exposures and securities financing transactions)
Derivative exposures3
Securities financing transactions3
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital, phase-in
Total exposures (leverage ratio denominator),
phase-in
Additional items deducted from Swiss SRB tier 1 capital,
fully applied
Total exposures (leverage ratio denominator),
fully applied
As of 31.12.15
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
Personal &
Corporate
Banking
Asset
Manage-
ment
119.9
61.0
141.2
12.9
Invest-
ment
Bank
253.5
CC –
Services
CC – Group
ALM
CC – Non-
Core and
Legacy
Portfolio Total LRD
22.6
237.5
94.4
942.8
(6.0)
(2.0)
111.8
4.0
0.0
3.2
(0.2)
(1.8)
59.0
1.7
1.1
1.0
0.0
(10.2)
(0.7)
(2.7)
138.5
3.5
0.0
11.9
0.0
2.7
0.0
0.0
0.0
(139.4)
113.5
81.8
48.6
24.1
0.0
0.0
22.5
0.0
0.0
0.0
(11.3)
0.3
0.0
(16.8)
(67.0)
(87.9)
(300.8)
170.8
1.5
67.8
0.0
6.5
36.3
2.5
0.8
625.2
128.9
120.1
41.1
(11.3)
119.0
62.9
153.8
2.7
268.0
11.3
240.2
46.2
904.0
119.0
62.9
153.8
2.7
268.0
(6.4)
4.8
(6.4)
240.2
46.2
897.6
CHF billion
Total IFRS assets
Difference between IFRS and regulatory scope of
consolidation2
Less derivative exposures and securities financing
transactions3
On-balance sheet exposures (excluding derivative
exposures and securities financing transactions)
Derivative exposures3
Securities financing transactions3
Off-balance sheet items
Other adjustments4
Items deducted from Swiss SRB tier 1 capital, phase-in
Total exposures (leverage ratio denominator),
phase-in5
Additional items deducted from Swiss SRB tier 1 capital,
fully applied
Total exposures (leverage ratio denominator),
fully applied5
Wealth
Manage-
ment
127.6
(6.5)
(2.9)
118.2
4.0
0.0
9.5
6.6
(0.3)
(1.6)
52.5
0.9
0.7
9.0
0.2
Average 4Q14
Wealth
Manage-
ment Amer-
icas
Personal &
Corporate
Banking
Asset Man-
agement
Investment
Bank
54.4
143.8
14.8
291.5
CC – Non-
Core and
Legacy
Portfolio
CC – Group
ALM
Total LRD
236.3
169.6
1,057.4
CC –
Services
19.4
0.0
(11.2)
(0.7)
(0.1)
0.3
0.0
(18.5)
(2.6)
(0.2)
(155.2)
0.0
(78.7)
(153.0)
(394.2)
141.2
3.4
0.0
21.2
0.1
3.5
0.2
0.0
0.0
11.2
135.5
74.5
32.8
44.5
0.9
19.2
0.0
0.0
0.0
0.0
(14.9)
4.5
(7.0)
157.9
14.2
64.0
0.0
0.2
16.6
72.0
0.5
4.4
0.0
644.6
169.3
97.9
88.7
19.2
(14.9)
236.3
93.4
1,004.9
(7.0)
138.3
63.3
165.9
14.9
288.3
138.3
63.3
165.9
14.9
288.3
(2.6)
236.3
93.4
997.8
1 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the Swiss SRB leverage ratio denominator (LRD) calculation is fully aligned to the BIS Basel III rules and the LRD is reported on a spot
basis. Prior to the alignment to BIS rules, the LRD was calculated based on former FINMA rules and reported on a 3-month average basis and is therefore not fully comparable to the LRD reported for 31 December 2015,
although the presentation format was aligned. 2 Represents the difference between the IFRS and the regulatory scope of consolidation, which is the applicable scope for the LRD calculation. 3 Consists of positive
replacement values, cash collateral receivables on derivative instruments, cash collateral on securities borrowed, reverse repurchase agreements, margin loans and prime brokerage receivables related to securities financ-
ing transactions in accordance with the regulatory scope of consolidation, which are presented separately under derivative exposures and securities financing transactions in this table. 4 Includes assets of entities con-
solidated under IFRS but not in regulatory scope of consolidation, which were included under the former Swiss SRB LRD calculation rules. 5 In accordance with former Swiss SRB LRD calculation rules, 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 quali-
fying central counterparty.
274
BIS leverage ratio
More detailed BIS leverage ratio information in line with FINMA disclosure requirements can be found in the document “UBS Group
AG (consolidated) regulatory information” which is available in “Quarterly reporting” at www.ubs.com/investors.
Pillar 3 |
BIS Basel III leverage ratio
CHF million, except where indicated
Phase-in
BIS Basel III tier 1 capital
Total exposures (leverage ratio denominator)
BIS Basel III leverage ratio (%)
Fully applied
BIS Basel III tier 1 capital
Total exposures (leverage ratio denominator)
BIS Basel III leverage ratio (%)
31.12.15
44,559
904,014
4.9
31.12.15
36,198
897,607
4.0
275
Risk, treasury and capital management Risk, treasury and capital management
Capital management
UBS AG (consolidated) capital and leverage ratio information
In this section, we disclose UBS AG (consolidated) capital and leverage ratio information and differences between UBS Group AG
(consolidated) and UBS AG (consolidated).
Capital information
Swiss SRB capital ratio requirements and information (phase-in) – UBS AG (consolidated)
CHF million, except where indicated
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital and high-trigger loss-absorbing
capital)
of which: effect of countercyclical buffer
Progressive buffer capital (low-trigger loss-absorbing capital)
Phase-out capital (tier 2 capital)
Total
Capital ratio (%)
Capital
Requirement1
31.12.15
Actual2
Requirement
Eligible2
31.12.15
31.12.14
31.12.15
31.12.15
31.12.14
4.5
5.3
0.2
2.8
12.6
4.5
15.0
0.2
4.9
0.5
24.9
4.0
15.9
0.1
4.7
0.9
25.6
9,567
9,567
8,846
11,252
356
6,020
26,839
31,948
356
10,325
996
52,837
35,244
322
10,451
2,050
56,591
1 The total capital ratio requirement of 12.6% is the current phase-in requirement according to the Swiss Capital Adequacy Ordinance. Prior to the implementation of the Swiss SRB framework, FINMA also defined a
total capital ratio target for UBS AG consolidated of 14.4%, which will be effective until it is exceeded by the Swiss SRB phase-in capital requirement. 2 Swiss SRB CET1 capital exceeding the base capital requirement
is allocated to the buffer capital.
Swiss SRB capital information – UBS AG (consolidated)
CHF million, except where indicated
Common equity tier 1 capital
Common equity tier 1 capital
Additional tier 1 capital
High-trigger loss-absorbing capital
Tier 1 capital
Tier 2 capital
Low-trigger loss-absorbing capital
Phase-out capital
Total tier 2 capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
Phase-in
Fully applied
31.12.15
31.12.14
31.12.15
31.12.14
41,516
44,090
32,042
30,805
01
41,516
10,325
996
11,321
52,837
19.5
19.5
24.9
02
44,090
1,252
33,294
0
30,805
10,451
2,050
12,501
56,591
19.9
19.9
25.6
10,325
10,451
10,325
43,619
15.4
16.0
21.0
10,451
41,257
14.2
14.2
19.0
212,609
221,150
208,186
217,158
1 Includes additional tier 1 capital in the form of high-trigger loss-absorbing capital and hybrid instruments, which were entirely offset by required deductions for goodwill. 2 Includes additional tier 1 capital in the form
of hybrid instruments, which was entirely offset by required deductions for goodwill.
276
As of 31 December 2015, fully applied total capital of UBS AG
(consolidated) was CHF 3.8 billion lower than for UBS Group AG
(consolidated), reflecting CHF 4.9 billion lower AT1 capital and
CHF 0.9 billion lower tier 2 capital, partly offset by CHF 2.0 billion
higher CET1 capital.
The difference of CHF 2.0 billion in fully applied CET1 capital
was primarily due to compensation-related regulatory capital
accruals, liabilities and capital instruments which are reflected at
the UBS Group AG level.
The difference of CHF 4.9 billion in fully applied AT1 capital
relates to the issuances of AT1 capital notes by UBS Group AG in
2015, as well as CHF 1.0 billion of high-trigger loss-absorbing
DCCP awards granted to eligible employees for the performance
years 2015 and 2014.
The difference of CHF 0.9 billion in tier 2 capital relates to high-
trigger loss-absorbing capital, in the form of 2012 and 2013
DCCP awards, held at UBS Group AG level.
Differences in capital between UBS Group AG (consolidated)
and UBS AG (consolidated) related to employee compensation
plans will reverse to the extent underlying services are performed
by employees of, and are consequently charged to, UBS AG and
its subsidiaries. Such reversal generally occurs over the service
period of the employee compensation plans.
The difference in RWA between UBS Group AG (consolidated)
and UBS AG (consolidated) was less than CHF 1.0 billion on both
a phase-in and fully applied basis as of 31 December 2015.
Swiss SRB capital information (UBS Group AG vs UBS AG consolidated)
As of 31.12.15
Phase-in
Fully applied
CHF million, except where indicated
Common equity tier 1 capital
Common equity tier 1 capital
Additional tier 1 capital
High-trigger loss-absorbing capital
Low-trigger loss-absorbing capital
Total additional tier 1 capital
Tier 1 capital
Tier 2 capital
High-trigger loss-absorbing capital
Low-trigger loss-absorbing capital
Phase-out capital
Total 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)
UBS AG
(consolidated)
Differences
UBS Group AG
(consolidated)
UBS AG
(consolidated)
Differences
40,378
41,516
(1,138)
30,044
32,042
(1,998)
3,828
353
4,181
44,559
912
10,325
996
12,233
56,792
19.0
21.0
26.8
0
0
0
41,516
10,325
996
11,321
52,837
19.5
19.5
24.9
212,302
212,609
3,828
353
4,181
3,043
912
0
0
912
3,955
(0.5)
1.5
1.9
(307)
3,828
2,326
6,154
36,198
912
10,325
11,237
47,435
14.5
17.4
22.9
1,252
0
1,252
33,294
10,325
10,325
43,619
15.4
16.0
21.0
207,530
208,186
2,576
2,326
4,902
2,904
912
0
912
3,816
(0.9)
1.4
1.9
(656)
277
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Audited |
Reconciliation IFRS equity to Swiss SRB capital (UBS Group AG vs UBS AG consolidated)
As of 31.12.15
CHF million
Phase-in
Fully applied
UBS Group AG
(consolidated)
UBS AG
(consolidated)
Differences
UBS Group AG
(consolidated)
UBS AG
(consolidated)
Differences
Equity attributable to shareholders
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)
Defined benefit plans, 40 % phase-in
Deferred tax assets recognized for tax loss carry-forwards (before phase-
in, as applicable)
Deferred tax assets recognized for tax loss carry-forwards, 40% phase-in
Deferred tax assets on temporary differences, excess over threshold
Goodwill, net of tax, less hybrid capital and loss-absorbing capital
Intangible assets, net of tax
Unrealized (gains) / losses from cash flow hedges, net of tax
Compensation and own shares-related capital components (including
share premium)
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
Accruals for proposed dividends to shareholders
Other
Common equity tier 1 capital
High-trigger loss-absorbing capital
Low-trigger loss-absorbing capital
Hybrid capital subject to phase-out
Goodwill, net of tax, offset against hybrid capital and loss-absorbing
capital
Additional tier 1 capital
Tier 1 capital
Tier 2 capital
Total capital
55,313
55,248
1,995
57,308
1,995
57,243
(1,995)
(1,995)
(20)
(20)
(2,988)
(702)
(2,618)
(323)
(1,638)
(1,383)
(442)
(402)
(83)
(130)
(3,188)
(1,018)
40,378
3,828
2,326
1,954
(3,927)
4,181
44,559
12,233
56,792
(2,988)
(657)
(3,339)
(323)
(1,638)
(442)
(402)
(83)
(130)
(3,434)
(277)
41,516
1,252
1,954
(3,206)
0
41,516
11,321
52,837
65
0
65
0
0
0
(45)
721
0
0
(1,383)
0
0
0
0
246
(741)
(1,138)
2,576
2,326
0
(721)
4,181
3,043
912
3,955
55,313
55,248
1,995
57,308
(1,995)
(50)
1,995
57,243
(1,995)
(50)
(7,468)
(7,468)
(2,598)
(6,545)
(323)
(1,638)
(1,383)
(442)
(402)
(83)
(130)
(3,188)
(1,018)
30,044
3,828
2,326
6,154
36,198
11,237
47,435
(2,414)
(6,545)
(323)
(1,638)
(442)
(402)
(83)
(130)
(3,434)
(277)
32,042
1,252
1,252
33,294
10,325
43,619
65
0
65
0
0
0
(184)
0
0
0
(1,383)
0
0
0
0
246
(741)
(1,998)
2,576
2,326
4,902
2,904
912
3,816
278
Leverage ratio information
Swiss SRB leverage ratio requirements and information (phase-in) – UBS AG (consolidated)
CHF million, except where indicated
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital and high-trigger loss-absorbing
capital)
Progressive buffer capital (low-trigger loss-absorbing capital)
Total
Swiss SRB leverage ratio (%)
Actual2, 3
Requirement1
31.12.15
Swiss SRB leverage ratio capital
Requirement
Eligible2, 3
31.12.15
31.12.14
31.12.15
31.12.15
31.12.14
1.1
1.2
0.7
3.0
1.1
3.5
1.1
5.7
1.0
3.4
1.0
5.4
9,769
9,769
9,658
11,126
6,146
27,041
31,747
10,325
51,841
34,432
10,451
54,542
1 Requirements for base capital (24% of 4.5%), buffer capital (24% of 5.1%) and progressive buffer capital (24% of 2.8%). The total leverage ratio requirement of 3.0% is the current phase-in requirement according
to the Swiss Capital Adequacy Ordinance. In addition, FINMA defined a total leverage ratio target of 3.5%, which will be effective until it is exceeded by the Swiss SRB phase-in requirement. 2 Swiss SRB CET1 capital
exceeding the base capital requirement is allocated to the buffer capital. 3 The leverage ratio denominator (LRD) used to calculate the requirements is calculated in accordance with Swiss SRB rules. From 31 December
2015 onward, these are fully aligned to the BIS Basel III rules and the LRD is reported on a spot basis. Prior to the alignment to BIS rules, the LRD was calculated based on former FINMA rules and reported on a 3-month
average basis.
Consistent with UBS Group AG
(consolidated), effective
31 December 2015, we apply the new requirement for the calcu-
lation of the Swiss SRB leverage ratio, which is based on the Swiss
SRB numerator and the BIS LRD on a spot basis, in accordance
with the FINMA Circular “Leverage ratio – banks.”
As of 31 December 2015, the Swiss SRB leverage ratio of UBS
AG (consolidated) was 0.4 percentage points and 0.5 percentage
points lower than that of UBS Group AG (consolidated) on a fully
applied and phase-in basis, respectively, mainly as CET1 capital
including loss-absorbing capital of UBS AG (consolidated) was
CHF 3.8 billion and CHF 4.0 billion lower on a fully applied and
phase-in basis, respectively.
The difference in LRD between UBS Group AG (consolidated)
and UBS AG (consolidated) was less than CHF 1 billion on both a
phase-in and fully applied basis as of 31 December 2015.
Swiss SRB leverage ratio (UBS Group AG vs UBS AG consolidated)
As of 31.12.15
CHF million, except where indicated
Total IFRS assets
Difference between IFRS and regulatory scope of consolidation1
Less derivative exposures and securities financing transactions2
On-balance sheet exposures (excluding derivative exposures and securities financing transactions)
Derivative exposures2
Securities financing transactions2
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital, phase-in
Total exposures (leverage ratio denominator), phase-in
Additional items deducted from Swiss SRB tier 1 capital, fully applied
Total exposures (leverage ratio denominator), fully applied
Phase-in
Common equity tier 1 capital
Loss-absorbing capital
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio (%)
Fully applied
Common equity tier 1 capital
Loss-absorbing capital
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio (%)
UBS Group AG
(consolidated)
942,819
(16,763)
(300,834)
625,222
128,866
120,086
41,132
(11,291)
904,014
(6,407)
897,607
UBS AG
(consolidated)
943,256
(16,822)
(300,834)
625,601
128,866
120,086
41,211
(11,246)
904,518
(6,268)
898,251
Differences
(437)
59
0
(379)
0
0
(79)
(45)
(504)
(139)
(644)
40,378
15,418
55,796
6.2
30,044
17,391
47,435
5.3
41,516
10,325
51,841
5.7
32,042
11,578
43,619
4.9
(1,138)
5,093
3,955
0.5
(1,998)
5,813
3,816
0.4
1 Represents the difference between the IFRS and the regulatory scope of consolidation, which is the applicable scope for the LRD calculation. 2 Consists of positive replacement values, cash collateral receivables on
derivative instruments, cash collateral on securities borrowed, reverse repurchase agreements, margin loans and prime brokerage receivables related to securities financing transactions in accordance with the regulatory
scope of consolidation, which are presented separately under derivative exposures and securities financing transactions in this table.
279
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 toward activities that appropriately balance
profit potential, risk and capital usage. This framework, which
includes some forward-looking elements, enables us to integrate
Group-wide capital management activities with those at a busi-
ness division level and to calculate and assess return on attributed
equity (RoAE) for each of our business divisions.
Tangible equity is attributed to our business divisions by apply-
ing a weighted-driver approach that combines fully applied
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 expo-
sure 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. Group
items within Corporate Center – Services represents equity not
allocated to the business divisions. This includes equity required to
align total attributed equity with Group capital targets, as well as
attributed equity for PaineWebber goodwill and intangible assets,
for centrally held RBC items and for certain Basel III capital deduc-
tion items. The amount of equity attributed to all business divi-
sions and Corporate Center corresponds to the amount we
believe is required 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
Average total equity attributed to the business divisions and
Corporate Center increased to CHF 44.6 billion in 2015 compared
with CHF 39.9 billion in 2014. Since 1 January 2015, the equity
attribution framework is based on fully applied Basel III capital
requirements, rather than on phase-in requirements. As a result, a
higher amount of equity is required to underpin certain Basel III
capital deductions, primarily related to deferred tax assets. This
led to an increase in average attributed equity for Group items
within Corporate Center – Services. Attributed equity in Corpo-
rate Center – Non-core and Legacy Portfolio decreased, reflecting
further RWA and LRD reductions.
Average equity attributable to UBS Group AG shareholders
increased to CHF 52.4 billion in 2015 from CHF 49.7 billion in
2014. The difference between average equity attributable to UBS
Group AG shareholders and average equity attributed to the busi-
ness divisions and Corporate Center decreased to CHF 7.8 billion
in 2015 compared with CHF 9.8 billion in 2014.
Pillar 3 | Effective from the first quarter of 2016, the weighting
used for the attribution of tangible equity has been changed from
50% for RWA, 25% for LRD and 25% for RBC to an equal driver
weighting of one third each. Moreover, to reflect the higher CET1
ratios of our industry peers, the CET1 ratio used for the RWA
driver is increased from 10% to 11%. The CET1 leverage ratio
used for the LRD driver remains unchanged at 3.75%. These
changes will lead to moderate increases in the business divisions’
attributed equity. Moreover, the equity required to align attrib-
uted equity with Group capital targets fully applies the proposed
revisions to the Swiss TBTF framework, which is expected to lead
to an increase in the average attributed equity for Group items
within Corporate Center – Services.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the proposed revisions to the
Swiss TBTF framework
280
Pillar 3 |
Average attributed equity
CHF billion
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
of which: Services
of which: Group items1
of which: Group ALM
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
1 Beginning in 2015, Group items are shown within Corporate Center – Services. Prior periods have been restated.
Pillar 3 |
Return on attributed equity and return on equity1
In %
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
UBS Group
For the year ended
31.12.15
31.12.14
31.12.13
3.5
2.5
3.9
1.6
7.3
25.8
19.6
18.2
3.3
2.9
44.6
7.8
52.4
3.4
2.7
4.1
1.7
7.6
20.5
12.3
11.3
3.2
4.9
39.9
9.8
49.7
3.5
2.8
4.1
1.8
8.0
23.3
9.5
8.6
3.1
10.8
43.5
3.7
47.2
For the year ended
31.12.15
31.12.14
31.12.13
77.4
29.0
41.9
36.5
25.9
11.8
67.9
33.6
36.7
27.5
(1.1)
7.0
64.2
30.9
35.6
32.0
26.6
6.7
1 Return on attributed equity shown for the business divisions and return on equity attributable to UBS Group AG shareholders shown for UBS Group. Return on attributed equity for Corporate Center is not shown, as it
is not meaningful.
281
Risk, treasury and capital management Risk, treasury and capital management
UBS shares
UBS shares
UBS Group AG shares
Audited | As of 31 December 2015, total IFRS equity attributable to
UBS Group AG shareholders amounted to CHF 55,313 million,
represented by 3,849,731,535 shares issued. Shares issued
increased by 132,603,211 shares in 2015 due to the issuance of
127,650,706 shares out of authorized share capital following pri-
vate exchanges of UBS AG shares into UBS Group AG shares, and
the successful completion of a court procedure under article 33 of
the Swiss Stock Exchange Act (SESTA procedure) to cancel the
UBS Group share information
Shares issued
Treasury shares
Shares outstanding
Basic earnings per share (CHF)1
Diluted earnings per share (CHF)1
Equity attributable to UBS Group AG shareholders (CHF million)
Less: goodwill and intangible assets (CHF million)2
Tangible equity attributable to UBS Group AG shareholders (CHF million)
Total book value per share (CHF)
Tangible book value per share (CHF)
Share price (CHF)
Market capitalization (CHF million)3
remaining UBS AG shares that were held by UBS AG shareholders
with a non-controlling interest, and the issuance of 4,952,505
shares out of conditional share capital upon exercise of employee
share options.
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.
As of or for the year ended
31.12.15
31.12.14
3,849,731,535
3,717,128,324
98,706,275
87,871,737
3,751,025,260
3,629,256,587
1.68
1.64
55,313
6,568
48,745
14.75
13.00
19.52
75,147
0.93
0.91
50,608
6,564
44,044
13.94
12.14
17.09
63,526
% change from
31.12.14
4
12
3
81
80
9
0
11
6
7
14
18
1 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” in the “Consolidated financial statements” section of this report for more information on UBS Group AG (consolidated) EPS. 2 Goodwill and intan-
gible 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. 3 Mar-
ket capitalization is calculated based on the total shares issued multiplied by the share price at period end.
UBS AG shares
Audited | As of 31 December 2015, shares issued by UBS AG totaled
3,858,408,466 shares, of which 100% were held by UBS Group
AG. Shares issued by UBS AG increased by 13,847,533 shares in
2015 due to the issuance of new UBS AG shares out of condi-
tional share capital upon distribution of an optional share divi-
dend in May 2015.
Following the successful completion of the SESTA procedure,
all UBS AG shares that remained publicly held were canceled and
UBS Group AG shares were delivered as compensation.
UBS AG share information
Shares issued
Treasury shares
Shares outstanding
of which: held by UBS Group AG
of which: held by shareholders with non-controlling interests
282
As of
31.12.15
31.12.14
3,858,408,466
3,844,560,913
0
3,858,408,466
3,858,408,466
0
2,115,255
3,842,445,658
3,716,910,207
125,535,451
% change from
31.12.14
0
(100)
0
4
(100)
Holding of UBS Group AG shares
We hold UBS Group AG own shares primarily to hedge share
delivery obligations related to employee share and option partici-
pation plans.
In addition, the Investment Bank holds a limited number of
own shares in its capacity as a liquidity provider to the equity
index futures market and as a market-maker in UBS Group AG
shares and derivatives on UBS Group AG shares. Moreover, 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 deriva-
tives and, to a limited extent, by own shares held by the Invest-
ment Bank.
As of 31 December 2015, total future share delivery obliga-
tions in relation to employee share-based compensation awards
were 138 million shares (31 December 2014: 131 million shares)
taking the respective performance conditions into account. Share
delivery obligations related to unvested and vested notional share
awards, options and stock appreciation rights.
As of 31 December 2015, we held 98 million UBS Group AG
treasury shares (31 December 2014: 88 million) which were avail-
able to satisfy the share delivery obligations. Additionally, 131 mil-
lion UBS Group AG shares (31 December 2014: 136 million) to be
issued out of conditional share capital were available to satisfy the
share delivery obligation specifically related to options and stock
appreciation rights. Treasury shares held or newly issued shares
are delivered to employees at exercise or vesting.
As of 31 December 2015, we held 98,706,275 treasury shares,
or 2.6% of shares issued, compared with 87,871,737, or 2.4% of
shares issued, as of 31 December 2014.
The table below outlines the market purchases of UBS Group
AG shares by Group Treasury. It does not include the activities of
the Investment Bank.
Treasury share activities1
Month of purchase
Number of shares
Average price in CHF
Number of shares (Cumulative)
Average price in CHF
Treasury shares purchased for employee share and
option participation plans
Total number of shares
January 2015
February 2015
March 2015
April 2015
May 2015
June 2015
July 2015
August 2015
September 2015
October 2015
November 2015
December 2015
49,175,526
17.61
1,000,000
2,600,000
19.34
18.48
49,175,526
49,175,526
49,175,526
49,175,526
49,175,526
49,175,526
50,175,526
52,775,526
17.61
17.61
17.61
17.61
17.61
17.61
17.65
17.69
1 This table excludes purchases for the purpose of hedging derivatives linked to UBS Group AG shares and for market making in UBS Group AG shares. The table also excludes UBS Group AG 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 1,544,438 UBS Group AG shares during the year and held 17,737,346 UBS Group AG shares as of 31 December 2015.
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 from 28 November 2014 onward.
31.12.15
2,870,766
11,437
102,069
405
For the year ended
31.12.141
2,839,304
11,403
88,792
354
31.12.13
2,763,179
11,053
98,382
390
283
Risk, treasury and capital management Risk, treasury and capital management
UBS shares
Listing of UBS shares
UBS Group AG shares are listed on the SIX Swiss Exchange (SIX)
and on the New York Stock Exchange (NYSE). They are traded and
settled as global registered shares. Global registered shares pro-
vide 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 and from the SIX on 27 August 2015 following the success-
ful completion of the SESTA procedure.
During 2015, the average daily trading volume of UBS Group
AG shares was 11.4 million shares on the SIX and 0.4 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 the NYSE are simul-
taneously 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 Group AG shares on the NYSE is required
to facilitate sufficient liquidity and maintain an orderly market in
UBS Group AG 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: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:21)(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:23)
(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: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:2)(cid:25)(cid:23)
(cid:2)(cid:2)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
284
(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:19)(cid:51)(cid:19)(cid:23)
(cid:20)(cid:51)(cid:19)(cid:23)
(cid:21)(cid:51)(cid:19)(cid:23)
(cid:22)(cid:51)(cid:19)(cid:23)
(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
Trading exchange
SIX Swiss Exchange
New York Stock Exchange
SIX / NYSE
Bloomberg
Reuters
UBSG
UBSG
UBSG VX
UBS UN
UBS VX
UBS.N
Security identification codes
ISIN
Valoren
Cusip
CH0244767585
24 476 758
CINS H42097 10 7
(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)
Stock exchange prices1
SIX Swiss Exchange
New York Stock Exchange
High (CHF)
Low (CHF)
Period end (CHF)
High (USD)
Low (USD)
Period end (USD)
2015
Fourth quarter 2015
December
November
October
Third quarter 2015
September
August
July
Second quarter 2015
June
May
April
First quarter 2015
March
February
January
2014
Fourth quarter 2014
Third quarter 2014
Second quarter 2014
First quarter 2014
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
20.27
20.14
20.16
20.27
22.57
20.54
22.57
22.30
20.78
20.73
20.78
19.54
18.59
18.59
16.78
17.24
19.10
17.84
16.93
18.74
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
17.87
17.87
18.83
18.09
17.41
17.41
18.52
19.40
18.22
19.28
18.80
18.22
13.58
16.58
15.21
13.58
13.95
13.95
15.20
16.21
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
19.52
19.52
19.75
19.78
18.01
18.01
20.03
22.25
19.83
19.83
20.22
18.86
18.32
18.32
16.75
15.39
17.09
17.09
16.66
16.27
18.26
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
20.69
19.93
20.44
20.69
23.19
20.92
23.18
23.19
22.16
22.16
22.00
20.31
19.29
19.29
17.69
17.46
21.50
18.22
18.95
21.15
21.50
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
18.19
18.19
18.70
18.55
17.97
17.97
19.96
20.51
19.01
21.07
20.07
19.01
16.02
17.14
16.37
16.02
15.04
15.04
16.78
18.22
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
1 Based on the share price of UBS AG until 27 November 2014, and of UBS Group AG from 28 November 2014 onward.
19.37
19.37
19.16
20.03
18.52
18.52
20.69
23.06
21.20
21.20
21.58
20.07
18.77
18.77
17.49
16.68
17.05
17.05
17.37
18.32
20.72
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
285
Risk, treasury and capital management 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 (supplementary
disclosures for companies whose shares are listed on a stock exchange: shareholdings) and the Ordinance against Excessive
Compensation in Listed Stock Corporations (tables containing such information are marked as “Audited” throughout this section),
as well as other applicable regulations and guidance.
Information assured according to the Global Reporting Initiative (GRI)
Content of the sections “UBS and Society” and “Our employees” has been reviewed by Ernst & Young Ltd (EY) against the Global
Reporting Initiative (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/gri. The assurance by EY also covered other relevant text
and data on the website of UBS which is referenced in the GRI Content Index.
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 gover-
nance” 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 gover-
nance, including the SIX Swiss Exchange’s (SIX) Directive on Infor-
mation Relating to Corporate Governance, as well as the stan-
dards established in the Swiss Code of Best Practice for Corporate
Governance, including the appendix on executive compensation.
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.
Based on article 716b of the Swiss Code of Obligations and
articles 25 and 27 of the Articles of Association of UBS Group AG
and UBS AG (Articles of Association), the Board of Directors (BoD)
adopted the Organization Regulations of UBS Group AG and UBS
AG (Organization Regulations), which constitute our primary cor-
porate governance guidelines. The revised Organization Regula-
tions are valid as of 1 January 2016. They primarily implement
new governance framework responsibilities appropriate to the
new holding structure, and define primary governance guidelines
for UBS Group AG and its subsidiaries.
After the successful completion of the squeeze-out procedure
in the third quarter of 2015, UBS Group AG became sole owner
of all shares of UBS AG and, in August 2015, all UBS AG shares
were delisted from the SIX Swiss Exchange. Consequently, UBS
AG is no longer subject to the SIX Listing Rules requirement to
publish information about corporate governance in this report.
However, information about UBS AG continues to be presented in
response to US Securities and Exchange Commission 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 gov-
erned by a combined set of Organization Regulations. The discus-
sion of corporate governance in this section, therefore, relates to
both entities equally, except where specifically noted to be differ-
ent. 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.
➔ Refer to the Articles of Association and the Organization
Regulations 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.
288
Responsibility of the Audit Committee with regard to
independent 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).
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
of 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 Compensation Committee for performance
evaluations of senior management
The Compensation Committee (formerly Human Resources and
Compensation Committee), together with the BoD, proposes for
shareholder approval at the AGM the maximum aggregate
amount of compensation 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 shareholders elect the mem-
bers of the Compensation Committee at the AGM.
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
Compensation Committee
NYSE listing standards would require the aforementioned com-
mittees to submit their reports directly to shareholders. However,
under Swiss law, all our reports addressed to shareholders, includ-
ing those from the aforementioned committees, are provided and
approved by the 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 require an increase in capital. 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 UBS Group AG’s capital
289
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). As the holding company of the Group, UBS
Group AG is a non-operating, financial holding company that has
issued or guaranteed debt and provides capital to its subsidiaries
as required.
UBS AG, a fully-owned subsidiary of UBS Group AG, and UBS
Switzerland AG, a fully-owned subsidiary of UBS AG, are also
organized as AGs pursuant to article 620ff. of the Swiss Code of
Obligations.
Over the past two years, we have taken a series of measures to
improve the resolvability of the Group in response to “too big to
fail” requirements in Switzerland and other countries in which the
Group operates.
After the successful completion of the squeeze-out procedure
in the third quarter of 2015, UBS Group AG became the sole
owner of all shares of UBS AG and is expected to directly acquire
certain other Group companies over time. The Swiss-booked
business of Wealth Management and Personal & Corporate
Banking (formerly Retail & Corporate) were transferred to UBS
Switzerland AG in mid-2015. In 2015, we also completed the
implementation of a revised business and operating model for
UBS Limited in the UK.
During 2015, we also established UBS Business Solutions AG
as a direct subsidiary of UBS Group AG, to act as the Group ser-
vice company, to which the ownership of the majority of our exist-
ing service subsidiaries will be transferred. We established a new
subsidiary, UBS Americas Holding LLC, which we intend to desig-
nate as our intermediate holding company in the US under the
Dodd-Frank Wall Street Reform and Consumer Protection Act. We
also established a new subsidiary of UBS AG, UBS Asset Manage-
ment AG, into which we expect to transfer the majority of the
operating subsidiaries of Asset Management during 2016.
➔ Refer to the “The legal structure of UBS Group” section of this
report for more information
Operational Group structure
As of 31 December 2015, the operational structure of the Group
comprised Wealth Management, Wealth Management Americas,
Personal & Corporate Banking (formerly Retail & Corporate),
Asset Management (formerly Global Asset Management), and
the Investment Bank, as well as Corporate Center with its units
Corporate Center – Services, Corporate Center – Group Asset and
Liability Management and Corporate Center – Non-core and Leg-
acy Portfolio.
➔ Refer to the “Financial and operating performance” section and
“Note 2 Segment reporting” in the “Consolidated financial
statements” section of this report for more information
290
Listed and non-listed companies belonging to the Group
The Group includes a number of consolidated entities, of which
only UBS Group AG has its shares listed on stock exchanges.
➔ Refer to the “Corporate information” section of this report for
UBS Group AG and UBS AG
➔ Refer to “Note 30 Interests in subsidiaries and other entities” in
the “Consolidated financial statements” section of this report for
more information on the significant subsidiaries of the Group
Significant shareholders
As of 1 January 2016, the Federal Act on Financial Market Infra-
structures and Market Conduct in Securities and Derivatives Trad-
ing of 19 June 2015 (Swiss Financial Market Infrastructure Act)
replaced certain provisions of the Swiss Federal Act on Stock
Exchanges and Securities Trading of 24 March 1995 as amended
(Swiss Stock Exchange Act). Under the Swiss Financial Market
Infrastructure 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 dis-
closure requirements and the methodology for calculating the
thresholds are defined in the Swiss Financial Market Supervisory
Authority Ordinance on Financial Market Infrastructure (FMIO-
FINMA), which replaced certain provisions of the Swiss Financial
Market Supervisory Authority Ordinance on Stock Exchanges and
Securities Trading (SESTO-FINMA) as of 1 January 2016. In partic-
ular, the FMIO-FINMA sets forth that nominee companies that
cannot autonomously decide how voting rights are exercised are
not obligated to notify the company 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.
According to disclosure notifications filed on 10 December
2014 with UBS Group AG and the SIX under the Swiss Stock
Exchange Act and respective FINMA Ordinance, both as in force
at that time, 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 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% and on 10 February 2016,
MFS Investment Management, Boston, disclosed a holding of
3.05%. In accordance with the Swiss Stock Exchange Act and, as
of 1 January 2016, the Swiss Financial Market Infrastructure Act,
the aforementioned percentages 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
and the Swiss Financial Market Infrastructure Act, respectively, is
available on the SIX Disclosure Office website at www.six-
exchange-regulation.com/ en/ home/publications/significant-
shareholders.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 2015.
Cross-shareholdings
We have no cross-shareholdings in excess of a reciprocal owner-
ship of 5% of capital or voting rights with any other company.
Audited |
Shareholders registered in the UBS share register with 3% or more of the total share capital1
% of share capital
Chase Nominees Ltd., London
GIC Private Limited, Singapore
DTC (Cede & Co.), New York2
Nortrust Nominees Ltd., London
1 Numbers for the year 2013 refer to UBS AG. 2 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
31.12.15
31.12.14
9.14
6.38
6.14
3.60
9.05
6.61
5.76
3.52
31.12.13
11.73
6.39
5.89
3.75
291
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Capital structure
Issued ordinary share capital
As of 31 December 2014, UBS Group AG’s share capital amounted
to CHF 371,712,832, represented by 3,717,128,324 shares with
a par value of CHF 0.10 each.
In 2015, the UBS Group AG’s Board of Directors (BoD) made
use of the authorized capital created by decision of the sharehold-
ers in 2014, and increased the ordinary share capital of UBS Group
AG by CHF 12,765,070.60 by means of contributions in kind in
the form of UBS AG shares in connection with the acquisition of
100% ownership of UBS AG.
➔ Refer to the “The legal structure of UBS Group” section of this
report for more information
UBS Group AG’s issued share capital also increased by CHF
495,250.50 in 2015, as a result of issuance of shares out of con-
ditional capital due to options exercised by employees.
At year-end 2015, 3,849,731,535 UBS Group AG shares were
issued with a par value of CHF 0.10 each, leading to a share capi-
tal of CHF 384,973,153.50.
Issued share capital of UBS Group AG
As of 31 December 2014
Issue of shares out of conditional capital due to employee options exercised in 2015
Issue of shares out of authorized capital related to the acquisition of 100% ownership of UBS AG
As of 31 December 2015
Share capital in CHF
Number of shares
Par value in CHF
371,712,832
3,717,128,324
495,251
12,765,071
4,952,505
127,650,706
384,973,154
3,849,731,535
0.10
0.10
0.10
0.10
Distribution of UBS shares
As of 31 December 2015
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
5,000,001–38,497,315 (1%)
1–2%
2–3%
3–4%
4–5%
Over 5%
Total registered
Unregistered3
Total shares issued
Shareholders registered
Shares registered
Number
29,221
136,820
77,651
6,603
526
90
26
1
2
1
0
31
250,944
%
11.6
54.5
30.9
2.6
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
Number
% of shares issued
1,648,134
63,725,129
216,755,778
153,005,195
150,958,478
196,661,505
301,464,993
41,946,308
177,165,956
138,540,340
0
833,880,862
2,275,752,6782
1,573,978,857
3,849,731,535
0.0
1.7
5.6
4.0
3.9
5.1
7.8
1.1
4.6
3.6
0.0
21.7
59.1
40.9
100.0
1 On 31 December 2015, Chase Nominees Ltd., London, entered as a trustee / nominee, was registered with 9.14% of all UBS shares issued. However, according to the provisions of UBS Group AG, voting rights of trust-
ees / nominees are limited to a maximum of 5% of all UBS shares issued. The US securities clearing organization DTC (Cede & Co.), New York, was registered with 6.14% of all UBS 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 6.38% of all UBS shares issued. 2 Of the total shares
registered, 405,558,479 shares did not carry voting rights. 3 Shares not entered in the UBS share register as of 31 December 2015.
292
Conditional share capital
Authorized share capital
At year-end 2015, the following conditional share capital was
available to UBS Group AG’s BoD:
UBS Group AG had no authorized capital available on 31 Decem-
ber 2015.
At the Extraordinary General Meeting
(EGM) held on
26 November 2014, the shareholders approved the increase of
conditional capital to be issued through the voluntary or manda-
tory exercise of conversion rights and / or warrants 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. In 2015,
the BoD has not made use of the allowance to issue such bonds
or warrants.
At the same EGM, the shareholders also approved the increase
of the conditional capital to be issued upon exercise of employ-
ees’ options. By 31 December 2015, options on 4,952,505 shares
were exercised under the employee option plan with a total of
131,029,690 conditional capital shares being available at the end
of 2015 to satisfy further exercises of options.
➔ 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
Association are available on our website at www.ubs.com/
governance
On 10 February 2015, UBS Group AG’s BoD increased the ordi-
nary share capital of UBS Group AG out of authorized share capi-
tal by CHF 1,180,025 by means of a contribution in kind in the
form of UBS AG shares acquired subsequent to the end of the
exchange offer on a share-for-share basis via private exchanges
on the same terms and conditions as the exchange offer. On the
same basis, UBS Group AG’s BoD increased the ordinary share
capital of UBS Group AG out of authorized share capital on
9 March 2015 and on 12 June 2015 by CHF 952,500 and CHF
1,750,000, respectively.
On 28 August 2015, UBS Group AG’s BoD increased the ordi-
nary share capital of UBS Group AG out of authorized share capi-
tal by CHF 8,882,545.60 by means of a contribution in kind in the
form of UBS AG shares. They corresponded to the shares held by
the minority shareholders of UBS AG which were canceled follow-
ing the Commercial Court of Zurich’s declaration of their invalidity
in accordance with the request of UBS Group AG pursuant to
article 33 of the Swiss Stock Exchange Act (currently, article 137
of the Swiss Financial Market Infrastructure Act). As a result, hold-
ers of UBS AG shares were compensated through the delivery of
the newly issued UBS Group AG shares on a share-for-share basis
in accordance with the exchange ratio of the 2014 exchange
offer. On the same date, the Articles of Association were amended
to completely remove the provision on authorized capital.
Conditional capital of UBS Group AG
Employee equity participation plans
Conversion rights / warrants granted in connection with bonds
Total
Maximum number of
shares to be issued
Year approved by Extraor-
dinary General Meeting
% of shares issued
31.12.15
131,029,690
380,000,000
511,029,690
2014
2014
31.12.15
3.40%
9.87%
13.27%
293
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 2015
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
Shareholders registered
Number
245,294
5,355
295
%
97.7
2.1
0.1
250,944
100.0
Individual shareholders
Legal entities
Nominees
Total
Individual shareholders
Legal entities
Nominees
Total
Number
6,775
5,961
5,691
13,432
4,512
4,877
3,807
236
%
2.7
2.4
2.3
5.4
1.8
1.9
1.5
0.1
Number
197
103
168
275
26
14
225
10
219,396
87.4
4,715
%
0.1
0.0
0.1
0.1
0.0
0.0
0.1
0.0
1.9
Number
146
135
18
88
6
7
75
0
43
%
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Number
7,118
6,199
5,877
13,795
4,544
4,898
4,107
246
%
2.8
2.5
2.3
5.5
1.8
2.0
1.6
0.1
224,154
89.3
Number of shares
Number of shares
Number of shares
Number of shares
19,253,355
17,436,861
23,032,675
41,515,370
13,368,267
18,638,367
8,899,611
609,125
343,177,562
426,978,962
0
%
0.5
0.5
0.6
1.1
0.3
0.5
0.2
0.0
8.9
11.1
52,576,724
48,488,553
321,847,156
30,511,029
274,041
2,205,727
27,621,991
409,270
357,022,166
761,957,075
0
%
1.4
1.3
8.4
0.8
0.0
0.1
0.7
0.0
9.3
323,042,407
322,827,025
9,025,021
735,670,963
15,412,578
577,682,051
142,576,334
19,078,250
19.8
1,086,816,641
0
0
245,294
97.7
5,355
2.1
295
0.1
250,944
100.0
426,978,962
11.1
761,957,075
19.8
1,086,816,641
28.2
3,849,731,535
100.0
Shares registered
Number
426,978,962
761,957,075
1,086,816,641
2,275,752,678
1,573,978,857
3,849,731,535
394,872,486
388,752,439
353,904,852
807,697,362
29,054,886
598,526,145
179,097,936
1,018,395
719,277,978
2,275,752,678
1,573,978,857
%
8.4
8.4
0.2
19.1
0.3
15.0
3.7
0.0
0.5
28.2
%
11.1
19.8
28.2
59.1
40.9
100.0
%
10.3
10.1
9.2
21.0
0.7
15.5
4.7
0.0
18.7
59.1
40.9
Changes of shareholders’ equity and shares
In accordance with International Financial Reporting Standards,
Group equity attributable to UBS Group AG shareholders
amounted to CHF 55.3 billion as of 31 December 2015 (2014:
CHF 50.6 billion) (for reference, equity attributable to UBS AG
shareholders as of 31 December 2013 amounted to CHF 48.0 bil-
lion). UBS Group AG shareholders’ equity was represented by
3,849,731,535 issued shares as of 31 December 2015 (2014:
3,717,128,324 shares) (for reference, UBS AG shareholders’
equity in 2013: 3,842,002,069 shares).
➔ Refer to the “Statement of changes in equity” in the
“Consolidated financial statements” 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 geographic location. This
information relates only to registered shareholders and cannot be
assumed to be representative of UBS Group AG’s entire investor
base or the actual beneficial ownership. Only shareholders regis-
tered 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 2015, 1,870,194,199 UBS Group AG
shares carried voting rights, 405,558,479 shares were entered in
the share register without voting rights and 1,573,978,857 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 2015, we owned 98,706,275 UBS Group AG reg-
istered shares corresponding to 2.56% of the total share capital
of UBS Group AG. At the same time, we had disposal positions
relating to 222,146,535 voting rights of UBS Group AG, corre-
sponding to 5.77% of the total voting rights of UBS Group AG.
5.55% thereof consisted of voting rights on shares deliverable in
respect of employee awards. The calculation methodology for the
disposal position is based on the FMIO-FINMA (formerly 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.
294
Shareholders, legal entities and nominees: type and geographical distribution
Shareholders registered
Shares registered
As of 31 December 2015
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
250,944
100.0
Number
245,294
5,355
295
Number
7,118
6,199
5,877
13,795
4,544
4,898
4,107
246
%
97.7
2.1
0.1
%
2.8
2.5
2.3
5.5
1.8
2.0
1.6
0.1
Number
6,775
5,961
5,691
13,432
4,512
4,877
3,807
236
%
2.7
2.4
2.3
5.4
1.8
1.9
1.5
0.1
Number
197
103
168
275
26
14
225
10
%
0.1
0.0
0.1
0.1
0.0
0.0
0.1
0.0
1.9
Number
146
135
18
88
6
7
75
0
43
%
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
219,396
87.4
4,715
224,154
89.3
Individual shareholders
Legal entities
Nominees
Total
Individual shareholders
Legal entities
Nominees
Number of shares
19,253,355
17,436,861
23,032,675
41,515,370
13,368,267
18,638,367
8,899,611
609,125
343,177,562
426,978,962
0
%
0.5
0.5
0.6
1.1
0.3
0.5
0.2
0.0
8.9
11.1
Number of shares
52,576,724
48,488,553
321,847,156
30,511,029
274,041
2,205,727
27,621,991
409,270
357,022,166
761,957,075
0
%
1.4
1.3
8.4
0.8
0.0
0.1
0.7
0.0
9.3
Number of shares
323,042,407
322,827,025
9,025,021
735,670,963
15,412,578
577,682,051
142,576,334
0
19,078,250
19.8
1,086,816,641
0
Number
426,978,962
761,957,075
1,086,816,641
2,275,752,678
1,573,978,857
3,849,731,535
Total
Number of shares
394,872,486
388,752,439
353,904,852
807,697,362
29,054,886
598,526,145
179,097,936
1,018,395
719,277,978
2,275,752,678
1,573,978,857
%
8.4
8.4
0.2
19.1
0.3
15.0
3.7
0.0
0.5
28.2
%
11.1
19.8
28.2
59.1
40.9
100.0
%
10.3
10.1
9.2
21.0
0.7
15.5
4.7
0.0
18.7
59.1
40.9
245,294
97.7
5,355
2.1
295
0.1
250,944
100.0
426,978,962
11.1
761,957,075
19.8
1,086,816,641
28.2
3,849,731,535
100.0
Shares and participation certificates
We have only one unified class of UBS Group AG’s shares issued in
registered form. These shares are traded and settled as global reg-
istered shares. Each registered share has a par value of CHF 0.10
and carries one vote subject to the restrictions set out under
“Transferability, voting rights and nominee registration.” Global
registered shares provide direct and equal ownership for all share-
holders, 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
295
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Distributions to shareholders
The decision to pay a dividend and the amount of any dividend,
depend on a variety of factors, including our profits and cash flow
generation and on the maintenance of our targeted capital ratios.
At the AGM 2016, UBS’s BoD intends to propose to sharehold-
ers an ordinary dividend of CHF 0.60 per share, a 20% increase
from the previous year’s ordinary dividend payment, reflecting
profit for the financial year 2015, and a special dividend of CHF
0.25 per share, reflecting a significant net upward revaluation of
deferred tax assets in 2015.
The total dividend will be paid out of capital contribution
reserves, subject to shareholder approval.
Transferability, voting rights and nominee registration
We do not apply any restrictions or limitations on the transfer-
ability of shares. Voting rights may be exercised without any
restrictions by shareholders entered into the share register if they
expressly 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
register with voting rights up to a total of 5% of all issued UBS
Group AG shares if they agree to disclose, upon our request, ben-
eficial owners holding 0.3% or more of all issued UBS Group AG
shares. An exception to the 5% voting limit rule is in place for
securities clearing organizations, such as The Depository Trust
Company in New York.
➔ Refer to “Shareholders’ participation rights” in this section for
more information
Convertible bonds and options
As of 31 December 2015, 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 2015, there were 93,367,982 employee
options outstanding, including stock appreciation rights. Options
and stock appreciation rights equivalent to 18,189,195 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 2015, 131,029,690 unis-
sued shares in conditional share capital were available for this
purpose.
➔ Refer to “Conditional share capital” in this section for more
information on outstanding options
296
Shareholders’ participation rights
We are committed to shareholder participation in our decision-
making process. Around 250,000 shareholders are directly regis-
tered, some 150,000 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
Registered shareholders can access personalized services and
important information related to share register entries and our
general meetings of shareholders at www.ubs.com/shareholder-
portal. They can also enter their voting instructions electronically
through the shareholder portal ahead of our general meetings of
shareholders, and they can verify their voting instructions 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 subscrip-
tions to shareholder-related publications and to communicate
directly with UBS Shareholder Services via a secure channel. The
shareholder portal is fully integrated into our website.
For UBS Group AG’s Annual General Meeting (AGM) 2016, we
intend to send to registered shareholders, who have explicitly
applied for and accepted the terms of this specific procedure, an
email notification informing them of the upcoming AGM and that
their personalized AGM invitation and related documentation is
available on the shareholder portal. These shareholders will not
receive a separate invitation by ordinary mail.
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 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
Depository 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 elected by
the UBS Group AG shareholders or by appointing another regis-
tered shareholder of their choice to vote on their behalf. Alterna-
tively, registered shareholders can issue their voting instructions to
the independent proxy electronically through our shareholder
portal. Nominee companies normally submit the proxy material to
the beneficial owners and transmit the collected votes to the
independent 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 be 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.
297
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Convocation of general meetings of shareholders
The AGM must be held within six months of the close of the
financial year (31 December) and normally takes place in early
May. A personal invitation including a detailed agenda and expla-
nation of each motion is made available to every registered share-
holder at least 20 days ahead of the scheduled AGM. The meet-
ing agenda is also published in the Swiss Official Gazette of
Commerce and in selected Swiss newspapers, 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 including during an AGM, ask in writing for an
Extraordinary General Meeting to be convened to address a spe-
cific issue they put forward.
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, together with
a short explanation. The BoD formulates opinions on the propos-
als, 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. In order to determine the voting rights of each share-
holder, our share register generally closes two business days
before a shareholder meeting. Our independent proxy agent pro-
cesses voting instructions from shareholders with voting power as
long as technically possible, generally also until two business days
before a shareholder meeting.
298
Board of Directors
The Board of Directors (BoD) of UBS Group AG and UBS AG, each
under the leadership of the Chairman, consists of six to 12 mem-
bers as per our Articles of Association (AoA). The BoD decides on
the strategy of the Group upon recommendation of the Group
Chief Executive Officer (Group CEO) and is responsible for the
overall direction, supervision and control of the Group and its
management, as well as for supervising compliance with applica-
ble laws, rules and regulations. The BoD exercises oversight over
UBS Group AG and its subsidiaries and is responsible for ensuring
the establishment of a clear Group governance framework to
ensure effective steering and supervision of the Group, taking
into account the material risks to which UBS Group AG and its
subsidiaries are exposed.
The BoD has ultimate responsibility for the success of the
Group and for delivering sustainable shareholder value within a
framework of prudent and effective controls, approves all finan-
cial statements for issue and appoints and removes all Group
Executive Board (GEB) members.
Members of the Board of Directors
On 7 May 2015, Michel Demaré, David Sidwell, Reto Francioni,
Ann F. Godbehere, Axel P. Lehmann, William G. Parrett, Isabelle
Romy, Beatrice Weder di Mauro and Joseph Yam were re-elected
as members of the BoD. Jes Staley, then Managing Partner at
BlueMountain Capital Management LLC, was elected as a new
member of the BoD, while Helmut Panke did not stand for re-
election at the AGM 2015. Following their election, the BoD
appointed Michel Demaré as Vice Chairman and David Sidwell as
Senior Independent Director of UBS Group AG. At the same time,
Axel A. Weber was re-elected Chairman of the Board of Directors,
and Ann F. Godbehere, Michel Demaré, Reto Francioni and Jes
Staley were elected as members of the Compensation Commit-
tee. Additionally, ADB Altorfer Duss & Beilstein AG was elected
independent proxy agent.
Following the announcement by Barclays Plc that Jes Staley
would assume the role of CEO, UBS announced on 28 October
2015 that it had accepted his resignation from all his functions at
UBS with immediate effect to avoid conflicts of interest. More-
over, on 3 November 2015, we announced various changes to our
GEB and BoD, including the appointment of Axel P. Lehmann as
Group Chief Operating Officer with effect from 1 January 2016.
Consequently, he stepped down from the BoD and will not stand
for re-election at the 2016 AGM. Axel P. Lehmann recused himself
from the BoD meetings as of November 2015 due to his Group
Executive Board nomination.
Our AoA limit the number of mandates 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 memberships in listed companies and
five additional mandates in non-listed companies. Mandates in
companies, which are controlled by us or which control us, are
not subject to this limitation. In addition, members of the BoD
may hold no more than 10 mandates at UBS’s request and 10
mandates in associations, charitable organizations, foundations,
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 provide information on the BoD
members and the Group Company Secretary, including Axel P.
Lehmann, as he was a member of the BoD as of 31 December
2015. As mentioned above, as of 1 January 2016 he joined the
GEB. For reasons of transparency, the biographies include, in addi-
tion to information on mandates, information on memberships or
other activities or functions, as required by the SIX Swiss Exchange
Corporate Governance Directive.
All members of UBS Group AG’s BoD are also members of
UBS AG’s BoD, and committee membership is the same for both
entities.
299
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Axel A. Weber
German,
born 1957
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
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
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)
of UBS AG at the 2012 AGM and of UBS Group AG in
November 2014. He is Chairman of the BoD of both UBS
AG and UBS Group AG. He has chaired the Governance
and Nominating Committee since 2012 and became Chair-
person of the Corporate Culture and Responsibility Com-
mittee 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 Di-
rectors 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, 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 professor
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 Di-
rector 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 econom-
ics 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 hon-
orary doctorates from the universities of Duisburg-Essen
and Constance.
Other activities and functions
– Board member of the Swiss Bankers Association
– Member of the Board of Trustees of Avenir Suisse
– Advisory Board member Zukunft Finanzplatz
– Board member of the Swiss Finance Council
– Board member of the Institute of International Finance
– Board member of the International Monetary Confer-
ence
– Member of the European Financial Services Round Table
– Member of the European Banking Group
– Member of the International Advisory Panel, Monetary
Authority of Singapore
– Board member of the Financial Services Professional
Board, Kuala Lumpur
– Member of the Group of Thirty, Washington, DC
– Chairman of the DIW Berlin Board of Trustees
– Advisory Board member of the Department of Econom-
ics at the University of Zurich
300
Michel Demaré
Belgian,
born 1956
Syngenta International AG
Schwarzwaldallee 215
CH-4058 Basel
Functions at
UBS Group AG
Independent Vice
Chairman / member of the
Audit Committee / member of
the Compensation
Committee / member of the
Governance and Nominating
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 of UBS AG at the
2009 AGM and of UBS Group AG in November 2014. 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 Compensation Com-
mittee 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 positions in Belgium, France, the US and
Switzerland. Between 1997 and 2002, Mr. Demaré was
CFOoftheGlobalPolyolefinsandElastomers division. He
beganhiscareerasanofficerinthe multinationalbanking
division of Continental Illinois National Bank of Chicago,
andwasbasedinAntwerp.Mr. Demarégraduatedwithan
MBA from the Katholieke Universiteit Leuven, Belgium,
and holds a degree in applied economics from the Univer-
sité 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 the Syngenta Foundation for Sustainable
Agriculture
– Advisory Board member of the Department of Banking
and Finance at the University of Zurich
– Advisory Board member of Zukunft Finanzplatz
David Sidwell
American (US) and British,
born 1953
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Functions at
UBS Group AG
Senior Independent
Director / Chairperson of the
Risk Committee / member of
the Governance and
Nominating Committee
Year of initial election to
UBS Group AG: 2014
Year of initial election to
UBS AG: 2008
Professional history and education
David Sidwell was elected to the BoD of UBS AG at the
2008 AGM and of UBS Group AG in November 2014. 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 Com-
mittee since 2011. Mr. Sidwell was Executive Vice President
and CFO of Morgan Stanley between 2004 and 2007. Be-
fore 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 NewYork.Mr.SidwellgraduatedfromCambridgeUni-
versity 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 Chubb Limited
– Board member of GAVI Alliance
– Chairman of the Board of Village Care, New York
– Director of the National Council on Aging,
Washington, DC
Reto Francioni
Swiss,
born 1955
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Functions at
UBS Group AG
Member of the Compensation
Committee / 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: 2013
Professional history and education
Reto Francioni was elected to the BoD of UBS AG at the
2013 AGM and of UBS Group AG in November 2014. He
has been a member of the Corporate Culture and Respon-
sibility Committee since 2013, the Compensation Commit-
tee since 2014 and the Risk Committee since 2015. He
was CEO of Deutsche Börse AG from 2005 to 2015. 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
1992to1993,heservedinthecorporatefinancedivision
of Hoffmann-La Roche, Basel. Prior to this, he was on the
executive board of Association Tripartite Bourses for sever-
al years. From 1985 to 1988, he worked 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 Switzer-
land. Mr. Francioni completed his studies in law in 1981
and his PhD in 1987 at the University of Zurich.
Other activities and functions
– Board member of Francioni AG
– Board member Swiss International Air Lines
– Board member of MedTech Innovation Partners AG
301
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Ann F.
Godbehere
Canadian and British,
born 1955
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Functions at
UBS Group AG
Chairperson of the
Compensation
Committee / member of the
Audit 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 of UBS AG at the
2009 AGM and of UBS Group AG in November 2014. She
has chaired the 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 business’s public ownership
until the end of January 2009. Prior to this role, she served
asCFOofSwissReGroupfrom2003to2007.Ms. Godbe-
here 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 in North America. Between 1996
and 1997, she was CFO of Swiss Re Life & Health North
America.Ms.Godbehereisacertifiedgeneralaccountant
and was made a fellow of the Chartered Professional
AccountantAssociationin2014andfellowof theCertified
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
William G.
Parrett
American (US),
born 1945
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Functions at
UBS Group AG
Chairperson of the Audit
Committee / member of the
Compensation
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: 2008
Professional history and education
William G. Parrett was elected to the BoD of UBS AG at the
October 2008 Extraordinary General Meeting and of UBS
Group AG in November 2014. He has chaired the Audit
Committee since 2009, has been a member of the Corpo-
rate Culture and Responsibility Committee since 2012 and
the Compensation Committee since 2015. 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
experience in professional services, Mr. Parrett served pub-
lic, private, governmental, and state-owned clients world-
wide. Mr. Parrett has a bachelor’s degree in accounting
fromSt.FrancisCollege,NewYork,andisacertifiedpublic
accountant (New York).
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
oftheconflictscommittee)
– BoardmemberofThermoFisherScientificInc.
(chairman of audit committee)
– 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
302
Isabelle Romy
Swiss,
born 1965
Froriep
Bellerivestrasse 201
CH-8034 Zurich
Functions at
UBS Group AG
Member of the Audit
Committee / member of the
Governance and Nominating
Committee
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 of UBS AG at the
2012 AGM and of UBS Group AG in November 2014.
She hasbeenamemberoftheAuditCommitteeandthe
Governance and Nominating Committee since 2012.
Ms. RomyisapartneratFroriep,alargeSwissbusinesslaw
firm. From 1995 to 2012, she worked for another major
SwisslawfirmbasedinZurich,whereshewasapartner
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 Commis-
sion at the EPFL. Ms. Romy earned her PhD in law (Dr. iur.)
at the University of Lausanne in 1990 and has been a
qualifiedattorney-at-lawadmittedtothebarsince1991.
From 1992 to 1994, she was a visiting scholar at Boalt Hall
School of Law, University of California, Berkeley, and com-
pleted her professorial thesis at the University of Fribourg
in 1996.
Other activities and functions
– Vice Chairman of the Sanction Commission of SIX Swiss
Exchange
– Member of the Fundraising Committee of the Swiss Na-
tional Committee for UNICEF
Beatrice Weder
di Mauro
Italian and Swiss,
born 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
Risk Committee
Year of initial election to
UBS Group AG: 2014
Year of initial election to
UBS AG: 2012
Professional history and education
Beatrice Weder di Mauro was elected to the BoD of UBS
AG at the 2012 AGM and of UBS Group AG in November
2014. 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 Wash-
ington, 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 Washing-
ton, DC. Ms. Weder di Mauro earned her PhD in economics
at the University of Basel in 1993 and received her habilita-
tion there in 1999.
Other activities and functions
– Supervisory Board member of Robert Bosch GmbH,
Stuttgart
– Member of the ETH Zurich Foundation Board of Trustees
– 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 Senate of the Max Planck Society
303
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Joseph Yam
Chinese and
Hong Kong citizen,
born 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 of UBS AG at the 2011
AGM and of UBS Group AG in November 2014. He has
been a member of the Corporate Culture and Responsibil-
ity 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 in-
strumental in the establishment of the Hong Kong Mone-
tary 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-
tionssuchasDirectoroftheOfficeoftheExchangeFund
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
Kongin1970withfirstclasshonorsinsocialsciences. He
holds honorary doctorate degrees and professorships from
a number of universities 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 Invest-
ment Corporation
– Distinguished Research Fellow at the Institute of Global
Economics and Finance at the Chinese University of
Hong Kong
Group Company
Secretary
Luzius Cameron
Australian and Swiss,
born 1955
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Function at
UBS Group AG
Group Company Secretary
for UBS Group AG
since 2014 and for UBS AG
since 2005
Professional history and education
Luzius Cameron was appointed Group Company Secretary
ofUBSAGbytheBoDforthefirsttimein2005andofUBS
Group AG in November 2014. He has been Company Sec-
retary of UBS Switzerland AG and UBS Business Solutions
AG since 2015. 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 Stra-
tegic 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 Corpo-
ration in 1989, where he started out in Corporate Control-
ling before assuming a number 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 astro-
physics from the University of Basel.
304
Member of the Board of Directors
until 31 December 2015
Axel P. Lehmann
Swiss,
born 1959
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Function at
UBS Group AG
Member of the
Risk Committee until
31 December 2015
Year of initial election to
UBS Group AG: 2014
Year of initial election to
UBS AG: 2009
Professional history and education
Axel P. Lehmann became a member of the GEB and was
appointedGroupChiefOperatingOfficerofUBSGroupAG
and UBS AG in January 2016. He was a member of the BoD
of UBS AG from 2009 to 2015 and of UBS Group AG from
2014 to 2015. During his entire tenure on the Board, he
had been a member of the Risk Committee and, from 2011
to 2013, a member of the Governance and Nominating
Committee. Mr. Lehmann became a member of Zurich
Insurance Group’s (Zurich) Group Executive Committee in
2002, holding various management positions, including
CEO for the European and North America businesses, and
from 2008 to 2015 as Chief Risk Officer with additional
responsibilities for Group IT, as Regional Chairman for Eu-
rope, Middle East and Africa and as Chairman for Farmers
Group Inc. In 2001 he was appointed CEO for Northern,
Central and Eastern Europe and Zurich Group Germany,
having served as a member of the company’s Group Man-
agement Board since 2000 with responsibility for group-
wide business development functions. In 1996, he joined
Zurich as a member of the Executive Committee of Zurich
Switzerland and subsequently held various executive
management and corporate development positions
within Zurich Switzerland. Prior to joining Zurich, Mr.
Lehmann was head of corporate planning and control-
ling at Swiss Life, project manager and Vice President of
the Institute of Insurance Economics at the University
of St. Gallen and visiting professor at Bocconi University
in Milan. Mr. Lehmann holds a PhD and a master’s de-
gree in business administration and economics from the
University of St. Gallen. He is also a graduate of the
Wharton Advanced Management Program and an hon-
orary professor of business administration and service
management at the University of St. Gallen.
Other activities and functions
– Chairman of the Global Agenda Council on the Global
Financial System of WEF
– Chairman of the Board of the Institute of Insurance
Economics of the University of St. Gallen
– Member of the International and Alumni Advisory Board
of the University of St. Gallen
– Member of the Swiss-American Chamber of Commerce
Chapter Doing Business in USA
305
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Elections and terms of office
The BoD proposes the individual nominated to be Chairman, who
in turn is elected by shareholders at the AGM.
In addition, shareholders elect each member of the BoD indi-
vidually, as well as the members of the Compensation Committee
on an annual basis. The BoD in turn appoints one or more Vice
Chairmen, a Senior Independent Director, the members of the
BoD committees and their respective Chairpersons, and the Group
Company Secretary.
As set out in the Organization Regulations, BoD members are
normally expected to serve for a minimum of three years. No BoD
member may serve for more than 10 consecutive terms of office
or continue to serve beyond the AGM held in the calendar year
following their 70th birthday. In exceptional circumstances, the
BoD may 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, the BoD committee
members, other than the Compensation Committee members who
are elected by the shareholders, and their respective Chairpersons.
At the same meeting, the BoD appoints a Group Company Secre-
tary, who acts as secretary to the BoD and its committees.
According to the Articles of Association, the BoD meets as
often as business requires, but must meet at least six times a year.
During 2015, a total of 24 BoD meetings and calls were held, 13
of which were attended by GEB members. On average, 97% of
BoD members were present at all BoD meetings. In addition to the
BoD meetings attended by the GEB, the Group CEO partly
attended most meetings of the BoD without GEB participation.
The average duration of these meetings and calls was two hours.
In 2015, for both UBS Group AG and UBS AG, the frequency and
length of meetings were the same.
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 a 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. In 2014, the BoD committees performed a self-
assessment and concluded that the BoD was operating effectively.
At least every three years, the BoD assessments include an
appraisal by an external expert. For 2015, such BoD assessments
were conducted by a third party and will be completed in spring
2016.
The committees listed on the following pages assist the BoD in
the performance of its responsibilities. These committees and
their charters are described in the Organization Regulations, pub-
lished at www.ubs.com/governance. Topics of common interest
or affecting more than one committee were discussed at joint
committees’ meetings. During 2015, seven joint committees’
meetings were held for UBS Group AG (the same number of
meetings were also held for UBS AG).
Board and committee meetings in 20151
Total number of meetings
Number of meetings with full attendance
Number of meetings with one member absent
Number of meetings with two or more members absent
Overall average meeting attendance11
Minimal attendance at one single meeting
BoD2, 3, 4
24
16
8
0
97%
89%
AC5
20
12
8
0
92%
80%
CCRC6
5
4
1
0
95%
75%
Comp Com7, 4
8
5
3
0
91%
75%
GNC8
8
5
3
0
91%
75%
RC9, 3, 4
14
10
3
1
93%
60%
SC10
6
3
3
0
83%
67%
Legend: BoD = Board of Directors, AC = Audit Committee, CCRC = Corporate Culture and Responsibility Committee, Comp Com = Compensation Committee, GNC = Governance and Nominating Committee, RC = Risk
Committee, SC = Special Committee
1 Includes conference calls. 2 The BoD consisted of 11 members at the beginning of 2015 and 10 at the end of the year: Helmut Panke did not stand for re-election at the AGM on 7 May 2015, Jes Staley was newly
elected at the AGM on 7 May 2015 and resigned at the end of October 2015, and Axel P. Lehmann stepped down from the BoD as of 31 December 2015 and joined the GEB on 1 January 2016. 3 Axel P. Lehmann recused
himself from the BoD meetings as of November 2015 due to his GEB nomination. 4 Helmut Panke accepted the invitation to remain on the BoD in 2014 but did not stand for re-election at the AGM on 7 May 2015. Due
to short-term meeting date changes he was unable to attend several meetings, but was nevertheless a very active member. 5 The Audit Committee consisted of the same five members at the beginning and at the end of
2015. 6 The Corporate Culture and Responsibility Committee consisted of the same four members at the beginning and at the end of 2015. 7 The Compensation Committee consisted of four members at the beginning
and at the end of 2015. Two members of the Compensation Committee resigned during the year and were both replaced. 8 The Governance and Nominating Committee consisted of the same four members at the begin-
ning and at the end of 2015. 9 The Risk Committee consisted of five members at the beginning of 2015 and five members at the end of the year including one change in the composition. 10 The Special Committee
consisted of the same three members at the beginning and at the end of 2015. All meetings were ad hoc. 11 For UBS Group AG and UBS AG the same number of meetings were held.
306
Audit Committee
EDTF | The Audit Committee consists of five BoD members, all of
whom were determined by the BoD to be fully independent. The
Audit Committee members, as a group, must have the necessary
qualifications and skills to perform all of their duties and must,
together, possess financial literacy and experience in banking and
risk management. On 31 December 2015, William G. Parrett
chaired the Audit Committee, with Michel Demaré, Ann F. God-
behere, Isabelle Romy and Beatrice Weder di Mauro as additional
members.
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 indepen-
dent and objective body with oversight of the following: (i) UBS
Group AG’s, UBS AG’s and the Group’s accounting policies, finan-
cial reporting and disclosure controls and procedures, (ii) the qual-
ity, 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 con-
trols with respect to the production and integrity of the financial
statements and disclosure of the financial performance and (v) the
performance of Group Internal Audit in conjunction with the
Chairman. For these purposes, the Audit Committee has the
authority to meet with regulators and external bodies, in consul-
tation with the Group CEO. Senior management is responsible for
the preparation, presentation and integrity of the financial state-
ments.
The Audit Committee reviews the annual financial statements
of both UBS Group and UBS AG and the quarterly financial state-
ments of UBS Group AG as well as the consolidated annual report
of the Group, 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
assesses 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.
During 2015, the Audit Committee held seven meetings and
13 calls with a participation rate of 92%. On average the duration
of each of the meetings and calls was approximately four and a
half hours and one hour, respectively. In 2015, for both UBS
Group AG and UBS AG, the frequency and length of meetings
were the same. All meetings and calls of the Audit Committee
were attended by the Group Chief Financial Officer and most of
the meetings were attended by the Group CEO. In addition, the
committee met once with the Swiss Financial Market Supervisory
Authority (FINMA) and the chair of the committee met with the
Federal Reserve Bank of New York (FRBNY) on a periodic basis.
The Audit Committee reports to the BoD about its discussions
with our external auditors. Once a year, the lead representatives
of our external auditors present their long-form report to the BoD,
as required by FINMA.
All Audit Committee members have accounting or related
financial management expertise and in compliance with the rules
established pursuant to the US Sarbanes-Oxley Act of 2002, at
least one member qualifies as a financial expert. The New York
Stock Exchange (NYSE) listing standards on corporate governance
set more stringent independence requirements for members of
audit committees 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
compensatory fees from UBS Group AG other than in his or her
capacity as a BoD member, does not hold, directly or indirectly,
UBS Group AG shares in excess of 5% of the outstanding capital
and (except as noted below) does not serve on the audit commit-
tees 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 companies, provided that all BoD members
determine that such simultaneous service does not impair the
member’s ability to effectively serve on each committee and to
fulfill his or her obligations.
Considering the credentials of William G. Parrett and Ann F.
Godbehere, the BoD has granted this exemption in their cases.
Compensation Committee
EDTF | The Compensation Committee, formerly the Human
Resources and Compensation Committee, is responsible, among
other things, for the following functions: (i) supporting the BoD in
its duties to set guidelines on compensation and benefits, (ii)
approving the total compensation for the Chairman and the non-
independent BoD members, (iii) establishing, together with the
Chairman, financial and non-financial performance targets for
the Group CEO and reviewing, upon the recommendation from
the Group CEO, financial and non-financial performance targets
for the other GEB members, (iv) evaluating, in consultation with
the Chairman, the performance of the Group CEO in meeting
agreed targets, as well as informing the BoD of the outcome of
the performance assessments of the GEB members for approval
by the BoD, (v) proposing, together with the Chairman, total indi-
vidual compensation for the independent BoD members and
Group CEO for approval by the BoD and (vi) proposing to the BoD
for approval, upon recommendation by the Group CEO, the total
individual compensation for GEB members. The Compensation
Committee also reviews the compensation disclosures included in
this report.
307
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
The Compensation Committee comprises four independent
BoD members and, as of 31 December 2015, Ann F. Godbehere
chaired it with Michel Demaré, Reto Francioni and William G. Par-
rett as additional members. Jes Staley was a member of the com-
mittee from May to October 2015 and, after stepping down, he
was succeeded by William G. Parrett.
Pillar 3 | During 2015, the Compensation Committee held seven
meetings and one call with a participation rate of 91%. On aver-
age the duration of each of the meetings and the call was approx-
imately 140 minutes. The meetings were conducted in the pres-
ence of external advisors, the Chairman and the Group CEO. In
2015, the frequency and length of meetings were the same for
both UBS Group AG and UBS AG. The chair met once with FINMA
and the UK Financial Conduct Authority (FCA) as well as with the
Prudential Regulation Authority (PRA).
➔ Refer to “Our compensation governance framework” and “Total
Reward Principles” in the “Compensation” section of this report
for more information on the Compensation Committee’s
decision-making procedures
Corporate Culture and Responsibility Committee
The Corporate Culture and Responsibility Committee supports
the BoD in fulfilling its duty to safeguard and advance the Group’s
reputation for responsible and sustainable conduct. Among other
things, it reviews and assesses stakeholder concerns and expecta-
tions pertaining to the societal performance of UBS, and recom-
mends appropriate actions to the BoD. The majority of the Corpo-
rate Culture and Responsibility Committee members must be
independent. As of 31 December 2015, 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 Group CEO and the
Global Head of UBS and Society are permanent guests of the Cor-
porate Culture and Responsibility Committee, while the regional
presidents attend two of the meetings as guests. During 2015,
five meetings were held with a participation rate of 95%. On
average the duration of each of the meetings was 80 minutes. In
2015, the frequency and length of meetings were the same for
both UBS Group AG and UBS AG.
➔ Refer to the “UBS and Society” 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 an annual assessment of the
performance and effectiveness of the Chairman and of the Board
as a whole (which includes an appraisal by an external expert at
least every three years), 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 plan-
ning for all GEB members. The Governance and Nominating
Committee comprises three independent BoD members and, as
of 31 December 2015, was chaired by Axel A. Weber, with Michel
Demaré, Isabelle Romy and David Sidwell as additional members.
During 2015, seven meetings and one call were held with a par-
ticipation rate of 91%. On average the duration of each of the
meetings and the call was 50 minutes. In 2015, the frequency and
length of meetings were the same for both UBS Group AG and
UBS AG. All meetings of the Governance and Nominating Com-
mittee were attended by the Group CEO.
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, compliance, operational and conduct risks, (ii) treasury
and capital management, including funding, liquidity and equity
attribution and (iii) balance sheet management. The Risk Commit-
tee considers the potential effects of the aforementioned risks on
the Group’s reputation. For these purposes, the Risk Committee
receives all relevant information from the GEB and has the author-
ity to meet with regulators and external bodies in consultation
with the Group CEO. As of 31 December 2015, the Risk Commit-
tee comprised five independent BoD members. David Sidwell
chaired the Risk Committee with Reto Francioni, Axel P. Lehmann,
Beatrice Weder di Mauro and Joseph Yam as additional members.
Jes Staley was a member of the committee from May to October
2015 and, after stepping down, he was succeeded by Reto Fran-
cioni. Axel P. Lehmann recused himself from the Risk Committee
meetings as of November 2015 due to his GEB nomination. Dur-
ing 2015, the Risk Committee held nine committee meetings and
five calls with a participation rate of 93%. On average the dura-
tion of each of the meetings and calls was approximately 220
minutes. In 2015, the frequency and length of meetings were the
same for both UBS Group AG and UBS AG. Usually, the Group
CEO, the Group CFO, the Group CRO and the Group General
Counsel attend the meetings and calls. The committee met once
with FINMA and once with the FRBNY and the Connecticut
Department of Banking. The chair met with the FCA and the PRA
once and with the FRBNY on a periodic basis.
308
Special Committee
The Special Committee is an ad-hoc committee with a standing
composition and is called and held on an ad-hoc basis.
The Special Committee is composed of three independent BoD
members and focuses on internal and regulatory investigations
related to foreign exchange. As of 31 December 2015, David
Sidwell chaired the Special Committee with Isabelle Romy and
Joseph Yam as additional members. During 2015, one committee
meeting and five telephone conferences were held with a partici-
pation of 83%. On average the duration of each of the telephone
conferences and the meeting was approximately 50 minutes. In
2015, the frequency and length of meetings were the same for
both UBS Group AG and UBS AG.
appointed as Vice Chairman and David Sidwell has been appointed
as Senior Independent Director. A Vice Chairman is required to
lead the BoD in the absence of the Chairman and to provide sup-
port and advice to the Chairman. At least twice a year, the Senior
Independent Director organizes and leads a meeting of the inde-
pendent BoD members in the absence of the Chairman. In 2015,
one independent BoD meeting was held for UBS Group AG and
UBS AG with a participation of 100% and a duration of one hour.
Another meeting was held in the first quarter of 2016. The Senior
Independent Director relays to the Chairman any issues or con-
cerns brought forth by the independent BoD members and acts as
a point of contact for shareholders and stakeholders seeking to
engage in discussions with an independent BoD member.
Roles and responsibilities of the Chairman of the Board of
Directors
Important business connections of independent members
of the Board of Directors
Axel A. Weber, the Chairman of the BoD, serves on the basis of a
full-time employment contract.
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.
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. The Chairman met on a regular
basis with core supervisory authorities, including quarterly meet-
ings with FINMA, semi-annual meetings with the Swiss National
Bank and the Federal Reserve Bank of New York / Connecticut
Department of Banking, as well as annual meetings with the PRA
and the FCA in the UK. Meetings with other supervisory authori-
ties were scheduled on an ad hoc or needs-driven basis.
Roles and responsibilities of the Vice Chairmen and the
Senior Independent Director
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
As a global financial services provider and a major Swiss bank, we
enter into business relationships with many large companies,
including some in which our BoD members assume management
or independent board responsibilities. The Governance and Nom-
inating Committee determines in each instance whether the
nature of the Group’s business relationship with such a company
might compromise our BoD members’ capacity to express inde-
pendent 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
“Supervision 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 standard.
In 2015, 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 Group AG he is not considered
independent.
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 “Consolidated financial
statements” section of this report for more information
309
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Checks and balances: Board of Directors and Group
Executive Board
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
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
responsibility 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 gov-
erned by the Articles of Association and the Organization Regula-
tions, including the latter document’s “Annex B – Key approval
authorities.”
➔ 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 effectiveness of processes to define strategy and risk appe-
tite as well as the overall adherence to the approved strategy,
– the effectiveness of governance processes, risk management
and internal controls,
– the soundness of the risk and control culture,
– the effectiveness and sustainability of remediation activities,
– the reliability and integrity of financial and operational infor-
mation, i.e., whether activities are properly, accurately and
completely recorded, and the quality of underlying data and
models, and
– the effectiveness to comply with legal, regulatory and statutory
requirements, as well as with internal policies and contracts,
i.e., assessing whether such requirements are met, and the
adequacy of processes to sustainably meet them.
The internal audit organization has a functional reporting line
to the Audit Committee in line with their responsibilities as set
forth in our Organization Regulations. The Audit Committee
annually assess and approves the appropriateness of Group Inter-
nal Audit’s annual audit plan and annual audit objectives and
must be in regular contact with the Head Group Internal Audit.
Group Internal Audit regularly informs the Chairman, the Audit
Committee and the Risk Committee of the BoD about important
issues. In addition, it provides the Audit Committee and the Chair-
man with 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
310
Group Executive Board
We operate under a strict dual board structure, as mandated by
Swiss banking law, and therefore, the Board of Directors (BoD)
delegates the management of the business to the Group Execu-
tive Board (GEB).
Management contracts
We have not entered into management contracts with any com-
panies or natural persons that do not belong to the Group.
Responsibilities, authorities and organizational principles
of the Group Executive Board
Members of the Group Executive Board
Under the leadership of the Group CEO, the GEB has executive
management responsibility for the steering of the Group and its
business. It assumes overall responsibility for developing the
Group and business division strategies and the implementation of
approved strategies. The GEB constitutes itself as the risk council
of the Group. In this function, the GEB has overall responsibility
for establishing and supervising the implementation of risk man-
agement and control principles, as well as for managing the risk
profile of the Group as a whole, as determined by the BoD and
the Risk Committee. In 2015, the GEB held 22 meetings, includ-
ing two ad-hoc calls, and two GEB offsite meetings. In 2015, the
frequency of meetings for both UBS Group AG and UBS AG was
the same.
➔ 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 supporting the
GEB in its responsibility to promote the usage of the Group’s
assets and liabilities in line with the Group’s strategy, regulatory
commitments and the interests of shareholders and other stake-
holders. Group ALCO proposes the framework for capital man-
agement, funding and liquidity risk and proposes limits and tar-
gets for the Group to the BoD for approval. It oversees the balance
sheet management of the Group, its business divisions, and Cor-
porate Center. The Organization Regulations additionally specify
which powers of the GEB are delegated to the Group ALCO. In
2015, the Group ALCO held 10 meetings for UBS Group AG and
UBS AG.
On 3 November 2015, we announced changes to our GEB, all
effective as of 1 January 2016: Tom Naratil, formerly Group Finan-
cial Officer and Group Chief Operating Officer, was appointed
President Wealth Management Americas and President UBS
Americas, remaining a GEB member; Axel P. Lehmann stepped
down from the BoD and joined the GEB as Group Chief Operating
Officer; Kirt Gardner, formerly Chief Financial Officer of Wealth
Management, joined the GEB and was appointed Group Chief
Financial Officer; Christian Bluhm, formerly of FMS Wertmanage-
ment, joined the GEB and was appointed Group Chief Risk Offi-
cer; Kathryn Shih, formerly Head Wealth Management for Asia
Pacific joined the GEB and was appointed President UBS Asia
Pacific; and Sabine Keller-Busse, Group Head Human Resources,
joined the GEB. Philip J. Lofts and Chi-Won Yoon stepped down
from the GEB at year-end 2015. Robert J. McCann assumed the
role of Chairman UBS Americas and stepped down from the GEB.
In line with Swiss law, our Articles of Association (AoA) limit
the number of mandates that members of the GEB may hold out-
side the UBS Group. Article 36 of the AoA limits the maximum
number of permitted mandates of members of the GEB to one
board membership in a listed company (other than UBS Group AG
and UBS AG) and five additional mandates in non-listed compa-
nies. In addition, GEB members may hold no more than 10 man-
dates at the request of the company and eight mandates in asso-
ciations, charitable organizations, foundations, trusts, and
employee welfare foundations. No member of the GEB reaches
the threshold described in article 36 of the Articles of Association.
The following biographies provide information on the GEB
members as currently in office, and additionally, on those mem-
bers whose service on the GEB ended as of 31 December 2015.
For reasons of transparency, in addition to information on man-
dates, the biographies include memberships or other activities or
functions, as required by the SIX Swiss Exchange Corporate Gov-
ernance Directive.
All members of UBS Group AG’s GEB are also members of UBS
AG’s GEB, with the exception of Mr. Gähwiler.
311
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
New GEB member
Christian Bluhm
German,
born 1969
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Function at
UBS Group AG
GroupChiefRiskOfficer
as of 1 January 2016
Year of initial appointment to
UBS Group AG and UBS AG:
2016
Professional history and education
Christian Bluhm became a member of the GEB and was
appointedGroupChiefRiskOfficerofUBSGroupAGand
UBS AG in January 2016. He joined UBS from FMS Wert-
management, where he had been Chief Risk & Financial
Officersince2010andSpokesmanoftheExecutiveBoard
from 2012 to 2015. From 2004 to 2009 he worked for
Credit Suisse where he was Managing Director responsible
for Credit Risk Management in Switzerland and Private
Banking worldwide. Mr. Bluhm was Head of Credit Portfo-
lio Management until 2008 and then Head of Credit Risk
ManagementAnalytics & Instruments after the financial
crisis in 2008. From 2001 to 2004 he worked for Hypover-
einsbank in Munich in Group Credit Portfolio Manage-
ment, heading a team that specialized in Structured Fi-
nance Analytics. Before starting his banking career with
Deutsche Bank in Credit Risk Management in 1999 he
worked as a post doctorate fellow at Cornell University in
IthacaandasascientificassistantattheUniversityofGrei-
fswald. Mr. Bluhm holds a degree in mathematics and in-
formatics from the University of Erlangen-Nuremberg and
received his PhD in mathematics in 1996 from the same
university.
Sergio P. Ermotti
Swiss,
born 1960
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Function at UBS
Group AG
GroupChiefExecutiveOfficer
Year of initial appointment to
UBS Group AG: 2014
Year of initial appointment to
UBS AG: 2011
Professional history and education
SergioP.ErmottihasbeenGroupChiefExecutiveOfficerof
UBS AG since November 2011, having held the position of
Group Chief Executive Officer on an interim basis since
September2011.HehasbeenGroupChiefExecutiveOffi-
cer for UBS Group AG since November 2014. Mr. Ermotti
became a member of the GEB in April 2011 and was Chair-
man and CEO of UBS Group Europe, Middle East and Africa
from April to November 2011. From 2007 to 2010, he was
GroupDeputyChiefExecutiveOfficeratUniCredit,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 & Invest-
ment Banking Division. Between 2001 and 2003, he worked
at Merrill Lynch, serving as co-Head of Global Equity Mar-
kets 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 vari-
ous positions within equity derivatives and capital markets.
Mr. Ermotti is a Swiss-certified banking expert and is a
graduate of the Advanced Management Programme at
Oxford University.
Other activities and functions
– Chairman of the Board of Directors of
UBS Switzerland AG
– Chairman of the Board of Directors of
UBS Business Solutions AG
– Chairman of the UBS Optimus Foundation Board
– Chairman of the Fondazione Ermotti, Lugano
– Board member of the Fondazione Lugano per il Polo
Culturale, Lugano
– Board member of the 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
312
Lukas Gähwiler
Swiss,
born 1965
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Functions at
UBS Group AG
President Personal & Corporate
Banking and President UBS
Switzerland
Year of initial appointment to
UBS Group AG: 2014
Year of initial appointment to
UBS AG: 2010
Markus U.
Diethelm
Swiss,
born 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: 2008
Professional history and education
Markus U. Diethelm became a member of the GEB and was
appointed Group General Counsel of UBS AG in September
2008. He has held the same position for UBS Group AG
since November 2014. He has been an Executive Board
member of UBS Business Solutions AG since 2015. From
1998to2008,heservedasGroupChiefLegalOfficerat
Swiss Re, and was appointed to the company’s Group Ex-
ecutive Board in 2007. Prior to this, he was with Los Ange-
les-basedlawfirmGibson,Dunn&Crutcher,andfocused
on corporate matters, securities transactions, litigation and
regulatory investigations while working out of the firm’s
BrusselsandParisoffices.From1989to1992,hepracticed
at Shearman & Sterling in New York, specializing in merg-
ers and acquisitions. In 1988, he worked at Paul, Weiss,
Rifkind, Wharton & Garrison in New York. After starting his
career in 1983 with Bär & Karrer, he served from 1984 to
1985 as a law clerk at the District Court of Uster in Switzer-
land. Mr. Diethelm holds a law degree from the University
of Zurich and a master’s degree and PhD from Stanford Law
School.Mr.Diethelmisaqualifiedattorney-at-lawadmitted
to the bar in Zurich, Geneva and in New York State.
Other activities and functions
– Board member of UBS Business Solutions AG
– Chairman of the Swiss-American Chamber of
Commerce’s legal committee
– 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
Professional history and education
Lukas Gähwiler is a member of the GEB of UBS Group AG
and was appointed President UBS Switzerland (formerly
CEO of UBS Switzerland) in April 2010. In his role as Presi-
dent UBS Switzerland, he is responsible for all businesses
– retail, wealth management, corporate and institutional,
investment banking and asset management – in UBS’s
home market. In addition, he was appointed President of
the Executive Board of UBS Switzerland AG in May 2015.
Since January 2012, he has also been President Personal &
Corporate Banking (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,hewasChiefCreditOfficeratCreditSuisseandwas
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,priortothis,heldvariousfront-officepositionsinSwit-
zerland 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
programincorporatefinanceattheInternationalBankers
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
– Second Vice President of the Board of the Zürcher
Volkswirtschaftliche Gesellschaft
313
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
New GEB member
Kirt Gardner
American (US),
born 1959
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Function at
UBS Group AG
GroupChiefFinancialOfficer
as of 1 January 2016
Year of initial appointment to
UBS Group AG and UBS AG:
2016
Professional history and education
Kirt Gardner became a member of the GEB and was
appointedGroupChiefFinancialOfficerofUBSGroupAG
and UBS AG in January 2016. He was CFO Wealth Man-
agement from 2013 to 2015. Prior to this, he held a num-
ber of leadership positions at Citigroup, including CFO and
Head of Strategy within Global Transaction Services from
2010 to 2013, Head of Strategy, Planning and Risk Strate-
gy for the Corporate and Institutional Division from 2006
to 2010 and Head of Global Strategy and Cost Manage-
ment for the Consumer Bank from 2004 to 2006. Prior to
this, he held the position of Global Head of Financial Ser-
vices Strategy for BearingPoint, where he worked in Asia
and New York for four years. From 1994 to 2000, he was
Managing Director with Barents Group, working in the US,
Asia, Latin America and Europe. Mr. Gardner holds a bach-
elor’s degree in economics from William’s College, a mas-
ter’s degree from the University of Pennsylvania and an
MBAinfinancefromWhartonSchool.
New GEB member
Sabine
Keller-Busse
German and Swiss,
born 1965
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Function at
UBS Group AG
Group Head Human Resources
Year of initial appointment to
UBS Group AG and UBS AG:
2016
Professional history and education
Sabine Keller-Busse became a member of the GEB in Janu-
ary 2016. She has been Group Head Human Resources
since August 2014. Having joined UBS in 2010, she served
asChiefOperatingOfficerUBSSwitzerlanduntil2014.Prior
to this, she led Credit Suisse’s Private Clients Region Zurich
division for two years. From 1995 to 2008 Ms. Keller-Busse
worked for McKinsey & Company, where she had been Se-
nior Partner since 2001. She started her professional career
at Siemens AG in a trainee program which she completed
with a commercial diploma. Ms. Keller-Busse holds a mas-
ter’s degree in business administration from the University
of St. Gallen and received a PhD in business administration
from the same university.
Other activities and functions
– Board member of SIX Group (Chairman of risk commit-
tee)
– Foundation Board member of the UBS Pension Fund
314
New GEB member
Axel P. Lehmann
Swiss,
born 1959
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Function at
UBS Group AG
GroupChiefOperatingOfficer
as of 1 January 2016
Year of initial appointment to
UBS Group AG and UBS AG:
2016
Ulrich Körner
German and Swiss,
born 1962
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Functions at
UBS Group AG
President Asset Management
and President UBS 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 Asset Management of UBS
AG (formerly CEO Global Asset Management) in January
2014. He has held the same position for UBS Group AG
since November 2014. He was Group Chief Operating
Officerfrom2009to2013.Inaddition,hewasappointed
President UBS Europe, Middle East and Africa (formerly
CEO of UBS Group Europe, Middle East and Africa) in De-
cember 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,includingCFOandChiefOperatingOfficer.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 Univer-
sity 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
Professional history and education
Axel P. Lehmann became a member of the GEB and was
appointedGroupChiefOperatingOfficerofUBSGroupAG
and UBS AG in January 2016. He was a member of the BoD
of UBS AG from 2009 to 2015 and of UBS Group AG from
2014 to 2015. During his entire tenure on the Board, he
had been a member of the Risk Committee and, from 2011
to 2013, a member of the Governance and Nominating
Committee. Mr. Lehmann became a member of Zurich
Insurance Group’s (Zurich) Group Executive Committee in
2002, holding various management positions, including
CEO for the European and North America businesses, and
from 2008 to 2015 as Chief Risk Officer with additional
responsibilities for Group IT, as Regional Chairman for Eu-
rope, Middle East and Africa and Chairman for Farmers
Group Inc. In 2001 he was appointed CEO for Northern,
Central and Eastern Europe and Zurich Group Germany,
having served as a member of the company’s Group Man-
agement Board since 2000 with responsibility for group-
wide business development functions. In 1996, he joined
Zurich as a member of the Executive Committee of Zurich
Switzerland and subsequently held various executive man-
agement and corporate development positions within Zu-
rich Switzerland. Prior to joining Zurich, Mr. Lehmann was
head of corporate planning and controlling at Swiss Life,
project manager and Vice President of the Institute of
Insurance Economics at the University of St. Gallen and a
visiting professor at Bocconi University in Milan. Mr. Lehm-
ann holds a PhD and a master’s degree in business admin-
istration and economics from the University of St. Gallen.
He is also a graduate of the Wharton Advanced Manage-
ment Program and an honorary professor of business
administration and service management at the University
of St. Gallen.
Other activities and functions
– Chairman of the Global Agenda Council on the
Global Financial System of WEF
– Chairman of the Board of the Institute of Insurance
Economics at the University of St. Gallen
– Member of the International and Alumni Advisory Board
at the University of St. Gallen
– Member of the Swiss-American Chamber of Commerce
Chapter Doing Business in USA
315
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Tom Naratil
American (US),
born 1961
UBS AG
1200 Harbor Boulevard
Weehawken, NJ 07086 USA
Functions at
UBS Group AG
GroupChiefFinancialOfficer
and Group Chief Operating
Officeruntil31December
2015
President Wealth Management
Americas and President UBS
Americas as of 1 January 2016
Year of initial appointment to
UBS Group AG: 2014
Year of initial appointment to
UBS AG: 2011
Professional history and education
Tom Naratil became President Wealth Management Ameri-
cas and President UBS Americas in January 2016. He has
been President of the Executive Board of UBS Business
Solutions AG since 2015. He became a member of the GEB
in June 2011 and was Group CFO of UBS AG from 2011 to
2015. He held the same position for UBS Group AG from
2014 to 2015. In addition to the role of Group CFO, he was
Group Chief Operating Officer from 2014 to 2015. He
servedasCFOandChiefRiskOfficerofWealthManage-
ment Americas from 2009 until his appointment as Group
CFO in 2011. Before 2009, he held various senior manage-
ment positions within UBS, including heading the Auction
RateSecuritiesSolutionsGroupduringthefinancialcrisis
in 2008. He was named Global Head of Marketing, Seg-
ment & Client Development in 2007, Global Head of Mar-
ket Strategy & Development in 2005, and Director of Bank-
ing 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
– Chairman of UBS Americas Holding LLC
– Board member of UBS Switzerland AG
– Board member of UBS Business Solutions AG
– Board member of the American Swiss Foundation
– Board Member of the Clearing House Supervisory Board
– Board of Consultors for the College of Nursing at
Villanova University
Andrea Orcel
Italian,
born 1963
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
Function at
UBS Group AG
President Investment Bank
Year of initial appointment to
UBS Group AG: 2014
Year of initial appointment to
UBS AG: 2012
Professional history and education
Andrea Orcel became a member of the GEB in July 2012
and was appointed President Investment Bank of UBS AG
(formerly CEO Investment Bank) in November 2012. He has
held the same position for UBS Group AG since November
2014. 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 In-
vestment Bank in July 2012. He joined UBS from Bank of
America Merrill Lynch, where he had been Executive Chair-
man 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 Eu-
rope, 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 Consult-
ing 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
316
New GEB member
Kathryn Shih
British,
born 1958
UBS AG
2 International Finance Centre
8 Finance Street
Central, Hong Kong
Function at
UBS Group AG
PresidentUBSAsiaPacificas
of 1 January 2016
Year of initial appointment to
UBS Group AG and UBS AG:
2016
Professional history and education
Kathryn Shih became a member of the GEB of UBS Group
AG and UBS AG and was appointed President UBS Asia
PacificinJanuary2016.ShehasbeenHeadWealthMan-
agement Asia Pacific since 2002. She was CEO of UBS
Hong Kong from 2003 to 2008. Prior to this, she held vari-
ous leadership positions in Wealth Management Asia Pa-
cific.Shehasbeenwiththefirmfornearly30years,since
joining Swiss Bank Corporation in 1987 as a client advisor
and then serving as Head Private Banking from 1994 to
1998. In the 1980s Ms. Shih worked for Citibank in the
Consumer Services Group and as an executive trainee with
PCICapitalAsiaLtd.SheconferredasaCertifiedPrivate
Wealth Professional by the Private Wealth Management
Association,HongKongin2015andasaCertifiedFinan-
cial Planner from the Institute of Financial Planners, Hong
Kong in 2001 and completed the Advanced Executive Pro-
gram at Northwestern University in 1999. Ms. Shih holds a
bachelor’s degree of arts from Indiana University and a
master’s degree in business management from the Asian
Institute of Management in the Philippines.
Other activities and functions
– Member of the Banking Advisory Committee,
Hong Kong
Jürg Zeltner
Swiss,
born 1967
UBS Group AG
Bahnhofstrasse 45
CH-8001 Zurich
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
Professional history and education
Jürg Zeltner became a member of the GEB in February 2009
and is President of Wealth Management of UBS AG (for-
merly CEO of UBS Wealth Management). He has held the
same position for UBS Group AG since November 2014.
Between February 2009 and January 2012, he served as
co-CEO of UBS Wealth Management & Swiss Bank. In No-
vember 2007, he was appointed as Head of Wealth Man-
agement 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 graduate of the Advanced Man-
agement Program at Harvard Business School.
Other activities and functions
– Board member of the German-Swiss Chamber of
Commerce
317
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Members of the Group Executive Board
until 31 December 2015
Philip J. Lofts
British,
born 1962
UBS AG
677 Washington Boulevard
Stamford, CT 06901 USA
Function at
UBS Group AG
GroupChiefRiskOfficeruntil
31 December 2015
Year of initial appointment to
UBS Group AG: 2014
Year of initial appointment to
UBS AG: 2008
Professional history and education
Philip J. Lofts became a member of the GEB in 2008 and
wasre-appointedGroupChiefRiskOfficerofUBSAGin
December 2011, after having served in the same role from
2008 to 2010. He held the same position for UBS Group
AG from November 2014 to December 2015. He decided
to step down from his current role and the GEB at the end
of December 2015. He has been an Executive Board mem-
ber of UBS Business Solutions AG since 2015. He was CEO
of UBS Group Americas from January to November 2011.
Mr. Lofts, who began his career with UBS more than 25
yearsago,becameGroupRiskChiefOperatingOfficerin
2008afterhavingservedasGroupChiefCreditOfficerfor
three years. Prior to this, Mr. Lofts worked for the Invest-
ment Bank in a number of business and risk control posi-
tions 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 merchant bank, which was
acquired by the Royal Bank of Scotland in 1985.
Robert J.
McCann
American (US) and Irish,
born 1958
UBS AG
1200 Harbor Boulevard
Weehawken, NJ 07086 USA
Functions at
UBS Group AG
President Wealth Management
Americas and President UBS
Americas until 31 December
2015
Year of initial appointment to
UBS Group AG: 2014
Year of initial appointment to
UBS AG: 2009
Professional history and education
Robert J. McCann became a member of the GEB in October
2009 and was President Wealth Management Americas of
UBS AG (formerly CEO of Wealth Management Americas)
from 2009 to 2015. He held the same position for UBS
Group AG from 2014 to 2015. At the end of December
2015, he stepped down from the GEB and was named
Chairman UBS Americas as of January 2016. He was Presi-
dent UBS Americas from 2011 to 2015 (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 bach-
elor’s degree in economics from Bethany College, West
Virginia, and holds an MBA from Texas Christian University.
Other activities and functions
– Board member of UBS Switzerland AG
– Board member of UBS Business Solutions AG
Other activities and functions
– Member of the UBS Optimus Foundation 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 Catholic Charities of the
Archdiocese of New York
– Advisory Board member for the Billie Jean King
Leadership Initiative
318
Chi-Won Yoon
Korean,
born 1959
UBS AG
2 International Finance Centre
8 Finance Street
Central, Hong Kong
Function at
UBS Group AG
PresidentUBSAsiaPacificuntil
31 December 2015
Year of initial appointment to
UBS Group AG: 2014
Year of initial appointment to
UBS AG: 2009
Professional history and education
Chi-WonYoonwasappointedPresidentUBSAsiaPacificof
UBSAG(formerlyCEOofUBSGroupAsiaPacific)inApril
2012 and was a member of the GEB from June 2009 to
December 2015. He held the same position for UBS Group
AG from November 2014 to December 2015. He decided to
step down from his current role and the GEB at the end of
December 2015. He held the position of co-Chairman and
co-CEOofUBSGroupAsiaPacificfromNovember2010to
March 2012. From June 2009 to November 2010, he served
as sole Chairman and CEO of UBSAG,Asia Pacific. In a
previous role, Mr. Yoon served as Head of UBS’s securities
business inAsia Pacific:Asia Equities, which he oversaw
from2004;andAsiaPacificFixedIncome,Currenciesand
Commodities,whichheledfrom2009.Hejoinedthefirmin
1997, serving as Head of Equity Derivatives. Mr. Yoon began
hiscareerinfinancialservicesin1986,workingatMerrill
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 communica-
tions. In 1982, Mr. Yoon earned a bachelor’s degree in elec-
trical engineering from the Massachusetts Institute of Tech-
nology (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
319
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
defense 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 Financial Market Infrastructure Act (which
replaced certain provisions of the Swiss Stock Exchange Act as of
1 January 2016), an investor who has acquired 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 exer-
cisable or not, is required to submit a takeover 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, accel-
erate the vesting of and / or relax applicable forfeiture provisions
of employees’ awards, and defer lapse date of options or stock
appreciation rights.
320
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 AGM on 7 May 2015, BDO AG was re-appointed as special
auditor for a three-year term of office. The special auditors pro-
vide 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 Annual General Meeting (AGM) of shareholders in 2015,
Ernst & Young Ltd (EY) were re-elected as auditors for the Group
for a one-year term of office. EY assume virtually all auditing func-
tions according to laws, regulatory requests and the Articles of
Association. Beginning 2015, the EY lead partner in charge of the
Group financial audit is Marie-Laure Delarue and her incumbency
is limited to five years. The co-signing partner for the financial
statement audit is Troy J. Butner. He will be succeeded in 2016 by
Ira S. Fitlin, with an incumbency limit of seven years. Beginning
2015, Patrick Schwaller is the Lead Auditor to the Swiss Financial
Market Supervisory Authority (FINMA) and his incumbency is lim-
ited to six years due to prior audit service to UBS 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
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 29.3 million in
2015 (CHF 29.7 million in 2014) 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 2015 included several engagements for
which EY were mandated at the request of FINMA.
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
1 Of the total audit and non-audit fees of CHF 72,581 thousand for UBS Group AG (consolidated), CHF 71,766 thousand relates to UBS AG (consolidated).
31.12.15
31.12.14
45,516
14,191
59,7071
8,684
3,327
5,260
96
3,088
1,102
12,8741
47,450
14,374
61,824
7,133
3,205
3,840
87
1,083
1,573
9,789
321
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 ser-
vices related to financial reporting, internal control reviews, per-
formance standard reviews, and consultation concerning financial
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 technical
IT security control reviews and assessments.
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 355 personnel worldwide as of 31 December 2015, 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 the effective-
ness of processes to comply with legal, regulatory and statutory
requirements. All reports with key issues are provided to the
Group CEO, GEB members responsible for the business divisions,
and other responsible management. In addition, the Chairman,
the Audit Committee and the Risk Committee of the BoD are
regularly informed about important issues. GIA further assures
the closure and successful remediation of issues, irrespective of
the function that identified them, including those that 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
quantitatively and qualitatively well-resourced to perform its func-
tion. The role, position, responsibilities and accountability of GIA
are set out in our Organization Regulations, in particular in the
Charter for Group Internal Audit, published at www.ubs.com/
governance. GIA has unrestricted access to all accounts, books,
records, systems, premises and personnel, and must be provided
with all information 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.
322
Information policy
We provide regular information to our shareholders and to the
financial community.
Financial reports for UBS Group AG will be published as
follows
First quarter 2016
Second quarter 2016
Third quarter 2016
3 May 2016
29 July 2016
1 November 2016
The Annual General Meeting of shareholders of UBS
Group AG will take place as follows
2016
2017
10 May 2016
4 May 2017
➔ Refer to the corporate calendar at www.ubs.com/investors for
future financial report publication and other key dates, including
UBS AG’s financial report publication 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. When possible, investor meetings are hosted by
senior management and are always attended by members of our
Investor Relations team. 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 a physical copy of
our annual report or our annual review, which reflects on specific
initiatives and achievements of the Group and provides an over-
view of the Group’s activities during the year as well as key finan-
cial information. For the first, second and third quarter of the year,
shareholders have the option to receive a brief mailed update on
the Group’s quarterly financial performance. Shareholders can
also request UBS Group AG’s complete financial reports, pro-
duced for the first, second and third quarter and for the full year.
We make our publications available to all shareholders
simultaneously to ensure they have equal access to our financial
information.
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).
➔ Refer to www.ubs.com/investors for a complete set of
published reporting documents and a selection of senior
management 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 assess
feedback from analysts and investors on a regular basis and,
where appropriate, reflect this in our disclosures. To continue
achieving these goals, we apply the following principles in our
financial reporting 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 not only on what is required by regula-
tion or statute but also on what is relevant to our stakeholders
– Best practice that leads to improved standards
323
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
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.” Consistent
with our financial reporting and disclosure principles, we regard
the enhancement of disclosures as an ongoing commitment.
➔ Refer to the “Risk, treasury and capital management” section of
this report for more information on the EDTF recommendations
Financial reporting policies
We report our Group’s results at the end of every quarter, includ-
ing a breakdown of results by business division and disclosures or
key developments relating to risk management and control, capi-
tal, liquidity and funding management. As of the fourth quarter
of 2015, we have replaced the publication of a fourth-quarter
financial report with the publication of an expanded quarterly
earnings release. For the first three quarters of the fiscal year, we
will continue to supplement the quarterly earnings release with
the quarterly financial report for UBS Group AG published on the
same day.
UBS Group AG’s and UBS AG’s consolidated financial state-
ments are prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board.
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report for
more information on the basis of accounting
We are committed to maintaining the transparency of our
reported results and to permit analysts and investors to make
meaningful comparisons with prior periods. If there is a major
reorganization of our business divisions, or if changes to account-
ing standards or interpretations lead to a material change in the
Group’s reported results, our results are restated for previous peri-
ods as required by applicable accounting standards. These restate-
ments show how our results would have been reported on 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, on the effec-
tiveness 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 2015. No significant changes have been made
to our internal controls or to other factors that could significantly
affect these controls subsequent to the date of their evaluation.
➔ Refer to the “Consolidated financial statements” section of this
report for more information
324
UBS and Society
EDTF | We aim to be a leader in sustainability in the financial industry. This requires us to focus on the long term and to
work to provide consistent returns to our stakeholders. It also requires us to promote the common good by being
proactive, purposeful and accountable. Our key program in this regard is UBS and Society – a cross-divisional umbrella
platform covering all our activities and capabilities in sustainable investing and philanthropy, environmental and
human rights policies that govern client and supplier relationships, managing our own environmental footprint, as well
as our firm’s community investment. In 2015, we made good progress in advancing the ambitious goals we pursue
through UBS and Society.
We want to maximize our performance to generate long-term,
sustainable and measurable benefits for our clients, shareholders
and communities. Moreover, we are constantly looking for more
environmentally sound and socially responsible ways to do busi-
ness. Our concept of stewardship encompasses more than just our
clients’ assets, it means taking care of what we leave behind for
future generations. This is not measured by financial performance
alone, but also by performance relating to the environment, good
governance, our social impact and other key components of
sustainability and resilience. To this end, we aim to:
– make sustainability the everyday standard across the firm,
– channel a growing portion of investable client assets through
innovative financial mechanisms to address societal challenges,
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– make sustainable performance part of every client conversation,
– train employees on sustainability,
– create a credible sustainability approach,
– measure the impact of our community investment activities, and
– support the transition to a low-carbon economy through our
comprehensive climate change strategy.
We are implementing the UBS and Society program through
three pillars: how we do business, how we support our clients and
how we support our communities.
➔ Refer to www.ubs.com/ubsandsociety for more information
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325
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
UBS and Society
How we do business
Living up to our principles and standards contributes to the wider
goal of developing societies sustainably. As a global firm, we rec-
ognize our responsibility to go beyond the norm, lead the debate
on important societal topics, and contribute to the setting of stan-
dards and collaboration in and beyond our industry.
Governance
EDTF | We have firmly embedded the responsibility for setting the
firm’s values and standards at the highest level, to help drive our
obligations to stakeholders and our corporate responsibility and
sustainability agenda. All Board of Directors (BoD) committees
monitor our business performance in the context of creating sus-
tainable value. Our BoD’s Corporate Culture and Responsibility
Committee (CCRC) supports the BoD in its duties to safeguard
and advance the Group’s reputation for responsible and sustain-
able conduct and also reviews stakeholder concerns and expecta-
tions pertaining to the societal performance of UBS and to the
development of its corporate culture. The CCRC reviews the stra-
tegic direction taken by UBS on corporate responsibility and sus-
tainability, as well as the implementation of our commitments in
these areas. The CCRC consists of four members. In 2015, Axel A.
Weber, Chairman of the Board of Directors, chaired the CCRC.
The Group Chief Executive Officer (Group CEO) and the Global
Head of UBS and Society, are permanent guests of the committee,
while the regional presidents attended two of the five CCRC
meetings as guests.
➔ Refer to the Organization Regulations of UBS at
The Code incorporates all components of our UBS and Society
program. The scope, principles and responsibilities and structure
of UBS and Society are set out in more detail in our UBS and Soci-
ety policy, which governs UBS’s interaction with society and the
environment, and will supersede our environmental and human
rights policy in 2016. The Global Head of UBS and Society leads
the execution and further development of the UBS and Society
program and is also UBS’s senior representative for sustainability
issues.
In 2015, we established the UBS and Society Operating Com-
mittee to oversee and coordinate the execution of the UBS and
Society program at GEB level. The committee is chaired by the
Wealth Management and Asia Pacific Presidents, who are also the
GEB sponsors of the program. The Global Environmental & Social
Risk Committee, also at GEB level, defines the environmental and
social risk (ESR) framework and independent controls that align
UBS’s ESR appetite with the UBS and Society program. It is chaired
by the Group Chief Risk Officer, who is responsible for the devel-
opment and implementation of principles and appropriate inde-
pendent control frameworks for ESR within UBS.
The business divisions are responsible for developing and exe-
cuting the UBS and Society program and annual objectives related
to client relationship, product development, investment manage-
ment, distribution and risk management. Corporate Center is
responsible for annual objectives related to in-house environmen-
tal and responsible supply chain management. Objectives related
to Community Affairs are developed and executed at regional
level, within the global framework of the UBS and Society pro-
gram.
www.ubs.com/governance for the charter of the CCRC
➔ Refer to www.ubs.com/code for more information
➔ Refer to the 2016 GRI objectives of UBS at
www.ubs.com/sustainability
Key principles & policies
EDTF | The Code of Conduct and Ethics (Code), the document that
sets out the principles and standards for our firm, clearly empha-
sizes that these principles and standards apply to all aspects of our
business and the way we engage with our stakeholders. The
Code aims to foster an ethical culture where responsible behavior
becomes second nature. In 2014, the CCRC initiated an in-depth
review of our Code, which was conducted together with the
Group Executive Board (GEB) and the BoD. The revised Code was
published in March 2015. The CCRC reviews the policies and
guidelines of UBS pertaining to corporate culture and corporate
responsibility to confirm that these are relevant and up to date.
➔ Refer to the UBS Code of Conduct and Ethics at
www.ubs.com/code for more information
External commitments and stakeholder relations
EDTF | As a global firm, we embrace our responsibility to lead the
debate on important societal topics as evidenced, for instance, by
the UBS climate change study launched in January 2016. We also
contribute to setting the standards and promoting international
collaboration across industries. These contributions are part of our
efforts to advance in areas that are already mandated by govern-
ments and regulators, as well as in areas that are still largely vol-
untary, but nonetheless significantly strengthen our sustainability
and corporate responsibility agenda.
In 2015, in support of international efforts leading into the
Paris Climate Change conference, UBS signed the World Economic
Forum’s open letter from CEOs to world leaders urging climate
action, the European Financial Services Round Table’s statement in
support of a strong, ambitious response to climate change, and
joined RE100, a global initiative which encourages multinational
companies to make a commitment to using 100% renewable
power, with a defined time frame for reaching that goal.
326
EDTF |
Environmental and social risk assessments
Cases referred for assessment2
by region
Americas
Asia Pacific
Europe, Middle East and Africa
Switzerland
by business division
Wealth Management
Wealth Management Americas
Personal and Corporate Banking
Asset Management
Investment Bank
Corporate Center3
GRI1
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
For the year ended
31.12.15
2,192
31.12.14
1,812
31.12.13
1,716
295
520
257
1,120
396
20
980
0
776
20
354
317
297
844
291
21
749
7
654
90
367
296
373
680
298
46
598
14
657
103
% change from
31.12.14
21
(17)
64
(13)
33
36
(5)
31
(100)
19
(78)
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 environmental and social risk function. 3 Relates to procurement / sourcing of products and services.
Beyond our engagement in many significant external organiza-
tions and initiatives, we also regularly engage with our stakehold-
ers through other formal and informal channels and on a wide
range of topics. Our relationship with stakeholders is multi-
faceted and includes interactions with large groups, regular com-
munications with representatives from a particular group, as well
as personal interaction with clients and investors.
Each year we conduct the UBS Materiality Assessment (as
defined by the Global Reporting Initiative (GRI)) to capture the
views of our stakeholders on the topics they regard as relevant to
our firm. The assessment is drawn from assorted formal and infor-
mal monitoring tools we employ, from our dialog with stakehold-
ers and from relevant studies and reports. We also undertake tar-
geted surveys of stakeholder groups, with the findings included in
the Materiality Assessment, including a major survey of students
globally in 2015. The results of the assessment are captured in a
GRI-based materiality matrix. This matrix distills the views of the
stakeholders with whom we interact and it covers 24 topics, the
top three being “conduct and culture,” “financial stability and
resilience” and “client protection.”
➔ Refer to www.ubs.com/materiality for the UBS 2015 GRI-based
materiality matrix and for more information on our stakeholder
relations and topics
Management of environmental and social risks
EDTF | We use an environmental and social risk (ESR) framework to
identify and manage potential adverse effects on the environment
and human rights, as well as the associated environmental and
social risks our clients’ and our own assets are exposed to. Our
comprehensive ESR standards are aligned with the UBS and Soci-
ety program; they govern client and supplier relationships and are
enforced firm-wide.
We apply the ESR policy framework to all our activities. We
have set ESR standards in product development, investments,
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 they are
associated with material environmental and social risks that can-
not be properly assessed. Our ESR standards include the stipula-
tion of controversial activities and other areas of concern we will
not engage in, or will only engage in under stringent criteria, as
outlined below. 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.
We will not do business, if associ ated
with severe environmental or social
damage to or through the use of:
We will only do business
under stringent criteria in
the following areas:
– UNESCO world heritage sites, wetlands
– Endangered species
– High conservation value forests, illegal
logging and use of fire
– Child labor, forced labor, indigenous
peoples’ rights
– Soft commodities: palm oil,
soy, timber
– Power generation: coal-fired
power plants, large dams,
nuclear power
– Extractives: hydraulic
fracturing, oil sands, Arctic
drilling, coal mining,
precious metals, diamonds
327
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
UBS and Society
In 2015, in support of international efforts to enable a transi-
tion to a low-carbon world, we strengthened our ESR standards
related to coal. We only support transactions of companies operat-
ing coal-fired power plants if they have a strategy to reduce coal
exposure or adhere to the strict greenhouse gas emission stan-
dards recommended by leading international agencies. Moreover,
we do not support certain coal-mining companies and significantly
limit lending and capital raising provided to the coal-mining sector.
Our standard risk, compliance and operations processes involve
procedures and tools for identifying, assessing and monitoring
environmental and social risks. This includes client onboarding,
transaction due diligence, product development and investment
decision processes, own operations, supply chain management
and portfolio reviews. These processes are geared toward identi-
fying clients, transactions or suppliers potentially in breach of our
standards, or otherwise subject to significant environmental and
human rights controversies. Advanced data analytics on compa-
nies 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 nature of this tool
significantly enhances our ability to identify potential risk. In
2015, 2,192 referrals were assessed by our environmental and
social risk unit, of which 73 were rejected or not pursued, and
371 were approved with qualifications.
At 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. The outcomes of these reviews
allow us to explore ways to improve the future portfolio profile
along a range of risk parameters. As an example, in 2015, we
reviewed potential climate change impacts on our energy and
real estate loan portfolios using stress testing and portfolio analy-
sis methodologies.
➔ Refer to www.ubs.com/esr for the complete definition of our
standards and specific assessment criteria
Our own operations and supply chain
Since 1999, we have managed our environmental program
through an Environmental Management System in accordance
with ISO 14001. In addition, our greenhouse gas (GHG) emissions
data is externally verified by SGS on the basis of ISO 14064 stan-
dards. We set quantitative targets to reduce UBS’s Group-wide
CO2 emissions and the environmental impact of our operations. In
support of our commitment to RE100, we have committed to
sourcing 100% of the firm’s electricity from renewable sources by
2020. This will reduce its GHG footprint by 75% by 2020 com-
pared with 2004 levels.
Environmental programs include investments in sustainable
real estate and efficient information technology, energy and water
efficiency, paper and waste reduction and recycling, the use of
environmentally friendly products (such as renewable energy or
recycled paper), business travel and employee commuting. We
aim to reduce negative environmental and social effects of the
goods and services UBS purchases and we engage with suppliers
to promote responsible practices.
Environmental targets and performance in our operations1
2015
169,006
Target 2016
GRI2
EN15–17
Total net greenhouse gas emissions (GHG footprint) in t CO2e3
Energy consumption in GWh
Progress /
Achievement8
l
l
l
l
l
l
l
l
l
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
Share of renewable electricity
GHG offsetting (business air travel) in t CO2e
Paper consumption in kg per FTE7
Share of recycled and FSC paper
Waste in kg per FTE7
Waste recycling ratio
Water consumption in m m3
Baseline
–50% 360,5014
7745
–10%
43.6%4
100%6
04
100%
1225
55.8%5
2325
53.9%5
1.225
% change
from baseline
73,592
54.0%
83.6%
52.8%
–13.7
–53.1
–12.3
–21.9
EN18
EN23
EN23
0.96
–5%
–5%
–5%
60%
60%
–2.3
–2.0
23.9
49.7
668
119
203
EN3
EN3
EN1
EN2
EN8
100
2014
181,0669
7079
52.0%9
75,305
121
61.8%
213
54.6%9
1.08
2013
193,8729
7589
51.6%9
72,612
121
57.6%
214
55.3%
1.09
1 Detailed environmental indicators are available on the internet www.ubs.com/environment. Reporting period 2015 (1 July 2014 – 30 June 2015). 2 Related to Global Reporting Initiative (see also www.global-
reporting.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 emis-
sions associated with business travel, paper consumption and waste disposal). 4 Baseline year 2004. 5 Baseline year 2012. 6 Target year 2020. 7 FTEs are calculated on an average basis including FTEs which
were employed through third parties on short-term contracts. 8 Green: on track / amber: behind schedule. 9 2013 and 2014 data was restated due to updated consumption data of an additional co-location (colo)
datacenter and minor changes in methodology.
328
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In 2015, we further reduced UBS’s GHG emissions by 6.7%, or
6.6% per full-time employee, year on year, which means a total
reduction of 53% from baseline year 2004. We have thus sur-
passed our original target of a 50% reduction of GHG emissions
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.
In 2015, we reduced our energy consumption by more than
13% compared with 2012, thus outperforming our target of a
10% reduction by 2016. We are reducing our use of carbon-
intensive energy by replacing fossil-fueled heating infrastructure,
where feasible. In 2015, we purchased 54% of UBS’s worldwide
electricity consumption from renewable sources.
We are committed to further reducing UBS’s environmental
footprint and are on track to reach most of our 2016 targets com-
pared with 2012 as the baseline.
The responsible supply chain management (RSCM) principles
embed UBS’s ethics and values in our interactions with our suppli-
ers, contractors and service partners. We apply an RSCM frame-
work to identify, assess and monitor supplier practices with regard
to human and labor rights, the environment, health and safety,
and anti-corruption principles. In 2015, remediation measures
were requested for 44% of suppliers of newly-sourced goods or
services with potentially high impacts to improve their adherence
to UBS’s RSCM standards.
➔ Refer to www.ubs.com/environment for more information
on our environmental management
➔ Refer to www.ubs.com/rscm for more information on our RSCM
Training and raising awareness
EDTF | Awareness and expertise play an important role in imple-
menting our goals. We promote our employees’ understanding of
the goals and actions of UBS and Society through a wide range of
training and awareness-raising activities, as well as performance
management. Through these activities we ensure that our employ-
ees understand their responsibilities in complying with our policies
and the importance of our societal commitments. General infor-
mation is published on our UBS and Society intranet and Internet
sites. In 2015, we continued training and raising employee aware-
ness by embracing the Code. All employees have to confirm
annually that they have read UBS’s key documents and policies,
including the Code. Employees were also informed of the firm’s
corporate responsibility and sustainability strategy and activities
through other training and awareness-raising activities. We devel-
oped a new mandatory conduct and culture training module,
which includes a comprehensive section on UBS and Society. The
training was rolled out to all employees in December 2015.
Ratings and recognitions
EDTF | Our performance and success in the area of sustainability is
reflected in important external ratings, rankings and recognitions.
We received “Industry Leader, Gold Class distinction” for our
excellent sustainability performance in 2015, as determined by
our score in RobecoSAM’s annual Corporate Sustainability Assess-
ment. RobecoSAM, together with S&P Dow Jones Indices, also
publishes the Dow Jones Sustainability Indices (DJSI), the most
widely recognized sustainability rating.
As our key achievement in 2015, our firm took over the leader-
ship position in the Diversified Financials industry group of the
DJSI. The DJSI evaluates companies’ sustainability practices and
recognizes the best performers. The Industry Group Leader report
for UBS cites our support to clients and communities and our inte-
gration of societal and financial performance. It also pointed to
our work to build UBS’s capital strength, improve efficiency and
effectiveness, and strengthen risk management through our UBS
and Society program.
With 100 disclosure points, we also achieved a top result in the
CDP organization’s assessment for our efforts in reducing carbon
emissions and mitigating the business risks of climate change.
Asset Management’s efforts in integrating environmental,
social and governance issues into its investment practices have
been recognized with strong results in the Principles for Respon-
sible Investment’s annual reporting and assessment process. Asset
Management was awarded at least an A in half of the categories
on which it was assessed, most notably achieving an A+ for the
main category, Overarching Approach. The Overarching Approach
measures an organization’s overall approach to responsible invest-
ment, including governance, responsible investment policy, objec-
tives and targets, the resources allocated to responsible invest-
ment and the approach to collaboration on responsible investment
and public policy-related issues.
329
500000.0936
437500.0819
375000.0702
312500.0585
250000.0468
187500.0351
125000.0234
62500.0117
0.0000
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
UBS and Society
Asset Management also improved on its strong 2014 ranking
in the Global Real Estate Sustainability Benchmark (GRESB) report.
In the 2015 GRESB report, the majority of Asset Management’s
participating real estate funds, managed by Global Real Estate,
ranked in the first quartile of their respective peer groups and nine
funds were awarded Green Star (top ranking) status.
The UBS Optimus Foundation and its partner Last Mile Health
were among a select group of organizations honored at the pres-
tigious Clinton Global Citizen Awards 2015 for their work in tack-
ling the recent Ebola outbreak in West Africa.
How we support our clients
Our clients increasingly care about societal issues and want finan-
cial advice as well as the right products in order to use their
resources to address them. Many of our clients look to us for sup-
port in this regard. As a global firm and the world’s largest wealth
manager, we are well placed to provide it. We have, in fact, made
it our goal to include sustainable performance in every client con-
versation.
Sustainable investments
As of 31 December 2015, sustainable investments increased to
CHF 934 billion from CHF 577 billion at the end of 2014, repre-
senting 35% of our total invested assets compared with 21% in
2014. While this increase is primarily attributable to reporting pro-
cess enhancements for norms-based screening investments (con-
troversial weapons exclusions) and Asset Management’s respon-
sible property investment strategy, invested assets also generally
increased in our other sustainable investment classes, including
integration, exclusionary screening, impact investing, and third-
party. Major increases in absolute terms were observed among
our institutional clients, in particular for screened mandates.
We are committed to testing novel financial solutions across
our firm. One recent, innovative development in the area of sus-
tainable investing includes the emergence and growth of green
bonds. In 2015, Wealth Management Americas contributed to
this important development by acting as distributor for the World
Bank’s first market-linked green bonds for investors in the US.
Moreover, as of 31 December 2015, we held green bonds in
the amount of CHF 320 million in our high-quality liquid assets
portfolio under the management of Corporate Center – Group
Asset and Liability Management.
Other examples also demonstrate that we have the financial
expertise, networks and access to capital to build or support
niche financial products as proofs of concept that can be repli-
cated and scaled up. Key 2015 examples for this approach
include a Wealth Management-sponsored social investment fund
in the UK that enables sophisticated investors to invest in a tax
efficient way in social enterprises that are helping to tackle pov-
erty, and the launch of a UBS investment mandate for Swiss char-
itable foundations.
Sustainable investments 1
CHF billion, except where indicated
GRI2
31.12.15
31.12.14
31.12.13
31.12.14
For the year ended
% change from
UBS total invested assets
Core SI products and mandates
Integration3
Integration / RPI4
Impact investing6
Exclusionary screening7
Third-party8
Norms-based screening9
Total Sustainable investments
SI proportion of total invested assets (%)
FS11
FS11
FS11
FS11
FS11
FS11
FS11
FS11
2,689
2,734
2,390
3.37
49.06
0.76
79.20
6.06
795.07
933.53
34.72
2.62
34.665
2.18
30.705
68.60
4.34
466.52
576.73
21.09
56.09
3.70
444.62
537.30
22.48
(2)
28
4210
15
4010
7010
6210
1 All figures are based on the level of knowledge as of January 2016. 2 FS stands for the Performance Indicators defined in the Global Report-
ing Initiative Financial Services Sector Supplement. 3 Applies 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 the sys-
tematic and explicit inclusion of environmental, social and governance (ESG) factors into traditional financial analysis. 4 UBS Asset Manage-
ment Responsible Property Investment (RPI) strategy. 5 Invested assets, subject to RPI strategy in 2013 and 2014 were restated. 6 Impact
investments are targeted investments with a financial return and a clear social and / or environmental return objective. No data available for
2013 and 2014. 7 Includes customized screening services (single or multiple exclusion criteria). 8 SI products from third-party providers
applying either integration and / or exclusionary screening. 9 Reporting scope expanded in 2015 to include all actively managed discretionary
segregated mandates. Duplication with other SI categories were subtracted to avoid double counting. 10 Due to changes in reporting scopes,
data comparability is limited.
Sustainable investing is an approach that seeks to
incorporate environmental, social and / or governance
considerations into investment decisions. SI strategies
seek to achieve one or several of the following objec-
tives: achieve a positive environmental or social impact,
align investments with an investor’s personal values, or
improve portfolio risk and return characteristics.
Core SI includes all SI products that involve a strict
and diligent asset selection process including exclusions
and / or different types of positive selection such as
best-in-class, thematic or ESG integration and impact
investing.
Norms based screening includes all assets that are
subject to restrictions under UBS policy on the prohibi-
tion of investments in companies related to anti-person-
nel mines and cluster munitions (includes all actively
managed discretionary segregated mandates and all
actively managed retail and institutional funds).
330
Investment advisory and products
We define sustainable investing (SI) as a set of investment strate-
gies (exclusion; integration; impact investing) that incorporate
material environmental, social and governance (ESG) consider-
ations into investment decisions. SI strategies usually seek to
reach one or several of the following objectives: i) align invest-
ments with personal values; ii) reduce portfolio risk / return char-
acteristics; and iii) achieve a positive environmental or social
impact alongside financial returns.
Our wealth management businesses and Asset Management
offer SI products and services for wealth management and institu-
tional clients. Our teams provide thought leadership, advice and
sustainable portfolio management, such as mandate solutions
and separately managed accounts. We also offer impact investing
products and arrange platforms, 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 specific sustainability criteria.
In 2015, we launched an investment mandate solution with SI
focus for our Swiss core affluent and high net worth clients. UBS
Investment Management Mandate Switzerland with SI focus has
been constructed primarily investing in instruments with a high
sustainability rating. The investment strategy it follows is in line
with the UBS House View and is thereby focused on financial per-
formance, as well as considering environmental, social and gover-
nance factors. In parallel to our SI offering enhancement in Wealth
Management, we also conducted extensive training on the topic
of “SI for Wealth Management clients” to further bolster the
expertise of our client advisors and product experts.
Asset Management offers a range of SI funds that combine
material sustainability factors with a rigorous fundamental invest-
ment process. We apply the concept of shared value, according to
which companies pursue sustainability practices and not only cre-
ate value for the shareholder, but also for a wider range of stake-
holders. Our investment themes include renewable energy, envi-
ronmental stewardship, social integration, healthcare, resource
efficiency, and demographics. We also manage seven exchange-
traded funds (ETFs) that track MSCI’s Socially Responsible Equity
Indices (MSCI SRI) and that are listed on the Deutsche Börse
(Xetra), SIX Swiss Exchange, London Stock Exchange and Borsa
Italiana. In 2015, we launched the world’s first ESG Fixed Income
ETF, the Barclays MSCI US Liquid Corporates Sustainable UCITS
ETF, which tracks an index jointly developed by Barclays and MSCI.
In 2015, Asset Management won a very competitive and cut-
ting-edge mandate with a large Dutch Pension Fund to craft a
global impact equities portfolio with measureable social impact.
As this has not been done before, Asset Management is partner-
ing with leading-edge academics on a multi-year research and
development effort to develop scientifically based and easy–to-
understand social impact metrics that describe how the portfolio
is contributing to solving important social themes, while minimiz-
ing the negative impact on the environment and society. The
themes include climate change, water, health and food security.
Once developed and vetted, these social impact metrics will help
influence our investment strategies.
➔ Refer to www.ubs.com/sustainableinvesting for more information
Corporate and personal banking clients financing and advisory
We provide capital-raising and strategic advisory services globally
to companies offering products that make a positive contribution
to climate change mitigation and adaptation, including those in
the solar, wind, hydro, energy efficiency, waste and biofuels, and
transport sectors. For clients that contribute to climate change
mitigation and adaptation, the Investment Bank provided equity or
debt capital market services in 2015 (total deal value CHF 10 bil-
lion) or acted as financial advisor (total deal value CHF 35 billion).
We invest in Swiss corporations by supporting Swiss small and
medium-sized enterprises (SME) in their energy-saving efforts. As
promoted by the Swiss Energy Agency’s SME model, clients ben-
efit from the agency’s “energy check-up for SMEs” at reduced
costs and are granted UBS cash premiums for committing to an
energy reduction plan within the scheme. Until the end of 2014,
the Swiss Energy Agency recorded double the target for UBS
SMEs in their overall energy savings which is equivalent to the
energy consumption of approximately 400 single-family homes.
UBS clients saved more than 1,800 t / CO2 per annum by the end
of 2014. In addition, the UBS environmental bonus, launched in
2015, supports corporate clients when upgrading to more envi-
ronmentally friendly commercial vehicles. Swiss private clients
continue to benefit from the UBS “eco” mortgage when building
energy-efficient homes. Our commitment as a financial partner in
the energy transition in Switzerland continues by our sponsorship
of the Swiss Energy and Climate Summit.
331
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
UBS and Society
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
research on topics that we believe will shape our future. Our
experience and sector knowledge help us determine what is
material by raising questions about the effects of ESG issues on
the competitive landscape in the global sectors we cover, as well
as about how companies are affected in relative terms.
In 2015, our Chief Investment Office Wealth Management
(CIO) published a series of reports on SI commencing in March,
with an overarching publication on the topic “Adding value(s) to
investing.” This publication set out the why, what and how of SI,
highlighting reasons and motivations to become involved in it,
presenting three SI strategies, and advising on how to implement
them in portfolios. Following on from this, CIO also published a
report focused on integration and exclusion which also set out to
dispel a common myth that SI must lead to financial underperfor-
mance. In September 2015, CIO responded directly to a major
global development pertaining to sustainability, the adoption by
the UN General Assembly of the Sustainable Development Goals
(SDG). CIO published a report spotlighting a number of action-
able, sustainability-themed investment ideas well-suited to pursu-
ing the SDG. Sustainability-themed investment ideas were also
comprehensively covered in the CIO publication “Years Ahead”.
For example, CIO outlined areas such as “emerging market
healthcare” and “clean air and carbon reduction.”
CIO regularly translates key societal and environmental con-
cerns into investment themes as part of its Longer Term Invest-
ments series and Wealth Management’s global Research-based
Advice (RbA). One important example in 2015 was oncology, with
the investment theme identifying companies that develop new
treatments for cancer. Wealth Management also raised USD 340
million for the initial close of a UBS oncology impact investing col-
laboration with MPM Capital. More broadly, in 2015, RbA fea-
tured Performance Plus, which signifies our conviction that suc-
cess cannot be measured by financial performance alone, but also
by performance relating to the environment, good governance,
our social impact and other key components of sustainability and
resilience.
For our sustainability-specific strategies in Asset Management,
we have developed a leading-edge database of fundamental sus-
tainability data at the company and industry group level that is
used alongside valuation data from our analysts to rank the
investment universe on both fundamental and sustainability
attractiveness. The database mirrors the approach taken by the
Sustainability Accounting Standards Board in building its Material-
ity Matrix™. We believe that this database gives us a significant
proprietary edge in the incorporation of fundamental, material
sustainability data in the investment process. This Sustainability
key performance indicator database is instrumental in ensuring
that both valuation and sustainability factors are taken into
account simultaneously and that both receive equal weighting in
the decision-making process.
Voting rights
We believe that voting rights have economic value and should be
treated accordingly. Where Asset Management has been given
the discretion to vote on behalf of our clients, we will exercise our
delegated fiduciary responsibility by voting in the manner we
believe will be most favorable to the value of their investments. In
the 12-month period ended 31 December 2015, we voted on
87,348 individual resolutions at 8,654 shareholder meetings, for
clients that provided us with voting discretion according to Asset
Management’s corporate governance principles.
Philanthropy
As one of the first banks offering philanthropy services to clients,
our commitment goes back many years. It is a commitment that
is continually reaffirmed, reinforced and expanded. We have
decided to strengthen and grow our capacity and capabilities in
the field of philanthropy to better support our clients in achieving
their philanthropic aspirations through innovative solutions. Build-
ing on our track record and experience, we have established a
global team of in-house experts offering a one-stop professional
approach to all aspects of philanthropy, strategic charitable giving
and values-based investing. We support clients as they develop
their own philanthropic approach by offering them access to a
wide range of sustainable philanthropic engagement options
across regions and sectors.
The 2015 UBS Global Philanthropy Forum drew a record 150
clients and prospects to St. Moritz, Switzerland, for two days of
interactive discussion and exchange around the theme “Daring to
innovate.” Many of the Forum discussions centered on the phase
of “convulsive change” that the world is currently undergoing.
Wealth Management Americas Philanthropic Services convened
a one-day client discussion on innovation in the field of autism.
The event brought together 30 accomplished experts and families
impacted by autism who have the means to make a difference.
Following the event, our clients invested in each other’s initiatives
in response to autism and signed a collective Unity Statement to
unify multiple organizations and leaders around this cause.
➔ Refer to www.ubs.com/sustainableinvesting for more information
332
Optimus Foundation
2015 was an outstanding year for the UBS Optimus Foundation
(Optimus). Despite the challenging economic environment, dona-
tions rose to an all-time high of CHF 57 million, including a UBS
contribution of CHF 11 million, which multiplied donations from
clients and employees. This allowed us to approve more than CHF
60 million in grants to our partners who are working to improve
the lives and futures of children around the globe.
UBS is unique in the financial industry because it has a founda-
tion with the philanthropic expertise and offering to help clients
achieve their philanthropic goals. As part of UBS, Optimus is also
business-minded in its approach to philanthropy and assesses
projects with the same rigor that UBS applies to traditional finan-
cial investments. Even the best concepts need the right guidance,
and Optimus never assumes a project will work just because it
seems like the obvious solution. The foundation challenges
assumptions rigorously to ensure they live up to its strict stan-
dards. Optimus looks for projects where it can add value and that
can be scaled to make a fundamental difference to the maximum
number of children’s lives.
Clients see the benefits of our brand of entrepreneurial philan-
thropy. With its start-up mentality, Optimus is able to act fast and
adapt swiftly, while relying on the global coverage and backing
from UBS’s expertise and resources. It means that the foundation
challenges conventional wisdom and learns from failure. This
enables the foundation to identify scalable, transformative proj-
ects with proven track records that have the greatest potential to
produce sustainable results. In short, Optimus brings more of the
money to where it can do the most good. The foundation moni-
tors projects and measures their results, so it can demonstrate to
clients exactly where their donations go and what they achieve.
As UBS covers all of the foundation’s administrative costs, 100%
of clients’ donations go to the philanthropic projects it supports.
➔ Refer to www.ubs.com/optimus for more information
How we support our communities
UBS has a responsibility towards our local communities. We know
that our long-term success depends on the health and prosperity
of the communities in which we operate. Our longstanding global
program of community investment focuses on addressing real
need by developing skills through our support for education and
entrepreneurship. We achieve impact through a combination of
strategic funding and employee volunteering.
Our approach is founded on building sustainable and success-
ful partnerships with non-profit organizations and social enter-
prises to ensure we make a lasting impact. We engage beyond
just financial support – UBS employees are key to the success of
our community program. By providing diverse opportunities for
our employees to volunteer their time and skills in support of our
community partners, we seek to align our community program
with our core business. We encourage employees to support our
local communities by:
– Facilitating employee volunteering with local charitable partners
– Offering employees up to two days a year to volunteer
– Matching fundraising endeavors and employee donations to
charities
Community investment 2015
In 2014 and 2015, we enhanced our focus on measuring the
impact of our program by using the London Benchmarking
Group’s standard model for measuring and reporting on our com-
munity investment globally. This allows us to effectively evaluate
and focus our program.
In 2015, we strengthened our global program and strategic
focus on education and entrepreneurship through the enhance-
ment of existing and new partnerships in our local communities.
In 2015, UBS made direct cash contributions totaling CHF 27.4
million. 91% of UBS’s strategic donations were made in the areas
of education and entrepreneurship. 27% of our employees volun-
teered, a 26% increase compared with 2014.
Additionally, UBS contributed a total of CHF 37.5 million to its
affiliated foundations in Switzerland, to the UBS Optimus Founda-
tion and to the UBS Anniversary Education Initiative.
333
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
UBS and Society
Community investment 2015 highlights
Our global program benefited over 100,000 young people and
entrepreneurs across all of the regions in which we operate.
Examples of our investments include:
– Americas: UBS Americas launched two major initiatives in
2015: Project Entrepreneur, a three-year partnership with Rent
the Runway Foundation to grow the pipeline of female found-
ers who are building economically impactful companies; and
The TalentED Project, a three-year partnership with Tennessee
College Access and Success Network and Discovery Education
to help increase the number of low-income, first-generation
students going to and graduating from competitive four-year
colleges.
– EMEA: We helped launch the Stepping Stones Fund with the
City of London Corporation’s charity, City Bridge Trust to pro-
vide targeted support to social enterprises seeking to increase
their impact through social investment. UBS employee volun-
teers helped coach, assess and then select the grant winners.
The first round of funding saw 17 organizations share just over
GBP 700,000 to improve their social outcomes with the aim of
reaching thousands of beneficiaries.
– Switzerland: In Switzerland, UBS continues to support our
longstanding charity partner Young Enterprise Switzerland’s
Company program. More than 4,000 young students founded
and ran real-life companies for a year. UBS supports the
national final with volunteers and financial means. UBS has
also strongly increased engagement for social entrepreneurs in
the country by providing mentoring and supporting respective
platforms.
– Asia Pacific: UBS partnered with Yayasan Emmanuel in Indone-
sia to support international school teachers to raise the capac-
ity of local elementary school teaching up to international
standards. The program engages teachers in a process of expe-
riential learning and reflection, ultimately benefiting school
pupils by improving teacher quality.
➔ Refer to www.ubs.com/community for more information
Community Investment 2015 overview
CHF 27.4 million invested
in our local communities
16,356 employees
volunteered 137,732 hours
on community projects
CHF 7.4 million spent
matching employee donations
326 community partners
supported worldwide
101,604 direct beneficiaries
as a result of our community
investment
334
Our employees
Competitive strength in the financial services industry is greatly influenced by the ability, expertise and commitment
of a firm’s employees. In light of this, we endeavor to attract, enable, develop and engage the best people with the
right skills, a responsible mindset and diverse backgrounds. We invest in our employees and seek to ensure that we
have effective leadership and human resource practices in place, as well as the structures, technology and training
necessary for our employees to deliver on our strategy and meet our clients’ needs. These elements, working together,
help create sustainable value for all of our stakeholders.
Our approach
Our workforce
We continue to work hard to further strengthen our corporate
culture, as we are convinced that the right strategy and a strong,
cohesive culture drive excellent performance. First introduced in
2013, the three keys to success – our Pillars, Principles and Behav-
iors – are the foundation of our strategy and culture. Our Pillars
are: building capital strength, improving efficiency and effective-
ness, and sharpening risk management. They are the basis of our
business strategy and everything we do. Our Principles: client
focus, excellence and sustainable performance define what we
stand for as a firm and guide our daily work. Of particular impor-
tance in how we manage our workforce and how our employees
interact are the firm’s Behaviors: integrity, collaboration and chal-
lenge. These expectations influence our entire people manage-
ment approach, from whom we hire to how we manage, develop,
compensate and support our employees. In 2015, the three keys
were embedded into every human resource process at the firm,
thus better aligning the way in which we manage our people with
the culture that we want to have.
Our overall workforce number remained relatively stable in 2015.
As of 31 December 2015, we employed 60,099 people (on a full-
time equivalent basis), 56 fewer than a year earlier. In 2015, our
employees worked in 54 countries, with approximately 35% of
our staff employed in Switzerland, 35% in the Americas, 17% in
Europe, Middle East and Africa, and 13% in Asia Pacific. Addi-
tionally, our employees worked in 897 office locations, spoke
more than 130 languages and were citizens of 135 countries. Our
workforce spans four generations, with an average age of 41 and
an average length of employment at UBS of nine years. In Swit-
zerland, more than 48% of employees have worked at UBS for
more than 10 years.
A mobile workforce helps us better utilize our employees’
know-how and increases collaboration across teams, functions
and divisions. Many inter-divisional or regional role changes are
informal, short-term arrangements to meet specific project needs.
However, we formally transferred 1,125 employees between busi-
ness divisions and 574 employees to roles in other regions in 2015.
In relation to average overall headcount, employee turnover was
14.6% in 2015, compared with 13.4% in 2014. Employee-initi-
ated turnover was 9.0% compared with 8.5% in 2014.
The three keys to success
Pillars
Principles
Behaviors
Capital strength
Efficiency and
effectiveness
Risk management
Client focus
Excellence
Sustainable
performance
Integrity
Collaboration
Challenge
335
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
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
Personnel by business division and Corporate Center unit1
Full-time equivalents
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
of which: Services
of which: Group ALM
of which: Non-core and Legacy Portfolio
Total2
As of
31.12.15
31.12.14
31.12.13
% change from
31.12.14
20,816
19,897
7,539
10,505
5,373
4,957
176
21,238
60,099
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
(1)
1
2
2
(1)
6
6
(2)
0
As of
% change from
31.12.15
31.12.14
31.12.13
31.12.14
10,239
13,611
5,058
2,277
5,243
23,671
23,470
125
77
60,099
10,337
13,322
5,206
2,323
5,194
23,773
23,517
120
137
60,155
9,988
13,545
5,209
2,217
5,165
24,082
23,747
113
222
60,205
(1)
2
(3)
(2)
1
0
0
4
(44)
0
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes. Refer to the “Recent developments” section of our third
quarter 2015 report for more information on personnel allocations from Corporate Center – Services to business divisions and other Corporate Center units. 2 Represents information for UBS Group AG (consolidated).
As of 31 December 2015, UBS AG (consolidated) employed 58,131 full-time equivalent personnel. The difference comprises 4 full-time equivalents in Wealth Management and 1,964 full-time equivalents in Corporate
Center – Services.
Attracting and recruiting talent
We are committed to developing our existing employees’ skills
while hiring the best available talent, as required, to sustain and
grow our core businesses. In 2015, 34% of all open positions
were filled by internal candidates. We also hired 8,988 external
candidates across the firm, with Wealth Management hiring 328
client advisors and Wealth Management Americas hiring 389
financial advisors.
In 2015, we further integrated the UBS House View on Leader-
ship, explicit expectations for what good leadership looks like at
UBS, and the Principles and Behaviors into our recruitment pro-
cesses. We also want to hire talented women at all levels, espe-
cially within middle and senior management. Therefore, we fur-
ther strengthened our recruitment procedures in 2015 to help
ensure that qualified female candidates are fully considered for
open roles.
Employees in nearshore or offshore locations comprised a
larger percentage of our global workforce in 2015 than in 2014.
In particular, the growth of our Business Solution Centers resulted
in significant recruiting activities in Nashville (US), Pune (India),
and Shanghai (China), as well as in Krakow and Wroclaw (Poland).
We expect those hiring trends to continue in 2016.
336
Hiring and training a pipeline of young talent is a priority for
us. In 2015, 475 university graduates were hired into one of our
undergraduate or MBA graduate talent programs, along with 820
interns. Both groups bring new perspectives and skills to our
global teams and comprise a continuous source of high-quality
talent. In Switzerland, this was the third consecutive year in which
we increased the number of new apprentices in conjunction with
the UBS Education Initiative, hiring a total of 296 apprentices for
business and information technology roles. We also recruited 193
trainees into our Bank Entry Program for high school graduates in
Switzerland.
In 2015, we continued to promote the firm’s offerings through
online and social media channels, strengthening our one-brand
approach on LinkedIn through a global UBS company page and
an employees and alumni group. We also engaged with students
and young professionals through UBS Careers on Facebook,
Google+ and Twitter, and shared UBS stories on our corporate
YouTube channel and our UBS Careers blog. In addition, we main-
tained our presence on Glassdoor and launched an Instagram
channel.
For the second consecutive year, 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 2015 World’s Most Attractive Employers list. In
Universum’s 2015 Ideal Employer survey in Switzerland, the firm
was ranked in the top five overall, and the number one financial
services firm among both business graduates and experienced
professionals. In the UK, UBS was recognized as a Top 30 Employer
for the second consecutive year by Working Families. In Asia
Pacific, among other honors, UBS was ranked number 29 in the
top 100 graduate employers in APAC by Universum.
➔ Refer to www.ubs.com/careers for more information and
to follow the UBS Careers Blog
➔ Refer to www.ubs.com/awards for information on
UBS’s rankings as an employer
Developing and managing our talent
We value the skill, commitment and experience of our workforce
and endeavor to offer career development opportunities to
employees at all levels. Our talent pipeline is growing, as we are
focusing on identifying and developing talent early in a career. We
strongly believe in promoting from within, and, in 2015, more
than 150 management meetings took place across the firm to
review and expand our business talent pipelines. The focus for
2015 was, and remains in 2016, on increasing the diversity of our
pipeline and internal mobility, as well as further improving our
talent management tools and processes.
Leadership development and training
Our leaders are expected to be change agents and ambassadors
for the firm’s strategy and culture. In 2015, we again brought
together the firm’s top 300 leaders at our Senior Leadership Expe-
rience (SLE). This is the pinnacle of our integrated leadership
development program and a key way for our leaders to advance
our strategic and cultural priorities. This year’s conference was
also an “innovation lab,” using the ideas and experience of peo-
ple across the firm to make headway on a number of key strategic
challenges. The SLE and related initiatives, such as the new Senior
Leadership Program for managing directors developed with the
International Institute for Management Development, help to
ensure our leaders are aligned with the firm’s strategy, the three
keys to success, and our expectations for them.
Beyond these strategic initiatives, our educational offerings in
2015 comprised leadership and key talent development activi-
ties, business and client education, and role-specific education
for all employees. For example, our longstanding 12-month ED
Accelerate program targets top-talent executive directors in all
business divisions. It aims to build the firm’s leadership pipeline
and accelerate participants’ readiness for more senior roles. Like-
wise, high-potential directors and associate directors are invited
to Ascent, a 12-month key talent program featuring intense, col-
laborative projects that find solutions to sponsors’ real-time busi-
ness challenges.
The firm maintains an eLearning portfolio with more than
5,100 courses on a wide range of topics, including financial mar-
kets, management, business, risk, compliance, personal skill
development and information technology. In 2015, our perma-
nent employees, not including external staff, participated in
approximately 754,000 development activities, an average of
12.2 trainings per employee or 2.4 training days. All staff, includ-
ing external personnel, participate in mandatory training on top-
ics such as operational and conduct risk, money laundering pre-
vention, risk culture and information security. These courses are
valuable learning experiences that also help us meet our regula-
tory commitments.
Innovations in client advisor training
In 2012, UBS defined a set of expecta-
tions for its client advisors that developed
into a formal certification program.
In doing so, we became the first Swiss
bank whose diploma holders could place
Swiss Certified Client Advisor on their
business cards. Since then, more than
3,500 UBS client advisors in the private
clients, wealth management Switzerland
and corporate and institutional clients
businesses have successfully completed
the program. In October 2015, UBS,
Credit Suisse and the Banques Cantonales
Latines agreed on a joint certification
standard for client advisors in Switzerland
based on UBS’s client advisor certification.
Strong advisory skills are a business
imperative. Therefore, client-facing
employees have numerous opportunities
to broaden their capabilities. As examples,
all client advisors in Wealth Management
must earn a Wealth Management
Diploma. High-performing and senior
client-facing employees are nominated for
the Master in Wealth Management,
a strategic partnership between UBS and
Rochester-Bern Executive Programs.
Our Wealth Planning Analyst program in
the US develops the knowledge and skills
of future financial advisors through a
two-year, apprenticeship-type training
program.
337
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
Gender distribution by employee category1
Headcount as of 31.12.15
Male
Female
Total
Officers
(Director and above)
Officers (other officers)
Employees
Total
Number
18,186
5,249
23,435
%
78
22
100
Number
12,027
7,936
19,963
%
60
40
100
Number
7,753
10,534
18,287
%
42
58
100
Number
37,966
23,719
61,685
%
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 61,685 as of 31 December 2015, which excludes
staff from UBS Card Center, Hotel Seepark Thun, Wolfsberg and Hotel Widder.
Managing performance
We know that personal accountability, effective performance
management and sound compensation practices are critical for
our success as a firm. We therefore strive to ensure that our per-
formance management practices are robust and centered on ele-
ments that impact our long-term profitability and our culture:
namely, performance and behavior.
At the beginning of every year, the firm’s business goals are
translated into individual performance and behavior goals,
strengthening the alignment between corporate and employee
priorities. Employees and managers are also encouraged to dis-
cuss achievements, development and career goals throughout the
year. This feedback enables employees to achieve challenging
goals, to be effective in their roles and to grow in their careers
while helping managers support employees in reaching their full
potential.
Our year-end review process measures not only what was
achieved, but also how those results were achieved. Since 2013,
we have specified the behaviors we expect and have embedded
them into performance evaluations. In 2015, we introduced sepa-
rate ratings for goals and behaviors to further emphasize the
importance of integrity, collaboration and challenge in daily busi-
ness activities, as well as transparency in our management and
reward processes. Both goal and behavior ratings factor into
development, reward and promotion decisions.
Helping employees understand and appropriately manage all
types of risk continued to be an important part of our manage-
ment processes in 2015. Measurable risk objectives were again
required for all employees, and those in key risk-taker roles were
subject to additional performance review measures. For those
employees, at least one independent person in a control function
was required to review and provide constructive feedback on their
understanding and management of risk in their daily work. This
multi-rater approach, focusing on the what and how of perfor-
mance, can give us a broad perspective on various aspects of indi-
vidual performance and reduce risk.
Building diversity and inclusion
Our global workforce is already diverse in many aspects and we
consider this a competitive strength. We are committed to further
increasing diversity and ensuring an inclusive workplace, because
both are key to achieving our goals. Diversity is both a cultural and
a business imperative. Having a global workforce with wide diver-
sity in age, gender, background, experience, education and other
factors helps us achieve our business strategy now and in the
future, because we strongly believe that:
– diverse teams better understand and relate to the needs of our
clients
– an inclusive work environment attracts high-quality people and
helps engage them over the long term
– diversity of background, thought, opinion and experience
drives better decision making, innovation and leadership
We focused the majority of our efforts in 2015 on gender
diversity. Across UBS, women occupy almost a quarter of our
management roles. For years, our firm-wide gender balance has
remained stable. We have the aspiration to increase the ratio of
women in management roles to one third. We know this will
take time. Like many firms, we face a particular challenge in
retaining women at the mid-point of their careers. We continue
to develop technology solutions, training, career support and
human resource policies and processes that over time will help us
increase the number of women who choose to build long-term
careers with us.
All our human resource policies and processes underscore our
commitment to a diverse and inclusive workplace with equal
opportunities for all employees. As part of this, each business divi-
sion delivers on business-specific action plans. In addition, we
sponsor numerous internal and external initiatives in each region,
with a particular focus on education, coaching and mentoring.
338
Strengthening diversity in Wealth Management
In 2015, Wealth Management focused on
improving its representation of women,
supporting employee health and creating
a more inclusive working environment,
with the aim to be the globally recognized
employer of choice for women in the
industry. Senior management is fully
committed to improving gender balance,
sponsoring and participating in a
range of new programs supporting the
edu cation and professional advancement
of women in Wealth Management.
Examples of these activities are an individ-
ualized fast track program, a sponsorship
program for senior women and an edu-
cational program for women who want to
build their personal finance skills.
At employee level, we promote inclusion and cross-firm col-
laboration through the sponsorship of numerous initiatives such
as our annual Diversity Week in the UK. Employee networks in all
regions sponsor numerous networking and educational events on
topics related to gender, culture, life stage, sexual orientation, and
other aspects of diversity. In 2015, we had 30 employee networks
globally, with more than 17,500 members.
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Reward
We seek to closely align our reward structure with the strategic
priorities, principles, and behaviors that help build and protect the
firm’s reputation. As such, our approach to reward has a strong
focus on conduct as well as sound risk and management practices.
We offer fixed compensation that is appropriately linked to a
flexible variable compensation policy. Variable compensation is a
discretionary element that fluctuates year to year. Variable com-
pensation may comprise a shorter-term immediate cash perfor-
mance award and a longer-term deferred performance award,
which includes provisions that put a significant portion of employ-
ees’ total variable compensation at risk of forfeiture for several
years. It is based on individual, team, business division, and Group
performance, within the context of the markets in which we oper-
ate. Overall, total reward includes base salary, role-based allow-
ances as appropriate, pension contributions and other benefits in
accordance with local requirements and market practices. Total
reward may also include a shorter- and longer-term performance
award to support our focus on the firm’s sustained profitability.
Our approach recognizes the need to compensate individuals
for their performance within the context of market conditions, a
fast-changing commercial environment, evolving regulatory
requirements, and behaviors such as integrity, collaboration and
challenge. It takes into account base salaries, discretionary perfor-
mance awards and benefits according to the firm’s Total Reward
Principles, which aim to:
– attract and engage a talented, diverse workforce
– foster effective performance management
– align reward with sustainable performance
– support appropriate and controlled risk taking
339
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(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
Employee share ownership
Employee share ownership is encouraged and enabled in a variety
of ways. One example is our share purchase plan, Equity Plus. This
is a voluntary equity-based program that enables eligible employ-
ees to purchase UBS shares at market price and receive one free
matching share for every three shares purchased. Shares pur-
chased under the Equity Plus Plan are generally blocked from sale
for up to three years from the time of purchase. Matching shares
vest in three years, provided the employee continues to work at
UBS and retains the purchased shares. Another example is the
Equity Ownership Plan (EOP), which is a mandatory compensation
deferral plan for all employees with total compensation greater
than CHF / USD 300,000. The plan links the vesting of EOP awards
with a return on equity over a two- to five-year time horizon,
which helps align employees’ long-term objectives with those of
our shareholders. The plan includes provisions that enable the for-
feiture of some, or all, of the unvested deferred award if the
employee commits certain harmful acts.
As of 31 December 2015, current employees held an estimated
6% of UBS shares outstanding (including approximately 4% in
unvested / blocked actual and notional shares from our compen-
sation programs). These figures are based on all known share-
holdings from employee participation plans, personal holdings
and individual retirement plans. At the end of 2015, an estimated
39% of all employees held UBS shares.
➔ Refer to the “Compensation” section of this report for more
information
Our responsibility as an employer
We strive to be a responsible employer and to provide a support-
ive work environment for our employees. In this respect, the
application of our Principles and Behaviors is an important part of
how we manage our global workforce. All employees are offered
a comprehensive array of market-competitive benefits that can
include insurance, pension, retirement and personal leave. In
many cases, our available benefits go beyond what is required by
law or market practice. For example, we offer all employees up to
two days each year to volunteer in their local communities. We
also support flexible working arrangements in our major loca-
tions. In Switzerland, this includes telecommuting, part-time, job-
sharing and partial retirement options. In the UK and the US, part-
time, job-sharing and telecommuting opportunities may be
available.
Efficiency, flexibility and leading-edge collaboration tools are
important to our businesses and staff, and we have undertaken
several initiatives in recent years to improve our workplaces. For
example, in 2010 we introduced UBS Workplace Now in Switzer-
land with a dual aim: to reduce unoccupied office space, and to
use mobility to increase flexibility and efficiency. In late 2015, the
program was expanded to other locations and we now have
approximately 11,500 staff using the new workplaces, which fea-
ture shared desks, informal areas for ad hoc meetings and private
work rooms.
340
At different life stages, employees may need specialized sup-
port, and we offer resources to help navigate a wide range of
issues. For example, our human resource policies help ensure that
employees are able to take parental leave upon the birth or adop-
tion of a child and then continue with their careers at UBS upon
their return. Parental leave entitlement is governed by local legis-
lation, and it varies by country. UBS meets the statutory parental
leave requirements in all locations, and in most locations we
exceed them. We also offer 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, elderly care and other
work-life challenges. In a number of locations, employees can
access company-provided or subsidized health services, child care
and fitness options.
Having a supportive work environment is especially important
if organizational restructuring adversely affect teams or individual
employees. To this end, we have redeployment and outplacement
programs in every region to provide assistance in such cases. In
the US, we provide career transition support, in addition to sever-
ance pay and health benefits, to eligible employees. In Switzer-
land, our COACH program helps affected employees find new
roles either within UBS or outside the firm. Swiss employees par-
ticipate in a social plan that sets terms for redundancies, internal
hiring, job transfers and severance.
Our Code of Conduct and Ethics is the basis for the policies,
guidelines and procedures that help us manage our workforce. It
includes a commitment to support the health and safety of
employees and external staff.
➔ Refer to www.ubs.com/healthandsafety for more information on
our commitment to health and safety
Resolving workplace issues
We recognize that workplace issues may sometimes arise, and we
are committed to addressing them in a timely and effective man-
ner. We have established procedures in every region to resolve
work-related grievances and complaints. Employees who have
concerns about work-related matters are encouraged to speak
with their direct line manager or an HR representative. They are
also asked to promptly report any conduct by employees, consul-
tants, clients or service providers that may constitute a breach of
laws, regulations, rules, policies or procedures. We have a global
whistleblowing policy and procedures (including a dedicated web-
site and telephone hotline) for submitting, investigating and han-
dling reports confidentially. Our policies prohibit adverse action
against employees acting in good faith and we make the relevant
information available to all employees online, in our employee
handbooks, and on our global whistleblowing intranet site.
Employee representation
As part of our commitment to being a responsible employer, we
maintain an open dialog with all of our employee representation
groups in Europe. Established in 2002, the UBS Employee Forum
for Europe includes representatives from 12 countries. It facilitates
open dialog on pan-European issues that may affect our regional
performance, prospects or operations. Country-level forums
address topics such as health and safety, changes to workplace
conditions, pensions, collective redundancies and business trans-
fers. For example, in Switzerland, elected Employee Representa-
tion Committee members meet with senior management at the
annual salary negotiations for Swiss employees below director
level and represent employee interests on specific topics. The UK
Employee Forum focuses on economic, financial and social activi-
ties concerning UK employees. Collectively, the UBS Employee
Forum, including the Employee Representation Committee and
UK Employee Forum, represents approximately 52% of our global
workforce.
341
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Compensation
Dear shareholders,
Pillar 3 | The firm delivered excellent
performance in 2015, against the back-
drop of a challenging market environ-
ment. Our compensation decisions reflect
our commitment to deliver competitive
compensation for excellent performance
while balancing returns to our investors
and meeting global regulatory capital
requirements.
We have consistently applied our
compensation philosophy over the past
five years to appropriately reward out-
standing performance in order to attract,
motivate and retain the very best talent.
The approach we take to compensation
supports the firm’s commitment to sus-
tained longer-term profitability, a strong
capital position, and aligns compensation
with investors’ interests.
2015 performance
In 2015, despite a volatile and uncertain
market, we delivered strong net profit
attributable to UBS Group AG shareholders
of CHF 6.2 billion, a 79% increase
compared with a year earlier, and our
adjusted1 Group profit before tax
more than doubled to CHF 5.6 billion.
The firm’s strong capital position was
increased further while return on tangible
equity exceeded the Group’s target for
the year.
As a result, the Board of Directors (BoD)
intends to propose to shareholders at
the Annual General Meeting (AGM) 2016
an increase in the ordinary dividend of
20% compared with 2014, as well as
a special dividend of CHF 0.25 per share.
Including the proposed dividends for
financial year 2015, we will have returned
CHF 7.5 billion to shareholders since the
acceleration of our strategy in 2012.
Compensation for each GEB member is
based on a comprehensive assessment of
their quantitative, qualitative and relative
competitive performance. Awards for
2015 reflect the outstanding performance
of the GEB, including the Group CEO, in
the context of excellent overall Group per-
formance, and our ambition to align our
compensation to appropriate external per-
formance benchmarks.
2015 performance award and
expenses
The firm’s total performance award pool
for 2015 was CHF 3.5 billion, an increase
of 14% compared with the prior year.
Determination of the performance award
pool was based on a range of perfor-
mance metrics, including risk-adjusted
profitability and capital strength. The per-
formance award pool also reflects the
reduced impact on our results of expenses
for provisions relating to litigation, regula-
tory and similar matters.
The Group Executive Board (GEB) perfor-
mance award pool, including the Group
CEO, was CHF 71.25 million. As a percent-
age of the adjusted Group profit before
tax, the GEB performance award pool was
1.3%, well below the cap of 2.5%.
2015 compensation framework
Our compensation framework has
remained largely unchanged since 2012.
However, to better align with the market,
we have reduced deferral rates for perfor-
mance awards for those employees at the
lower end of the deferral scale thus
increasing the proportion of cash com-
pensation awarded to these individuals.
Further, regulatory developments have
driven several local adjustments of our
compensation practices. For instance, we
changed role-based allowances, where
applicable, to grant blocked shares instead
of shares subject to vesting. This structural
shift was required to comply with feed-
back received from European authorities,
and led to an acceleration of the amortiza-
tion of the compensation expense relating
to deferred compensation.
1 Refer to “Group performance” in the “Financial and operating performance” section of the Annual Report 2015 for more information on adjusted results
342
Advisory vote The firm’s compensation vehicles (i.e., the
form of performance awards and the
related deferral approach) are designed to
reinforce appropriate risk-taking and
reward longer-term performance. Com-
pared with our peers, we believe UBS
has greater alignment with our investors,
as we place a greater proportion of
variable compensation subject to longer
deferral periods in the firm’s own equity
and debt instruments. For 2015, on aver-
age across the firm, 38% of performance
awards were deferred, and for the
Group CEO and other GEB members on
average 86% of their performance awards
were deferred for up to five years. Our
compensation structure, including the use
of debt instruments, allows us to pay
competitively, while also supporting our
capital requirements. As of 31 December
2015, CHF 1.9 billion of the Deferred
Contingent Capital Plan (DCCP) was
included in our eligible capital, making up
0.9% of our total capital ratio.
Looking ahead, we will remain abreast of
the evolving competitive and regulatory
landscape and will adapt our compensation
framework and practices where required.
Performance management and culture
In 2015, we strengthened our emphasis
on values to support cultural change
within the firm. Therefore, we not only
take into account what was achieved,
but also how the objectives were
achieved. This means that an employee’s
behavior forms an integral part of their
overall performance evaluation. These
performance and behavior assessments
have influenced both promotion and
compensation decisions.
Management also continues to drive
cultural change by setting a clear tone
from the top and by applying a consistent
approach throughout the firm. We rein-
forced our Code of Conduct and Ethics
and we do not tolerate misconduct.
We enhanced mandatory training in risk
and conduct matters, and we continued
to encourage our employees to speak
up and report any concerns under our
whistleblowing procedures.
We are confident that through good
leadership and responsible performance
management and compensation pro-
cesses, underpinned with regular training
programs, we will continue to reinforce a
culture of accountability, and thereby
provide added value to our shareholders.
Annual General Meeting 2016
At the AGM 2016, we will ask sharehold-
ers to vote on:
– The maximum aggregate amount of
compensation for the BoD for the
period from AGM 2016 to AGM 2017;
Ann F. Godbehere
Chair of the Compensation
Committee of the Board of
Directors
– The maximum aggregate amount of
fixed compensation for the GEB for
2017; and,
– The aggregate amount of variable
compensation for the GEB for 2015;
– Further, we will ask our shareholders
for an advisory vote on the Compen-
sation Report outlining our com-
pensation strategy and principles,
governance and practice.
The Board of Directors and I thank you for
the encouraging shareholder support at
the 2015 AGM and for sharing your views
on our compensation practices during
the year. On the following pages you will
find more information about our 2015
compensation approach. We will seek
your support on compensation matters at
our AGM on 10 May 2016.
Ann F. Godbehere
Chair of the Compensation Committee of
the Board of Directors
343
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
2015 Total Reward Principles
Our compensation philosophy is to align the interests of our employees with those of our clients and investors. Our
Total Reward Principles underpin our approach to compensation by establishing a framework that balances performance
with prudent risk taking. Furthermore, our framework builds on our guiding principles of client focus, excellence and
sustainable performance.
Total Reward Principles
Pillar 3 | Our compensation structure is aligned with our strategic
priorities. Employees are encouraged to create sustainable value
and profitability, and to build a strong client franchise. We reward
behavior that helps to build and protect the firm’s reputation. As
such, our approach to compensation has a strong focus on con-
duct as well as on sound risk and management practices. We
strive for excellence and sustainable performance in everything
we do, and all employees are encouraged to achieve the highest
standards of performance.
Compensation for all employees is based on individual, team,
business division and Group performance, within the context of
the markets in which we operate. The Total Reward Principles
establish the framework for determining our performance award
pool, and guide the allocation and appropriate delivery mecha-
nisms of compensation to employees, including deferred com-
pensation programs.
Our Total Reward Principles govern the compensation approach
and processes across all locations and entities.
Total Reward Principles
The 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 and compensation frame-
work apply to all employees globally, but may vary in certain locations due to local laws and regulations.
Attract and engage a diverse, talented workforce
We aim to provide talented employees with pay that is appropriately balanced between fixed and variable elements,
competitive in the market, and paid out over an appropriate period
Foster effective individual performance
management and communication
Thorough evaluation of individual performance and adherence to our behaviors, combined with effective communication,
ensures there is a direct connection between achievement of business objectives and compensation across the firm
Align reward with sustainable performance
We aim to cultivate a culture of integration and collaboration within the firm. Compensation should help foster a sense
of engagement among employees, and serve to align their long-term interests with those of clients and stakeholders
Support appropriate and controlled risk-taking
Compensation is structured such that employees behave in a manner consistent with the firm’s risk framework and
tolerance, thereby protecting our capital and reputation, and enhancing the quality of our financial results, in line with
what our investors expect from us
344
Advisory vote Approach to compensation
The table below highlights the range of factors that influence our judgment with respect to the performance award pool, and its
allocation and delivery to employees.
Performance award pool determined
Allocated to employees
Delivered over time
Driven by risk-adjusted and sustainable
profitability, including consideration of:
Based on Group, divisional, regional and
individual performance, including:
Substantial awards deferred and aligned
with investors:
– Risk-adjusted contribution before performance award
– Quality of earnings
– Progress against strategic initiatives
– Affordability
– Market competitiveness / positioning
– Returns to investors
– Client focus
– Financial results and capital management
–Riskmanagement
– People and talent development
– Principles and behaviors
– At least 50% deferred for Key Risk Takers
– Risk of forfeiture
–Long-termdeferralofuptofiveyears
– Shareholder and debt holder aligned vehicles
Compensation authorities
The Board of Directors (BoD) has the ultimate responsibility for approving and overseeing the compensation strategy proposed by the
Compensation Committee of the Board of Directors, which determines compensation related matters in accordance with the principles
set forth in the Articles of Association.
Approved by
Compensation Committee 1
Communicated by
Compensation Committee
Recipients
Chairman of the BoD
Compensation recommendations
developed by
Chairperson of the Compensation
Committee
Independent BoD members
(remuneration system and fees)
Compensation Committee and
Chairman of the BoD
Group CEO
Compensation Committee and
Chairman of the BoD
BoD 1
BoD 1
Other GEB members
Compensation Committee and Group CEO
BoD 1
Key Risk Takers (KRTs) /
(senior) employees
Respective GEB member together with
functional management team
Individual compensation for KRTs and
senior employees: Group CEO
Performance award pool for all
employees: BoD
1 Aggregate compensation for the GEB and aggregate remuneration for the BoD are subject to shareholder approval.
Chairman of the BoD
Chairman of the BoD
Group CEO
Line manager
345
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
2015 performance and compensation funding
Our excellent performance in 2015 reflects our successful execution and disciplined risk and resource management in a
very challenging environment. Net profit attributable to UBS Group AG shareholders increased to CHF 6.2 billion, up
79% compared with 2014. In determining the performance award pool, we endeavor to maintain a balanced allocation
of profit between shareholders and employees. The performance award pool for 2015 was CHF 3.5 billion. Compared
with 2014, the pool increased 14% while profitability increased strongly by 79%.
Our performance in 2015
In 2015, we were faced with exceptional levels of volatility, a chal-
lenging macroeconomic outlook, escalating geopolitical tension
and a continued reduction in the risk appetite of our clients.
Throughout the year, we stayed close to our clients, helping them
to navigate the volatility in the markets. Despite these headwinds,
we delivered net profit of CHF 6.2 billion, a 79% increase com-
pared with 2014, and adjusted profit before tax that more than
doubled to CHF 5.6 billion. We generated an adjusted return on
tangible equity of 13.7%, above our target of approximately
10%. We continued to further strengthen our capital position
and improve our leverage ratio, and we ended the year with a
fully applied common equity tier 1 (CET1) capital ratio of 14.5%,
up 110 basis points from the end of 2014, the highest in our peer
group of large global banks. At the end of the year, our fully
applied Swiss systemically relevant bank (SRB) leverage ratio1 was
5.3%, up approximately 120 basis points. We also tightly man-
aged costs, with net cost reductions in Corporate Center of CHF
1.1 billion delivered since the end of 2013.
The continued dedication and hard work of our employees
enabled us to provide superior advice and service to our clients
and to deliver on our commitment to grow profitability. Our Board
of Directors intends to propose an ordinary dividend of CHF 0.60
per share, up 20% compared with 2014, reflecting our strong
operating performance, as well as a special dividend of CHF 0.25
per share, reflecting a significant net upward revaluation of
deferred tax assets in 2015. The total dividend represents a 13%
increase on the total capital returned for 2014 and a payout ratio
of 52%2 of reported net profit.
Our business divisions delivered strong results in 2015. Our
Wealth Management business delivered its highest adjusted pre-
tax profit since 2008 at CHF 2.8 billion. Recurring income grew by
3% due to higher net interest income and recurring net fee
income, as we made progress on strategic initiatives to grow
mandate penetration, and banking and lending products. Man-
agement took significant steps to optimize the balance sheet and
the quality of assets under management, which impacted reported
net new money. Adjusted for these effects, net new money was
CHF 22.8 billion, reflecting an annual growth rate of 2.3%, which
was below our targeted range of 3–5%. Net new money was
negatively impacted by significant client deleveraging caused by
difficult market conditions in the second half of the year, as well
as cross-border outflows.
1 From 31 December 2015 onwards, the Swiss SRB leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are
therefore not fully comparable. Refer to the “Capital management” section of the Annual Report 2015 for more information. 2 Total dividend per share as a percentage of diluted earnings per share.
Net profit attributable
to UBS Group AG shareholders
CHF million
Diluted earnings per share (EPS)
CHF
Return on tangible equity (RoTE),
adjusted
in %
Full year 2015 / 2014
Full year 2015 / 2014
Full year 2015 / 2014
+ 79 %
+ 80 %
+ 510 bps
8,000
4,000
0
346
3,466
2014
1.80
0.9
0
0.91
2014
6,203
2015
1.64
15.0
12.0
9.0
6.0
3.0
0.0
8.6
13.7
2015
2014
2015
Advisory vote
Wealth Management Americas delivered good underlying per-
formance and made excellent progress on its strategic objectives.
Recurring income increased 5% on a US dollar basis, as net inter-
est and recurring net fee income rose, reflecting our success in
growing our banking and lending services and increasing man-
aged accounts. Adjusted pre-tax profit decreased 15% on a US
dollar basis, primarily due to higher provisions for litigation, regu-
latory and similar matters and higher legal fees. Net new money
was USD 21.4 billion, driven by advisors who have been with the
firm for more than one year as well as new recruits, leading to an
annual growth rate of 2.1%.
Personal & Corporate Banking delivered its best adjusted profit
before tax since 2010, up 7% compared with 2014, and once
again achieved its annual targets. Net new business volume
growth for personal banking was 2.4% and we attracted a record
number of new clients for the second consecutive year.
Asset Management progressed towards its medium-term goal,
with a 20% increase in adjusted pre-tax profit compared with
2014, driven by higher net management fees. The business divi-
sion’s adjusted cost / income ratio improved from 73.2% to
69.6%. Excluding money market flows, net new money outflows
were CHF 0.7 billion, impacted by CHF 33 billion of outflows,
largely from lower-margin products, driven by client liquidity
needs in difficult market conditions.
Importantly, the inflows achieved were materially higher in
margin than outflows, which are expected to result in a net posi-
tive effect on our revenues in 2016.
The Investment Bank delivered an adjusted profit before tax of
CHF 2.3 billion compared with CHF 162 million in the prior year.
Results were driven by growth in revenues in Investor Client Ser-
vices as well as a significant decrease in provisions for litigation,
regulatory and similar matters. The Investment Bank generated an
adjusted return on attributed equity of 31%, well above its target
of greater than 15%. The business also maintained strict disci-
pline on resource utilization, reducing its leverage ratio denomi-
nator (LRD) by 7%1 and risk-weighted assets (RWA) by 6%. Inter-
national Financing Review awarded the Investment Bank the
“Bank of the Year” accolade, highlighting the recognition of our
innovative and sustainable operating model and demonstrating
the success of the Investment Bank’s strategic direction embarked
upon 3 years ago.
Corporate Center reported an adjusted loss before tax of CHF
2.6 billion compared with a loss of CHF 2.9 billion in the prior
year, as a significant reduction in negative revenues was partly
offset by a higher net charge for litigation, regulatory and similar
matters. RWA in Corporate Center – Non-core and Legacy Portfo-
lio was CHF 31 billion at year-end. The LRD in Corporate Center
– Non-core and Legacy Portfolio was CHF 46 billion or just 5% of
the Group’s total LRD.
1 From 31 December 2015 onwards, the Swiss SRB LRD calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully com-
parable. Refer to the “Capital management” section of the Annual Report 2015 for more information.
347
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Performance award pool funding
Pillar 3 | Our compensation funding framework is based on business
performance, which we measure on multiple dimensions. We
assess Group performance and also consider performance relative
to the industry, general market competitiveness, progress against
our strategic initiatives, including RWA and balance sheet effi-
ciency, delivery of cost efficiencies, and capital accretion. We look
at the firm’s risk profile and culture, the extent to which opera-
tional risks and audit issues have been identified and resolved,
and the success of risk reduction initiatives. In addition, we use a
number of criteria including achievement against a set of targets
for our business divisions and Corporate Center, listed 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 initially
accrued as a percentage of profit before performance award,
which is risk adjusted by factoring in a risk capital charge. In the
determination of the final pool, we also consider progress against
our strategic initiatives, quality of earnings, affordability and mar-
ket positioning. Business division performance is adjusted for
items which do not represent underlying performance, including
gains or losses related to divestments or sales of real estate,
restructuring expenses, and gains or losses on own credit.
Our compensation philosophy strives to encourage appropriate
risk taking and to protect our talented employee base. To achieve
this, as performance increases, we reduce our overall performance
award accrual percentage. In strong performance years, this results
in an increased proportion of contribution before compensation
being available to be delivered to shareholders and prevents exces-
sive compensation. In contrast, if performance declines, the per-
formance award pool will generally decrease. However, we may
increase the accrual rate to provide us with the flexibility to make
adequate provisions to retain key employees.
Net interest margin
140–180 bps
167 bps
Ranges
3–5%
55–65%
2–4%
75–85%
1–4%
2015 results
2.3%
64.5%
2.1%
88.5%
2.4%
50–60%
3–5%
60–70%
>15%
70–80%
55.4%
(0.1%)
69.6%
31.3%
73.5%
~CHF 85 billion
CHF 63 billion
~CHF 325 billion CHF 268 billion
2015 target report card
2015 highlights
Wealth Management
– Adjusted profit before tax up 13% to CHF 2.8 billion
– Continued progress on mandate penetration, up 200 bps
2015 targets and expectations1
Adjusted net new money
growth rate
Adjusted cost / income ratio
– Strong operating performance with recurring income up 5%
Net new money growth rate
Wealth Management
Americas2
Personal &
Corporate Banking
– Generated USD 21.4 billion in net new money
– Adjusted profit before tax up 7% to CHF 1.7 billion
– Record net new account openings
– Best profit before tax since 2010 despite interest rate and
FX headwinds
Asset Management
– Adjusted profit before tax up 20% to CHF 610 million
– Improved efficiency with progress on strategic initiatives
Adjusted cost / income ratio
Net new business volume
growth rate (personal banking)
Adjusted cost / income ratio
Net new money growth rate excl.
money market flows
Adjusted cost / income ratio
Investment Bank
– Adjusted profit before tax of CHF 2.3 billion, up from
Adjusted pre-tax RoAE
CHF 162 million in 2014
– Strong performance in ICS with revenues up 16% to CHF 5.9 billion
– Achieved high risk-adjusted returns within allocated resources
– Named "Bank of the Year" by International Financing Review
Adjusted cost / income ratio
Basel III RWA (fully applied),
short / medium term3
LRD (fully applied),
short / medium term3
= 2015 target not met
= 2015 target met
1 Refer to the “Our strategy” section of the Annual Report 2015 for more information. 2 Based on US dollars. 3 Expectation.
348
Advisory vote Performance award funding process – illustrative overview
The chart below illustrates the performance award pool funding process.
Financial
performance
1
Risk adjustment
Consultation of
Group CEO with
the business divi-
sion Presidents
Compensation
Committee / BoD
governance and
discretion
3
Levers
Adjusted
divisional financial
performance
2
Risk-adjusted
divisional
performance
award pools
Divisional
KPIs
Qualitative,
risk and reg-
ulatory as-
sessment
Relative per-
formance vs
peers
Market posi-
tion and
trends
Recommended
divisional per-
formance
award pools
Final
performance
award pool
4
5
1
2
3
4
5
Adjusted divisional financial
performance
The preliminary divisional performance award pool amounts are driven by financial performance and assessed in light of a series
of financial KPIs. The adjusted divisional performance excludes items which are not reflective of the underlying performance
Risk-adjusted divisional
performance award pools
Predetermined business division-specific performance award pool funding rates are applied to risk-adjusted performance.
In addition, credit risk, market risk and operational risk (including conduct) are taken into account
Divisional KPIs
Each division is assessed based on specific KPIs (e.g., net new money growth rate, return on RWA)
Qualitative, risk and regulatory as-
sessment
Qualitative assessment (e.g., quality of earnings, industry awards), assessment of regulatory compliance and risk assessment
(such as operational, legal, compliance, reputational and operational risk).
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 assess the competitiveness of our pay level and compensation struc-
ture. It also provides a prospective view of market trends in terms of absolute compensation levels, compensation framework and in-
dustry practice
Recommended divisional
performance award pools
The divisional performance award pools 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 Compensation Committee for consideration
Final performance award pool
The Compensation Committee considers the recommendation in the context of our overall performance, capital strength, risk profile, prog-
ress against strategic initiatives, affordability, market competitiveness / positioning, as well as business and geographic trends. The commit-
tee ensures it is in line with our strategies embodied in our Total Reward Principles to create sustainable shareholder value and may alter
the recommendations of the Group CEO (upward or downward, including recommending a zero award)beforemakingitsfinalrecom-
mendation to the BoD
349
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
2015 performance award pool and expenses
Performance award expenses
CHF billion
3.1
0.9
Awards
for
performance
year deferred
to future
periods2
(incl.
accounting
adjustments)
14%1
2.8
0.6
2.2
Amortization
of prior-
year awards
Awards
expenses for
performance
year
3.2
0.7
2.5
Amortization
of prior-
year awards
Awards
expenses for
performance
year
3.5
1.0
Awards
for
performance
year deferred
to future
periods2
(incl.
accounting
adjustments)
Performance
award pool
2014
Performance
award pool
2015
14%
1 Excluding employer-paid taxes and social security. 2 Estimate. The actual amount to be expensed in future
periods may vary; for example, due to forfeitures.
The performance award pool, which includes all discretionary
performance-based variable awards for 2015, was CHF 3.5 bil-
lion, an increase of 14% compared with 2014.
3.5
3.0
2.5
2.0
1.5
Performance award expenses for 2015 increased 14% to CHF
3.2 billion. This increase reflects (a) the increase in the perfor-
mance award pool, (b) higher expenses due to the change in the
compensation deferral structure and modification in local com-
pensation practices due to developments in regulatory require-
ments, and (c) expenses related to the amortization of awards
from prior years. The “Performance award expenses” chart on
this page compares the performance award pool with perfor-
mance award expenses.
1.0
0.5
0.0
350
Advisory vote 2015 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) based on the
assessment of quantitative and qualitative performance measures and, in aggregate, subject to shareholder approval.
The overall aggregate performance award pool for the GEB, including the Group CEO, was CHF 71.25 million for 2015.
This is reflective of excellent performance and also the fact that, in recent years, the compensation of the most senior
members of the Group has, appropriately, been impacted the most, as the firm addressed legacy matters from its past.
Base salaries for the GEB and the Group CEO remain unchanged compared with 2014.
Base salary, role-based allowance, pensions and benefits
Employment contracts
The employment contracts of the GEB members do not include
severance terms, sometimes referred to as golden parachutes, or
supplementary pension plan contributions. All employment con-
tracts 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, he or she may be considered for a discretionary
performance award based on their contribution during that per-
formance year in line with the approach outlined in this report.
Such awards are at the full discretion of the BoD, which may
decide not to grant any awards.
➔ Refer to the “Our compensation governance framework” section
of this report for more information on the shareholders’ vote on
the GEB compensation
Each GEB member receives a fixed base salary, which is reviewed
annually by the Compensation Committee. Since the Group CEO’s
appointment in 2011, his annual base salary has remained
unchanged at CHF 2.5 million. Other GEB members receive a sal-
ary of CHF 1.5 million (or local currency equivalent). This level has
remained unchanged since 2011.
One GEB member is considered a UK Material Risk Taker (MRT)
and receives a role-based allowance in addition to his base salary.
This allowance reflects the market value of this specific role and is
only paid while the GEB member is considered an MRT. Such an
allowance represents a shift in the compensation mix between
fixed and variable compensation and does not represent an
increase in total compensation. The allowance consists of a
blocked UBS share award, which is granted annually.
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.
At the AGM, shareholders are required to approve the maxi-
mum aggregate amount of fixed compensation for the members
of the GEB for the following financial year.
➔ Refer to the “Our compensation model for employees other than
GEB members” for more information on MRTs
351
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Overview of GEB compensation determination process
The compensation for GEB members, including the Group CEO, is governed by a rigorous process with oversight by the Compensation
Committee and the BoD. The illustration below shows how compensation for GEB members, including the Group CEO, is determined.
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(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: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:85)(cid:11)
(cid:54)(cid:74)(cid:71)(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: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:74)(cid:71)(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: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:2)(cid:67)(cid:80)(cid:70)(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:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:88)(cid:67)(cid:78)
1 Refer to the “Overview of the quantitative and qualitative measures – balanced scorecard" chart for more information.
352
Advisory vote How we set variable performance award levels for our
Group CEO and other GEB members – performance
assessment
Pillar 3 | Annual performance awards for the Group CEO and other
GEB members are at the full discretion of the BoD and, in aggre-
gate, subject to shareholder approval at the AGM.
Our performance assessment is based on a balanced score-
card, which allows us to assess an individual’s performance against
a number of quantitative and qualitative key performance indica-
tors (KPIs).
The quantitative measures for the Group CEO are based on
overall Group performance. For other GEB members, they are
based on both Group performance and the performance of the
relevant business division and / or region. The GEB members who
lead Group control functions, or who are solely regional Presi-
dents, are assessed on the performance of the Group and the
functions / regions they oversee.
Quantitative measures include business division financial,
regional, and functional measures, and account for 65% of the
assessment. 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 KPIs on which the balanced scorecard
is based. The weighting between Group, business division,
regional, and functional KPIs varies depending on a GEB mem-
ber’s role. A significant weight is given to Group KPIs for all GEB
members.
The degree to which an individual has achieved these quantita-
tive measures, coupled with an assessment of performance
against qualitative measures, provides an overall rating. This is the
starting point for determining a GEB member’s annual perfor-
mance award. This approach is not intended to be mechanical, as
the Compensation Committee can exercise its judgment with
respect to achievement to reflect relative performance versus
prior year, versus strategic plan and versus competitors.
The Compensation Committee’s recommendations are then
reviewed, and must be approved, by the BoD. The Compensation
Committee, and then the full BoD, follow a similar process in set-
ting the compensation for the Group CEO.
While the BoD retains full discretion in determining the vari-
able compensation levels for the Group CEO and other GEB mem-
bers, the total amount of the awards may not exceed the aggre-
gate cap of 2.5% of adjusted Group profit before tax. Additionally
individual GEB and Group CEO’s variable compensation should
not exceed the specified individual compensation caps (as
described later in this section).
The final aggregated performance award for the GEB, includ-
ing the Group CEO, for a financial year is subject to shareholder
approval at the following AGM. The individual variable perfor-
mance awards for each GEB member will only be confirmed fol-
lowing shareholder approval at the AGM.
353
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Pillar 3 | Overview of the quantitative and qualitative measures – balanced scorecard
Measures
Weightings
Group CEO Business
division /
regional
Presidents
Functional
heads
65%
35%
30%
35%
45%
20%
Quantitative measures (65% weighting)
Group
A range of financial metrics including adjusted Group return on tangible equity,
adjusted Group profit before tax, CET1 capital ratio (fully applied)
65%
Business division
and / or regional KPIs
(if applicable)1
Business division and / or regional KPIs vary but may include: net new money growth
rate, gross margin, adjusted cost/income ratio, net new business volume growth rate,
net interest margin, adjusted RoAE, Basel III RWA limit, funded assets limit
Functional KPIs1
Specific functional KPIs for Corporate Center GEB members
EDTF |
Qualitative measures (35% weighting)
Pillars
Capital management
Establishes and maintains capital strength and CET1 capital ratio. Generates
efficiencies and deploys our capital more efficiently and effectively
Efficiency and effectiveness Contributes to the development and execution of our strategy. The measure also
Risk management
Ensures risk management through an effective control framework. Captures the
looks to ensure that there is success across all business lines, functions and regions
degree to which risks are self-identified and focuses on the individual’s success in
ensuring compliance with all the various regulatory frameworks. Helps shape the
firm’s relationships with regulators through ongoing dialog
Principles
Client focus
Increases client satisfaction and mantains high levels of satisfaction over the long
term. This includes promoting collaboration across business divisions and fostering
the delivery 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 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
35%
35%
35%
Excellence
Human Capital Management – develops successors for the most senior positions,
facilitates talent mobility within the firm and promotes a diverse and inclusive
workforce
Product and Service Quality – strives for excellence in the products and services we
offer to our clients
Behaviors
Integrity
Is responsible and accountable for what they say and do; cares about clients,
investors and colleagues; acts as a role model
Collaboration
Places the interests of clients and the firm before their own and those of their
business; works across the firm; respects and values diverse perspectives
Challenge
Encourages self and others to constructively challenge the status quo; learns from
1 Both regional and functional KPIs may include qualitative measures.
mistakes and experiences
354
Advisory vote Benchmarking against peers
When recommending performance awards for the Group CEO
and the other GEB members, the Compensation Committee
reviews the respective total compensation for each role against
the broader market and also a group of peer companies selected
for the comparability of their size, business and geographic mix,
and the extent to which they compete against us for talent. The
Compensation Committee also considers the strategies, practices,
pay levels and regulatory environment of our peers. Overall, total
compensation for a GEB member’s specific role is targeted to align
with market competitive pay of the role for market competitive
performance.
The Compensation Committee annually reviews and approves
the core peer group for executive compensation. As of 2015, the
core peer group consists of: Bank of America, Barclays, BlackRock,
BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman
Sachs, HSBC, JP Morgan Chase, Julius Baer, Morgan Stanley and
Standard Chartered. This group is broadened for the purposes of
business division benchmarking and for the review of specific
roles, as appropriate.
Comparability assessment against main peers
Benchmarking ensures that our executives´ 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
BlackRock
BNP Paribas
Citigroup
Credit Suisse
Deutsche Bank
Goldman Sachs
HSBC
JP Morgan Chase
Julius Baer
Morgan Stanley
Standard Chartered
Mostly comparable
Moderately comparable
Less comparable
1 Size: evaluated in terms of revenue, market capitalization, assets and number of employees. This would potentially impact management complexity outside of the impact of product mix and geography. 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.
355
Corporate governance, responsibility and compensationAdvisory vote Share ownership requirements: aligning GEB members’
interests with those of our shareholders
In addition to our compensation framework, which includes EOP
and DCCP, our share ownership policy requires 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 members are not permitted to sell their
UBS shares until the above mentioned thresholds have been
reached. At the end of 2015, all GEB members had met the
required share ownership level.
Caps on the GEB performance award pool
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
adjusted profit before tax for 2015 was CHF 5.6 billion, the GEB
2015 performance award pool was capped at CHF 141 million.
The actual total GEB performance award pool for 2015 was
CHF 71.3 million (CHF 58 million in 2014). The performance
award pool as a percentage of adjusted Group profit before tax
reduced to 1.3% compared with 2.1% in 2014, well below the
cap of 2.5%.
In line with the individual compensation caps introduced in
2013 on the proportion of fixed pay to variable pay for all GEB
members, the Group CEO’s performance award is capped at five
times his base salary. Performance awards of other GEB members
are capped at seven times their base salaries. For 2015, perfor-
mance awards for GEB members and the Group CEO were, on
average, 3.7 times their base salaries. The entirety of each GEB
member’s performance award that is deferred is subject to perfor-
mance conditions.
Corporate governance, responsibility and compensation
Compensation
2015 Deferred performance awards
Pillar 3 | For each GEB member, at least 80% of the performance
award is deferred, meaning a maximum of 20% of the GEB mem-
ber’s overall performance award can be paid out in the form of
immediate cash, subject to a cap of CHF / USD 1 million (or local
currency equivalent). Any amount above this cap is granted in
notional shares under the Equity Ownership Plan (EOP). For UK
Material Risk Takers (MRTs), 50% of any immediate cash is deliv-
ered in vested shares, which are blocked for six months as required
by regulators.
For performance year 2015, a minimum of 50% of the overall
performance award is granted under the EOP, which vests in
three equal installments from year 3 to 5, subject to performance
conditions being met. As noted above, for the GEB member who
is considered an MRT, each EOP installment vesting on 1 March
of years 3 to 5 will be subject to additional blocking for a further
six months.
The remaining 30% of the overall performance award 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. The DCCP awards have contributed to
the loss-absorbing capital of the Group. In addition to a phase-in
common equity tier 1 capital ratio trigger of 10%, DCCP awards
granted to GEB members are subject to a further performance
condition. If the firm 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 capital ratio trigger. For GEB members, the average 2015
award vests in 4.4 years (in line with 2014). Our compensation
plans have no upward leverage, such as multiplier factors, and
therefore do not encourage excessive risk-taking.
The Compensation Committee has determined that perfor-
mance conditions for all GEB members’ awards due to vest in
March 2016 have been satisfied. Hence such awards will vest in
full, based on the performance conditions having been met.
➔ Refer to the “Our deferred variable compensation plans for
2015” 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 MRTs
➔ Refer to the “Vesting of outstanding awards granted in prior
years impacted by performance conditions” section in this report
for more information
356
Advisory vote Pillar 3 | 2015 compensation framework for GEB members
Up to 20% of the annual performance award is paid in the form of immediate cash and at least 80% will be deferred for up to five
years, with at least 50% granted under the Equity Ownership Plan (EOP) and the remaining 30% under the Deferred Contingent
Capital Plan (DCCP). The framework remains the same as for 2014. The chart below is an illustrative example.
Payout of performance award
Key features
Pay for performance and safeguards
DCCP
30%
EOP
at
least
50%
20%
Cash
up to
20%
Base
salary2
30%
16%
Notional additional tier 1 (AT1) instruments
30% of the performance award is granted under the
Deferred Contingent Capital Plan (DCCP). The award
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
At least 50% of the performance award is granted under
the Equity Ownership Plan (EOP). The award vests in equal
installments in years 3, 4 and 5, subject to both Group
and divisional performance. 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
Up to 20% of the performance award is paid out in cash1
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
17%
17%
Our compensation framework is designed to pay for
performance. A performance award is based on a balanced
scorecard assessing the individual’s performance against
a number of quantitative and qualitative key performance
indicators
At least 80% of performance award is at risk of forfeiture
Compensationplanforfeitureprovisionsenablethefirmto
reduce the unvested deferred portion if the compensation
plans’ relevant performance conditions are not achieved
Our compensation framework contains a number of features
designed to ensure that risk is appropriately managed with
safeguards to limit inappropriate risk-taking:
– no upward leverage, such as multiplier factors. Potential
realized pay cannot exceed the award granted (excluding
potential share price appreciation, dividends and interest
payments). The final deferred payout can be forfeited up
to 100% in cases where performance conditions are not
met or harmful acts provisions apply
– 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
– individual caps on the proportion of fixed to variable pay
for the Group CEO and other GEB members
– six-month notice period included in the employment con-
tracts
– an evaluation of the risk control effectiveness and adher-
ence of each GEB member as part of their individual
qualitative assessment
– 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 employment is terminated for cause
2015
2016
2017
2018
2019
2020
2021
Share
rentention
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
1 UK Material Risk Takers (MRTs) receive 50% in the form of blocked shares. 2 May include role-based allowances that have been made in line with market practice in response to regulatory requirements.
357
Corporate governance, responsibility and compensationAdvisory vote
Corporate governance, responsibility and compensation
Compensation
2015 compensation for the Group Chief Executive Officer
The performance awards for the Group CEO, Sergio P. Ermotti,
and each member of the GEB are based on the achievement of
both quantitative and qualitative performance targets as described
earlier in this section. These targets were set to reflect the strate-
gic priorities determined by the Chairman and the BoD, including
risk-adjusted profitability, our capital position and return on tan-
gible equity, as well as a range of qualitative measures to assess
the quality and sustainability of the business.
In line with the previous year Mr. Ermotti’s performance assess-
ment was weighted 65% on quantitative performance based on
Group financial performance, and weighted 35% based on quali-
tative measures.
The table on the following page summarizes the metrics uti-
lized by the BoD to assess Mr. Ermotti’s performance as Group
CEO for 2015.
The BoD recognized that under Mr. Ermotti’s strong steward-
ship, the Group financial performance for 2015 was excellent as
outlined in the “Performance and compensation funding” section
of this report. Adjusted return on tangible equity was 13.7%,
above the target for 2015 of approximately 10%. The BoD con-
sidered Mr. Ermotti’s active leadership to successfully manage the
ambitious capital strategy for 2015. All major capital measures
surpassed the targets set for the Group CEO for 2015 on a fully
applied basis, including the common equity tier 1 (CET1) capital
ratio of 14.5% (significantly above the target of at least 13%),
the Swiss SRB leverage ratio of 5.3%, and RWA of CHF 208 billion
compared with the target of less than CHF 215 billion. Further,
these all represent significant improvements on last year. The
firm’s capital position continues to compare favorably to peers,
which has been underscored by recent upgrades from rating
agencies. Achieving the return and capital targets enables the
firm to fulfill its commitment to return at least 50% of its net
profit to shareholders.
Mr. Ermotti’s stewardship in a challenging market environ-
ment was key to supporting each business division to deliver
good results for the year. Wealth Management delivered its high-
est adjusted pre-tax profit since 2008 and recurring income grew
by 3% due to higher net interest income and recurring net fee
income, including progress on strategic initiatives and bank-
ing / lending products. Wealth Management Americas had a
good underlying performance and made excellent progress on its
strategic objectives. Personal & Corporate Banking delivered its
best adjusted profit before tax since 2010. Asset Management
progressed towards its medium-term goal, growing adjusted pre-
tax profit by 20% compared with 2014 due to higher net man-
agement fees. Our Investment Bank delivered an adjusted profit
before tax of CHF 2.3 billion and generated an adjusted return on
attributed equity of 31%, well above its target of greater than
15%. Further, significant progress has also been achieved in the
continued wind-down of the Corporate Center – Non-core and
Legacy Portfolio, and in particular the leverage ratio denominator
was significantly reduced, with a CHF 47 billion or 51% reduc-
tion in the balance during the year, significantly ahead of the
business plan.
The BoD also acknowledged the strong qualitative perfor-
mance that Mr. Ermotti demonstrated. His focus on execution of
our well-defined strategy has made these results possible.
Mr. Ermotti continued to set the highest standards and a clear
tone from the top regarding the risk and control environment. His
initiatives to build a strong risk management culture including
operational risk management, a robust compliance function and
a comprehensive end-to-end control environment are essential in
ensuring the firm’s sustainable success.
The BoD considered the significant progress made in the orga-
nization’s cultural journey under Mr. Ermotti’s leadership. He con-
tinued to pursue culture as a key priority. The Principles and
Behaviors have become embedded in the way the firm does busi-
ness and an integral part of the firm’s talent management, pro-
motion and compensation considerations.
Beyond the results and capital position, the BoD also recog-
nized Mr. Ermotti’s drive to deliver on key strategic initiatives,
including the successful go-live of UBS Switzerland AG and the
implementation of a more self-sufficient business model for UBS
Limited. Moreover, Mr. Ermotti successfully implemented a
smooth transition to strategically realign his Group Executive
Board.
Reflecting Mr. Ermotti’s execution of the strategy over the past
several years, as well as his overall achievements in 2015, the BoD
approved the proposal by the Compensation Committee (subject
to shareholder approval as part of the aggregate GEB 2015 vari-
able compensation) to grant a performance award of CHF 11.5
million, bringing his total compensation for the year (excluding
benefits and contributions to his retirement benefit plan) to CHF
14.0 million. The performance award will be delivered with 91%
deferred under EOP and DCCP over 5 years subject to achieving
performance thresholds and other forfeiture provisions. The
remaining 9% will be delivered in immediate cash.
➔ Refer to the “Our deferred variable compensation plans for
2015” section of this report for more information on about the
terms of our deferred variable compensation plans
358
Advisory vote 2015 Assessment
100%
2015 Assessment
100%
vs. Plan
vs. 2014
vs. Plan
vs. 2014
vs. Plan
vs. 2014
vs. Goals
Balanced scorecard for the Group CEO
Quantitative1 measures (65%)
Weighting
2015 results
Adjusted Group RoTE
25%
13.7%
Adjusted Group profit before tax 2
25%
CHF 6.5 billion
Capital management
CET1 ratio, fully applied
Post stress CET1 ratio, fully applied
Swiss SRB leverage ratio, fully applied3
15%
14.5%
>10%
4.9%
EDTF |
Qualitative4 measures (35%)
Weighting
Main achievements
Pillars
Capital management,
efficiency and effectiveness,
and risk management
Principles
Client focus, sustainable performance and
excellence
Behaviors
Integrity, collaboration and challenge
− Further enhanced effectiveness and long-term
efficiency through continued disciplined execution
of the firm’s ambitious capital strategy
− Continued focus on cost control, operational
effectiveness, balancing infrastructure investments
and supporting strategic initiatives
− Demonstrated and built strong risk management
culture
− Strong execution and personal involvement in
regulatory compliance matters
− Demonstrated a strong client focus and the
importance of a client centric organization
35%
− Enhanced UBS’s reputation by further improving
relationships with key regulators and by leveraging
suitable platforms to promote the firm’s brand value
vs. Goals
− Further enhanced bench strength, talent
management and succession planning
− Served as a strong role model and his actions set a
strong tone from the top
− Collaborative and effective leadership style in
promoting collaboration across business divisions and
fostering the delivery of the whole firm to our clients
vs. Goals
− Created an environment that encourages to
challenge the status quo, identifies opportunities to
raise standards further and learn and act on mistakes
and experiences
1 Quantitative measures and target levels were based on internal performance objectives in our 2015 Operating Plan. 2 Adjusted Group profit before tax excluding certain charges for provisions for litigation, regula-
tory and similar matters. 3 Swiss SRB leverage ratio, fully applied, as of 31 December 2015, based on the former Swiss SRB rules, which were applicable at time of 2015 planning. On the basis of the new Swiss SRB
rules the leverage ratio as of 31 December 2015 is 5.3%. Refer to the “Capital management” section of the Annual Report 2015 for more information. 4 The qualitative measures used to assess the effectiveness of
the Group CEO are outlined in detail in the table “Overview of the quantitative and qualitative measures – balanced scorecard” in this report.
359
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Total compensation for GEB members for the performance years 2015 and 2014
The table below shows the total compensation for GEB members for the performance years 2015 and 2014. At the AGM 2016, share-
holders will vote on the overall 2015 total variable compensation.
Audited | Pillar 3 |
Total compensation for GEB members
CHF, except where indicated1
Name, function
Sergio P. Ermotti, Group CEO
(highest-paid)
Sergio P. Ermotti, Group CEO
(highest-paid)
Aggregate of all GEB members
who were in office at the end
of the year9
Aggregate of all GEB members
who stepped down during the
year10
For the
year
Base salary2
Contribution
to retirement
benefits plan3
Benefits4
Total fixed
compensation
Immediate
cash5
Annual
performance
award under
EOP6
Annual
performance
award under
DCCP7
Total
variable
compensa-
tion
Total fixed
and vari-
able com-
pensation8
2015
2,500,000
261,181
50,080
2,811,261
1,000,000
7,050,000
3,450,000
11,500,000
14,311,261
2014
2015
2014
2015
2014
2,500,000
202,822
60,525
2,763,347
0
5,880,000
2,520,000
8,400,000
11,163,347
19,138,288
1,407,042 1,614,998
22,160,327
9,745,110
40,129,890
21,375,000
71,250,000
93,410,328
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
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 “Consolidated financial statements" section of the Annual Report 2015 or the performance
award currency exchange rate. 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 contains the por-
tion related to the employer’s contribution to the statutory pension scheme. 4 Benefits are all valued at market price. 5 Due to applicable UK Prudential Regulation Authority remuneration code, the immediate cash
includes blocked shares for one GEB member. For 2014, the entire performance award for the Group CEO was deferred. 6 For EOP awards for the performance year 2015, the number of shares to be allocated at grant
in May 2016 is determined by dividing the amount by CHF 14.98 or USD 15.09, the average closing share price of UBS shares over the last ten trading days in February 2016. For EOP awards for the performance year
2014, the number of shares allocated in May 2015 was determined by dividing the amount by CHF 16.50 and USD 17.41, the average closing share price of UBS shares over the last ten trading days in February
2015. 7 DCCP awards for 2015 to be granted in May 2016, are due to vest in March 2021. DCCP awards for 2014, granted in May 2015, are due to vest in March 2020. The amounts reflect the amount of the notional
additional tier 1 (AT1) instrument excluding future notional interest. For DCCP awards for the performance year 2015, the notional interest rate is set at 7.35% for awards denominated in USD and 4.15% for awards
denominated in CHF. For DCCP awards for the performance year 2014, the notional interest rate was set at 7.125% for awards denominated in USD and 4.000% for awards denominated in CHF. 8 This figure excludes
the portion related to the legally required employer’s social security contributions for 2015 and 2014, which are estimated at grant for CHF 4,132,667 and CHF 3,689,582 respectively, of which CHF 898,596 and
CHF 704,077respectivelyforthehighest-paidGEBmember.Thelegallyrequiredemployee’ssocialsecuritycontributionsareincludedintheamountsshowninthetableabove,asappropriate. 9 10 GEB members were
in office on 31 December 2015 and on 31 December 2014, respectively. 10 During the years of 2015 and 2014 no GEB members stepped down.
Pillar 3 |
Fixed and variable compensation for GEB members1
CHF in million, except where indicated
Amount
%
Amount
%
Amount
%
Amount
Total for the year ended 2015
Not deferred
Deferred2
Total for the
Year ended
2014
Total compensation
Amount3
Number of beneficiaries
Fixed compensation3, 4
Cash-based
Equity -based
Variable compensation
Immediate cash5
Equity Ownership Plan (EOP)
Deferred Contingent Capital Plan (DCCP)
90
10
19
17
3
71
10
40
21
100%
21%
18%
3%
79%
11%
44%
24%
29
19
17
3
10
10
0
0
32%
100%
100%
100%
14%
100%
0%
0%
62
0
0
0
62
0
40
21
68%
0%
0%
0%
86%
0%
100%
100%
77
10
19
17
3
58
8
32
18
1 The figures refer to all GEB members in office in 2015. 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 Excludes benefits and
employer’s contribution to retirement benefits plan. 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.
360
Advisory vote 2015 compensation for the Board of Directors
Members of the Board of Directors (BoD) receive fixed fees for their services, 50% of which must be used to purchase
blocked UBS shares. The members may elect to purchase blocked UBS shares using up to 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.
Chairman of the BoD
Independent BoD members
Under the leadership of the Chairman, Axel A. Weber, the BoD
determines the strategy of the Group on recommendations by the
Group CEO, exercises ultimate supervision over management and
appoints all GEB members.
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, including continuing to support
the firm’s cultural change as a key priority on the basis of our
Principles and Behaviors.
The Chairman’s total compensation is contractually capped at
CHF 5.7 million, excluding benefits and pension fund contribu-
tions. His total compensation for 2015 consisted of a cash pay-
ment of CHF 3.5 million and a share component of CHF 2.2 mil-
lion delivered in 146,862 UBS shares blocked from distribution for
four years (at a share price of CHF 14.98). Accordingly, his total
reward, including benefits and pension fund contributions for his
service as Chairman for the full year of 2015, was CHF 6,034,141.
The share component ensures that the Chairman’s pay is
aligned with the longer-term performance of the firm. The Chair-
man’s employment agreement does not provide for severance
terms, or supplementary contributions to pension plans. Benefits
for the Chairman are in line with local practices for UBS employ-
ees. The Compensation Committee approves the Chairman’s
compensation annually, taking into consideration fee and / or
compensation levels for comparable roles outside the firm.
With the exception of the Chairman, all BoD members are deemed
to be independent directors and receive a fixed base fee of CHF
325,000 per annum. In addition to the base fee, independent
BoD members receive fees known as committee retainers that
reflect their services on the firm’s various board committees. The
Senior Independent Director and the Vice Chairman of the BoD
each receives 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 up to 100% of their
fees to purchase blocked UBS shares. In all cases, the number of
shares that independent BoD members are entitled to receive is
calculated with a discount of 15% below the average market
price over the last 10 trading days in February. In accordance with
their roles, independent BoD members do not receive perfor-
mance awards, severance payments or benefits. The chart on the
following page provides details and additional information on the
remuneration framework for independent BoD members.
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 Compensation Committee, which in turn submits a
recommendation to the BoD for approval. The BoD proposes at
each AGM for shareholder approval the aggregate amount of
BoD remuneration, including compensation of the Chairman, that
applies until the subsequent AGM.
The table “Remuneration details and additional information
for independent BoD members” shows the remuneration by inde-
pendent BoD member for the period from AGM 2015 to AGM
2016. The fixed base fees have remained unchanged compared
with the period 2014 / 15, and have been broadly flat since 1998.
In accordance with BoD compensation practice, one BoD
member chose to use 100% of the fees, less applicable deduc-
tions, to purchase blocked UBS shares.
361
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
2015 / 2016 Remuneration framework for independent BoD members
CHF, except where indicated
Fees including retainers for Committee chair / membership, and / or specific roles, are paid per annum. At least 50% of the total
amounts must be used to purchase shares which are blocked for four years.
Fixed base fee
Senior Independent Director retainer
Vice Chairman retainer
Audit Committee
Compensation Committee
Governance and Nominating Committe
Corporate Culture and Responsibility Committee
Risk Committee
325,000
250,000
250,000
Chair Member
300,000 200,000
300,000 100,000
100,000
50,000
400,000 200,000
Pay mix
Blocked
shares 2
Cash
50%
Delivery 1
50%
1 Independent BoD members can elect to use 100% of their remuneration to purchase blocked UBS shares 2 UBS blocked shares are granted with a price discount of 15% and are blocked for four years
2015
2016
2017
2018
2019
2020
Audited |
Total payments to BoD members
CHF, except where indicated
Aggregate of all BoD members
For the year
2015
2014
Total1
12,778,308
13,039,851
1 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 2015 are estimated at grant at
CHF 653,272 and for 2014 at CHF 623,790.
Audited |
Compensation details and additional information for non-independent BoD members
CHF, except where indicated
Name, function1
Axel A. Weber, Chairman
For the year
2015
2014
Base salary
3,500,000
3,000,000
Annual share
award2
2,200,000
2,566,672
Contributions
to retirement
benefit plans4
261,181
260,070
Benefits3
72,959
113,109
Total5
6,034,141
5,939,851
1 Axel A. Weber was the only non-independent member in office on 31 December 2015 and on 31 December 2014, respectively. 2 These shares are blocked for four years. 3 Benefits are all valued at market
price. 4 This figure contains the portion related to UBS’s contribution to the statutory pension scheme. 5 This figure excludes the portion related to the legally required social security contributions paid by UBS, which
for 2015 are estimated at grant at CHF 368,257 and for 2014 at 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.
362
Advisory vote Audited |
Remuneration details and additional information for independent BoD members
CHF, except where indicated
e
e
t
t
i
m
m
o
C
n
o
i
t
a
s
n
e
p
m
o
C
e
e
t
t
i
m
m
o
C
y
t
i
l
i
b
i
s
n
o
p
s
e
R
d
n
a
e
r
u
t
l
u
C
e
t
a
r
o
p
r
o
C
e
e
t
t
i
m
m
o
C
g
n
i
t
a
n
m
o
N
i
d
n
a
e
c
n
a
n
r
e
v
o
G
M
M
M
M
M
M
M
M
M
M
C
C
M
M
M
M
M
M
M
M
M
e
e
t
t
i
m
m
o
C
k
s
i
R
C
C
M
M
M
M
M
M
M
M
M
For the period
AGM to AGM Base fee
Committee
retainer(s)
2015 / 2016
325,000
2014 / 2015
325,000
2015 / 2016
325,000
2014 / 2015
325,000
2015 / 2016
325,000
2014 / 2015
325,000
2015 / 2016
325,000
2014 / 2015
325,000
2015 / 2016
210,347
2014 / 2015
325,000
2015 / 2016
–
2014 / 2015
325,000
2015 / 2016
325,000
2014 / 2015
325,000
2015 / 2016
325,000
2014 / 2015
325,000
2015 / 2016
154,375
2014 / 2015
–
2015 / 2016
325,000
2014 / 2015
325,000
2015 / 2016
325,000
2014 / 2015
325,000
400,000
400,000
500,000
500,000
255,000
150,000
500,000
500,000
129,444
200,000
–
300,000
402,500
350,000
300,000
300,000
142,500
–
400,000
400,000
250,000
250,000
e
e
t
t
i
m
m
o
C
t
i
d
u
A
M
M
M
M
C
C
M
M
M
M
Name, function1
Michel Demaré, Vice
Chairman
David Sidwell, Senior
Independent Director
Reto Francioni, member
Ann F. Godbehere,
member
Axel P. Lehmann, member
Helmut Panke, former
member
William G. Parrett,
member
Isabelle Romy, member
Jes Staley, former member
Beatrice Weder di Mauro,
member
Joseph Yam, member
Total 2015 / 2016
Total 2014 / 2015
Additional
payments2
250,000
250,000
250,000
250,000
Total3
975,000
975,000
1,075,000
1,075,000
580,000
475,000
825,000
825,000
339,792
525,000
–
625,000
727,500
675,000
625,000
625,000
296,875
–
725,000
725,000
575,000
575,000
6,744,167
7,100,000
Share
percentage4
50
Number of
shares5, 6
38,295
50
50
50
50
50
50
50
100
100
–
50
50
50
50
50
0
–
50
50
50
50
34,746
42,223
38,310
22,780
16,928
32,403
29,401
25,217
35,388
–
22,273
28,574
24,055
24,548
22,273
0
–
28,476
25,837
22,584
20,491
Legend: C = Chairperson of the respective Committee, M = Member of the respective Committee
1 There were nine independent BoD members in office on 31 December 2015. Jes Staley was elected at the AGM on 7 May 2015 and stepped down on 28 October 2015. Helmut Panke did not stand for re-election at
the AGM on 7 May 2015. Reto Francioni was appointed as a Risk Committee member on 29 October 2015 and William G. Parrett was appointed as a Compensation Committee member on 29 October 2015 due to the
vacancies opened by Jes Staley’s resignation. Axel P. Lehmann stepped down as BoD member on 31 December 2015. Jes Staley, Reto Francioni, William G. Parrett and Axel P. Lehmann were remunerated pro rata tempo-
ris for 2015. 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. 2 This payments are associated with the Vice Chair-
man or the Senior Independent Director function. 3 This figure excludes UBS’s portion related to the legally required social security contributions which for the period from the AGM 2015 to the AGM 2016 are estimated
at grant to CHF 285,015 and which for the period from the AGM 2014 to the AGM 2015 were 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 2015, UBS shares, valued at CHF 14.98 (average price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2016), were granted with a price discount of
15% for a new value of CHF 12.73. These shares are blocked for four years. For 2014, UBS shares, valued at CHF 16.50 (average price of UBS 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. 6 Number of shares is reduced in case of the 100% election to deduct social security contributions.
All remuneration payments are subject to social security contributions / withholding tax.
363
Corporate governance, responsibility and compensationAdvisory vote
Corporate governance, responsibility and compensation
Compensation
Our compensation governance framework
The Compensation Committee is a committee of the Board of Directors (BoD) and consists of four independent BoD
members who are elected annually by shareholders at the Annual General Meeting (AGM).
Pillar 3 | Compensation Committee
As determined in the Articles of Association and the Organization
Regulations of the firm, the Compensation Committee serves as
the supervisory body for our human resources and compensation
policies. The Compensation Committee ensures that we have
appropriate governance and oversight of our compensation pro-
cess and practices, that we have strong alignment between pay
and performance, and that our compensation system does not
encourage inappropriate or excessive risk-taking.
Among its other responsibilities, the Compensation Committee,
on behalf of the BoD:
– reviews our Total Reward Principles
– reviews and approves the design of the compensation frame-
work annually, including compensation programs and plans
– reviews performance award funding throughout the year and
proposes the final performance award pool to the BoD for
approval
– together with the Group CEO, reviews performance targets,
performance assessment 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 shareholders at the AGM
– reviews the Compensation Report and approves any material
public disclosures of compensation matters
The Compensation Committee meets at least four times a year.
In 2015, the Compensation Committee held seven meetings and
one conference call. All meetings were fully attended, with the
exception of two meetings and the conference call where one
member was absent. The Chairman of the BoD and the Group
CEO were present at all meetings except during discussions
related to their own compensation. The Chairperson of the Com-
pensation Committee may also invite other executives to join the
meeting in an advisory capacity. No individual is allowed to attend
364
meetings during which specific decisions are made about his or
her own compensation. Such decisions are at the discretion of the
Compensation Committee and the BoD.
Following the meetings, the Chairperson of the Compensation
Committee reports to the BoD on the activities of the Compensa-
tion Committee and the matters discussed. In addition, where
necessary, the Chairperson submits proposals for approval by the
full BoD. The minutes of Compensation Committee meetings are
made available to all members of the BoD.
On 31 December 2015, the Compensation Committee mem-
bers were Ann F. Godbehere, who chairs the committee, Michel
Demaré, Reto Francioni and William G. Parrett who joined the
Compensation Committee as of 29 October 2015, after Jes Stal-
ey’s resignation from the BoD. Former Compensation Committee
member Helmut Panke retired at the AGM on 7 May 2015.
External advisors
Pillar 3 | The Compensation Committee may retain external advisors
to support it in fulfilling its duties. In 2015, HCM International Ltd.
provided impartial independent advice on compensation matters.
The company holds no other mandates with the firm. The com-
pensation consulting firm Towers Watson continued to provide
the Compensation Committee with data on market trends and
benchmarks, including in relation to GEB and BoD compensation.
Various subsidiaries of Towers Watson provide similar data to
Human Resources in relation to compensation for employees
below BoD and GEB level. Towers Watson holds no other com-
pensation-related mandates with the firm.
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 com-
mittee of the BoD, works closely with the Compensation Commit-
tee to ensure our approach to compensation reflects proper risk
management and control. The Risk Committee supervises and
sets appropriate risk management and control principles and
receives regular briefings on how risk is factored into the compen-
sation process. It also monitors Group Risk Control’s involvement
in compensation and reviews risk-related aspects of the compen-
sation process.
➔ Refer to our corporate governance website at www.ubs.com/
governance for more information
Advisory vote Compensation Committee 2015 / 2016 key activities and timeline
This table provides an overview of the key Compensation Committee scheduled activities from AGM 2015 to AGM 2016.
Jun
July
Sept
Oct
Dec
Jan
Mar
Strategy, policy and governance
Total Reward Principles
3-year Strategic Plan (2016-2018) update
Compensation disclosure and stakeholder communication matters
AGM reward-related items
Compensation Committee Governance
Annual compensation review
Accruals and full-year forecast of the performance award pool funding
Performance targets and performance assessment of the Group CEO and GEB members
Group CEO and GEB members salaries and individual performance awards
Update on market practice, trends and peer group matters
Pay for performance (including governance on certain higher paid employees) and non-
standard compensation arrangements
Board of Directors remuneration
Compensation framework
2015 compensation framework
Deferred compensation matters
Risk and regulatory
Risk management in the compensation approach, including joint reviews with the
Risk Committee
Regulatory activities impacting employees and engagement with regulators
365
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Shareholder engagement and say-on-pay votes
at the AGM
The BoD and the Compensation Committee are committed to
maintaining an ongoing dialogue with our shareholders to ascer-
tain their perspectives on developments and trends in compensa-
tion and corporate governance matters. In this context, we imple-
mented the annual advisory vote on the Compensation Report in
2009 to provide shareholders with the opportunity to express
their views on our compensation framework.
In line with the Swiss Ordinance against Excessive Compensa-
tion in Listed Stock Corporations, and similar to last year, we will
again seek binding shareholder approval of the aggregate com-
pensation for the GEB and aggregate remuneration for the BoD.
The say-on-pay requirements provided for in the Articles of
Association (AoA) were approved at the AGM 2014.
The BoD believes that prospective approval of the fixed remu-
neration for the BoD and the GEB provides the firm and its gov-
erning bodies with the certainty needed to operate effectively.
Furthermore, retrospective approval of the GEB’s variable com-
pensation awards aligns total compensation for the GEB to per-
formance and contribution, and to developments in the market
place and across peers. The combination of the binding votes on
compensation and the advisory vote on the compensation frame-
work reflects our full commitment to ensuring that our sharehold-
ers have a true say-on-pay.
➔ Refer to the sidebar “Provisions of the Articles of Association
in relation to compensation” at the end of this section for more
information.
Say-on-pay – Compensation-related votes at the AGM 2015
The table provides an overview of the compensation-related agenda items at AGM 2015 and respective outcomes.
2015 AGM say-on-pay voting schemes
2015 actual shareholder votes
% Vote “For”
Compensation granted
Binding vote on GEB variable
compensation
Proposal on the aggregate amount of
variable compensation for the GEB for past
performance year
Binding vote on fixed GEB
compensation
Proposal on the maximum amount of fixed
compensation for the GEB for the following
financial year
Binding vote on BoD
remuneration
Advisory vote on
Compensation Report
Proposal on the maximum aggregate amount
of remuneration for the BoD for the period
from AGM to AGM. This ensures that the term
of office and the compensation period are
aligned
Proposal on the Compensation Report of
the previous year, which provides valuable
feedback on compensation practice in relation
to the compensation framework, governance
and policy of UBS
Shareholders approved the aggregate amount
of variable compensation of CHF 58,403,535
for the members of the GEB for the financial
year 20141, 2, 3
Shareholders approved the maximum
aggregate amount of fixed compensation of
CHF 25,000,000 for the GEB for the
financial year 2016
Shareholders approved the maximum
aggregate amount of remuneration of
CHF 14,000,000 for the BoD for the
period from the 2015 AGM to 2016 AGM1,2
89.7%
CHF 58,403,535
94.9%
To be disclosed in the 2016
Compensation Report
91.7%
CHF 12,778,308
Shareholders approved the UBS Group AG
Compensation Report 2014 in an advisory vote
88.1%
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 UBS Group AG Annual Report 2014. 2 This figure excludes
the portion related to the legally required employer’s social security contributions. 3 10 GEB members were in office on 31 December 2014.
366
Advisory vote AGM 2015 say-on-pay votes
AGM 2016 say-on-pay votes
At the AGM 2015, shareholders approved a maximum aggregate
remuneration of CHF 14,000,000 for the BoD for the period from
the AGM 2015 to the AGM 2016. This aggregate maximum
amount includes the compensation for the Chairman and fees for
independent BoD members, and was proposed on the assump-
tion that the number of BoD members and each individual’s com-
mittee and committee chair responsibilities remain unchanged for
the specified period. A reserve was also included in the total
amount of CHF 700,000 to take into account potential changes in
BoD committee compositions. The maximum amount excludes
the firm’s portion related to the legally required social security and
the value of the discount on the share price due to the four year
blocking period. For the period from the AGM 2015 to the AGM
2016, an aggregate amount of CHF 12,778,308 was paid to the
Chairman and all independent BoD members. The difference
when compared to the maximum amount approved by the share-
holders at the AGM 2015 was due to the actual amount of ben-
efits and contributions made to the retirement benefits plan for
the Chairman, and also as a result of one independent BoD mem-
ber having received his fees pro-rata after stepping down during
the year. The reserve was not utilized.
At the AGM 2015, shareholders approved an aggregate
amount of variable compensation of CHF 58,403,535 for the
members of the GEB for the financial year 2014. This amount was
granted in May 2015.
Shareholders also approved the aggregate amount of fixed
compensation of CHF 25,000,000 for the members of the GEB
for the financial year 2016. The final spend will be disclosed in the
2016 Compensation Report.
For 2016 AGM say-on-pay votes, the BoD will propose the agenda
items to shareholders based on the same approach as for 2015
AGM. Further details on the agenda items and the respective
amounts will be set out in the AGM 2016 invitation.
Overview of aggregate GEB variable compensation
2014 – 20151
(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:67)(cid:73)(cid:73)(cid:84)(cid:71)(cid:73)(cid:67)(cid:86)(cid:71)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:88)(cid:67)(cid:84)(cid:75)(cid:67)(cid:68)(cid:78)(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:20)(cid:18)(cid:19)(cid:22)(cid:115)(cid:20)(cid:18)(cid:19)(cid:23)(cid:149)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:23)(cid:26)(cid:16)(cid:22)
(cid:20)(cid:18)(cid:19)(cid:23)
(cid:25)(cid:19)(cid:16)(cid:21)
(cid:26)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:18)
(cid:18)
(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:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:75)(cid:80)(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: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:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:38)(cid:37)(cid:37)(cid:50)
(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:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:39)(cid:49)(cid:50)
1 Refer to the footnotes in the table “Total compensation for GEB members” for more information.
2016 Say-on-Pay— Time-based delineation of BoD / GEB compensation, subject to shareholder approval
The following chart shows the prospective and retrospective elements of the say-on-pay votes approach.
Shareholder approval requested at the AGM 2016
2015
Aggregate BoD remuneration AGM 2016 to AGM 2017
2016
Remuneration
period
2017
Aggregate 2017 fixed compensation for the GEB
Compensation period
Aggregate 2015 variable compensation for the GEB
Performance period
Advisory vote on the 2015 Compensation Report
Compensation Framework
Voting at the AGM 2016
367
(cid:26)(cid:18)
(cid:25)(cid:18)
(cid:24)(cid:18)
(cid:23)(cid:18)
(cid:22)(cid:18)
(cid:21)(cid:18)
(cid:20)(cid:18)
(cid:19)(cid:18)
(cid:18)
Corporate governance, responsibility and compensationAdvisory vote
Corporate governance, responsibility and compensation
Compensation
Our compensation model for employees other than GEB members
The typical elements of an employee’s total reward are fixed compensation, a discretionary 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 mix encourages appropriate risk taking and behaviors that
lead to sustainable performance.
Base salary
Pillar 3 | Employees’ fixed compensation reflects their skills, role, and
experience, as well as local market practices. Fixed compensation
generally consists of a base salary and, if applicable, a role-based
allowance. Base salaries are usually paid monthly or fortnightly.
We offer our employees competitive base salaries, although salary
levels will vary greatly between functions and locations. Since
2011, salary increases have been limited. With effect from March
2016, total base salaries increased by CHF 104 million, or 1.7%.
Such increases will continue to be paid to 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.
As a firm, we focus on total compensation. For example, 2015
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,
affordability and our commitment to deliver sustainable returns to
our shareholders.
In addition to a base salary and as part of fixed compensation,
some regulated employees may receive a role-based allowance as
described in the UK Material Risk Takers section of this report.
Such allowance represents a shift in the compensation mix
between fixed and variable compensation and does not represent
an increase in total compensation.
Pensions, benefits, and employee share purchase program
Pillar 3 | We offer certain benefits to our employees such as health
insurance and retirement benefits. While these benefits may vary
depending on the employee’s location, they aim to be competitive
in each of the markets in which we operate. Pension contribu-
tions and pension plans vary across locations and countries in
accordance with local requirements and market practice. How-
ever, pension plan rules in any one location are generally the same
for all employees, including management.
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 receive one matching share for every
three shares purchased through the program. The matching
shares vest after three years, subject to continued employment
with the firm and provided that the purchased shares have been
retained for the entire holding period.
➔ Refer to “Note 28 Pension and other post-employment benefit
plans” in the “Consolidated financial statements” section of the
Annual Report 2015 for more information on the major
post-employment benefit plans established in Switzerland and
other countries
Performance award
Pillar 3 | Most of our employees are eligible for an annual discretion-
ary performance award. The level of the award depends on the
firm’s overall performance, the employee’s business division per-
formance, the individual’s performance and behaviors reflecting
their overall contributions. 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 divi-
sional performance award pool. They are also used as a basis for
setting specific performance conditions for vesting of certain
deferred compensation plan grants.
In addition to the firm’s principles around Client focus, Excel-
lence and Sustainable performance, on an individual level, behav-
iors related to Integrity, Collaboration and Challenge are part of
the performance management approach. Therefore, when assess-
ing performance, we not only take into account what was
achieved, but also how the objectives were achieved.
368
Advisory vote Benchmarking
Pillar 3 | Because of the diversity of our businesses, the companies
we use as benchmarks depends on the respective business divi-
sion and location, as well as the nature of the positions involved.
For certain businesses or positions, we may take into account
practices at other major international banks, other large Swiss pri-
vate banks, private equity firms, hedge funds and non-financial
firms. Furthermore, we also benchmark employee compensation
internally for comparable roles within and across business divi-
sions and locations.
Deferral of performance awards
Pillar 3 | Our goal is to focus our employees on delivering sustainable
profitability for the firm. In practice, this means that employees
with the highest levels of compensation have a higher effective
deferral rate. If an employee’s total compensation exceeds
CHF / USD 300,000, a significant part of their performance award
will be deferred for up to five years.
The deferral increases at higher marginal rates in line with the
value of the performance award, with the lowest deferral rate set
at 30% of the performance award, down from 40% for 2014,
and the highest rate at 75%. In addition, the portion paid out in
immediate cash is capped at CHF / USD 1 million (or equivalent).
Amounts in excess of the cash cap are deferred in notional shares
under the Equity Ownership Plan (EOP). The effective deferral rate
therefore depends on the value of the performance award and
the value of total compensation.
Of the deferred annual performance award, at least 60% is
deferred in UBS notional shares under the EOP and up to 40% is
deferred in notional instruments under the Deferred Contingent
Capital Plan (DCCP). Asset Management employees receive at
least 75% of their deferred performance awards in notional funds
under the EOP and up to 25% under the DCCP. The average
deferral period for deferred employee awards below GEB level
was 3.5 years for 2015.
➔ Refer to the “Our deferred variable compensation plans for
2015” 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 Asset Management employees
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Consolidated financial statements” section of
the Annual Report 2015 for more information on specific local
plans with deferral provisions that differ from those described here
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
369
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Other variable compensation components
Pillar 3 | To support hiring and retention, particularly at senior levels,
we may offer certain other compensation components. These
include:
– Replacement payments to compensate employees for deferred
awards forfeited as a result of joining the firm. Such payments
are industry practice and are often necessary to attract senior
candidates who generally have a significant portion of their
awards deferred at their current employer and where contin-
ued employment 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
applies, are limited to the first full year of employment.
– Award grants to employees hired late in the year to replace
performance awards that they would have earned at their pre-
vious employer, but have been foregone by joining the firm.
These awards are structured with the same level of deferral as
for employees at a similar level at UBS. In addition, in very
exceptional cases, candidates may be offered sign-on pay-
ments to increase the chances of them accepting an offer.
These other variable compensation payments are subject to a
comprehensive governance process. Authorization and responsi-
bility are dependent on the level and / or type of payments, up to
the BoD Compensation Committee.
Further, severance payments are made to employees in redun-
dancy cases. These are governed by location-specific severance
policies. We offer severance terms which comply with the appli-
cable local laws (legally obligated severance). In certain locations,
we may provide severance packages that are negotiated with our
local social partners that go beyond these minimum legal require-
ments (standard severance). In addition, we may make severance
payments that exceed legally obligated or standard severance
payments (supplemental severance) where we believe that they
are aligned with market practice and appropriate under the cir-
cumstances. Under no circumstances are severance payments
made to members of the GEB.
Sign-on payments, replacement payments, severance payments and guarantees
Total 2015
Of which expenses
recognized in 20153
Of which expenses
to be recognized in
2016 and later
Total 2014
CHF million, except where indicated
Total sign-on payments1
of which GEB members
of which Key Risk Takers2
Total replacement payments
of which GEB members
of which Key Risk Takers2
Total guarantees
of which GEB members
of which Key Risk Takers2
Total severance payments1, 3
of which GEB members
of which Key Risk Takers2
21
0
11
85
0
44
44
0
29
166
0
2
11
0
5
11
0
5
15
0
8
164
0
2
10
0
5
75
0
39
29
0
21
2
0
0
20
0
4
81
0
27
47
0
18
176
0
3
Number of beneficiaries
20144
162
2015
114
0
14
252
0
27
35
0
13
0
5
275
0
17
54
0
6
1,850
1,667
0
6
0
2
1 GEB members are not eligible for sign-on or severance payments. 2 Expenses for Key Risk Takers are full-year amounts for individuals in office on 31 December 2015. Key Risk Takers include employees with a total
compensation exceeding CHF / USD 2.5 million (Highly-Paid Employees). 3 Severance payments include legally obligated and standard severance, as well as supplemental severance payments of CHF 8 million.
4 Expenses before post-vesting transfer restrictions.
370
Advisory vote Compensation for financial advisors in
Wealth Management Americas
Pillar 3 | In line with market practice for US wealth management
businesses, the compensation for Financial Advisors in Wealth
Management Americas is based on production payout and
awards. Production payout, paid monthly, is primarily based on
compensable revenue. Advisors may also qualify for year-end
awards, which are deferred for between 6 and 10 years. The
awards are based on strategic performance measures which
include production, length of service with the firm, and net new
money generated. Production payout rates and awards may be
reduced if financial advisors make repeated or significant transac-
tion errors and / or demonstrate negligence or carelessness or oth-
erwise fail to comply with the firm’s rules, standards, practices and
policies and / or applicable law.
Key Risk Takers
Pillar 3 | Key Risk Takers (KRTs) are globally defined as those employ-
ees who, by the nature of their role, have been determined to
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 KRTs is part of the Risk Control
framework and an important element in ensuring we incentivize
only appropriate risk-taking. For 2015, we had 669 individuals
classified as KRTs, including all 10 GEB members. This group also
includes employees with a total compensation exceeding
CHF / USD 2.5 million (Highly-Paid Employees) if they had not
already been identified as KRTs during the performance year.
KRTs identified at any point in time in the performance year are
subject to a performance evaluation by the control functions. The
vesting of their deferred awards is contingent on meeting Group
and / or divisional performance conditions. Like all other employ-
ees, KRTs are also subject to forfeiture or reduction of the deferred
portion of their compensation if they commit harmful acts.
All KRTs are subject to the mandatory deferral of at least 50%
of their performance award regardless of whether or not the
deferral threshold has been met. This is in order to comply with
regulatory requirements.
Group Managing Directors (GMDs) receive part of their annual
performance award under the EOP and the DCCP, with the vest-
ing of their EOP awards contingent on the same performance
conditions to which KRTs are subject.
Pillar 3 |
Fixed and variable compensation for Key Risk Takers1
CHF million, except where indicated
Amount
%
Amount
%
Amount
%
Total for the year ended 2015
Not deferred
Deferred2
Total for the
year ended
20143
Amount
Total compensation
Amount4
Number of beneficiaries
Fixed compensation4, 5
Cash-based
Equity-based
Variable compensation
Immediate cash6
Equity Ownership Plan (EOP)
Deferred Contingent Capital Plan (DCCP)
1,413
100%
659
398
376
22
1,015
280
462
273
28%
27%
2%
72%
20%
33%
19%
655
398
376
22
280
280
0
0
46%
100%
100%
100%
28%
100%
0%
0%
758
54%
1,178
0
0
0
735
0
462
273
0%
0%
0%
72%
0%
100%
100%
615
351
323
28
827
217
383
227
1 Includes employees with a total compensation exceeding CHF / USD 2.5 million (Highly Paid Employees), excluding GEB members who were in office on 31 December 2015. 2 This is based on the specific plan vesting
and reflects the total value at grant which may differ from the accounting expenses. 3 2014 figures as reported in our Annual Report 2014. EOP number includes CHF 13 million blocked shares. 4 Excludes benefits
and employer’s contribution to retirement benefits plan. 5 Includes base salary and role-based allowances. 6 Includes allocation of vested but blocked shares, in line with UK Prudential Regulation Authority
remuneration code.
371
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
UK Material Risk Takers
In accordance with guidance issued by the UK Prudential Regula-
tion Authority (PRA) and Financial Conduct Authority (FCA), for
2015, we identified a group of 571 employees, consisting of
senior management, risk takers, staff engaged in control func-
tions and any employee receiving total remuneration that takes
them into the same remuneration bracket as these groups and
whose professional activities have a material impact on the firm’s
risk profile, as so-called UK Material Risk Takers (MRTs). Due to
specific PRA requirements, 50% of performance awards for MRTs
that are paid out immediately are delivered in UBS shares, which
are blocked for six months. In addition, any notional shares
granted to MRTs under the EOP for their performance in 2015 will
be subject to an additional six-month post vest blocking period.
From 2015 onwards, performance awards granted to MRTs are
also subject to clawback provisions for a period of up to seven
years from date of grant. The clawback provisions stipulate that
the firm can require the repayment of any discretionary perfor-
mance award (both the immediate and deferred element) if the
employee contributes substantially to the Group incurring signifi-
cant financial losses or to a significant downward restatement of
the Group’s or a business division’s results, or engages in miscon-
duct and / or fails to take expected actions which contributed to
significant reputational harm to the Group.
In line with market practice, MRTs 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 in such a role. Importantly, this allow-
ance represents a shift in the compensation mix between fixed
and variable compensation and does not represent an increase in
total compensation.
With respect to 2015, the allowance consisted of an immedi-
ate cash portion along with a blocked UBS share award, if appli-
cable. In 2014, the equity portion consisted of vesting shares
instead of blocked shares. The 2015 approach is a structural
change based on feedback from the European Banking Authority
(EBA) and the PRA.
Other EU-based employees who are subject to regulation have
similar compensation structures in order to comply with EBA and
local requirements.
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
performance of these businesses, but instead reflects the perfor-
mance of the firm as a whole. In addition, we consider other
factors such as how well the function has performed, together
with our market positioning. Decisions regarding individual com-
pensation 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 Inter-
nal Audit (GIA) are made by the Head of GIA and approved by
the Chairman. Total compensation for the Head of GIA is
approved by the Compensation Committee in consultation with
the Audit Committee.
372
Advisory vote Our deferred variable compensation plans for 2015
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. For the population with total compensation greater than CHF / USD 300,000, 51% of the overall performance
award is deferred. All of 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,
which are eligible for reinvested dividend equivalents. For 2015,
over 5,000 employees received EOP awards. EOP awards are
granted annually.
The plan includes provisions that enable the firm to trigger for-
feiture of some, or all, of the unvested deferred portion if an
employee commits certain harmful acts or in most cases where
employment has been terminated.
EOP awards granted to 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, Group
Managing Directors (GMDs) and Key Risk Takers (including Highly-
Paid Employees) depends on meeting both Group and divisional
performance thresholds. Group performance is measured by the
average adjusted Group return on tangible equity (RoTE) over the
performance period. 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 Corporate Center (oper-
ating businesses RoAE). By linking the vesting of EOP awards with
minimum return on equity thresholds over a two to five-year time
horizon, we focus our employees on developing and managing
the business in a way that delivers sustainable returns. We believe
that Group RoTE provides a more consistent basis to measure per-
formance than the Group’s return on shareholders’ equity (RoE),
which includes goodwill and intangibles.
At Group level, the performance condition minimum threshold
of RoTE is set at 8%. The intent of performance thresholds is to
ensure that our senior employees are incentivized towards sus-
tainable performance, without having to earn their awards twice.
Overview of our deferred variable compensation plans
Beneficiaries
GEB members, Key Risk Takers and all employees with total
compensation greater than CHF / USD 300,000
Equity Ownership Plan
Deferral mix
(between EOP and DCCP)
GEB members: at least 62.5%
Asset Management employees: at least 75%
All other employees: at least 60%
Vesting schedule
GEB members: vests in three installments in years 3, 4 and 5
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
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%
Asset Management employees: up to 25%
All other employees: up to 40%
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 Asset Management employees who are GMDs, Key Risk Takers (including Highly-Paid Employees). 2 Notional funds for Asset Management employees.
373
Corporate governance, responsibility and compensationAdvisory vote
Corporate governance, responsibility and compensation
Compensation
If the average adjusted Group RoTE achieved is equal to or
above the minimum 8% threshold, the EOP award will vest in full,
subject to the relevant business divisional threshold also being
met. If the average adjusted Group RoTE is 0% or negative, the
installment will be fully forfeited for the entire firm regardless of
any division’s individual performance. 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 minimum performance threshold. There-
fore, if the business divisional RoAE threshold (see table on the
next page) is met, no adjustment is made to the EOP award. If,
however, the RoAE falls below the minimum 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 Compensation Committee assesses the
achievement of the performance conditions. The chart on the fol-
lowing page shows how we determine the percentage vesting.
(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:84)(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:21)(cid:16)(cid:25)
(cid:19)(cid:26)
(cid:19)(cid:22)
(cid:19)(cid:18)
(cid:24)
(cid:20)
(cid:26)
(cid:26)
(cid:26)
(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:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:84)(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:19)
(cid:39)(cid:49)(cid:50)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:84)(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: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: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:24)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:86)(cid:85)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:69)(cid:86)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(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:84)(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:19)
1 Refer to the “Our strategy” section of the Annual Report 2015 for details.
374
(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)
Advisory vote Performance condition for EOP awards granted in February 2016
GEB
GMDs, Key Risk Takers (including Highly-Paid Employees)
Group RoTE threshold
Group adjusted RoTE threshold
Business divisional RoAE thresholds
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center1
1 For Corporate Center employees, operating businesses RoAE threshold.
Installment vesting after
Applicable performance period
3 years
4 years
5 years
2 years
3 years
2016, 2017 and 2018
2017, 2018 and 2019
2018, 2019 and 2020
2016 and 2017
2016, 2017 and 2018
≥8%
≥50%
≥25%
≥20%
≥25%
≥15%
≥25%
EOP performance conditions for GEB members, GMDs and Key Risk Takers (including Highly-Paid Employees)
Group performance
Business divisional performance
Illustrative example (assuming constant share price)
% vesting
based on
Group RoTE
100% vesting at a
Group RoTE of ≥ 8%
Adjustment
based on
business
divisional
RoAE
0% forfeiture if RoAE is
at or above threshold
Partial forfeiture of up to
40% determined on
a linear basis if RoAE is
between threshold and 0%
Partial forfeiture determined on
a linear basis if Group RoTE is
between 0% and 8%
100% forfeiture at a
Group RoTE of ≤ 0%
100% forfeiture if
RoAE ≤ 0%
Assume an EOP award of CHF 100,000 granted to an Investment Bank employee due
to vest in 2019, and an actual average adjusted Group RoTE and Investment Bank RoAE
(averaged over the performance years 2016 to 2018) 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
80
60
40
20
0
375
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Deferred Contingent Capital Plan
Pillar 3 | The Deferred Contingent Capital Plan (DCCP) is a manda-
tory deferral plan for all employees with total compensation
greater than CHF / USD 300,000. These employees receive up to
40% of their deferred performance award under the DCCP, with
the exception of Asset Management employees, who receive up
to 25%, and GEB members who receive up to 37.5% of their
deferred performance awards under the plan. DCCP awards are
granted annually. For 2015, over 5,000 employees received DCCP
awards.
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. Prior to grant, employees were able to elect to have
their 2015 DCCP awards denominated in either Swiss francs or
US dollars.
Awards vest in full after five years, unless there is a trigger
event. Awards granted under the DCCP forfeit if our phase-in
common equity tier 1 capital ratio falls below 10% for GEB mem-
bers 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 the firm that the DCCP awards must be written
down to prevent an insolvency, bankruptcy or failure of UBS, or if
the firm receives a commitment of extraordinary support from the
public sector that is necessary to prevent such an event. As an
additional performance condition, if the firm does not achieve an
adjusted Group 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
employee commits certain harmful acts or in most cases where
employment has been terminated.
Under the DCCP, employees may receive discretionary annual
interest payments. The notional interest rate for grants in 2016 is
7.35% for awards denominated in US dollars and 4.15% 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 confirma-
tion by the firm.
As part of our compensation framework, DCCP awards sup-
port competitive pay while also contributing to the firm’s capital
position. The following table illustrates the impact of DCCP on
our AT1 and Tier 2 capital as well as on our total capital ratio.
➔ Refer to the “Supplemental information” section of this report
for more information on performance awards, performance
awards expenses and total personnel expenses in 2015, as well
as past awards
Impact of the Deferred Contingent Capital Plan on our capital ratio
CHF million, except where indicated
Deferred Contingent Capital Plan (DCCP)
of which additional tier 1 capital
of which Tier 2 capital
Total capital ratio – fully applied (%)
of which DCCP (%)
31.12.15
31.12.14
31.12.13
1,903
991
912
22.9
0.9
1,413
467
946
18.9
0.7
955
0
955
15.4
0.4
376
Advisory vote Supplemental information
Performance awards granted for the 2015 performance year
The “Total variable compensation” table below shows the amount
of variable compensation awarded to employees for the perfor-
mance year 2015, 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
employee 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 on the next page 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 2015. For
notional funds, it is determined using the latest available market
price for the underlying funds at year-end 2015, and for deferred
cash plans, it is determined based on the outstanding amount of
cash owed to award recipients. All awards made under our
deferred variable compensation plans listed in the “Deferred
compensation” table on the next page are subject to ex-post
adjustments, whether implicitly, through exposure to share price
movements, or explicitly, for example, through forfeitures insti-
gated by the firm.
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Consolidated financial statements” section of the
Annual Report 2015 for more information
Pillar 3 |
Total variable compensation1
CHF million, except where indicated
Cash performance awards
Deferred Contingent Capital Plan
UBS share plans
Equity Ownership Plan – notional funds
Total performance award pool
CHF million, except where indicated
Total variable compensation – other3
CHF million, except where indicated
Total WMA financial advisor compensation5
Expenses
2015
2,073
172
261
28
2014
1,822
155
215
24
2,535
2,216
Expenses
2015
184
2014
260
Expenses
2015
2,673
2014
2,539
Expenses deferred to
future periods
2015
2014
Adjustments2
2015
2014
0
343
524
34
900
0
312
459
36
807
(1)
0
63
0
62
(4)
0
44
0
40
Total
Number of beneficiaries
2015
2,072
514
848
63
2014
1,818
467
718
60
2015
46,272
5,432
5,036
438
2014
46,298
5,248
4,897
397
3,497
3,063
46,311
46,305
Expenses deferred to
future periods
2015
248
2014
307
Expenses deferred to
future periods
2015
1,716
2014
754
Adjustments2
2015
(160)4
2014
(121)4
Total
2015
271
2014
446
Adjustments2
2015
2014
0
14
Total
Number of beneficiaries
2015
4,389
2014
3,307
2015
7,038
2014
6,997
1 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 Replacement payments and retention plan payments including the 2012 Special Plan Award Program. 4 Included in expenses deferred to future periods is an amount of CHF 160 million (prior
year CHF 121 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. 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 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.
377
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Performance award expenses in the 2015 performance year
Performance award expenses include all immediate expenses
related to 2015 compensation awards and expenses deferred to
2015 related to awards made in prior years. The chart “Amortiza-
tion of deferred compensation” shows the amount at the end of
2015 of unrecognized awards to be amortized in subsequent years.
This was CHF 1.6 billion for 2014 and CHF 1.7 billion for 2015.
Pillar 3 | The table below shows the value of actual ex-post
explicit and implicit adjustments to outstanding deferred compen-
sation in the financial year 2015. Ex-post adjustments occur after
an award has been granted. Ex-post explicit adjustments occur
when we adjust compensation by forfeiting deferred awards. Ex-
post implicit adjustments 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 adjust-
ments made to UBS shares in 2015, based on the approximately
7 million shares forfeited during 2015, is a reduction of CHF 146
million. The total value of ex-post explicit adjustments made to
UBS options and share-settled stock appreciation rights (SARs) in
2015, based on the approximately 0.1 million options / SARs for-
feited during 2015, 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 2015.
Amortization of deferred compensation
CHF billion
6%
(3%)
0.7
0.9
0.7
1.6
0.1
1.7
Amortized
Forfeited
31.12.14
Unrecognized
awards to be
amortized
including awards
granted in
1Q15 for the
performance
year 2014
Expected
amortization
of prior-year
awards in 2016
Annual
awards
granted
including
awards
granted in
1Q16 for the
performance
year 2015
31.12.15
Unrecognized
awards to be
amortized
including awards
granted in
1Q16 for the
performance
year 2015
Pillar 3 |
Deferred compensation1, 2
CHF million, except where indicated
Deferred Contingent Capital Plan
Equity Ownership Plan
Equity Ownership Plan – notional funds
Discontinued deferred compensation plans4
Total
Relating to awards
for 2015
514
848
63
0
1,424
Relating to awards for
prior years3
1,397
2,672
393
19
Total
1,911
3,520
455
19
4,481
5,905
of which exposed to
ex-post adjustments
Total deferred compen-
sation year end 2014
100%
100%
100%
100%
1,424
3,476
498
260
5,658
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 “Consolidated financial statements” section of the Annual Report 2015 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 20151
CHF million
UBS notional bonds (DCCP)
UBS shares (EOP, IPP, PEP, SEEOP)2
UBS options (KESOP) and SARs (KESAP)2
UBS notional funds (EOP)3
Ex-post explicit adjustments4
31.12.15
31.12.14
Ex-post implicit adjustments
to unvested awards5
31.12.15
31.12.14
(53)
(146)
(1)
(6)
(42)
(121)
(1)
(3)
412
3
218
16
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 cal-
culated as units forfeited during the year, valued at the share price on 30 December 2015 (CHF 19.52) and on 30 December 2014 (CHF 17.09) for UBS shares and valued with the fair value at grant for UBS options. For
the notional funds awarded to Asset Management employees under the EOP, this represents the forfeiture credits recognized in 2015 and 2014. 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 2015 and 2014.
378
Amortization of deferred compensation
CHF billion
X%
(X%)
0.7
0.9
0.7
1.6
0.1
1.7
Amortized
Forfeited
31.12.14
Unrecognized
awards to be
amortized
including awards
granted in
1Q15 for the
performance
year 2014
Expected
amortization
of prior-year
awards in 2016
Annual
awards
granted
including
awards
granted in
1Q16 for the
performance
year 2015
31.12.15
Unrecognized
awards to be
amortized
including awards
granted in
1Q16 for the
performance
year 2015
2.0
1.5
1.0
0.5
0.0
Advisory vote
Total personnel expenses for 2015
As of 31 December 2015, there were 60,099 employees (on a
full-time equivalent basis). The table “Personnel expenses” below
shows our total personnel expenses for 2015. It includes salaries,
pension contributions and other personnel costs, social security
contributions and variable compensation. Variable compensation
includes discretionary cash performance awards paid in 2016 for
the 2015 performance year, the amortization of unvested deferred
awards granted in previous years and the cost of deferred awards
granted to employees who are eligible for retirement in the con-
text of the compensation framework at the date of grant.
The performance award pool reflects the value of discretionary
performance awards granted relating to the 2015 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 rec-
oncile the performance award pool to the accounting expenses
recognized in the Group’s financial statements prepared in accor-
dance with IFRS:
– reduction for the unrecognized future amortization (including
accounting adjustments) of unvested deferred awards granted
in 2016 for the performance year 2015
– addition for the 2015 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 2014 and 2015.
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Consolidated financial statements” section of the
Annual Report 2015 for more information
Pillar 3 |
Personnel expenses
CHF million
Salaries1
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 award2
of which: guarantees for new hire
Variable compensation – other2
of which: replacement payments3
of which: forfeiture credits
of which: severance payments4
of which: retention plan and other payments
Contractors
Social security
Pension and other post-employment benefit plans5
Wealth Management Americas: financial advisor compensation2, 6
Other personnel expenses
Total personnel expenses7
Relating to
awards for 2015
Relating to awards
for prior years
6,282
2,073
172
0
261
0
28
2,535
15
184
11
0
157
15
365
785
808
2,673
579
14,209
0
(94)
258
12
461
0
38
675
23
162
65
(86)
0
183
0
35
0
879
21
1,772
Expenses
Total 2015
6,282
1,980
429
12
722
0
67
2014
6,269
1,714
349
12
680
0
65
3,210
2,820
38
346
76
(86)
157
198
365
820
808
3,552
600
15,981
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
1 Includes role-based allowances. 2 Refer to “Note 29 Equity participation and other compensation plans” in the “Consolidated financial statements” section of the Annual Report 2015 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 2015 included credits of CHF 24 million related to changes to retiree benefit plans in the US. 2014 included credits of CHF 41 million related
to changes to retiree benefit plans in the US. Refer to “Note 28 Pension and other post-employment benefit plans” of the “Consolidated financial statements” section of the Annual Report 2015 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 produc-
tivity, 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 expenses of CHF 460 million, CHF 327 million and CHF 156 million for the years ended 31 December 2015, 31 December 2014 and 31 December 2013, respectively. Refer to “Note 32 Changes
in organization and disposals” in the “Consolidated financial statements” section of the Annual Report 2015 for more information.
379
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Vesting of outstanding awards granted in prior years subject to performance conditions
The table below shows the extent to which the performance conditions of awards granted in prior years have been met and the
percentage of the award which vests in 2016.
Senior Executive Equity Ownership Plan 2010 / 11 and 2011 / 12
Performance threshold
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
operating profit for 2015, the profitability performance
condition has been satisfied, hence the fifth installment
of the SEEOP 2010 / 11 and the fourth installment of the
SEEOP 2011 / 12 awards vest in full
100%
Equity Ownership Plan 2012 / 13 and 2013 / 14
Performance threshold
Performance achieved
% of installment vesting
Group return on tangible equity and the divisional return
on attributed equity
The Group and divisional performance conditions have
been satisfied. For EOP 2012 / 2013 the first installment
for the GEB members and the second installment for
all otheremployeescoveredundertheplanvestinfull.
For EOP 2013 / 14 the first installment for all other em-
ployees covered under the plan vests in full
100%
380
Advisory vote Discontinued deferred compensation plans
The table below lists discontinued compensation plans that have outstanding balances as of 31 December 2015 or which were retired
during 2015. The firm has not granted any options since 2009. The strike price for stock options awarded under prior compensation
plans has not been reset.
➔ Refer to “Note 29 Equity participation and other compensation plans” in the “Consolidated financial statements” section of our
Annual Report 2015 for more information
Plan
Performance
Equity Plan (PEP)
Senior Executive
Equity Ownership
Plan (SEEOP)
Special Plan Award
Program (SPAP)
Incentive
Performance
Plan (IPP)
Key Employee
Stock Appreciation
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
2010–2012
2010–2012
2012 only
2010 only
2002–2009
2002–2009
Eligible
employees
GEB members
GEB members and
GMDs
Selected Managing
Directors and GMDs in
the Investment Bank
GEB members and
other senior employees
(approximately
900 employees)
Selected employees
(approximately 17,000
employees between
2002 and 2009)
GEB members and
Group Managing Board
Instrument
Performance shares
Shares
Shares
Performance shares
Performance
conditions
Dependent on whether
the business division
makes a loss (the
amount forfeited de-
pends on the extent of
the loss and generally
ranges from 10% to
50% of the award por-
tion due to vest)
Dependent on the
level of reduction in
risk-weighted assets
achieved and the
average published
return on risk-weighted
assets in the Invest-
ment Bank in 2012,
2013 and 2014
Dependent on share
price at the end of the
five-year period
The number of UBS
shares delivered can be
between zero and two
times the number of
performance shares
granted, depending on
whether performance
targets relating to
economic profit (EP)
and relative total
shareholder return (TSR)
have been achieved
Restrictions /
other conditions
Subject to continued
employment
and harmful act
provisions
Subject to continued
employment
and harmful act provi-
sions
Subject to continued
employment and
harmful act provisions
Subject to continued
employment and
harmful act provisions
Vesting 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 full at the end
of five years. Number of
shares that vest can be
between one and three
times the number of
performance shares
initially granted
Share-settled stock ap-
preciation 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 ap-
preciation 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
Status as of
March 2016
Expired
Vesting and Perfor-
mance measurement
continue into 2016 and
2017
Expired
Expired
Expired (some option /
SARs remain exercis-
able)
Expired (some options /
SARs remain exercis-
able)
381
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
List of tables
Share and option ownership / entitlements of GEB members
Total of all vested and unvested shares of GEB members
Number of shares of BoD members
Total of all blocked and unblocked shares of BoD members
Vested and unvested options of GEB members
Loans granted to GEB members
Loans granted to BoD members
Compensation paid to former BoD and GEB members
Page
383
383
384
384
385
386
386
386
382
Advisory vote Audited |
Share and option ownership / entitlements of GEB members1
Name, function
on
31 December
Sergio P. Ermotti, Group Chief Executive Officer
Markus U. Diethelm, Group General Counsel
Lukas Gähwiler, President Personal & Corporate Banking and
President UBS Switzerland
Ulrich Körner, President Asset Management and President
UBS EMEA
Philip J. Lofts, Group Chief Risk Officer
Robert J. McCann, President Wealth Management Americas
and President UBS Americas
Tom Naratil, Group Chief Financial Officer and Group Chief
Operating Officer
Andrea Orcel, President Investment Bank
Chi-Won Yoon, President UBS Asia Pacific
Jürg Zeltner, President Wealth Management
Total
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Number of
unvested
shares / at risk2
947,964
670,935
447,694
528,973
558,657
522,769
642,813
713,051
540,288
611,479
1,010,805
983,028
598,172
523,751
933,686
915,399
383,164
492,093
683,767
675,211
Number of
vested shares
Total number
of shares
Potentially
conferred
voting
rights in %
155,736
97,589
61,797
0
1,515
1,052
95,597
292,519
247,929
204,346
0
62,901
310,054
288,151
117,646
408,296
683,994
507,602
3,721
0
1,103,700
768,524
509,491
528,973
560,172
523,821
738,410
1,005,570
788,217
815,825
1,010,805
1,045,929
908,226
811,902
1,051,332
1,323,695
1,067,158
999,695
687,488
675,211
8,424,999
8,499,145
0.059
0.039
0.027
0.027
0.030
0.027
0.039
0.051
0.042
0.042
0.054
0.053
0.049
0.041
0.056
0.068
0.057
0.051
0.037
0.034
0.450
0.434
Number of
options3
0
Potentially
conferred
voting
rights in %4
0.000
0
0
0
0
0
0
0
277,082
394,172
0
0
555,115
721,125
0
0
483,210
515,180
86,279
108,121
1,401,686
1,738,598
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.015
0.020
0.000
0.000
0.030
0.037
0.000
0.000
0.026
0.026
0.005
0.006
0.075
0.089
6,747,010
6,636,689
1,677,989
1,862,456
1 This table includes all vested and unvested shares and options of GEB members, including those held by 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 “Our deferred variable compensation plans for 2015” section in this report for more information on the plans. 3 Refer
to “Note 29 Equity participation and other compensation plans” in the “Consolidated financial statements” section of the Annual Report 2015 for more information. 4 No conversion rights are outstanding.
Audited |
Total of all vested and unvested shares of GEB members1, 2
Shares on 31 December 2015
8,424,999
1,677,989
1,148,988
1,561,296
2,004,014
1,314,398
Total
of which vested
of which vesting
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
2015
2016
2017
2018
2020
718,314
2019
573,491
1 Includes shares held by 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 “Our deferred variable compensation plans for 2015” section in this report for more information on the plans.
383
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Audited |
Number of shares of BoD members1
Name, function
Axel A. Weber, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Reto Francioni, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Helmut Panke, former member2
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 %
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
488,889
333,333
215,992
181,246
163,317
185,181
28,787
11,859
169,054
139,653
252,761
217,373
–
182,009
104,271
100,019
66,490
44,217
71,261
45,424
87,354
66,863
1,648,176
1,507,177
0.026
0.017
0.012
0.009
0.009
0.009
0.002
0.001
0.009
0.007
0.014
0.011
–
0.009
0.006
0.005
0.004
0.002
0.004
0.002
0.005
0.003
0.088
0.077
1 This table includes blocked and unblocked shares held by BoD members, including those held by related parties. No options were granted in 2015 and 2014. 2 Helmut Panke did not stand for re-election at the AGM
on 7 May 2015.
Audited |
Total of all blocked and unblocked shares of BoD members1
Total
of which
unblocked
Shares on 31 December 2015
1,648,176
211,748
Shares on 31 December 2014
1 Includes shares held by related parties.
1,507,177
228,189
2016
232,917
2015
172,868
of which blocked until
2017
384,118
2016
261,377
2018
416,408
2017
408,570
2019
402,985
2018
436,173
384
Advisory vote Audited |
Vested and unvested options of GEB members1
on 31
December
Total
number of
options2
Number of
options3
Year of
grant
Vesting
date
Expiry
date
Strike
price
on 31
December
Total
number of
options2
Number of
options3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Philip J. Lofts, Group Chief Risk Officer
2015
277,082
117,227
2006 01.03.2009 28.02.2016 CHF 72.57
2014
394,172
85,256
74,599
117,090
117,227
85,256
74,599
2007 01.03.2010 28.02.2017 CHF 73.67
2008 01.03.2011 28.02.2018 CHF 35.66
2005 01.03.2008 28.02.2015 CHF 52.32
2006 01.03.2009 28.02.2016 CHF 72.57
2007 01.03.2010 28.02.2017 CHF 73.67
2008 01.03.2011 28.02.2018 CHF 35.66
Tom Naratil, Group Chief Financial Officer and Group Chief Operating Officer
2015
555,115
2014
721,125
142,198
131,277
181,640
100,000
166,010
142,198
131,277
181,640
100,000
2006 01.03.2009 28.02.2016 CHF 72.57
2007 01.03.2010 28.02.2017 CHF 73.67
2008 01.03.2011 28.02.2018 CHF 35.66
2009 01.03.2012 27.02.2019 CHF 11.35
2005 01.03.2008 28.02.2015 USD 44.81
2006 01.03.2009 28.02.2016 CHF 72.57
2007 01.03.2010 28.02.2017 CHF 73.67
2008 01.03.2011 28.02.2018 CHF 35.66
2009 01.03.2012 27.02.2019 CHF 11.35
Chi-Won Yoon, President UBS Asia Pacific
2015
483,210
2014
515,180
21,316
21,314
21,311
8,881
8,880
8,880
42,628
350,000
10,659
10,657
10,654
21,316
21,314
21,311
8,881
8,880
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
2008 01.03.2011 28.02.2018 CHF 32.45
2009 01.03.2012 27.02.2019 CHF 11.35
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
8,880
42,628
2007 01.03.2010 28.02.2017 CHF 67.00
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
2015
86,279
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
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
2014
108,121
7,106
2005 01.03.2006 28.02.2015 CHF 47.58
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 01.03.2007 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 those held by related parties. Sergio P. Ermotti, Markus U. Diethelm, Lukas Gähwiler, Ulrich Körner, Robert J. McCann and Andrea Orcel did not hold any options
on 31 December 2014 and 31 December 2015, respectively. 2 No conversion rights are outstanding. 3 Refer to “Note 29 Equity participation and other compensation plans” in the “Consolidated financial state-
ments” section of the Annual Report 2015 for more information.
385
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Audited |
Loans granted to GEB members1
In line with article 38 of our Articles of Association, GEB members
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 inter-
est 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.
CHF, except where indicated2
Name, function
Ulrich Körner, President Asset Management and President UBS EMEA (highest loan in 2015)
Ulrich Körner, President Asset Management and President UBS EMEA (highest loan in 2014)
Aggregate of all GEB members
on 31 December
2015
2014
2015
2014
Loans3
10,621,777
7,600,000
29,032,017
26,281,207
1 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 2 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency
translation rates” in the “Consolidated financial statements” section of the Annual Report 2015. 3 All loans granted are secured loans.
Audited |
Loans granted to BoD members1
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
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 BoD member.
CHF, except where indicated2
Aggregate of all BoD members
on 31 December
2015
2014
Loans3, 4
3,604,950
1,100,000
1 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 2 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency
translation rates” in the “Consolidated financial statements” section of the Annual Report 2015. 3 All loans granted are secured loans. 4 CHF 600,000 for Reto Francioni and CHF 3,004,950 for William G. Parrett in
2015 and CHF 1,100,000 for Reto Francioni in 2014.
Audited |
Compensation paid to former BoD and GEB members1
CHF, except where indicated2
Former BoD members
Aggregate of all former GEB members3
Aggregate of all former BoD and GEB members
For the year
Compensation
Benefits
2015
2014
2015
2014
2015
2014
0
0
435,448
0
435,448
0
0
0
39,999
37,714
39,999
37,714
Total
0
0
475,447
37,714
475,447
37,714
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 “Consolidated financial statements” section of the Annual Report 2015. 3 Includes payments in 2015 to two former GEB members and a payment in 2014 to
one former GEB member.
386
Advisory vote Provisions of the Articles of Association in relation to compensation
Under the say-on-pay provisions in
Switzerland, shareholders of Swiss-listed
companies have significant influence
over board and management compen-
sation. This is achieved by means of
an annual binding say-on-pay vote and
through 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. Compen-
sation 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 com-
pensation 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 deter-
mines 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
387
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
388
Advisory vote Consolidated
financial
statements
Consolidated financial statements
Table of contents
392
Introduction and accounting principles
393 UBS Group AG consolidated financial statements
393 Management’s report on internal control over
financial reporting
394 Report of independent registered public accounting
firm on internal control over financial reporting
396 Report of the statutory auditor and the independent
registered public accounting firm on the consolidated
financial statements
Income statement
398
399 Statement of comprehensive income
401 Balance sheet
402 Statement of changes in equity
406 UBS Group AG shares issued and treasury shares held
407 Statement of cash flows
409 Notes to the UBS Group AG consolidated
financial statements
1
Summary of significant accounting policies
Segment reporting
Income statement notes
3
Net interest and trading income
Net fee and commission income
Other income
Personnel expenses
General and administrative expenses
Income taxes
Earnings per share (EPS) and shares outstanding
2
4
5
6
7
8
9
409
432
437
437
438
438
439
439
440
444
390
445
445
446
447
448
449
457
458
459
461
Balance sheet notes: assets
Due from banks and loans (held at amortized cost)
10
11 Cash collateral on securities borrowed and lent,
reverse repurchase and repurchase agreements,
and derivative instruments
Allowances and provisions for credit losses
Trading portfolio
Derivative instruments and hedge accounting
Financial investments available-for-sale
Property, equipment and software
14
15
12
13
16
17 Goodwill and intangible assets
18 Other assets
462 Balance sheet notes: liabilities
462
19
20
21
Due to banks and customers
Financial liabilities designated at fair value
Debt issued held at amortized cost
Provisions and contingent liabilities
22
23 Other liabilities
479 Additional information
479
24
Fair value measurement
Restricted and transferred financial assets
25
26 Offsetting financial assets and financial liabilities
Financial assets and liabilities – additional
27
information
Pension and other post-employment benefit plans
Equity participation and other compensation plans
Interests in subsidiaries and other entities
Business combinations
Changes in organization and disposals
28
31
30
29
32
33 Operating leases and finance leases
34
Related parties
Invested assets and net new money
Currency translation rates
Events after the reporting period
Swiss GAAP requirements
35
36
37
38
462
463
465
478
504
507
510
513
530
540
549
550
552
553
556
557
557
558
560 UBS AG consolidated financial information
561 UBS AG (consolidated) key figures
562 Comparison UBS Group AG (consolidated) vs UBS AG
616
11
(consolidated)
563 UBS AG consolidated financial statements
563 Management’s report on internal control over financial
reporting
564 Report of independent registered public accounting firm
on internal control over financial reporting
566 Report of the statutory auditor and the independent
registered public accounting firm on the consolidated
financial statements
Income statement
568
569 Statement of comprehensive income
571 Balance sheet
572 Statement of changes in equity
576 UBS AG shares issued and treasury shares held
577 Statement of cash flows
579 Notes to the UBS AG consolidated financial statements
579
Summary of significant accounting policies
Segment reporting
603
2
1
608
608
609
609
610
610
611
614
4
5
6
7
8
9
Income statement notes
3
Net interest and trading income
Net fee and commission income
Other income
Personnel expenses
General and administrative expenses
Income taxes
Earnings per share (EPS) and shares outstanding
615 Balance sheet notes: assets
615
10
Due from banks and loans (held at amortized cost)
Cash collateral on securities borrowed and lent,
reverse repurchase and repurchase agreements,
and derivative instruments
Allowances and provisions for credit losses
Trading portfolio
Derivative instruments and hedge accounting
Financial investments available-for-sale
Property, equipment and software
16
17 Goodwill and intangible assets
18 Other assets
632 Balance sheet notes: liabilities
632
19
Due to banks and customers
Financial liabilities designated at fair value
Debt issued held at amortized cost
Provisions and contingent liabilities
22
23 Other liabilities
649 Additional information
649
24
Fair value measurement
Restricted and transferred financial assets
25
26 Offsetting financial assets and financial liabilities
Financial assets and liabilities – additional
27
information
Pension and other post-employment benefit plans
Equity participation and other compensation plans
Interests in subsidiaries and other entities
Business combinations
Changes in organization and disposals
31
28
30
29
32
33 Operating leases and finance leases
34
Related parties
Invested assets and net new money
35
36 Currency translation rates
37
38
39
Events after the reporting period
Swiss GAAP requirements
Supplemental guarantor information required
under SEC regulations
12
13
14
15
20
21
617
618
619
627
628
629
631
632
633
635
648
674
677
680
683
700
707
716
717
719
720
723
724
724
725
727
391
Consolidated financial statements Consolidated financial statements
Introduction and accounting principles
This section of the Annual Report consists of:
– the audited consolidated financial statements of UBS Group
AG for 2015, prepared in accordance with International Finan-
cial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB); and
– the audited consolidated financial statements of UBS AG for
2015, prepared in accordance with IFRS as issued by the IASB
The significant accounting policies applied in the preparation
of the UBS AG consolidated financial statements are described in
Note 1 to the financial statements. Except where otherwise explic-
itly stated in these financial statements, all financial information is
in Swiss francs (CHF) and presented on a consolidated basis under
IFRS, and all references to UBS AG refer to UBS AG (consolidated)
and not to UBS AG (standalone).
The significant accounting policies applied in the preparation of
the UBS Group AG consolidated financial statements are described
in Note 1 to the financial statements. Except where otherwise
explicitly stated in these financial statements, all financial informa-
tion is in Swiss francs (CHF) and presented on a consolidated basis
under IFRS, and all references to UBS refer to the consolidated UBS
Group and not to UBS Group AG on a standalone basis.
All references to 2015, 2014 and 2013 refer to the financial
years ended 31 December 2015, 2014 and 2013, respectively.
The consolidated financial statements of UBS Group AG and
UBS AG were audited by Ernst & Young Ltd.
Refer to “Critical accounting policies” within the “Financial
and operating performance” section of this report for more
information on critical accounting policies as defined by SEC
requirements.
392
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 inter-
nal 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 statements 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
detail, 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
financial 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 2015
UBS management has assessed the effectiveness of UBS’s internal
control over financial reporting as of 31 December 2015 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 2015, UBS’s
internal control over financial reporting was effective.
The effectiveness of UBS’s internal control over financial report-
ing as of 31 December 2015 has been audited by Ernst & Young
Ltd, UBS’s independent registered public accounting firm, as
stated in their report appearing on pages 394 to 395, which
expresses an unqualified opinion on the effectiveness of UBS’s
internal control over financial reporting as of 31 December 2015.
393
Consolidated financial statements Consolidated financial statements
UBS Group AG consolidated financial statements
394
395
Consolidated financial statements Consolidated financial statements
UBS Group AG consolidated financial statements
396
397
Consolidated financial statements Consolidated financial statements
UBS Group AG consolidated financial statements
Audited |
Income statement
CHF million, except per share data
Note
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, equipment and software
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
3
3
3
12
4
3
5
6
7
16
17
8
9
9
31.12.15
13,177
(6,445)
6,732
(117)
6,615
17,140
5,742
1,107
30,605
15,981
8,107
920
107
25,116
5,489
(898)
6,386
183
6,203
1.68
1.64
For the year ended
% change from
31.12.14
31.12.13
31.12.14
13,194
(6,639)
6,555
(78)
6,477
17,076
3,842
632
28,027
15,280
9,387
817
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
83
24,461
3,272
(110)
3,381
204
5
3,172
0.84
0.83
0
(3)
3
50
2
0
49
75
9
5
(14)
13
29
(2)
123
(24)
75
(100)
472
79
81
80
398
Statement of comprehensive income
CHF million
Comprehensive income attributable to UBS Group AG shareholders
Net profit / (loss)
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
298
(1,172)
Total other comprehensive income
Total comprehensive income attributable to UBS Group AG shareholders
(506)
5,698
1,453
4,920
Table continues on the next page.
For the year ended
31.12.15
31.12.14
31.12.13
6,203
3,466
3,172
(140)
(90)
(2)
(231)
175
1
(292)
44
8
(63)
544
(1,182)
128
(509)
(804)
316
(18)
298
0
0
0
0
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
(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
399
Consolidated financial statements Consolidated financial statements
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 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 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
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
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
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
31.12.15
31.12.14
31.12.13
142
80
0
80
80
221
32
5
(2)
3
80
0
80
(44)
8
(36)
44
47
79
204
355
0
355
355
559
5
0
0
0
(1)
0
(1)
0
0
0
(1)
(1)
4
3,640
1,580
2,628
(1,048)
5,220
3,381
(857)
(2,145)
1,288
2,524
183
(12)
2
(10)
(95)
0
(95)
6
(1)
5
(90)
(99)
83
6,386
(605)
(814)
208
5,781
400
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, equipment and software
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
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
Equity attributable to UBS Group AG shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
Note
31.12.15
31.12.14
31.12.14
% change from
10, 12
11, 26
11, 26
13, 24
25
14, 24, 26
11, 26
24, 26, 27
10, 12
15, 24
30
16
17
8
18
19
11, 26
11, 26
13, 24
14, 24, 26
11, 26
20, 24, 26
19
21
22
8, 23
91,306
11,948
25,584
67,893
124,035
51,943
167,435
23,763
6,146
311,954
62,543
954
7,695
6,568
12,835
22,160
942,819
11,836
8,029
9,653
29,137
162,430
38,282
62,995
390,185
93,147
4,164
75,652
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
885,511
1,008,110
385
31,164
(1,693)
29,504
(4,047)
55,313
1,995
57,308
372
32,590
(1,393)
22,134
(3,093)
50,608
3,760
54,368
942,819
1,062,478
(12)
(10)
6
(1)
(10)
(7)
(35)
(23)
24
(1)
9
3
12
(3)
16
(4)
(11)
13
(13)
(18)
4
(36)
(10)
(16)
(5)
2
(5)
6
(12)
3
(4)
22
33
31
9
(47)
5
(11)
401
Consolidated financial statements Consolidated financial statements
UBS Group AG consolidated financial statements
Statement of changes in equity
CHF million
Balance as of 1 January 2013
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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
Balance as of 31 December 2013
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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
402
Share
premium
33,862
Treasury
shares
(1,071)
Retained
earnings
16,491
Share
capital
384
1
(846)
887
203
30
305
91
(564)2
(9)
(11)
6
4,111
3,172
939
33,906
(1,031)
20,608
(5,866)
(7,425)
95
1,463
48,002
384
0
(918)
519
24
3
619
3
(938)2
45
2,295
3,466
(1,172)
(2,219)
1,449
22,134
(37)
24
372
(3,078)
2,006
37
32,590
(1,393)
Other comprehensive
income recognized
directly in equity,
net of tax1
(3,715)
of which:
Financial invest-
of which:
ments avail-
able-for-sale
249
of which:
Cash flow
hedges
2,983
Total equity
attributable to
UBS Group AG
shareholders
45,949
Foreign currency
translation
(6,954)
Preferred
Non-controlling
noteholders
interests
Total equity
3,109
42
49,100
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
1,961
3,172
(2,145)
939
(918)
519
24
619
(938)
45
0
0
3
3
0
0
0
0
4,920
3,466
2,625
(1,172)
(4,968)
3,299
50,608
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
3,381
(2,145)
939
355
49,936
(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
(204)
(6)
(1,572)
0
559
204
355
1,893
(142)
1
221
142
80
(1,974)
0
4
5
(1)
41
(4)
1
79
32
3
(36)
80
6,942
(3,299)
3,760
(2,151)
(2,145)
(471)
(471)
(154)
(154)
(1,520)
(1,520)
2,625
2,625
366
(218)
(3,093)
1,795
1,795
593
(369)
(5,406)
141
141
(25)
16
228
689
689
(203)
135
2,084
Other comprehensive
income recognized
directly in equity,
net of tax1
(3,715)
of which:
Foreign currency
translation
of which:
Financial invest-
ments avail-
able-for-sale
(6,954)
249
of which:
Cash flow
hedges
2,983
Total equity
attributable to
UBS Group AG
shareholders
45,949
Preferred
noteholders
Non-controlling
interests
3,109
42
Total equity
49,100
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 2013
Issuance of share capital
Acquisition of treasury shares
Disposal 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
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
net of tax – foreign currency translation
Balance as of 31 December 2013
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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,
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
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
33,862
Treasury
shares
(1,071)
Retained
earnings
16,491
Share
capital
384
1
(846)
887
(918)
519
203
30
305
91
(564)2
(9)
(11)
24
3
619
3
(938)2
45
384
0
(37)
24
372
(3,078)
2,006
37
32,590
(1,393)
6
4,111
3,172
939
2,295
3,466
(1,172)
(2,219)
1,449
22,134
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
1,961
3,172
(2,145)
939
0
(2,151)
(2,145)
(471)
(471)
(154)
(154)
(1,520)
(1,520)
33,906
(1,031)
20,608
(5,866)
(7,425)
95
1,463
48,002
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
2,625
2,625
366
(218)
(3,093)
1,795
1,795
593
(369)
(5,406)
141
141
(25)
16
228
689
689
(203)
135
2,084
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
3,381
(2,145)
939
355
49,936
0
(918)
519
24
3
619
3
(204)
(6)
4
5
(1)
41
(1,572)
0
559
204
355
1,893
(142)
1
221
142
80
(1,974)
0
(4)
(1,084)
1
79
32
3
(36)
80
6,942
(3,299)
3,760
45
1
1
0
5,220
3,640
2,628
(1,208)
160
0
0
54,368
403
Consolidated financial statements Share
premium
32,590
Treasury
shares
(1,393)
Retained
earnings
22,134
Share
capital
372
0
(1,538)
1,275
(40)
33
302
9
(2,760)2
1
Other comprehensive
income recognized
directly in equity,
net of tax1
(3,093)
of which:
Financial invest-
of which:
ments avail-
able-for-sale
228
Total equity
attributable to
UBS Group AG
shareholders
of which:
Cash flow
hedges
2,084
Foreign currency
translation
(5,406)
Preferred
Non-controlling
noteholders
interests
3,760
Total equity
54,368
50,608
0
(1,538)
1,275
(40)
33
302
(2,760)
9
1
0
0
0
5,698
6,203
(804)
298
0
1,724
55,313
0
(1,538)
1,275
(40)
33
302
9
1
0
1
(1)
5,781
6,386
(814)
304
(95)
0
57,308
(124)
(2,884)
1
(1)
83
183
(10)
5
(95)
(1,724)
1,995
6,502
6,203
298
868
29,504
(804)
(804)
(231)
(231)
(150)
(4,047)
(220)
(5,857)
(63)
(63)
7
172
(509)
(509)
63
1,638
Consolidated financial statements
UBS Group AG consolidated financial statements
Statement of changes in equity (continued)
CHF million
Balance as of 31 December 2014
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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: Increase in UBS Group AG’s ownership interest in UBS AG
Balance as of 31 December 2015
13
385
1,029
31,164
(37)
(1,693)
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment out of the capital contribution reserve of UBS Group AG (2014 and 2013 UBS AG) of CHF 0.75 (2014: CHF 0.25,
2013: CHF 0.15) per CHF 0.10 par value share.
404
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 2014
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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: Increase in UBS Group AG’s ownership interest in UBS AG
Balance as of 31 December 2015
2013: CHF 0.15) per CHF 0.10 par value share.
Share
premium
32,590
Treasury
shares
(1,393)
Retained
earnings
22,134
Share
capital
372
0
(1,538)
1,275
(40)
33
302
9
1
(2,760)2
6,502
6,203
298
868
29,504
Other comprehensive
income recognized
directly in equity,
net of tax1
(3,093)
of which:
Foreign currency
translation
of which:
Financial invest-
ments avail-
able-for-sale
(5,406)
228
of which:
Cash flow
hedges
2,084
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment out of the capital contribution reserve of UBS Group AG (2014 and 2013 UBS AG) of CHF 0.75 (2014: CHF 0.25,
13
385
1,029
31,164
(37)
(1,693)
(150)
(4,047)
(220)
(5,857)
(804)
(804)
(231)
(231)
(63)
(63)
7
172
(509)
(509)
63
1,638
Total equity
attributable to
UBS Group AG
shareholders
50,608
0
(1,538)
1,275
(40)
33
302
9
(2,760)
1
0
0
0
5,698
6,203
(804)
298
0
1,724
55,313
Preferred
noteholders
Non-controlling
interests
3,760
Total equity
54,368
0
(1,538)
1,275
(40)
33
302
9
(124)
(2,884)
1
0
1
(1)
5,781
6,386
(814)
304
(95)
0
57,308
1
(1)
83
183
(10)
5
(95)
(1,724)
1,995
405
Consolidated financial statements Consolidated financial statements
UBS Group AG consolidated financial statements
UBS Group 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 shares2
Balance at the beginning of the year
Acquisitions
Disposals
Balance at the end of the year
For the year ended
31.12.15
31.12.141
3,717,128,324
132,603,211
3,849,731,535
87,871,737
89,594,586
(78,760,048)
98,706,275
3,717,128,324
3,717,128,324
73,800,252
49,271,831
(35,200,346)
87,871,737
1 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 Comparative information 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.
Conditional share capital
As of 31 December 2015, 131,029,690 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 Decem-
ber 2015 for conversion rights and warrants granted in connection
with the issuance of bonds or similar financial instruments.
406
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, equipment and software
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 change 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 assets2
Purchase of property, equipment and software
Disposal of property, equipment and software
Net (investment in) / divestment of financial investments available-for-sale3
Net cash flow from / (used in) investing activities
Table continues on the next page.
31.12.151
For the year ended
31.12.141
31.12.131
6,386
3,640
3,381
920
107
117
(169)
(1,613)
(934)
(1,451)
3,686
1,763
(2,712)
(2,909)
5,505
3,285
1,386
(18,404)
8,696
(551)
3,109
(13)
477
(1,841)
542
(7,605)
(8,441)
817
83
78
(94)
(1,635)
(227)
2,135
(7,250)
(1,235)
32,262
(3,698)
(2,880)
(7,301)
(20,427)
8,804
4,734
(600)
7,205
(18)
70
(1,915)
350
4,108
2,596
816
83
50
(49)
(545)
(522)
3,988
5,326
(7,551)
43,754
(23,659)
43,944
(22,412)
(7,108)
19,195
(3,935)
(382)
54,374
(49)
136
(1,236)
639
5,966
5,457
407
Consolidated financial statements Consolidated financial statements
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
Net changes of non-controlling interests and preferred notes
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
Money market paper4
Total5
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 associates6
31.12.151
For the year ended
31.12.141
31.12.131
(6,404)
(845)
0
(2,760)
47,790
(44,221)
(156)
(6,595)
(1,742)
(13,670)
116,715
103,044
91,306
10,814
924
103,044
11,144
5,270
2,120
(2,921)
(694)
0
(938)
40,982
(34,210)
(113)
2,108
8,522
20,430
96,284
116,715
104,073
11,772
869
116,715
11,321
5,360
1,961
(4,290)
(341)
1
(564)
28,014
(68,954)
(1,421)
(47,555)
(2,705)
9,569
86,715
96,284
80,879
11,117
4,288
96,284
12,148
7,176
1,421
1 In 2015, UBS refined its definition of cash and cash equivalents to exclude cash collateral receivables on derivatives with bank counterparties. Prior periods were restated. Refer to Note 1b for more informa-
tion. 2 Includes dividends received from associates. 3 Includes gross cash inflows from sales and maturities (CHF 93,584 million for the year ended 31 December 2015, 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 101,189 million for the year ended 31 December 2015, CHF 136,330 million for the
year ended 31 December 2014, CHF 147,921 million for the year ended 31 December 2013). 4 Money market paper is included in the balance sheet under Trading portfolio assets (31 December 2015: CHF 795 mil-
lion, 31 December 2014: CHF 835 million, 31 December 2013: CHF 1,716 million) and Financial investments available-for-sale (31 December 2015: CHF 129 million, 31 December 2014: CHF 34 million, 31 December
2013: CHF 2,571 million). 5 CHF 3,963 million, CHF 4,178 million and CHF 4,534 million of cash and cash equivalents (mainly reflected in Due from banks) were restricted as of 31 December 2015, 31 December
2014 and 31 December 2013, respectively. Refer to Note 25 for more information. 6 Includes dividends received from associates (2015: CHF 114 million, 2014: CHF 54 million, 2013: CHF 69 million) reported within
cash flow from / (used in) investing activities.
408
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies
a) Significant accounting policies
Pillar 3 | UBS Group AG was established in 2014 as the holding
company of the Group and in 2015 it increased its ownership
interest in UBS AG to 100%, following the successful completion
of the procedure under article 33 of the Swiss Stock Exchange Act
(SESTA procedure). Refer to Note 32 for more information.
The significant accounting policies applied in the preparation
of the consolidated financial statements (the “Financial State-
ments”) 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 presented 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 for 2013 reflects the consolidated financial state-
ments of UBS AG, as previously published, except for certain vol-
untary changes in accounting policy and presentation that are
unrelated to the establishment of UBS Group AG.
1) Basis of accounting
UBS provides a broad range of financial services including: advi-
sory services, underwriting, financing, market-making, asset
management 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
Switzerland, where UBS Group AG is incorporated. On 10 March
2016, 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. Intercompany transactions and balances have
been eliminated.
Disclosures incorporated in the “Risk, treasury and capital
management” section of this Annual Report, which form part of
these Financial Statements, are marked as audited. These disclo-
sures relate to requirements 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 estimates
Preparation of these Financial Statements under IFRS requires
management 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. Estimates
are reviewed regularly and revisions 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 entities
Pillar 3 | The Financial Statements comprise those of the parent
company (UBS Group AG) and its subsidiaries, including con-
trolled 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.
409
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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
removal or other participating rights and (iii) exposure to variabil-
ity, 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 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 cer-
tain cases, UBS may have interests in a third-party sponsored
SE to hedge specific risks or participate in asset-backed financ-
ing.
– Investment fund structured entities have a collective invest-
ment objective, are managed by an investment manager and
are either passively managed, such that any decision-making
does not have a substantive effect on variability, or are actively
managed and investors or their governing bodies do not have
substantive 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 investment. In addition, UBS 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.
410
Note 1 Summary of significant accounting policies (continued)
Business combinations
Business combinations are accounted for using the acquisition
method. As of the acquisition date, UBS recognizes the identifi-
able 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 either at fair
value or at their proportionate share of the acquiree’s identifiable
net assets. Generally, non-controlling interests are present owner-
ship interests that entitle their holders to a proportionate share of
the net assets of the acquiree in the event of liquidation.
The cost of an acquisition is the aggregate of the assets trans-
ferred, the liabilities owed 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 recog-
nized at fair value as of the date of acquisition.
If the contingent consideration is classified as an asset or liabil-
ity, subsequent changes in the fair value of the contingent consid-
eration are recognized in the income statement. If the contingent
consideration 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 considered goodwill and
is recognized as a separate asset on the balance sheet, initially
measured at cost. If the fair value of the net assets of the subsid-
iary acquired exceeds the aggregate of the consideration trans-
ferred 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 on business combinations
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
under the equity method of accounting. Normally, significant
influence is indicated when UBS owns between 20% and 50%
of a company’s voting rights. Investments in associates are ini-
tially recognized at cost, and the carrying amount is increased or
decreased 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 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’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 instru-
ments, provided the recognition criteria are satisfied. UBS also acts
in a trustee or other fiduciary capacity, which results in the holding
or placing of assets on behalf of individuals, trusts, retirement ben-
efit plans and other institutions. Unless the recognition criteria are
satisfied, these assets and the related 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
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 retaining all or substantially all risks and rewards
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,
respectively. 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.
411
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
For the purposes of the Group’s disclosures of transferred
financial 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 exam-
ple, 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 liability and the recog-
nition of a new liability with any difference in the respective carry-
ing amounts being recognized in the income statement.
6) Determination of fair value
Fair value is the price that would be received for the sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants in the principal market (or most
advantageous market, in the absence of a principal market) as of
the measurement date.
➔ Refer to Note 24 for more information on fair value measurement
7) Trading portfolio assets and liabilities
Non-derivative financial assets and liabilities are classified at
acquisition as held for trading and presented in the trading port-
folio 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 income or
Interest 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 changes in fair value in Net trading income. The correspond-
ing receivable or payable is presented on the balance sheet as a
Positive replacement value or Negative replacement value. On
settlement date, the resulting financial 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 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
412
Note 1 Summary of significant accounting policies (continued)
8) Financial assets and financial liabilities designated at fair value
through profit or loss
A financial instrument may be designated at fair value through
profit or loss only 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
applied only if one of the following criteria is met:
– the financial instrument is a hybrid instrument that includes a
substantive embedded derivative;
– the financial instrument is part of a portfolio that 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
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 also applied to certain loans and loan
commitments, 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 structured loans and reverse repurchase and securities bor-
rowing agreements which are part of portfolios managed on a
fair value basis.
The fair value option is applied to assets held to hedge deferred
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 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 classified as available-for-sale
Financial investments classified as available-for-sale are non-deriv-
ative financial assets that are not classified as held for trading,
designated at fair value through profit or loss, or loans and receiv-
ables. They are recognized on a settlement date basis.
Financial investments classified as available-for-sale include: (a)
debt securities held as part of a large multi-currency portfolio of
unencumbered, high-quality assets managed centrally by Corpo-
rate Center – Group Asset and Liability Management, a majority
of which is short-term, (b) strategic equity investments, (c) certain
investments in real estate funds, (d) certain equity instruments
including private equity investments, and (e) debt instruments
and non-performing loans acquired in the secondary market.
Financial investments that are classified as available-for-sale are
recognized initially at fair value less transaction costs and are mea-
sured 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 disposed of, or until any such investment is deter-
mined to be impaired. Unrealized gains before tax are presented
separately from unrealized losses before tax in Note 15.
For monetary instruments (such as debt securities), foreign
exchange translation gains and losses determined by reference to
the amortized cost basis of the instruments are recognized in Net
trading income. Foreign exchange translation gains and losses
related to other changes in fair value are recognized in Other
comprehensive income within Equity. Foreign exchange transla-
tion gains and losses associated with non-monetary instruments
(such as equity securities) are part of the overall fair value change
of the instruments and are recognized in Other comprehensive
income within Equity.
Interest and dividend income on financial investments classi-
fied as available-for-sale are included in Interest and dividend
income from financial investments available-for-sale. Interest
income is determined 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 reclassified to the
income statement and reported in Other income. Gains or losses
on disposal are determined using the average cost method.
413
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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 signifi-
cant or prolonged decline in the fair value of an available-for-sale
equity instrument below its original cost is considered objective
evidence of impairment. In the event of a significant decline in fair
value below its original cost (20%) or a prolonged decline (six
months), an impairment is recorded unless facts and circum-
stances clearly indicate that the decline in value, on its own, is not
evidence of an impairment.
For debt investments, objective evidence of impairment
includes significant financial difficulty of the issuer or counter-
party, default or delinquency in interest or principal payments, or
it becoming probable that the borrower will enter bankruptcy or
financial reorganization. If an available-for-sale financial invest-
ment is determined to be impaired, the related cumulative net
unrealized 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 directly in the income statement, whereas for debt
instruments, any further loss is recognized in the income state-
ment only if there is additional objective evidence of impairment.
After an impairment of an equity instrument that is classified as
available-for-sale, increases in the fair value are reported in Other
comprehensive income within Equity. Subsequent increases in the
fair value of debt instruments up to an amount that equals their
amortized cost in original currency are recognized in Other
income, provided that the fair value increase is related to an event
occurring after the impairment loss was recorded. Increases in
excess of that amount are reported in Other comprehensive
income within Equity.
UBS applies the same recognition and derecognition principles
to financial assets classified as 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 at fair
value through profit and loss or classified as available-for-sale, and
are not assets for which the Group may not recover substantially
all of its initial net investment other than because of credit dete-
rioration. 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; and
– securities which were classified as loans and receivables at
acquisition date, such as municipal auction rate securities in
the Corporate Center – Non-core and Legacy Portfolio (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 assets, together with any transaction costs directly
attributable to the acquisition. Subsequently, they are measured
at amortized cost using the EIR method, less allowances for credit
losses. Refer to item 11 for information on allowances for credit
losses and to Note 27a for an overview of the financial assets clas-
sified 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.
Upfront fees and direct costs relating to loan origination, refinanc-
ing or restructuring as well as to loan commitments are generally
deferred 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 comparable risk as other participants, fees are credited to
Net fee and commission income when the services have been pro-
vided.
Presentation of receivables from central banks
Deposits with central banks that are available on demand are pre-
sented 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.
414
Note 1 Summary of significant accounting policies (continued)
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
income 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 on reclassified assets
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.
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 derecognized and is not
attributed 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 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 of the issuer or
counterparty, default or delinquency in interest or principal pay-
ments, or a likelihood that the borrower will enter bankruptcy or
financial reorganization.
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.
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.
If a loan is renegotiated with preferential conditions (i.e., new
or 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., addi-
tional collateral is provided by the client, or new terms and condi-
tions 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 included in
the collective assessment of loan loss allowances, unless an indi-
cation of impairment exists, in which case the loan is assessed for
impairment on an individual basis. For the purposes of measuring
credit losses within the collective loan loss assessment, these loans
are not segregated from other loans which have not been renego-
tiated. 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. Refer to item 11 for more
information on allowances and provisions for credit losses.
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.
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
exposures are evaluated based on the borrower’s overall financial
condition, resources and payment record, the prospects of sup-
port from contractual guarantors and, where applicable, the real-
izable value of any collateral. 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 dif-
ference between the carrying amount and the estimated recover-
able amount. Upon impairment, the accrual of interest income
based on the original terms of the loan is discontinued. The
increase in the present value of the impaired loan due to the pas-
sage of time is reported as Interest income.
415
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
All impaired loans are reviewed and analyzed at least annually.
Any subsequent changes to the amounts and timing of the
expected 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 impair-
ment 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 character-
istics such as asset type, industry, geographical location, collateral
type, past-due status and other relevant factors, to collectively
assess whether impairment exists within a portfolio. Future cash
flows for a group of financial assets that are collectively evaluated
for impairment are estimated on the basis of historical loss experi-
ence 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 experi-
ence is based and to remove the effects of conditions in the his-
torical period that do not exist currently 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 assump-
tions used for estimating future cash flows for the group of finan-
cial assets are reviewed regularly to reduce any differences
between loss estimated and actual loss experience. Allowances
for collective impairment assessments are recognized as Credit
loss expense / recovery and result in an offset to the aggregated
loan position. As the allowance 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 objec-
tive evidence becomes available that indicates that an individual
financial asset is impaired, it is removed from the group of finan-
cial 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
assets 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 reviewed periodi-
cally. Adverse revisions in cash flow estimates related to credit
events are recognized in the income statement as Credit loss
expense / recovery. For a reclassified loan, a change in expectation
regarding the recoverability of the security and its future cash
receipts requires 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 that issue securities to investors.
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 transferred financial
assets is appropriate. The following statements mainly apply to
transfers of financial assets that 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; the resulting gain or loss is included 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 derivative finan-
cial instruments for which the principles set out in item 15 apply.
416
Note 1 Summary of significant accounting policies (continued)
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. Furthermore, 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 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 Group’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 typically borrows or lends equity and debt securities in
exchange for securities or cash collateral. Additionally, UBS bor-
rows 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’s normal credit risk
control processes. UBS monitors on a daily basis the market value
of the securities received or delivered and requests or provides
additional collateral or returns or recalls surplus collateral in accor-
dance with the underlying agreements.
Cash collateral received is recognized with a corresponding
obligation 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.
Securities 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
the securities
(securities-for-securities
received or delivered nor the obligation to return or right to
receive the securities are recognized on the balance sheet, as
derecognition criteria are not met. Refer to item 5 for more infor-
mation.
transactions), neither
Interest is recognized in the income statement on an accrual
basis and is recorded as Interest income or Interest expense. Inter-
est income includes interest earned on securities borrowing, and
negative interest, including fees, on securities lending. Interest
expense includes interest on securities lent and negative interest,
including fees, on securities borrowing.
➔ 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 repur-
chase (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 partici-
pants and are undertaken with counterparties subject to UBS’s
normal credit risk control processes. UBS monitors on a daily basis
the market value of the securities received or delivered and
requests or provides additional collateral or returns or recalls sur-
plus collateral in accordance with the underlying agreements.
In a reverse repurchase agreement, the cash delivered is derec-
ognized and a corresponding receivable, including accrued inter-
est, is recorded in the balance sheet line Reverse repurchase
agreements, representing UBS’s right to receive the cash back.
Similarly, in a repurchase agreement, the cash received is recog-
nized and a corresponding obligation, including accrued interest,
is recorded in the balance sheet line Repurchase agreements.
Securities received under reverse repurchase agreements and
securities delivered under repurchase agreements are not recog-
nized 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 balance sheet as Trading
portfolio assets, of which: assets
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 has the right to
resell or repledge them, with additional disclosure provided for
securities that UBS has actually resold or repledged (refer to
Note 25d for more information). Additionally, the sale of securi-
ties which is settled by delivering securities received in reverse
repurchase transactions generally triggers the recognition of a
trading liability (short sale).
417
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Interest is recognized in the income statement on an accrual
basis and is recorded as Interest income or Interest expense. Inter-
est income includes interest earned on reverse repurchase agree-
ments and negative interest on repurchase agreements. Interest
expense includes interest on repurchase agreements and negative
interest on reverse repurchase agreements.
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
Derivative instruments that UBS enters into are initially recog-
nized, and remain carried, at fair value. Fair value changes are
generally recognized in the income statement unless and to the
extent they are designated in hedge relationships which require
recognition of the effective portion of such changes within other
comprehensive income.
Derivative instruments are generally reported on the balance
sheet as Positive replacement values or Negative replacement val-
ues. Exchange-traded derivatives that economically settle on a
daily basis, and certain OTC derivatives that in substance net set-
tle on a daily basis, are classified as Cash collateral receivables on
derivative instruments 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 value of derivative instruments are recorded in
Net trading income, unless the derivatives are designated and
effective as hedging instruments 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
relationship, the Group 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
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 follow-
ing criteria 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 transaction 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 discon-
tinues hedge accounting voluntarily, or when the Group deter-
mines 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 cash flows of the hedged item.
Such ineffectiveness is recorded in current period earnings in Net
trading income. Interest income and expense on derivatives desig-
nated as hedging instruments in effective hedge relationships is
included in 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 attrib-
utable 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
to the income statement over the remaining term to maturity of
the hedged item.
418
Note 1 Summary of significant accounting policies (continued)
For a portfolio hedge of interest rate risk, the equivalent
change in fair value is reflected within Other assets or Other liabil-
ities. 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 state-
ment over the remaining term to maturity of the hedged items.
way as derivative instruments used for trading purposes (i.e., real-
ized and unrealized gains and losses are recognized in Net trading
income), 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
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
reclassified from Equity to the income statement.
If a cash flow hedge of forecasted transactions is no longer
considered effective, or if the hedge relationship is terminated,
the cumulative gains or losses on the hedging derivatives previ-
ously reported in Equity remain there until the committed or fore-
casted transactions occur and affect profit or loss. If the fore-
casted transactions are no longer expected to occur, the deferred
gains or losses are reclassified immediately to the income state-
ment.
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 rec-
ognized directly in Equity (and presented in the statement of
changes in equity and statement of comprehensive income under
Foreign currency translation), while any gains or losses relating to
the ineffective and / or undesignated portion (for example, the
interest element of a forward contract) are recognized in the
income statement. Upon disposal or partial disposal of the foreign
operation, the cumulative value of any such gains or losses associ-
ated with the entity, and recognized directly in Equity, is reclassi-
fied 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
Embedded derivatives
Derivatives may be embedded in other financial instruments (host
contracts). For example, they could be represented by the conver-
sion feature embedded in a convertible bond. Such hybrid instru-
ments arise predominantly from the issuance of certain structured
debt instruments. An embedded 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 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 con-
tract 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
counterparty, the amount of the loan is accounted for in accor-
dance with Loans and receivables. Refer to item 10 for more
information.
419
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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.
improvements,
20) Property, equipment and software
Property, equipment and software includes own-used properties,
information technology hardware,
leasehold
externally purchased and internally generated software and com-
munication and other similar equipment. All Property, equipment
and software is carried at cost (which includes capitalized interest
from associated borrowings, where applicable), less accumulated
depreciation and impairment losses, and is reviewed periodically
for impairment.
➔ Refer to Note 16 for more information on property and
equipment
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.
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 a
past practice of selling those loans resulting from similar loan
commitments 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.
17) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer
to make specified payments to reimburse the holder for an
incurred 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
expense / recovery.
420
Note 1 Summary of significant accounting policies (continued)
Reinstatement costs are recognized in the income statement
through depreciation of the capitalized leasehold improvements
over their estimated useful lives and the resulting liability is extin-
guished as cash payments are made.
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 capitalized only when the costs
can be measured reliably and it is probable that future economic
benefits will arise.
Estimated useful life of property, equipment and software
An asset within property, equipment and software is depreciated
on a straight-line basis over its estimated useful life. Depreciation
of an asset within property, equipment and software begins when
it is available for use; that is, when it is in the location and condi-
tion necessary for it to be capable of operating in the manner
intended by management.
Estimated useful life of property, equipment and software
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 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 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 life, generally not exceed-
ing 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 indications
exist, the intangible assets are analyzed to assess whether their
carrying amount is fully recoverable. An impairment loss is recog-
nized 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
includes mainly intangible assets for client relationships, non-
compete 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.
Deferred tax liabilities are recognized for temporary differences
between the carrying amounts of assets and liabilities in the bal-
ance sheet that reflect the expectation that certain items will give
rise to taxable income 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 liability will
be settled.
Deferred and current tax assets and liabilities 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.
421
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Current and deferred taxes are recognized as income tax benefit
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 that are
classified as available-for-sale, for changes in fair value of deriva-
tive instruments designated as cash flow hedges, for remeasure-
ments of defined benefit plans, and for certain foreign currency
translations of foreign operations, and (iii) for gains and losses on
the sale of treasury shares. Deferred taxes recognized in a busi-
ness combination (point (i)) are considered when determining
goodwill. Amounts relating to points (ii) and (iii) are recognized in
Other comprehensive income within Equity.
instruments 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 pension
plans are located in Switzerland, the UK, the US and Germany.
➔ Refer to Note 28 for more information on pension and other
➔ Refer to Note 8 for more information on income taxes
post-employment benefit plans
23) Debt issued
Debt issued is carried at amortized cost. In cases where there is a
legal mechanism for write-down or conversion into equity (as is
the case for instance with senior unsecured debt issued by the
Group that is subject to write-down or conversion under resolu-
tion authority granted to FINMA under Swiss law) this is not part
of the contractual terms, and, therefore, it does not affect the
amortized cost accounting treatment applied to these instru-
ments. If the debt were to be written down or converted into
equity in a future period, this would result in the full or partial
derecognition of the financial liabilities, with the difference
between the carrying value of the debt written down or con-
verted into equity and the fair value of any equity shares issued
recognized in the income statement.
In cases where, as part of the Group’s risk management activ-
ity, 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 expo-
sure. Refer to item 15 for more information on hedge account-
ing. In most cases, structured notes issued 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 struc-
tured notes contain an embedded derivative, or both. Refer to
item 8 for more information on the fair value option. The fair
value option is not applied to certain structured notes that con-
tain embedded derivatives that reference foreign exchange rates
and / or precious metal prices. For these instruments, the embed-
ded 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 presented together
within Debt issued. Refer to item 15 for more information on
embedded derivatives.
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 recognition of the resulting net defined benefit
asset 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 obli-
gations, 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-
employment 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 expensed when the employees have ren-
dered services in exchange for such contributions. This is gener-
ally in the year of contribution. Prepaid contributions are recog-
nized as an asset to the extent that a cash refund or a reduction
in future payments is available.
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
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.
422
Note 1 Summary of significant accounting policies (continued)
25) Equity participation and other compensation plans
Equity participation plans
UBS has established several equity participation plans which
include mandatory, discretionary and voluntary plans. UBS recog-
nizes the fair value of awards granted under these plans, deter-
mined 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
reversal of compensation expense.
Awards settled in UBS shares 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 modification. 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
expense 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 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 at the grant date of the underlying assets (e.g., money mar-
ket funds, UBS and non-UBS mutual funds and other UBS-spon-
sored 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
presented as Other liabilities on the balance sheet. These con-
tracts 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. Assets held under
unit-linked investment contracts are presented as Trading port-
folio 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.
423
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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. Where these factors are
otherwise satisfied, a provision may be established for claims that
have not yet been asserted against the Group, but are neverthe-
less expected to be, based on the Group’s experience with similar
asserted claims.
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,
either 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 a leased property is expected to be
vacant for an extended period.
Provisions for employee benefits are recognized mainly in
respect 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
interests and preferred noteholders. Net profit is split into Net
profit attributable to UBS Group AG shareholders, Net profit
attributable to non-controlling interests and Net profit attribut-
able to preferred noteholders. Equity is split into Equity attribut-
able to UBS Group AG shareholders, Equity attributable to non-
controlling
interests and Equity attributable to preferred
noteholders.
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
option which includes a choice of settling net in cash, are classi-
fied as held for trading, with changes in fair value reported in the
income 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 exchanged
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.
424
Note 1 Summary of significant accounting policies (continued)
Preferred notes issued to non-consolidated preferred
securities entities
UBS issued subordinated notes (that is, the preferred notes) to cer-
tain non-consolidated entities that issued preferred securities. UBS
AG has fully and unconditionally guaranteed all contractual pay-
ments on the preferred securities. UBS’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. The
preferred notes do not contain a contractual obligation to deliver
cash and, therefore, they are classified as equity instruments.
Prior to the share-for-share exchange that took place in 2014,
the preferred notes were presented as Equity attributable to pre-
ferred noteholders on the consolidated balance sheet and state-
ment of changes in equity of UBS AG. Distributions on these pre-
ferred notes were presented as Net profit attributable to preferred
noteholders in the consolidated 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 state-
ment of changes in equity of UBS Group AG. Future distributions
on these preferred notes will be presented as Net profit attribut-
able to non-controlling interests in the consolidated income state-
ment and statement of comprehensive income.
29) Non-current assets and disposal groups 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
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
relation to their fair value and the sale must be expected to be
completed within one year. 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.
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, but not necessarily legal title in the underlying assets, are
classified as finance leases. All other leases are classified as oper-
ating 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 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 that 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
implicit in the lease. UBS reviews the estimated unguaranteed
residual value annually and if the estimated residual 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 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 Notes 18 and 23 for more information on non-current
➔ Refer to Note 33 for more information on operating leases and
assets and disposal groups held for sale
finance leases
425
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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
income statement in line with the balance sheet classification of
the underlying instruments.
With respect to loan commitment fees on lending arrange-
ments where there is an initial expectation that the facility will be
drawn down, such fees 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 is that the facil-
ity is unlikely to be drawn down, the loan commitment fees are
recognized on a straight-line basis over the commitment period. If,
in such cases, the facility is ultimately drawn down, the unamor-
tized component of the loan commitment fees is 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 translated at the exchange rate on the date of the transaction.
Foreign currency translation differences on financial investments
classified as available-for-sale are generally recorded directly in
Equity until the asset is sold or becomes impaired. However, trans-
lation differences on available-for-sale monetary financial invest-
ments 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 directly
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 related to that foreign operation is reclassified to the
income statement 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 operation but retains control, the related por-
tion of the cumulative currency translation balance is reclassified
to Equity attributable to non-controlling interests. When UBS dis-
poses of a portion of its investment in an associate or joint venture
that includes a foreign operation while retaining significant influ-
ence or joint control, the related portion of the cumulative cur-
rency translation balance is reclassified 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‘s businesses are organized globally into five business divi-
sions: Wealth Management, Wealth Management Americas, Per-
sonal & Corporate Banking, Asset Management and the Invest-
ment Bank, supported by the Corporate Center. The five business
divisions qualify as reportable segments for the purpose of seg-
ment reporting and, together with the Corporate Center and its
components, reflect the management structure of the Group.
Additionally, the non-core activities and legacy positions formerly
in the Investment Bank are managed and 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 pre-
sented separately in internal management reports to the Group
Executive Board, which is considered the “chief operating deci-
sion maker” within the context of IFRS 8 Operating Segments.
426
Note 1 Summary of significant accounting policies (continued)
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
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, and repurchase and
reverse repurchase transactions entered into with both the Lon-
don Clearing House and the Fixed Income Clearing Corporation,
netted by counterparty, currency, central securities depository
and maturity, as well as transactions with various other counter-
parties, exchanges 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
liquidity 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 permit-
ted in circumstances in which a market settlement mechanism
exists via an exchange or clearing house that effectively accom-
plishes net settlement through a daily cash margining process.
For repurchase arrangements and securities financings, balance
sheet offsetting may be permitted only to the extent that the
settlement mechanism eliminates or results in insignificant credit
and liquidity risk.
➔ Refer to Note 26 for more information on offsetting financial
assets and financial liabilities
36) Negative interest
Negative interest income arising on a financial asset does not
meet the definition of interest income and therefore negative
interest on financial assets and negative interest on financial liabil-
ities is presented within Interest expense and Interest income
respectively.
➔ Refer to Note 3 for more information on interest income and
interest expense
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 and are also reflected in the operating results of
the reportable segments. Revenue-sharing agreements are used
to allocate external client revenues to reportable segments where
several reportable segments are involved in the value-creation
chain. Commissions are credited to the reportable segments
based on the corresponding client relationship. Net interest
income is generally allocated to the reportable segments based on
their balance sheet positions. Interest income earned from man-
aging UBS’s consolidated equity is allocated to the reportable seg-
ments based on average attributed equity. Own credit gains and
losses on financial liabilities designated at fair value are excluded
from the measurement of performance of the business divisions,
are considered reconciling differences to UBS Group results and
are reported collectively under Corporate Center – Group Asset
and Liability Management (Group ALM).
Assets and liabilities of the reportable segments are funded
through and invested with Corporate Center – Group Asset and
Liability Management, and the net interest margin is reflected
in the results of each reportable segment. Total intersegment
revenues for the Group are immaterial as the majority of the
revenues are allocated across the segments by means of reve-
nue-sharing agreements.
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 – Services and Corporate Center –
Group Asset and Liability Management (including property and
equipment and certain financial assets) may be allocated to the
segments on a basis different to that which the corresponding
costs and / or revenues are allocated. For example, certain assets
that are reported in Corporate Center – Services or Corporate
Center – Group Asset and Liability Management may be retained
on the balance sheets of these components of Corporate Center
notwithstanding that the costs and / or revenues associated with
these assets may be entirely or partially allocated to the segments.
Similarly, certain assets are reported in the business divisions,
whereas the corresponding costs and / or revenues are entirely or
partially allocated to Corporate Center – Services and Corporate
Center – Group Asset and Liability Management.
For the purpose of segment reporting under IFRS 8, non-cur-
rent assets consist of investments in associates and joint ventures,
goodwill, other intangible assets and property, equipment and
software.
➔ Refer to Note 2 for more information on segment reporting
427
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
Statement of cash flows – definition of cash and cash equivalents
In 2015, UBS refined its definition of cash and cash equivalents
presented in the statement of cash flows to exclude cash collat-
eral receivables on derivative instruments with bank counterpar-
ties. The refined definition is consistent with the treatment of
these receivables in UBS’s liquidity and funding management
framework and with liquidity and funding regulations, which
became effective in 2015, and is considered to result in the pre-
sentation of more relevant information.
Comparative period information was restated accordingly. As a
result, cash and cash equivalents as of 31 December 2014,
31 December 2013 and 31 December 2012 were reduced by CHF
10,265 million, CHF 8,982 million and CHF 12,393 million,
respectively. On a restated basis, cash flow from operating activi-
ties for the year ended 31 December 2014 decreased by CHF
1,195 million (2013: increase by CHF 3,415 million) and the gain
from effects of exchange rate differences on cash and cash equiv-
alents decreased by CHF 89 million for the same period (2013:
loss from currency effects increased by CHF 3 million).
Review of actuarial assumptions used in calculating defined
benefit obligations
UBS regularly reviews the actuarial assumptions used in calculat-
ing its defined benefit obligations to determine their continuing
relevance.
In 2015, UBS carried out a methodology review of the actuarial
assumptions used in calculating its defined benefit obligation for
its Swiss pension plan. As a result, UBS enhanced its methodology
for estimating the discount rate by improving the construction of
the yield curve where the market for long tenor maturities of
Swiss high-quality corporate bonds was not sufficiently deep. Fur-
thermore, UBS refined its approach to estimating the rate of sal-
ary increases, the rate of interest credit on retirement savings, the
employee turnover rate, the rate of employee disabilities and the
rate of marriage. These improvements in estimates resulted in a
total net decrease in the defined benefit obligation (DBO) of the
Swiss pension plan of CHF 2.1 billion, of which CHF 1.0 billion
related to demographic assumptions and CHF 1.0 billion related
to financial assumptions, and a corresponding increase in Other
comprehensive income.
Furthermore, UBS enhanced methodologies and refined
approaches used to estimate various actuarial assumptions for its
UK and other pension plans. These improvements in estimates
resulted in a total net decrease in the DBO of the UK pension plan
of CHF 0.2 billion, of which CHF 0.1 billion related to demo-
graphic assumptions and CHF 0.1 billion related to financial
assumptions, and a corresponding increase in Other comprehen-
sive income.
Valuation methodology for the own credit component of
financial liabilities designated at fair value
In 2015, UBS made enhancements to its valuation methodology
for the own credit component of fair value of financial liabilities
designated at fair value. Prior to the fourth quarter of 2015,
own credit was estimated using a funds transfer pricing curve
(FTP), which was derived by discounting UBS new issuance
senior debt curve spreads, 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 (MTN) were issued. A decline in long-dated UBS
MTN issuance volumes, following UBS’s business transforma-
tion, resulted in a reduction in the observable market data avail-
able to benchmark the FTP. From the fourth quarter of 2015
onwards, own credit is estimated using an own credit adjust-
ment curve (OCA), which incorporates more observable market
data, including market-observed secondary prices for UBS
senior debt, UBS credit default swap (CDS) spreads and senior
debt curves of UBS’s peers.
428
Note 1 Summary of significant accounting policies (continued)
This change in accounting estimate was finalized in the fourth
quarter of 2015, following a multi-period implementation project
to develop an enhanced fair value approach supported by related
infrastructure enhancements. The change was implemented on a
prospective basis in the fourth quarter of 2015 and resulted in a
gain of CHF 260 million on a total carrying amount of CHF 63
billion in financial liabilities designated at fair value.
Additionally, UBS will early adopt the own credit presentation
requirements of IFRS 9 in the first quarter of 2016. No restate-
ment of prior periods is required. Under IFRS 9, changes in the fair
value of financial liabilities designated at fair value through profit
and loss related to own credit will be recognized in Other compre-
hensive income and will not be reclassified to the income state-
ment. UBS will adopt the other requirements of IFRS 9 (classifica-
tion and measurement, impairment and hedge accounting) as of
the mandatory effective date in 2018.
Global Asset Management renamed Asset Management
During 2015, the business division Global Asset Management
was renamed Asset Management. This change is reflected
throughout this report.
Retail & Corporate renamed Personal & Corporate Banking
Effective 2016, the business division Retail & Corporate has been
renamed Personal & Corporate Banking. This change is reflected
throughout this report.
New structure of the Corporate Center
As of 1 January 2015, Corporate Center – Core Functions was
reorganized into two new units, Corporate Center – Services and
Corporate Center – Group Asset and Liability Management
(Group ALM). Therefore, UBS now reports: (i) Corporate Center
– Services, (ii) Corporate Center – Group ALM and (iii) Corporate
Center – Non-Core and Legacy Portfolio separately, which
enhances the transparency on Corporate Center activities.
Group ALM is responsible for centrally managing the Group’s
liquidity and funding position, as well as providing other balance
sheet and capital management services to the Group. Most of the
income generated and expenses incurred by Group ALM from
these activities continues to be allocated to the business divisions
and other Corporate Center units. Additional transparency on
revenue allocations from Group ALM to business divisions and
other Corporate Center units is provided in Note 2. Own credit
gains and losses on financial liabilities designated at fair value are
presented in Group ALM.
Corporate Center – Services includes the Group’s central con-
trol functions and all logistics and support functions serving the
business divisions and other Corporate Center units. Most of the
expenses of Corporate Center – Services are allocated to the busi-
ness divisions and other Corporate Center units.
➔ Refer to Note 2 for more information
Service and personnel allocations from Corporate Center –Ser-
vices to business divisions and other Corporate Center units
In 2015, UBS revised the presentation of service allocations from
Corporate Center – Services to the business divisions and other
Corporate Center units to better reflect the economic relation-
ship between them. These cost allocations were previously pre-
sented within the Personnel expenses, General and administrative
expenses and Depreciation and impairment of property, equip-
ment and software line items and are newly presented in the Ser-
vices (to) / from business divisions and Corporate Center line items.
Prior-period information was restated to reflect this change. This
change in presentation did not affect total operating expenses or
performance before tax of the business divisions and Corporate
Center units for any period presented. Similarly, personnel of Cor-
porate Center – Services are no longer allocated to the business
divisions and other Corporate Center units. Prior-period informa-
tion was restated accordingly.
➔ Refer to Note 2 for more information
Change in segment reporting related to fair value gains and
losses on certain internal funding transactions
Consistent with changes in the manner in which operating seg-
ment performance is assessed, beginning in 2015, UBS has
applied fair value accounting for certain internal funding trans-
actions between Corporate Center – Group ALM and the Invest-
ment Bank and Corporate Center – Non-core and Legacy Portfolio
rather than applying amortized cost accounting. This treatment
better aligns with the mark-to-market basis on which these inter-
nal transactions are risk managed within the Investment Bank and
Corporate Center – Non-core and Legacy Portfolio. The terms of
the funding transactions remain otherwise unchanged. Prior peri-
ods have been restated to reflect this change. As a result, Invest-
ment Bank operating income and performance before tax
decreased by CHF 37 million for the year ended 31 December
2014 and by CHF 162 million for the year ended 31 December
2013, with offsetting increases in Corporate Center. This change
did not affect the Group’s total operating income or net profit for
any period presented.
➔ Refer to Note 2 for more information
429
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
c) International Financial Reporting Standards and Interpretations to be adopted in 2016 and later and other adjustments
IFRS 9, Financial Instruments
In July 2014, the IASB published the final version of IFRS 9, Finan-
cial Instruments. The standard reflects the classification and mea-
surement, impairment and hedge accounting phases of the IASB’s
project to replace IAS 39, Financial Instruments: Recognition and
Measurement.
9 hedge accounting requirements is optional, pending the com-
pletion by the IASB of its project on macro hedge accounting
strategies.
UBS will adopt the own credit presentation changes in the first
quarter of 2016 and is currently assessing the impact of the other
requirements of IFRS 9 on its financial statements.
The standard requires all financial assets, except equity instru-
ments, to be classified at fair value through profit or loss, fair
value through other comprehensive income (OCI) or amortized
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
measured at amortized cost or at fair value through OCI, it can be
designated at fair value through profit or loss under the fair value
option if doing so would significantly reduce or eliminate an
accounting mismatch. Equity instruments that are not held for
trading may be accounted for at fair value through OCI, with no
subsequent reclassification of realized gains or losses to the
income statement, while all other equity instruments will be
accounted for at fair value through profit or loss.
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 reclassification of realized gains or losses
on own credit from OCI to the income statement.
In addition, the standard
introduces a forward-looking
expected credit loss impairment model, replacing the incurred loss
model of IAS 39. IFRS 9 also incorporates a reformed approach to
hedge accounting that introduces substantial changes to hedge
effectiveness and eligibility requirements as well as new disclo-
sures. The standard does not explicitly address macro hedge
accounting strategies.
The mandatory effective date of the new standard is 1 Janu-
ary 2018, with earlier adoption permitted. Adoption of the IFRS
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
requires 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 to in exchange
for those goods or services. It also establishes a cohesive set of
disclosure 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 report-
ing periods beginning on 1 January 2018, 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 its financial
statements.
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16, Leases. The standard
substantially changes the accounting by lessees as operating
leases previously accounted for as off-balance sheet financing
arrangements will be recognized as on-balance sheet liabilities
with a corresponding right of use asset also being recorded. The
standard replaces IAS 17, Leases and is effective for UBS from
1 January 2019. Early application is permitted for companies that
also apply IFRS 15, Revenue from Contracts with Customers. UBS
is currently assessing the impact of the new standard on its finan-
cial statements. The Group’s undiscounted minimum lease pay-
ments for operating leases are disclosed in Note 33.
430
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 Arrange-
ments, IAS 16, Property, Plant and Equipment and IAS 38, Intangi-
ble Assets. The standard is effective for UBS reporting periods
beginning on 1 January 2016. The amendments will have no mate-
rial impact on the Group’s financial statements. UBS’s joint arrange-
ments are immaterial, both individually and in aggregate (refer to
Note 30), and UBS does not use revenue-based depreciation meth-
odologies, which the amendments to IAS 16 and IAS 38 prohibit.
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 (IFRS 5, Non-current asset held for sale and discontinued
operations, IFRS 7, Financial Instruments Disclosures, IAS 19,
Employee Benefits and IAS 34, Interim Financial Reporting). Gen-
erally, the amendments are effective for UBS on 1 January 2016.
UBS expects that the adoption of these amendments will not have
a material impact on its 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
determining 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. The
adoption of these amendments will not have a material impact on
the Group’s financial statements.
Amendments to IAS 12, Income Taxes
In January 2016, the IASB issued narrow scope amendments to
IAS 12, Income Taxes, clarifying how to account for deferred tax
assets related to debt instruments measured at fair value. Enti-
ties are required to apply the amendments for annual periods
beginning on or after 1 January 2017. UBS expects that the adop-
tion of these amendments will not have a material impact on its
financial statements.
Amendments to IAS 7, Statement of Cash Flows
In January 2016, the IASB issued amendments to IAS 7, State-
ment of Cash Flows, which inter-alia requires companies to pro-
vide information about changes in their financial liabilities arising
from financing activities, including changes from cash flows and
non-cash changes (such as foreign exchange gains or losses). Enti-
ties are required to apply the amendments for annual periods
beginning on or after 1 January 2017.
431
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 2a Segment reporting
The operational structure of the Group is comprised of the Corpo-
rate Center and five business divisions: Wealth Management,
Wealth Management Americas, Personal & Corporate Banking,
Asset Management and the Investment Bank.
Asset Management
Asset Management is a large-scale global asset manager. It offers
investment capabilities and investment styles across all major tra-
ditional and alternative asset classes to institutions, wholesale
intermediaries and wealth management clients around the world.
Wealth Management
Wealth Management provides comprehensive financial services to
wealthy private clients around the world, with the exception of
those served by Wealth Management Americas. UBS is a global
firm with global capabilities, and its clients benefit from a full
spectrum of resources, including wealth planning, investment
management solutions and corporate finance advice, banking
and lending solutions as well as a wide range of specific offerings.
Wealth Management’s guided architecture model gives clients
access to a wide range of products from the world’s leading third-
party institutions that complement its 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. Its business includes UBS’s domestic US and
Canadian wealth management businesses, as well as interna-
tional business booked in the US. It provides a fully integrated set
of wealth management solutions designed to address the needs
of ultra high net worth and high net worth clients.
Personal & Corporate Banking
Personal & Corporate Banking provides comprehensive financial
products and services to UBS’s private, corporate and institutional
clients in Switzerland, maintaining a leading position in these seg-
ments and embedding its offering in a multi-channel approach.
The business is a central element of UBS’s universal bank delivery
model in Switzerland, supporting other business divisions by
referring clients and growing the wealth of the firm’s private cli-
ents so they can be transferred to Wealth Management. Personal
& Corporate Banking leverages the cross-selling potential of UBS’s
asset-gathering and investment bank businesses, and manages a
substantial part of UBS’s Swiss infrastructure and banking prod-
ucts platform.
Investment Bank
The Investment Bank provides corporate, institutional and wealth
management clients with expert advice, innovative solutions, exe-
cution and comprehensive access to international capital markets.
It offers advisory services and provides in-depth 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 Services, Group Asset and Lia-
bility Management (Group ALM) and Non-core and Legacy Port-
folio. Services includes the Group’s control functions such as
finance, risk control (including compliance) and legal. In addition,
it provides 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 out-
sourcing, nearshoring and offshoring. Group ALM is responsible
for centrally managing the Group’s liquidity and funding position,
as well as providing other balance sheet and capital management
services to the Group. 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.
432
Note 2a Segment reporting (continued)
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CHF million
For the year ended 31 December 2015
Corporate Center
UBS
Services
Group ALM
Non-core
and Legacy
Portfolio
Net interest income
Non-interest income
Allocations from Corporate Center –
Group ALM to business divisions and
other CC units
Income1, 2
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business
divisions and Corporate Center
of which: services from
CC – Services
Depreciation and impairment of
property, equipment and software
Amortization and impairment of
intangible assets3
Total operating expenses4
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
1,825
5,859
471
8,155
0
8,155
2,532
637
2,289
2,209
5
3
5,465
2,689
1,067
6,213
104
7,384
(4)
7,381
4,579
822
1,209
1,193
3
51
6,663
718
1,890
1,603
421
3,913
(37)
3,877
873
264
1,077
1,180
17
0
2,231
1,646
(34)
2,077
15
2,057
0
2,057
729
232
502
523
2
8
1,474
584
1,573
7,526
(211)
8,889
(68)
8,821
3,220
841
2,817
2,731
26
24
6,929
1,892
(340)
435
145
241
0
241
3,903
4,483
(8,215)
(8,245)
868
21
1,059
(818)
795
356
(876)
277
0
277
30
21
(56)
95
0
0
(5)
282
(44)
(79)
(71)
(195)
(8)
(203)
116
807
378
314
0
0
1,301
(1,503)
6,732
23,990
0
30,722
(117)
30,605
15,981
8,107
0
0
920
107
25,116
5,489
(898)
6,386
Additions to non-current assets
6
4
14
1
18
119,850
60,993
141,164
12,874
253,486
22,566
1,851
237,517
94,369
0
1
942,819
1,895
1 Impairments of financial investments available-for-sale for the year ended 31 December 2015 totaled CHF 1 million, of which CHF 1 million was incurred in Wealth Management. 2 Refer to Note 24 for more infor-
mation on own credit in Corporate Center – Group ALM. 3 Refer to Note 17 for more information. 4 Refer to Note 32 for information on restructuring expenses.
433
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 2a Segment reporting (continued)1
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CHF million
For the year ended 31 December 2014
Corporate Center
UBS
Services
Group ALM
Non-core
and Legacy
Portfolio
Net interest income
Non-interest income
Allocations from Corporate Center –
Group ALM to business divisions and
other CC units
Income2, 3
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business
divisions and Corporate Center
of which: services from
CC – Services
Depreciation and impairment of
property, equipment and software
Amortization and impairment of
intangible assets4
Total operating expenses5
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
1,693
5,726
481
7,902
(1)
7,901
2,467
918
2,180
2,122
4
5
5,574
2,326
864
6,004
116
6,984
15
6,998
4,363
550
1,137
1,121
0
48
6,099
900
1,801
1,575
461
3,836
(95)
3,741
850
293
1,074
1,196
17
0
2,235
1,506
(39)
1,914
27
1,902
0
1,902
643
305
478
495
2
9
1,435
467
1,583
6,823
(100)
8,306
2
8,308
2,964
2,671
2,711
2,658
32
15
8,392
(84)
(338)
158
217
37
0
37
3,843
4,123
(8,046)
(8,084)
762
6
688
(652)
816
307
(1,120)
2
0
2
26
21
(47)
82
0
0
0
2
174
(956)
(82)
(863)
2
(862)
124
507
513
411
0
0
1,144
(2,005)
6,555
21,550
0
28,105
(78)
28,027
15,280
9,387
0
0
817
83
25,567
2,461
(1,180)
3,640
Additions to non-current assets
7
6
9
2
7
127,588
56,026
143,711
15,207
292,347
19,871
1,677
237,902
169,826
1,062,478
0
0
1,708
1 Figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting
standards or changes in accounting policies, and events after the reporting period. Refer to Note 1b for more information. 2 Impairments of financial investments available-for-sale for the year ended 31 December 2014
totaled CHF 76 million, of which CHF 49 million were incurred in the Investment Bank and CHF 23 million were incurred in Corporate Center – Non-core and Legacy Portfolio. 3 Refer to Note 24 for more information
on own credit in Corporate Center – Group ALM. 4 Refer to Note 17 for more information. 5 Refer to Note 32 for information on restructuring expenses.
434
Note 2a Segment reporting (continued)1
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CHF million
For the year ended 31 December 2013
Corporate Center
UBS
Services
Group ALM
Non-core
and Legacy
Portfolio
Net interest income
Non-interest income
Allocations from Corporate Center –
Group ALM to business divisions and
other CC units
Income2, 3
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business
divisions and Corporate Center
of which: services from
CC – Services
Depreciation and impairment of
property, equipment and software
Amortization and impairment of
intangible assets4
Total operating expenses5
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
1,568
5,519
486
7,573
(10)
7,563
2,433
708
2,165
2,074
3
7
5,316
2,247
742
5,629
193
6,565
(27)
6,538
4,102
383
1,145
1,127
0
49
5,680
858
1,822
1,556
396
3,774
(18)
3,756
843
297
1,140
1,301
19
0
2,298
1,458
(44)
1,954
23
1,935
0
1,935
609
218
521
535
4
8
1,359
576
1,102
7,552
(217)
8,436
2
8,438
2,899
843
2,517
2,487
28
13
6,300
2,138
(388)
347
218
178
0
178
4,065
4,249
(8,276)
(8,304)
761
4
804
624
(544)
(921)
(841)
0
(841)
26
14
3
87
0
0
43
(626)
(884)
359
(18)
5,786
21,997
(179)
163
3
166
205
1,668
785
693
0
2
2,660
(2,494)
0
27,782
(50)
27,732
15,182
8,380
0
0
816
83
24,461
3,272
(110)
3,381
Additions to non-current assets
5
1
17
1
81
109,758
45,491
141,369
14,223
239,971
17,203
1,236
230,204
215,135
1,013,355
0
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, restatements due to the retrospective adoption of new accounting
standards or changes in accounting policies, and events after the reporting period. Refer to Note 1b for more information. 2 Impairments of financial investments available-for-sale for the year ended 31 December 2013
totaled CHF 41 million, of which CHF 10 million was incurred in Wealth Management, CHF 20 million was incurred in the Investment Bank and CHF 8 million was incurred in Corporate Center – Non-core and Legacy
Portfolio. 3 Refer to Note 24 for more information on own credit in Corporate Center – Group ALM. 4 Refer to Note 17 for more information. 5 Refer to Note 32 for information on restructuring expenses.
435
Consolidated financial statements
Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 2b Segment reporting by geographic location
The operating regions shown in the table below correspond to
the regional management structure of the Group. The allocation
of operating income to these regions reflects, and is consistent
with, the basis on which the business is managed and its perfor-
mance evaluated. These allocations involve assumptions and
judgments that management considers to be reasonable, and
may be refined to reflect changes in estimates or management
structure. The main principles of the allocation methodology are
that client revenues are attributed to the domicile of the client
and trading and portfolio management revenues are attributed
to the country where the risk is managed. This revenue attribu-
tion is consistent with the mandate of the country and regional
Presidents. Certain revenues, such as those related to 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.
Total operating income
Total non-current assets
CHF billion
Share %
CHF billion
Share %
11.3
10.7
5.0
6.8
7.1
0.5
30.6
37
35
16
22
23
2
100
7.1
6.7
0.5
1.7
5.9
0.0
15.2
47
44
3
11
39
0
100
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
For the year ended 31 December 2015
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
Switzerland
Global
Total
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
436
Income statement notes
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
Personal & Corporate Banking
Asset Management
Investment Bank
of which: Corporate Client Solutions
of which: Investor Client Services
Corporate Center
of which: Services
of which: Group ALM
of which: own credit on financial liabilities designated at fair value1
of which: Non-core and Legacy Portfolio
Total net interest and trading income
Net interest income
Interest income
Interest earned on loans and advances2
Interest earned on securities financing transactions3
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 financing transactions4
Interest expense from trading portfolio5
Interest on financial liabilities designated at fair value
Interest on debt issued
Total
Net interest income
Net trading income
Investment Bank Corporate Client Solutions
Investment Bank Investor Client Services
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 value1, 6
For the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
6,732
5,742
12,474
3,034
1,537
2,613
(5)
5,186
1,001
4,185
110
(3)
426
553
(313)
6,555
3,842
10,397
2,845
1,352
2,536
0
4,517
1,030
3,487
(854)
34
16
292
(904)
5,786
5,130
10,915
2,868
1,323
2,485
9
4,852
1,146
3,707
(622)
(166)
(535)
(283)
79
12,474
10,397
10,915
8,625
896
3,071
194
391
8,722
752
3,196
208
315
8,686
852
2,913
364
322
13,177
13,194
13,137
476
976
1,670
730
2,592
6,445
6,732
321
3,494
1,928
5,742
(127)
3,701
708
827
1,804
919
2,382
6,639
6,555
276
2,760
807
3,842
(89)
(2,380)
893
829
1,846
1,197
2,586
7,351
5,786
425
3,541
1,164
5,130
99
(2,056)
3
49
20
7
14
3
15
(3)
20
89
(65)
20
(1)
19
(4)
(7)
24
0
(33)
18
(7)
(21)
9
(3)
3
16
27
139
49
43
1 Refer to Note 24 for more information on own credit. 2 Includes interest income on impaired loans and advances of CHF 16 million for 2015, CHF 15 million for 2014 and CHF 15 million for 2013. 3 Includes inter-
est income on securities borrowed and reverse repurchase agreements and negative interest, including fees, on securities lent and repurchase agreements. 4 Includes interest expense on securities lent and repurchase
agreements and negative interest, including fees, on securities borrowed and reverse repurchase agreements. 5 Includes expense related to dividend payment obligations on trading liabilities. 6 Excludes fair value
changes of hedges related to financial liabilities designated at fair value and foreign currency translation effects arising from translating foreign currency transactions into the respective functional currency, both of which
are reported within net trading income.
437
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
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
Note 5 Other income
CHF million
Associates and subsidiaries
Net gains / (losses) from disposals of subsidiaries1
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)3
Net gains / (losses) from investment properties4
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
31.12.15
1,246
31.12.14
1,470
31.12.13
1,374
836
410
737
3,930
3,567
7,858
1,678
19,016
869
1,007
1,876
17,140
3,060
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
% change from
31.12.14
(15)
(12)
(21)
1
0
(4)
7
(5)
0
6
(4)
1
0
(1)
For the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
2642
0
169
433
252
(1)
251
28
(1)
378
26
(8)5
1,107
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
371
(100)
80
98
15
(99)
76
(7)
759
(33)
75
1 Includes foreign exchange gains / (losses) reclassified from other comprehensive income related to disposed or dormant subsidiaries. 2 Includes a net gain on sale of subsidiaries of CHF 113 million in Wealth Man-
agement and a net gain on sale of subsidiaries of CHF 56 million in Asset Management. Refer to Note 32 for more information. 3 Includes net rent received from third parties and net operating expenses. 4 Includes
unrealized and realized gains / (losses) from investment properties and foreclosed assets. 5 Includes a net gain on sale of businesses of CHF 56 million in Wealth Management. Refer to Note 32 for more information.
438
Note 6 Personnel expenses
CHF million
Salaries1
Variable compensation – performance awards2
of which: guarantees for new hires
Variable compensation – other2
of which: replacement payments3
of which: forfeiture credits
of which: severance payments4
of which: retention plan and other payments
Contractors
Social security
Pension and other post-employment benefit plans5
Wealth Management Americas: Financial advisor compensation2, 6
Other personnel expenses
Total personnel expenses7
For the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
6,282
3,210
38
346
76
(86)
157
198
365
820
808
3,552
600
15,981
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
0
14
(21)
(26)
(6)
23
(3)
(32)
56
4
14
5
(1)
5
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 Refer to Note 28 for more information. 6 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues gener-
ated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes expenses related to compensation commitments with
financial advisors entered into at the time of recruitment which are subject to vesting requirements. 7 Includes net restructuring expenses of CHF 460 million, CHF 327 million and CHF 156 million for the years ended
31 December 2015, 31 December 2014 and 31 December 2013, respectively. Refer to Note 32 for more information.
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 matters1
Other
Total general and administrative expenses2
31.12.15
930
510
611
718
486
460
1,354
1,743
1,087
208
8,107
For the year ended
31.12.14
1,005
31.12.13
1,044
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
% change from
31.12.14
(7)
6
0
18
4
0
4
9
(58)
(19)
(14)
1 Reflects the net increase in provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to Note 22 for more information. Also includes recoveries from third parties of CHF 10 mil-
lion, CHF 10 million and CHF 15 million for the years ended 31 December 2015, 31 December 2014 and 31 December 2013, respectively. 2 Includes net restructuring expenses of CHF 761 million, CHF 319 million and
CHF 548 million for the years ended 31 December 2015, 31 December 2014 and 31 December 2013, respectively. Refer to Note 32 for more information.
439
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 8 Income taxes
CHF million
Tax expense / (benefit)
Swiss
Current
Deferred
Non-Swiss
Current
Deferred
Total income tax expense / (benefit)
Income tax expense / (benefit)
The Swiss current tax expense of CHF 239 million related to tax-
able profits against which no losses were available to offset,
mainly earned by Swiss subsidiaries. The Swiss deferred tax
expense of CHF 330 million mainly reflected a net decrease of
deferred tax assets previously recognized in relation to tax losses
carried forward, partially offset by an increase in recognized
deferred tax assets related to temporary differences.
The non-Swiss current tax expense of CHF 476 million related
to taxable profits earned by non-Swiss subsidiaries and branches,
against which no losses were available to offset. The non-Swiss
net deferred tax benefit of CHF 1,943 million was primarily due
For the year ended
31.12.15
31.12.14
31.12.13
239
330
476
(1,943)
(898)
46
1,348
409
(2,983)
(1,180)
93
455
342
(1,000)
(110)
to an increase in US deferred tax assets, reflecting updated profit
forecasts and an extension of the relevant taxable profit forecast
period used in valuing deferred tax assets. Based on the perfor-
mance of its businesses and the accuracy of historical forecasts,
UBS extended the deferred tax asset forecast period for US tax-
able profits to seven years from six. 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 taxable
profit beyond the current forecast period. Estimating future prof-
itability is inherently subjective and is particularly sensitive to
future economic, market and other conditions which are difficult
to predict.
CHF million
Operating profit / (loss) before tax
of which: Swiss
of which: Non-Swiss
Income taxes at Swiss tax rate of 21%
Increase / (decrease) resulting from:
Non-Swiss 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)
440
For the year ended
31.12.15
31.12.14
31.12.13
5,489
3,753
1,736
1,153
(73)
107
(107)
(297)
541
29
(48)
(2,419)
190
27
(898)
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)
Note 8 Income taxes (continued)
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
provided in the table on the previous page and explained below.
expense arises in relation to those taxable profits. Therefore, the
tax expense calculated by applying the local rate on those profits
is reversed.
Non-Swiss 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. If an entity generates a profit, a tax expense
arises where the local tax rate is in excess of the Swiss tax rate and
a tax benefit arises where the local tax rate is below the Swiss tax
rate. Conversely, if an entity incurs a loss, a tax benefit arises
where the local tax rate is in excess of the Swiss tax rate and a tax
expense arises where the local tax rate is less than 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
described 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
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 per-
manently 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.
441
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 8 Income taxes (continued)
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.
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 assets1
Tax loss carry-forwards
Temporary differences
of which: related to compensation and benefits
of which: related to trading assets
of which: related to investments in subsidiaries and goodwill
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.
442
Tax recognized in equity
Certain tax expenses and benefits were recognized directly in
equity. These included a tax benefit of CHF 131 million related to
cash flow hedges (2014: expense of CHF 196 million), a tax ben-
efit of CHF 8 million related to financial investments classified as
available-for-sale (2014: expense of CHF 52 million), a tax expense
of CHF 1 million related to foreign currency translation gains and
losses (2014: expense of CHF 7 million) and a tax expense of CHF
19 million related to defined benefit plans (2014: benefit of CHF
246 million) recognized in other comprehensive income. In addi-
tion, they included a tax benefit of CHF 9 million recognized in
share premium (2014: benefit of CHF 3 million). Furthermore,
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. As of
31 December 2015, deferred tax assets of CHF 2,094 million (CHF
1,378 million as of 31 December 2014) were recognized by enti-
ties which incurred losses in either the current or preceding year.
The valuation allowance reflects deferred tax assets which
were not recognized because it was not considered probable that
future taxable profits will be available to utilize the related tax loss
carry-forwards and deductible temporary differences.
31.12.15
Valuation
allowance Recognized
(18,378)
(1,284)
(267)
(77)
0
(940)
7,093
5,742
1,310
1,038
2,310
1,084
Gross
25,471
7,026
1,576
1,116
2,310
2,023
32,497
(19,661)
12,835
31.12.14
Valuation
allowance
(22,271)
(1,264)
(317)
(61)
0
(886)
(23,535)
Recognized
7,456
3,605
1,107
1,398
0
1,100
11,060
Gross
29,727
4,869
1,424
1,459
0
1,986
34,596
28
1
27
56
32
13
35
80
Note 8 Income taxes (continued)
As of 31 December 2015, tax loss carry-forwards totaling CHF
56,973 million (31 December 2014: CHF 68,869 million), which
are not recognized as deferred tax assets, were available to be
offset against future taxable profits. These tax losses expire as out-
lined 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
31.12.15
31.12.14
3,727
33
753
34,833
17,627
56,973
9,341
43
613
39,899
18,973
68,869
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 recognizes deferred tax liabilities on undistributed
earnings of subsidiaries except to the extent that those earnings
are indefinitely invested. As of 31 December 2015, no such earn-
ings were considered indefinitely invested.
443
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 9 Earnings per share (EPS) and shares outstanding
As of or for the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
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
6,203
3,466
3,172
6,203
0
6,203
3,466
0
3,466
3,172
0
3,172
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
3,690,375,879
3,720,188,713
3,763,076,788
90,898,386
85,325,322
81,111,217
3,781,274,265
3,805,514,035
3,844,188,005
Earnings per share (CHF)
Basic
Diluted
Shares outstanding1
Shares issued
Treasury shares
Shares outstanding
Exchangeable shares
Shares outstanding for EPS
1.68
1.64
0.93
0.91
0.84
0.83
3,849,731,535
3,717,128,324
3,842,002,069
98,706,275
87,871,737
73,800,252
3,751,025,260
3,629,256,587
3,768,201,817
0
0
246,042
3,751,025,260
3,629,256,587
3,768,447,859
79
79
79
(1)
7
(1)
81
80
4
12
3
3
1 As UBS Group AG is considered to be the continuation of UBS AG, UBS AG share information is presented for the comparative period as of 31 December 2013.
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
31.12.15
31.12.14
31.12.13
31.12.14
% change from
Potentially dilutive instruments
Employee share-based compensation awards
Other equity derivative contracts
Total
67,766,835
6,061,848
94,335,120
6,728,173
117,623,624
16,517,384
73,828,683
101,063,293
134,141,008
(28)
(10)
(27)
444
Balance sheet notes: assets
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
Due from banks, net
Loans, gross
Residential mortgages
Commercial mortgages
Lombard loans
Other loans1
Finance lease receivables2
Securities3
Subtotal
Allowance for credit losses
Loans, net
Total due from banks and loans, net4
31.12.15
31.12.14
11,951
1,035
(3)
11,948
141,608
21,509
107,084
38,552
1,083
2,807
312,643
(689)
311,954
323,902
13,347
648
(13)
13,334
142,380
22,368
108,230
38,925
1,101
3,448
316,452
(695)
315,757
329,091
1 Includes corporate loans. 2 Refer to Note 33 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 expo-
sure to credit risk” in the “Risk management and control” section of this report for information on collateral and credit enhancements.
445
Consolidated financial statements Consolidated financial statements
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 on offsetting between
financial assets and financial liabilities
Balance sheet assets
CHF million
By counterparty
Banks
Customers
Total
Balance sheet liabilities
CHF million
By counterparty
Banks
Customers
Total
31.12.15
31.12.14
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
8,658
16,925
25,584
12,903
54,991
67,893
6,037
17,727
23,763
10,517
13,546
24,063
13,746
54,668
68,414
10,265
20,713
30,979
31.12.15
31.12.14
Cash collateral
on securities
lent
Repurchase
agreements
Cash collateral
payables
on derivative
instruments
Cash collateral
on securities
lent
Repurchase
agreements
Cash collateral
payables
on derivative
instruments
7,078
951
8,029
5,637
4,016
9,653
17,041
21,241
38,282
7,041
2,138
9,180
5,174
6,644
11,818
20,895
21,477
42,372
446
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
Reclassifications
Foreign currency translation
Other
Balance at the end of the year
Specific
allowances
Collective
allowances
Total
allowances
704
(162)
48
114
(9)
(11)
2
686
8
(2)
0
0
0
0
0
6
711
(164)
48
114
(9)
(11)
2
692
Provisions1
23
0
0
2
9
0
0
35
Total
31.12.15
Total
31.12.14
735
(164)
48
117
0
(11)
2
727
750
(154)
29
78
0
21
11
735
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.
By balance sheet line
Due from banks
Loans
Cash collateral on securities borrowed
Provisions1
Balance at the end of the year
1 Represents provisions for loan commitments and guarantees.
Specific
allowances
Collective
allowances
Total
allowances
Provisions
Total
31.12.15
Total
31.12.14
3
683
0
686
0
6
0
6
3
689
0
692
3
689
0
35
727
35
35
13
695
4
23
735
447
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 13 Trading portfolio
CHF million
Trading portfolio assets by issuer type1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: United Kingdom
of which: Australia
of which: Sweden
of which: Singapore
of which: Germany
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 type1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: France
of which: Italy
of which: Australia
of which: Japan
of which: Germany
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.
448
31.12.15
31.12.14
18,768
16,625
119
6,050
3,915
1,649
1,274
1,259
796
2,691
19,431
40,890
63,984
15,519
120,393
3,642
124,035
7,257
50
2,754
915
838
798
725
510
782
2,014
10,053
19,084
29,137
293
3,816
2,103
2,307
191
822
1,280
4,342
24,252
45,219
69,763
17,410
132,392
5,764
138,156
8,716
232
2,987
1,259
569
1,087
810
335
743
2,591
12,050
15,908
27,958
Note 14 Derivative instruments and hedge accounting
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, foreign currency exchange or interest rates, or the
value of shares, commodities, bonds or other financial instru-
ments. A derivative commonly requires little or no initial net
investment by either counterparty to the trade.
The majority of derivative contracts are negotiated with respect
to notional amounts, tenor, price and settlement mechanisms, 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 (CCPs) to clear OTC trades. The trend
toward CCP clearing and settlement will generally facilitate the
reduction of systemic credit exposures.
Other derivative contracts are standardized in terms of their
amounts and settlement dates, and are bought and sold on regu-
lated 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 which are economically settled on a
daily basis and certain OTC derivatives which 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 income, unless the derivatives are desig-
nated 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 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 bal-
ance 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 various derivative financial instruments for both
trading and hedging purposes. Through the use of the products
listed below, the Group is engaged in extensive high-volume mar-
ket-making and client facilitation trading referred to as the flow
business.
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).
449
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
The main derivative product types 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 (CDSs) 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-
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 deriv-
atives is included in a separate section on the following pages.
Total return swaps (TRSs) 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
include 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
Index and the Bloomberg Commodity Indices. All of the trad-
ing 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 and certain non-vanilla
OTC. The vanilla OTC are in forwards, swaps and options.
Measurement techniques applied to determine the fair value of
each derivative product type are described in Note 24.
EDTF | Pillar 3 | Risks of derivative instruments
Derivative instruments are transacted in many trading portfolios,
which generally include several types of instruments, not just
derivatives. The market risk of derivatives is predominantly man-
aged and controlled as an integral part of the market risk of these
portfolios. The Group’s approach to market risk is described in the
audited sections of 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
its counterparties. 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,
although 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 generally the case
because, on the one hand, replacement values can increase over
time (potential future exposure), while on the other hand, expo-
sure may be mitigated by entering into master netting agree-
ments and bilateral collateral arrangements. Both the exposure
measures used internally by the Group to control credit risk and
the capital requirements imposed by regulators reflect these addi-
tional factors.
The replacement values presented on UBS’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
450
Note 14 Derivative instruments and hedge accounting (continued)
EDTF | Pillar 3 | Derivative instruments1
31.12.15
31.12.14
Notional
values
related
to PRVs3
Total
PRV2
Notional
values
related
to NRVs3
Other
notional
values3, 5
Total
NRV4
48.6
840.1
581.7
22.7
0.1
57.0
17.3
0.0
0.1
0.2
48.2
19.1
0.0
0.1
51.9
782.0
549.8
15.5
2,351.4
5,904.7
346.0
169.4
Notional
values
related
to PRVs3
Notional
values
related
to NRVs3
Other
notional
values3, 5
Total
NRV4
49.0
1,323.4
799.8
15.7
55.9
2,622.8
1,233.4
10,244.3
790.3
4.9
446.0
134.7
0.2
83.7
33.9
0.0
0.1
Total
PRV2
0.1
91.8
31.7
0.0
0.1
74.5
1,493.1
67.6
1,399.3
8,771.4
123.7
2,187.9
117.9
2,084.5
13,447.7
6.1
0.6
0.0
6.7
152.7
5.0
4.2
161.9
6.0
0.6
0.0
6.7
165.7
4.1
0.1
169.8
17.8
38.3
9.5
727.6
1,429.9
496.8
16.6
37.6
9.3
673.9
1,330.1
478.0
0.0
0.0
3.4
0.0
0.0
4.6
65.7
2,657.7
63.5
2,486.6
8.1
8.1
0.0
2.9
4.8
4.3
5.0
16.9
0.0
64.1
59.1
107.2
230.3
0.0
4.3
6.7
5.2
4.9
21.2
0.0
87.0
92.6
126.0
30.0
13.4
305.6
43.3
11.1
0.4
0.0
11.5
20.6
62.2
15.6
0.0
0.0
98.4
0.1
3.4
6.4
4.8
4.9
19.5
238.1
3.8
6.5
248.4
817.6
1,626.3
667.3
4.9
3,116.2
0.1
58.5
71.7
109.4
239.6
11.3
0.4
0.0
11.7
19.2
62.3
16.0
0.1
0.0
97.6
0.0
4.7
8.9
4.8
4.8
23.3
245.8
5.1
1.6
252.4
741.4
1,554.0
601.4
3.7
14.8
2,900.5
14.8
0.1
70.0
115.4
124.2
27.9
10.1
309.6
38.0
CHF billion
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts6
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions7
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 transactions7
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions7
Total
Table continues on the next page.
451
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
Derivative instruments1 (continued)
Table continued from the previous page.
CHF billion
Commodity contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Forward contracts
Options
Agency transactions7
Total
Unsettled purchases of non-derivative
financial investments8
Unsettled sales of non-derivative financial
investments8
Total derivative instruments, based on IFRS
netting9
31.12.15
31.12.14
Notional
values
related
to PRVs3
Total
PRV2
Notional
values
related
to NRVs3
Other
notional
values3, 5
Total
NRV4
Notional
values
related
to PRVs3
Total
PRV2
Notional
values
related
to NRVs3
Other
notional
values3, 5
Total
NRV4
0.3
0.7
0.9
0.0
0.0
1.5
3.4
0.1
0.2
2.8
9.9
11.8
4.4
1.0
30.0
9.6
20.1
0.3
0.5
0.6
0.2
0.1
1.5
3.2
0.2
0.1
2.3
9.4
7.5
3.7
1.9
24.6
16.7
6.4
8.2
0.1
8.3
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
7.3
0.1
7.3
167.4
4,602.7
162.4
4,409.0
8,831.1
257.0
5,857.8
254.1
5,600.2
13,507.9
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 2015, these derivatives amounted to a PRV of CHF 0.1 bil-
lion (related notional values of CHF 0.6 billion) and an NRV of CHF 0.2 billion (related notional values of CHF 3.4 billion). As of 31 December 2014, these derivatives amounted to a PRV of CHF 0.3 billion (related notional
values of CHF 6.5 billion) and an NRV of CHF 0.3 billion (related notional values of CHF 7.8 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 was not material for the periods presented. 6 Negative replacement values as of 31 December 2015 include CHF 0.1 billion related to derivative
loan commitments (31 December 2014: CHF 0.0 billion). No notional amounts related to these replacement values are included the table. The maximum irrevocable amount related to these commitments was CHF 15.8
billion as of 31 December 2015 (31 December 2014: CHF 4.5 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 values. 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 2015, based on notional values, was: approximately
53% (31 December 2014: 45%) mature within one year, 29%
(31 December 2014: 34%) within one to five years and 18%
(31 December 2014: 22%) after five years. Notional values of inter-
est 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 contrac-
tual maturities of the cleared underlying derivative contracts.
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 activ-
ities 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 intention 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
ongoing hedging of trading book exposures.
.
452
Note 14 Derivative instruments and hedge accounting (continued)
Market-making activity, which is undertaken within the Invest-
ment Bank, consists of buying and selling single-name CDS, index
CDS, loan CDS and related referenced cash instruments to facili-
tate client trading activity. UBS also actively utilizes CDS to eco-
nomically hedge specific counterparty credit risks in its accrual
and traded loan portfolios (including off-balance sheet loan com-
mitments) 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.
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 2015 matures in a range of approximately
22% (31 December 2014: 27%) within one year, approximately
68% (31 December 2014: 64%) within one to five years and
approximately 10% (31 December 2014: 8%) 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 2015
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 2014
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
3.1
0.3
0.1
0.5
0.0
4.0
2.7
1.4
1.9
0.6
0.1
0.2
0.0
2.8
2.4
0.4
115.5
48.0
2.4
6.3
4.2
176.4
152.8
23.6
1.9
0.6
0.0
0.1
0.0
2.6
2.2
0.4
2.9
0.5
0.1
0.4
0.0
3.9
2.5
1.3
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
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
105.1
45.6
1.8
2.8
0.1
155.3
132.8
22.5
Notional
values
148.8
80.7
3.4
3.5
1.6
238.0
220.5
17.4
453
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
EDTF |
Credit derivatives by counterparty
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2015
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2014
EDTF | Pillar 3 | UBS’s CDS trades are documented using industry
standard forms of documentation or equivalent terms docu-
mented in a bespoke 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.
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 2015, contractual out-
flows related to OTC derivative transactions of approximately CHF
0.2 billion, CHF 1.6 billion and CHF 1.9 billion would have been
required in the event of a one-notch, two-notch and three-notch
reduction in long-term credit ratings, respectively. In evaluating
UBS’s liquidity requirements, 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.
454
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
0.8
1.9
0.4
0.8
4.0
0.3
1.3
0.8
0.4
2.8
27.3
78.0
55.3
15.8
176.4
0.2
1.2
0.9
0.3
2.6
0.6
1.6
0.9
0.8
3.9
19.5
68.3
58.9
8.7
155.3
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
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
according 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
accounted for as hedging instruments are explained in Note 1a
item 15, where terms used in the following sections are explained.
The Group has also entered into various hedging strategies uti-
lizing 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 management purposes. In addition, the Group has used
equity futures, options and, to a lesser extent, swaps for eco-
nomic hedging in a variety of equity trading strategies to offset
underlying equity and equity volatility exposure. The Group has
also entered into CDS that provide economic hedges for credit
risk exposures (refer to the credit derivatives section of this Note).
Fair value changes of derivatives that are part of economic rela-
tionships, 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.
Note 14 Derivative instruments and hedge accounting (continued)
Fair value hedges: interest rate risk related to debt instruments
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 debt instruments, such as non-structured fixed-rate
bonds, covered bonds and subordinated debt, due to movements
in market interest rates. The fair values of outstanding interest
rate derivatives designated as fair value hedges were assets of
CHF 1,656 million and liabilities of CHF 11 million as of 31 Decem-
ber 2015 and assets of CHF 2,236 million and liabilities of CHF 37
million as of 31 December 2014.
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
31.12.15
31.12.14
31.12.13
554
(552)
2
1,113
(1,111)
2
(1,123)
1,116
(7)
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 2015 were assets of CHF 7 million and
liabilities of CHF 327 million (31 December 2014: liabilities of CHF
256 million).
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
31.12.15
31.12.14
31.12.13
(176)
147
(29)
(694)
676
(18)
636
(625)
11
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 13 years. The table on the following page shows fore-
casted principal balances on which expected interest cash flows
arise as of 31 December 2015. 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 2015, the fair values of outstanding deriva-
tives designated as cash flow hedges of forecasted transactions
were CHF 2,176 million assets and CHF 195 million liabilities
(31 December 2014: CHF 4,521 million assets and CHF 1,262 mil-
lion liabilities).
In 2015, a gain of CHF 150 million was recognized in Net trad-
ing income due to hedge ineffectiveness, compared with a gain of
CHF 87 million in 2014 and a loss of CHF 80 million in 2013.
455
Consolidated financial statements
Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
EDTF |
Principal balances subject to cash flow forecasts
CHF billion
Assets
Liabilities
Net balance
Within 1 year
1–3 years
3–5 years
5–10 years
Over 10 years
61
4
57
81
7
74
48
3
45
54
3
51
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 2015, the positive
replacement values and negative replacement values of FX deriva-
tives (mainly FX swaps) designated as hedging instruments in net
investment hedge accounting relationships were CHF 170 million
and CHF 79 million, respectively (31 December 2014: positive
replacement values of CHF 158 million and negative replacement
values of CHF 305 million). As of 31 December 2015, the underly-
ing hedged structural exposures in several currencies amounted
to CHF 5.5 billion (31 December 2014: CHF 8.0 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 2015 was CHF 11.2 billion in total
(31 December 2014: CHF 14.7 billion) including CHF 5.6 billion
notional values related to US dollar versus Swiss franc swaps and
CHF 5.6 billion notional values related to derivatives hedging for-
eign currencies (other than the US dollar) versus the US dollar. The
effective portion of gains and losses of these FX swaps is trans-
ferred 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 indi-
vidual 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 arrange-
ments. The FX translation difference recorded in FCT OCI of the
non-derivative hedging instrument of one foreign entity offsets
the structural FX exposure of another foreign entity. Therefore,
the aggregated FCT OCI of the Group is unchanged from this
hedge designation. As of 31 December 2015, the nominal
amount of non-derivative financial assets and liabilities desig-
nated as hedging instruments in such net investment hedges was
CHF 3.1 billion and CHF 3.1 billion, respectively (31 December
2014: CHF 14.3 billion non-derivative financial assets and CHF
14.3 billion non-derivative financial liabilities).
Ineffectiveness of hedges of net investments in foreign opera-
tions was not material in 2015, 2014 and 2013.
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 2015. 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)
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
Total
CHF billion
Interest rate swaps1
Cash inflows
Cash outflows
FX swaps / forwards
Cash inflows
Cash outflows
Net cash flows
0
0
0
0
0
0
0
7
7
0
0
0
3
3
0
2
1
0
0
1
4
3
0
0
2
2
1
0
0
0
8
5
10
10
3
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 2015.
456
Note 15 Financial investments available-for-sale
CHF million
Financial investments available-for-sale by issuer type1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Germany
of which: France
of which: Netherlands
of which: United Kingdom
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.
31.12.15
31.12.14
47,245
702
21,424
8,583
3,566
2,934
2,782
12,268
2,385
61,898
645
62,543
462
(171)
291
167
45,334
43
17,219
10,145
5,351
2,528
2,348
8,490
2,670
56,494
664
57,159
430
(64)
365
238
457
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 16 Property, equipment and software
At historical cost less accumulated depreciation
CHF million
Historical cost
Own-used
properties
Leasehold
improvements
IT hardware
and
communication
Internally
generated
software
Purchased
software
Other
machines and
equipment
Projects
in progress
31.12.15
31.12.14
Balance at the beginning of the year
7,756
3,060
2,377
1,525
Additions
Disposals / write-offs1
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
68
(181)
221
0
50
(87)
197
(37)
264
(747)
22
(39)
26
(54)
888
(9)
7,863
3,183
1,878
2,375
Balance at the beginning of the year
4,365
2,120
1,976
1,089
Depreciation
Impairment2
Disposals / write-offs1
Reclassifications
Foreign currency translation
161
2
(157)
(11)
(3)
Balance at the end of the year
Net book value at the end of the year3, 4
4,356
3,506
181
10
(78)
2
(25)
2,211
973
228
1
(744)
(2)
(35)
1,425
453
230
3
(46)
0
(1)
1,275
1,100
536
85
(209)
9
(9)
412
452
41
0
(209)
2
(8)
276
135
847
28
(27)
27
(8)
866
592
62
1
(26)
(14)
(6)
609
257
1,341
1,331
0
(1,394)
(7)
17,442
1,853
(1,306)
(32)6
(109)
16,136
1,690
(518)
(359)
493
1,270
17,847
17,442
0
0
0
0
0
0
0
1,2705
10,593
10,140
903
18
(1,260)
(23)6
(78)
10,153
7,695
799
19
(474)
(217)
326
10,593
6,8497
1 Includes write-offs of fully depreciated assets. 2 Impairment charges recorded in 2015 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired
assets: CHF 0 million Leasehold improvements, CHF 2 million Internally generated software). 3 As of 31 December 2015, contractual commitments to purchase property in the future amounted to approximately CHF
0.6 billion. 4 Includes CHF 47 million related to leased assets, mainly IT hardware and communication. 5 Includes CHF 928 million related to Internally generated software, CHF 86 million related to Own-used prop-
erties and CHF 257 million related to Leasehold improvements. 6 Reflects reclassifications to Properties held-for-sale (CHF 9 million on a net basis) reported within Other assets. 7 Excludes investment properties of
CHF 5 million.
458
Note 17 Goodwill and intangible assets
Introduction
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, as separate cash-gener-
ating units (CGU). The impairment test is performed for each seg-
ment 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 December 2015, total goodwill recognized on the balance
sheet was CHF 6.2 billion, of which CHF 1.3 billion, CHF 3.5 bil-
lion and CHF 1.4 billion was carried by Wealth Management,
Wealth Management Americas and Asset Management, respec-
tively. Based on the impairment testing methodology described
below, UBS concluded that the goodwill balances as of 31 Decem-
ber 2015 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 three
forecasted years and the terminal value. The terminal value, which
covers all periods beyond the third year, is calculated on the basis
of the forecast of third-year profit, the discount rate and the long-
term growth rate and is adjusted for the effect of the capital
assumed to be needed to support the perpetual growth implied
by the long-term growth rate.
The carrying amount for each segment is determined by refer-
ence to the Group’s equity attribution framework. Within this
framework, which is described in the “Capital management”
section of this report, the Board of Directors (BoD) attributes
equity to the businesses after considering their risk exposure,
risk-weighted assets and leverage ratio denominator usage,
goodwill and intangible assets. The total amount of equity attrib-
uted to the business divisions can differ from the Group’s actual
equity during a given period. The framework 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 segments. The attributed
equity methodology is aligned with the business planning pro-
cess, the inputs from which are used in calculating the recover-
able 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 three, 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 different regions worldwide. Earnings available to sharehold-
ers are estimated based on forecast results, which are part of the
business 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. The discount rates were
unchanged between 2014 and 2015.
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
reduce IFRS equity 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.
459
Consolidated financial statements Consolidated financial statements
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
Asset Management
CHF million
Historical cost
Balance at the beginning of the year
Additions
Disposals
Write-offs
Foreign currency translation
Balance at the end of the year
Accumulated amortization and impairment
Balance at the beginning of the year
Amortization
Impairment1
Disposals
Write-offs
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year
Discount rates
Growth rates
31.12.15
31.12.14
31.12.15
31.12.14
9.0
9.0
11.0
9.0
9.0
9.0
11.0
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
Total
31.12.15
31.12.14
6,368
(30)
(97)
6,240
0
0
6,240
756
5
761
536
37
5
578
183
833
30
(1)
(20)
(22)
820
635
57
13
(1)
(20)
(10)
675
145
1,589
30
(1)
(20)
(16)
1,581
1,171
94
13
(1)
(20)
(5)
1,253
328
7,957
30
(32)
(20)
(114)
7,821
1,171
94
13
(1)
(20)
(5)
1,253
6,568
7,283
17
(1)
0
657
7,957
990
80
2
0
0
99
1,171
6,785
1 Impairment charges recorded in 2015 and 2014 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired assets: CHF 4 million for 2015 and CHF
3 million for 2014).
The table below presents the disclosure of goodwill and intangible assets by segment for the year ended 31 December 2015.
CHF million
Goodwill
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Asset
Management
Corporate Center
– Services
Balance at the beginning of the year
1,359
3,490
44
1,476
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
460
(7)
(40)
1,312
45
(3)
(4)
38
25
3,514
246
4
(51)
0
199
(14)
29
84
0
0
(13)
(11)
(6)
53
(23)
(68)
1,385
17
(5)
(2)
(1)
8
25
25
(21)
30
Total
6,368
0
(30)
0
(97)
6,240
417
30
0
(94)
(13)
(12)
328
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:
2016
2017
2018
2019
2020
Thereafter
Not amortized due to indefinite useful life
Total
Note 18 Other assets
CHF million
Prime brokerage receivables1
Recruitment loans to financial advisors
Other loans to financial advisors
Bail deposit2
Accrued interest income
Accrued income – other
Prepaid expenses
Net defined benefit pension and post-employment assets3
Settlement and clearing accounts
VAT and other tax receivables
Properties and other non-current assets held for sale
Assets of disposal group held for sale4
Other
Total other assets
Intangible assets
93
66
56
45
37
23
9
328
31.12.15
11,341
31.12.14
12,534
3,184
418
1,221
462
844
1,033
50
402
398
134
279
2,393
22,160
2,909
372
1,323
453
1,009
1,027
0
617
272
236
0
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. Prime brokerage receivables are mainly comprised
of margin lending receivables. 2 Refer to item 1 in Note 22b for more information. 3 Refer to Note 28 for more information. 4 Refer to Note 32 for more information.
461
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Balance sheet notes: liabilities
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
of which: issued by UBS AG with original maturity greater than one year1, 2
Structured debt instruments issued
Equity-linked3
Credit-linked
Rates-linked4
Other
Total structured debt instruments issued
of which: issued by UBS AG with original maturity greater than one year1, 5
Structured over-the-counter debt instruments
Equity-linked3
Other
Total structured over-the-counter debt instruments
of which: issued by UBS AG with original maturity greater than one year1, 6
Repurchase agreements
Loan commitments and guarantees7
Total
of which: life-to-date own credit (gain) / loss
31.12.15
11,836
172,778
49,421
6,139
161,848
390,185
402,021
31.12.14
10,492
186,745
52,269
14,766
156,427
410,207
420,699
31.12.15
31.12.14
4,098
3,542
30,965
3,652
16,587
1,231
52,436
36,539
2,885
2,608
5,493
4,497
849
119
62,995
(287)
4,488
3,616
37,725
4,645
19,380
2,138
63,888
45,851
2,508
3,154
5,662
3,691
1,167
93
75,297
302
1 Issued by UBS AG (standalone). Based on original contractual maturity without considering any early redemption features. 2 100% of the balance as of 31 December 2015 was unsecured. 3 Includes investment
fund unit-linked instruments issued. 4 Includes non-structured rates-linked debt instruments issued. 5 More than 98% of the balance as of 31 December 2015 was unsecured. 6 More than 35% of the balance as
of 31 December 2015 was unsecured. 7 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 2015, the contractual redemption amount at
maturity of Financial liabilities designated at fair value through profit
or loss was CHF 0.1 billion higher than the carrying value. As of
31 December 2014, the contractual redemption amount at maturity
of such liabilities was CHF 0.7 billion lower than the carrying value.
The table on the following page shows the residual 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 does not consider any early
redemption features. Interest rate ranges for future interest pay-
ments related to these financial liabilities designated at fair value
have not been included in the table on the following page 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
462
Note 20 Financial liabilities designated at fair value (continued)
Contractual maturity of carrying value
CHF million
UBS AG1
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Other subsidiaries2
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Total
2016
2017
2018
2019
2020
2021–2025
Thereafter
Total
31.12.15
Total
31.12.14
2,873
23,148
26,021
29
260
288
1,912
5,314
7,226
58
484
542
776
3,559
4,335
179
188
367
279
2,839
3,118
17
122
139
302
3,286
3,588
34
127
161
1,623
2,838
4,461
164
178
342
2,938
8,839
11,777
10,702
49,824
60,526
513
116
629
993
1,475
2,469
12,891
58,643
71,535
1,473
2,289
3,762
26,310
7,768
4,702
3,257
3,749
4,803
12,406
62,995
75,297
1 Comprises instruments issued by UBS AG (standalone). 2 Comprises instruments issued by subsidiaries of UBS AG.
Note 21 Debt issued held at amortized cost
CHF million
Certificates of deposit
Commercial paper
Other short-term debt
Short-term debt1
Non-structured fixed-rate bonds
of which: issued by UBS AG with original maturity greater than one year2
Senior unsecured debt that will contribute to total loss-absorbing capacity3
Covered bonds
Subordinated debt
of which: high-trigger loss-absorbing additional tier 1 perpetual capital notes
of which: low-trigger loss-absorbing additional tier 1 perpetual capital notes
of which: phase-out additional tier 1 capital
of which: low-trigger loss-absorbing tier 2 capital
of which: phase-out tier 2 capital
Debt issued through the central bond institutions of the Swiss regional or cantonal banks
Other long-term debt
of which: issued by UBS AG with original maturity greater than one year2
Long-term debt4
Total debt issued held at amortized cost5
31.12.15
11,967
31.12.14
16,591
3,824
5,424
21,215
31,240
31,078
5,633
8,490
17,763
2,837
2,326
0
10,346
2,254
8,237
570
278
71,932
93,147
4,841
5,931
27,363
24,582
24,433
0
13,614
16,123
0
0
1,197
10,464
4,462
8,029
1,495
861
63,844
91,207
1 Debt with an original maturity of less than one year. 2 Issued by UBS AG (standalone). Based on original contractual maturity without considering any early redemption features. 100% of the balance as of 31 Decem-
ber 2015 was unsecured. 3 Issued by UBS Group Funding (Jersey) Ltd., a funding subsidiary directly held and guaranteed by UBS Group AG. 4 Debt with original maturity greater than or equal to one year. 5 Net of
bifurcated embedded derivatives with a net negative fair value of CHF 130 million as of 31 December 2015 (31 December 2014: net negative fair value of CHF 25 million).
The Group uses interest rate and foreign exchange derivatives to
manage the risks inherent in certain debt instruments held at
amortized cost. In certain cases, the Group applies hedge account-
ing 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 1,037 million and by CHF
1,703 million as of 31 December 2015 and 2014, respectively,
reflecting changes in fair value due to interest rate movements.
463
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 21 Debt issued held at amortized cost (continued)
Subordinated debt consists of unsecured debt obligations that
are contractually subordinated in right of payment to all other
present and future non-subordinated obligations of the respective
issuing entity. All of the subordinated debt instruments outstand-
ing as of 31 December 2015 pay a fixed rate of interest.
The table below shows the residual contractual maturity of the
carrying value of debt issued, split between fixed-rate and float-
ing-rate based on the contractual terms and does not consider
any early redemption features. The effects from interest rate
swaps, which are used to hedge various fixed-rate debt issuances
by changing the repricing characteristics into those similar to
floating-rate debt, are also not considered in the table below.
➔ Refer to Note 27b for maturity information on an undiscounted
cash flow basis
Contractual maturity dates of carrying value
CHF million, except where indicated
UBS Group AG1
Subordinated debt
Fixed-rate
Interest rates (range in %)
Subtotal
UBS AG2
Non-subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subordinated debt
Fixed-rate
Interest rates (range in %)
Subtotal
Other subsidiaries3
Non-subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subtotal
Total
2016
2017
2018
2019
2020
2021–2025
Thereafter
Total
31.12.15
Total
31.12.14
0
0
0
0
0
0
0
0
0
0
0
0
5,163
5.8–7.1
5,163
5,163
5,163
0
0
13,064
0–6.4
10,014
918
3.1–5.9
23,996
3,936
0–8.3
0
3,936
27,932
6,334
0–5.9
3,721
414
4.1–7.4
10,468
8,004
0–6.6
963
4,036
2.4–4.0
939
4,340
0–4.9
239
0
0
0
8,967
4,974
4,579
728
791
742
0.3–8.1
0.4–3.7
0.5–2.9
0
728
11,196
8
799
9,766
0
742
5,717
2,219
0.1–3
297
2,516
7,095
4,375
1.3–4.0
0
8,772
4.8–8.8
13,147
7,433
0–4.1
0
7,434
20,581
0
40,153
59,327
2,031
17,907
11,296
2,497
4.8–7.8
4,528
1,171
0.4–2.8
0
1,171
10,861
12,600
16,123
70,659
86,746
17,020
4,460
306
17,325
93,147
1
4,462
91,207
1 Comprises debt issued by UBS Group AG (standalone). 2 Comprises debt issued by UBS AG (standalone). 3 Comprises debt issued by other direct subsidiaries of UBS Group AG and by subsidiaries of UBS AG.
464
Note 22 Provisions and contingent liabilities
a) Provisions
CHF million
Balance at the beginning of the year
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
matters2
3,053
Operational
risks1
50
43
(7)
(37)
0
0
(1)
47
1,263
(166)
(1,174)
0
0
7
2,983
Loan com-
mitments
and
guarantees
Restruc-
turing
647
361
(102)
(287)
0
0
5
6243
23
6
(3)
0
0
9
0
35
Real
estate
153
27
(1)
(28)
5
0
2
1574
Employee
benefits5
215
7
(18)
(1)
0
0
(5)
198
Other
224
71
(40)
(133)
0
0
(3)
120
Total
31.12.15
Total
31.12.14
4,366
1,778
(337)
(1,660)
5
9
3
4,164
2,971
3,308
(528)
(1,659)
0
8
266
4,366
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 restruc-
turing provisions of CHF 110 million as of 31 December 2015 (31 December 2014: CHF 116 million) and provisions for onerous lease contracts of CHF 514 million as of 31 December 2015 (31 December 2014: CHF 530
million). 4 Includes reinstatement costs for leasehold improvements of CHF 95 million as of 31 December 2015 (31 December 2014: CHF 98 million) and provisions for onerous lease contracts of CHF 62 million as of
31 December 2015 (31 December 2014: CHF 55 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 payments. The utilization of onerous lease
provisions is driven by the maturities of the underlying lease con-
tracts. 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.
465
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
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 inherent
in all such matters affect the amount and timing of any potential
outflows for both matters with respect to which provisions have
been established and other contingent liabilities. The Group makes
provisions for such matters brought against it when, in the opinion
of management after seeking legal advice, it is more likely than not
that the Group has a present legal or constructive obligation as a
result of past events, it is probable that an outflow of resources will
be required, and the amount can be reliably estimated. Where
these factors are otherwise satisfied, a provision may be established
for claims that have not yet been asserted against the Group, but
are nevertheless expected to be, based on the Group’s experience
with similar asserted claims. If any of those conditions is not met,
such matters result in contingent liabilities. If the amount of an
obligation cannot be reliably estimated, a liability exists that is not
recognized even if an outflow of resources is probable. Accordingly,
no provision is established even if the potential outflow of resources
with respect to 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
effects. The amount of damages claimed, the size of a transac-
tion or other information is provided where available and appro-
priate 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 mat-
ters for which we have established provisions, we are able to
estimate the expected timing of outflows. However, the aggre-
gate amount of the expected outflows for those matters for
which we are able to estimate expected timing is immaterial rela-
tive to our current and expected levels of liquidity over the rele-
vant time periods.
466
Note 22 Provisions and contingent liabilities (continued)
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.
Although we therefore cannot provide a numerical estimate of
the future losses that could arise from litigation, regulatory and
similar matters, we believe that the aggregate amount of possible
future losses from this class that are more than remote substan-
tially exceeds the level of current provisions. Litigation, regulatory
and similar matters may also result in non-monetary penalties and
consequences. For example, the non-prosecution agreement
(NPA) described in paragraph 5 of this Note, which we entered
into with the US Department of Justice (DOJ), Criminal Division,
Fraud Section in connection with our submissions of benchmark
interest rates, including, among others, the British Bankers’ Asso-
ciation London Interbank Offered Rate (LIBOR), was terminated by
the DOJ based on its determination that we had committed a US
crime in relation to foreign exchange matters. As a consequence,
UBS AG has pleaded guilty to one count of wire fraud for conduct
in the LIBOR matter, and has agreed to pay a USD 203 million fine
and accept a three-year term of probation. A guilty plea to, or
conviction of, a crime (including as a result of termination of the
NPA) could have material consequences for UBS. Resolution of
regulatory proceedings may require us to obtain waivers of regu-
latory disqualifications to maintain certain operations, may entitle
regulatory authorities to limit, suspend or terminate licenses and
regulatory authorizations and may permit financial market utilities
to limit, suspend or terminate our participation in such utilities.
Failure to obtain such waivers, or any limitation, suspension or
termination of licenses, authorizations or participations, could
have material consequences for 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.
EDTF |
Provisions for litigation, regulatory and similar matters by business division and Corporate Center unit1
CHF million
Balance at the beginning of the year
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
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
CC –
Services
CC –
Group ALM
188
114
(10)
(36)
0
(12)
245
209
372
(19)
(110)
0
7
459
92
0
(3)
(5)
0
(2)
83
53
0
(3)
(33)
0
(1)
16
1,258
17
(15)
(675)
0
0
585
312
15
(1)
(13)
0
(3)
310
0
0
0
0
0
0
0
CC –
Non-core
and Legacy
Portfolio
Total
31.12.15
Total
31.12.14
941
744
(115)
(302)
0
18
3,053
1,263
(166)
(1,174)
0
7
1,284
2,983
1,622
2,941
(395)
(1,286)
(2)
172
3,053
1 Provisions, if any, for the matters described in this Note are recorded in Wealth Management (item 3), Wealth Management Americas (item 4), Corporate Center – Services (item 7) and Corporate Center – Non-core
and Legacy Portfolio (items 2 and 8). Provisions, if any, for the matters described in this Note in items 1 and 6 are allocated between Wealth Management and Personal & Corporate Banking, and provisions, if any, for
the matters described in this Note in item 5 are allocated between the Investment Bank, Corporate Center – Services and Corporate Center – Non-core and Legacy Portfolio.
467
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
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
employees 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 2013, 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 proceeds of tax fraud and of
banking and financial solicitation by unauthorized persons. In
2014, UBS AG was placed under formal examination with respect
to the potential charges of laundering of proceeds of tax fraud,
and the investigating judges ordered UBS to provide bail (“cau-
tion”) of EUR 1.1 billion. UBS AG appealed the determination of
the bail amount, but both the appeal court (“Cour d’Appel”) and
the French Supreme Court (“Cour de Cassation”) upheld the bail
amount and rejected the appeal in full in late 2014. UBS AG has
filed and has had accepted a petition to the European Court of
Human Rights to challenge various aspects of the French court’s
decision. In September 2015, the former CEO of UBS Wealth Man-
agement was placed under formal examination in connection with
these proceedings. In addition, the investigating judges have
sought to issue arrest warrants against three Swiss-based former
employees of UBS AG who did not appear when summoned by
the investigating judge. In February 2016, the investigating judge
notified UBS that he does not intend to conduct further investiga-
tion. This notification commences a period in which the prosecutor
may file a request for a judge to issue formal charges.
In March 2015, UBS (France) S.A. was placed under formal
examination for complicity regarding the laundering of proceeds
of tax fraud and of banking and financial solicitation by unauthor-
ized persons for the years 2004 until 2008 and declared witness
with legal assistance for the years 2009 to 2012. A bail of EUR 40
million was imposed, and was reduced by the Court of Appeals in
May 2015 to EUR 10 million. Separately, in 2013, the French
banking supervisory authority’s disciplinary commission repri-
manded UBS (France) S.A. for having had insufficiencies in its con-
trol and compliance framework around its cross-border activities
and know your customer obligations. It imposed a penalty of EUR
10 million, which was paid.
UBS AG has been notified by the Brussels public prosecutor’s
office that it is investigating various aspects of UBS’s cross-border
business.
468
In January 2015, UBS 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. UBS is cooperating with the
authorities in these investigations.
UBS has, and reportedly numerous other financial institu-
tions have, received inquiries from authorities concerning
accounts relating to the Fédération Internationale de Football
Association (FIFA) and other constituent soccer associations and
related persons and entities. UBS is cooperating with authorities
in these inquiries.
Our balance sheet at 31 December 2015 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 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.
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
active from 2006 to 2008, and securitized less than half of these
loans.
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 lawsuits related to approximately USD 6.2 billion in original face
amount of RMBS underwritten or issued by UBS. Of the USD 6.2
billion in original face amount of RMBS that remains at issue in
these cases, approximately USD 3.2 billion was issued in offerings
in which a UBS subsidiary transferred underlying loans (the major-
ity of which were purchased from third-party originators) into a
securitization trust and made representations and warranties
about those loans (UBS-sponsored RMBS). The remaining USD 3
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.
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 (SDNY).
The original principal balance at issue in the Kansas case is approx-
imately USD 1.15 billion and the original principal balance at issue
in the SDNY case is approximately USD 400 million. In February
2016, UBS made an offer of judgment to NCUA in the SDNY case,
which NCUA has accepted, pursuant to which UBS will pay USD
33 million plus an amount of prejudgment interest that will be
determined by the court and reasonable attorneys’ fees. Once
these amounts are determined and judgment is entered, the
SDNY case will end. Prejudgment interest and attorneys’ fees are
expected to significantly increase the total amount to be paid in
the SDNY case.
tions relating to the characteristics of the underlying loans. In the
event of a material breach of these representations, we were in
certain circumstances contractually obligated to repurchase the
loans to which the representations related or to indemnify certain
parties against losses. UBS has received demands to repurchase
US residential mortgage loans as to which UBS made certain rep-
resentations at the time the loans were transferred to the securi-
tization trust aggregating approximately USD 4.1 billion in origi-
nal principal balance. Of this amount, UBS considers claims
relating to approximately USD 2 billion in original principal bal-
ance to be resolved, including claims barred by the statute of
limitations. Substantially all of the remaining claims are in litiga-
tion, including the matters described in the next paragraph. UBS
believes that new demands to repurchase US residential mort-
gage loans are time-barred under a decision rendered by the New
York Court of Appeals.
In 2012, certain RMBS trusts filed an action (Trustee Suit) in
the SDNY seeking to enforce UBS RESI’s obligation to repur-
chase loans in the collateral pools for three RMBS securitizations
(Transactions) with an original principal balance of approxi-
mately USD 2 billion, for which Assured Guaranty Municipal
Corp. (Assured Guaranty), a financial guaranty insurance com-
pany, had previously demanded repurchase. In January 2015,
the court rejected plaintiffs’ efforts to seek damages for all loans
purportedly in breach of representations and warranties in any
of the three Transactions and limited plaintiffs to pursuing
claims based solely on alleged breaches for loans identified in
the complaint or other breaches that plaintiffs can establish
were independently discovered by UBS. In 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. Trial is
currently scheduled for April 2016.
Lawsuits related to contractual representations and warranties
concerning mortgages and RMBS: When UBS acted as an RMBS
sponsor or mortgage seller, we generally made certain representa-
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.
469
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
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
31.12.15
31.12.14
849
662
(94)
(199)
1,218
817
239
(120)
(87)
849
Mortgage-related regulatory matters: In 2014, UBS received 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. In September 2015, the Eastern District of
New York identified a number of transactions that are currently
the focus of their inquiry, as to which we are providing additional
information. UBS continues to respond to the FIRREA subpoena
and to subpoenas 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 Gen-
eral for the Troubled Asset Relief Program (SIGTARP) (who is work-
ing in conjunction with the US Attorney’s Office for Connecticut
and the DOJ) and the SEC relating to trading practices in connec-
tion with purchases and sales of mortgage-backed securities in
the secondary market from 2009 through the present. We are
cooperating with the authorities in these matters. Numerous
other banks reportedly are responding to similar inquiries from
these authorities.
As reflected in the table “Provision for claims related to sales
of residential mortgage-backed securities and mortgages,” our
balance sheet at 31 December 2015 reflected a provision of USD
1,218 million with respect to matters described in this item 2. As
in the case of other matters for which we have established provi-
sions, the future outflow of resources in respect of this matter
cannot be determined with certainty based on currently avail-
able information, and accordingly may ultimately prove to be
substantially greater (or may be less) than the provision that we
have recognized.
470
Note 22 Provisions and contingent liabilities (continued)
3. 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
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
aggregate, although that figure likely includes fictitious profit
reported by BMIS. The documentation establishing both funds
identifies UBS entities in various roles including custodian, admin-
istrator, manager, distributor and promoter, and indicates that
UBS employees serve as board members. UBS (Luxembourg) SA
and certain other UBS subsidiaries are responding to inquiries by
Luxembourg 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 indi-
viduals including current and former UBS employees. The amounts
claimed are approximately EUR 890 million and EUR 305 million,
respectively. 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 entities (and non-UBS entities) for purported
losses relating to the Madoff scheme. The majority of these cases
are pending in Luxembourg, 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
July 2014, the Luxembourg Court of Appeal dismissed one test
appeal in its entirety, which decision was appealed by the investor.
In July 2015, the Luxembourg Supreme Court found in favor of
UBS and dismissed the investor’s appeal. 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 SDNY dismissed all of the BMIS Trustee’s claims
other than claims for recovery 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 rul-
ing. In December 2014, several claims, including a purported class
action, were filed in the US by BMIS customers against UBS enti-
ties, asserting claims similar to the ones made by the BMIS Trustee,
seeking unspecified damages. One claim was voluntarily with-
drawn by the plaintiff. In July 2015, following a motion by UBS,
the SDNY dismissed the two remaining claims on the basis that
the New York courts did not have jurisdiction to hear the claims
against the UBS entities. In Germany, certain clients of UBS are
exposed to Madoff-managed positions through third-party funds
and funds administered by UBS entities in Germany. A small num-
ber of claims have been filed with respect to such funds. In Janu-
ary 2015, a court of appeal reversed a lower court decision in
favor of UBS in one such case and ordered UBS to pay EUR 49
million, plus interest (approximately EUR 15.3 million). UBS filed
an application for leave to appeal the decision. That application
was rejected by the German Federal Supreme Court in December
2015, meaning that the Court of Appeal’s decision is final.
471
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
4. 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 Company of Puerto
Rico and distributed by UBS Financial Services Incorporated of
Puerto Rico (UBS PR) have led to multiple regulatory inquiries, as
well as customer complaints and arbitrations with aggregate
claimed damages of USD 1.6 billion, of which claims with aggre-
gate claimed damages of approximately USD 374 million have
been resolved through settlements or arbitration. 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-purpose loans; customer complaint and
arbitration allegations include fraud, misrepresentation and
unsuitability of the funds and of the loans. A shareholder deriva-
tive action was filed in 2014 against various UBS entities and cur-
rent and certain former directors of the funds, alleging hundreds
of millions in losses in the funds. In 2015, defendants’ motion to
dismiss was denied. Defendants are seeking leave to appeal that
ruling to the Puerto Rico Supreme Court. In 2014, a federal class
action complaint also was filed against various UBS entities, cer-
tain members of UBS PR senior management, and the co-man-
ager of certain of the funds seeking damages for investor losses in
the funds during the period from May 2008 through May
2014. Defendants have moved to dismiss that complaint. In
March 2015, a class action was filed in Puerto Rico state court
against UBS PR seeking equitable relief in the form of a stay of any
effort by UBS PR to collect on non-purpose loans it acquired from
UBS Bank USA in December 2013 based on plaintiffs’ allegation
that the loans are not valid.
In 2014, UBS reached a settlement with the Office of the Com-
missioner 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. Pursu-
ant 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. That review resulted
in an additional USD 2.1 million in restitution being offered to
certain investors.
In September 2015, the SEC and the Financial Industry Regula-
tory Authority (FINRA) announced settlements with UBS PR of
their separate investigations stemming from the 2013 market
events. Without admitting or denying the findings in either mat-
ter, UBS PR agreed in the SEC settlement to pay USD 15 million
(which includes USD 1.18 million in disgorgement, a civil penalty
of USD 13.63 million and pre-judgment interest), and USD 18.5
million in the FINRA matter (which includes up to USD 11 million
in restitution to 165 UBS PR customers and a civil penalty of USD
7.5 million). The SEC settlement involves a charge against UBS PR
of failing to supervise the activities of a former financial advisor
who had recommended the impermissible investment of non-
purpose loan proceeds into the UBS PR closed-end funds, in viola-
tion of firm policy and the customer loan agreements. In the
FINRA settlement, UBS PR is alleged to have failed to supervise
certain customer accounts which were both more than 75%
invested in UBS PR closed-end funds and leveraged against those
positions. We also understand that the DOJ is conducting a crimi-
nal inquiry into the impermissible reinvestment of non-purpose
loan proceeds. We are cooperating with the authorities in this
inquiry.
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, but that dis-
missal was subsequently overturned on appeal. Defendants have
renewed their motion to dismiss the complaint on grounds not
addressed when the court issued its prior ruling.
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. A
motion for class certification was denied without prejudice to the
right to refile the motion after limited discovery, and that motion
has since been refiled.
472
Note 22 Provisions and contingent liabilities (continued)
In June 2015 Puerto Rico’s Governor stated that the Common-
wealth is unable to meet its obligations. In addition, certain agen-
cies and public corporations of the Commonwealth have held
discussions with their creditors to restructure their outstanding
debt, and certain agencies and public corporations of the Com-
monwealth have defaulted on certain interest payments that
were due in August 2015 and January 2016. The United States
Supreme Court has agreed to hear Puerto Rico’s appeal of a US
District Court’s invalidation of the Puerto Rico Public Corporations
Debt Enforcement and Recovery Act (the Act), under which Puerto
Rico’s public corporations would be permitted to effect a manda-
tory restructuring of their respective debts with a specified credi-
tor vote that would be binding on all applicable creditors, once
approved by a court or, alternatively, under a court-supervised
bankruptcy type restructuring. The foregoing events, any further
defaults by the Commonwealth or its agencies and public corpo-
rations on (or any debt restructurings proposed by them with
respect to) their outstanding debt, a Supreme Court decision
upholding the Act (or sending it back to the District Court for
further proceedings) and any further actions taken by Puerto
Rico’s public corporations under the Act, as well as any market
reactions to any of the foregoing, may increase the number of
claims against UBS concerning Puerto Rico securities as well as
potential damages sought.
Our balance sheet at 31 December 2015 reflected provisions
with respect to matters described in this item 4 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.
5. Foreign exchange, LIBOR, and benchmark rates, and other
trading practices
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
review of its foreign exchange business, which includes our pre-
cious metals and related structured products businesses. Since
then, various authorities have commenced investigations con-
cerning possible manipulation of foreign exchange markets,
including FINMA, the Swiss Competition Commission (WEKO),
the DOJ, the SEC, the US Commodity Futures Trading Commis-
sion (CFTC), the Board of Governors of the Federal Reserve Sys-
tem (Federal Reserve Board), the UK Financial Conduct Authority
(FCA) (to which certain responsibilities of the UK Financial Services
Authority (FSA) have passed), the UK Serious Fraud Office (SFO),
the Australian Securities and Investments Commission (ASIC), the
Hong Kong Monetary Authority (HKMA), the Korea Fair Trade
Commission (KFTC) and the Brazil Competition Authority (CADE).
In addition, WEKO is, and a number of other authorities report-
edly are, investigating potential manipulation of precious metals
prices. UBS has taken and will take appropriate action with respect
to certain personnel as a result of its ongoing review.
In 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 met-
als 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 mil-
lion to FINMA representing confiscation of costs avoided and
profits. In May 2015, the Federal Reserve Board and the Con-
necticut Department of Banking issued an Order to Cease and
Desist and Order of Assessment of a Civil Monetary Penalty Issued
upon Consent (Federal Reserve Order) to UBS AG. As part of the
Federal Reserve Order, UBS AG paid a USD 342 million civil mon-
etary penalty.
473
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
In May 2015, the DOJ’s Criminal Division (Criminal Division)
terminated the December 2012 Non-Prosecution Agreement
(NPA) with UBS AG related to UBS’s submissions of benchmark
interest rates. As a result, UBS AG entered into a plea agreement
with the Criminal Division pursuant to which UBS AG agreed to
and did plead guilty to a one-count criminal information filed in
the US District Court for the District of Connecticut charging UBS
AG with one count of wire fraud in violation of 18 USC Sections
1343 and 2. Under the plea agreement, UBS AG agreed to a sen-
tence that includes a USD 203 million fine and a three-year term
of probation. The criminal information charges that between
approximately 2001 and 2010, UBS AG engaged in a scheme to
defraud counterparties to interest rate derivatives transactions by
manipulating benchmark interest rates, including Yen LIBOR. Sen-
tencing is currently scheduled for 9 May 2016. The Criminal Divi-
sion terminated the NPA based on its determination, in its sole
discretion, that certain UBS AG employees committed criminal
conduct that violated the NPA, including fraudulent and deceptive
currency trading and sales practices in conducting certain foreign
exchange market transactions with clients and collusion with
other participants in certain foreign exchange markets.
We have ongoing obligations to cooperate with these authori-
ties and to undertake certain remediation, including actions to
improve processes and controls.
UBS has been granted conditional immunity by the Antitrust
Division of the DOJ (Antitrust Division) from prosecution for
EUR / USD collusion and entered into a non-prosecution agree-
ment covering other currency pairs. As a result, UBS AG will not
be subject to prosecutions, fines or other sanctions for antitrust
law violations by the Antitrust Division, subject to UBS AG’s con-
tinuing cooperation. However, the conditional immunity grant
does not bar government agencies from asserting other claims
and imposing sanctions against UBS AG, as evidenced by the set-
tlements and ongoing investigations referred to above. UBS has
also been granted conditional leniency by authorities in certain
jurisdictions, including WEKO, in connection with potential com-
petition law violations relating to precious metals, and as a result,
will not be subject to prosecutions, fines or other sanctions for
antitrust or competition law violations in those jurisdictions, sub-
ject to UBS AG’s continuing cooperation.
In October 2015, UBS AG settled charges with the SEC relating
to structured notes issued by UBS AG that were linked to the UBS
V10 Currency Index with Volatility Cap.
Investigations relating to foreign exchange and precious metals
matters by numerous authorities, including the CFTC, remain
ongoing notwithstanding these resolutions.
Foreign exchange-related civil litigation: Putative class actions
have been filed since November 2013 in US federal courts and in
other jurisdictions against UBS and other banks on behalf of puta-
tive classes of persons who engaged in foreign currency transac-
tions with any of the defendant banks. They allege collusion by
the defendants and assert claims under the antitrust laws and for
unjust enrichment. In 2015, additional putative class actions were
filed in federal court in New York against UBS and other banks on
behalf of a putative class of persons who entered into or held any
foreign exchange futures contracts and options on foreign
exchange futures contracts since 1 January 2003. The complaints
assert claims under the Commodity Exchange Act (CEA) and the
US antitrust laws. In July 2015, a consolidated complaint was filed
on behalf of both putative classes of persons covered by the US
federal court class actions described above. UBS has entered into
a settlement agreement that would resolve all of these US federal
court class actions. The agreement, which has been preliminarily
approved by the court and is subject to final court approval,
requires, among other things, that UBS pay an aggregate of USD
141 million and provide cooperation to the settlement classes.
474
Note 22 Provisions and contingent liabilities (continued)
In June 2015, a putative class action was filed in federal court
in New York against UBS and other banks on behalf of partici-
pants, beneficiaries, and named fiduciaries of plans qualified
under the Employee Retirement Income Security Act of 1974
(ERISA) for whom a defendant bank provided foreign currency
exchange transactional services, exercised discretionary authority
or discretionary control over management of such ERISA plan, or
authorized or permitted the execution of any foreign currency
exchange transactional services involving such plan’s assets. The
complaint asserts claims under ERISA.
In 2015, UBS was added to putative class actions pending
against other banks in federal court in New York and other juris-
dictions on behalf of putative classes of persons who bought or
sold physical precious metals and various precious metal products
and derivatives. The complaints in these lawsuits assert claims
under the antitrust laws and the CEA, and other claims.
LIBOR and other benchmark-related regulatory matters:
Numerous 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.
These investigations focus on whether there were improper
attempts by UBS, among others, either acting 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
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 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 manip-
ulation 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 the 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. Under the
NPA, we 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. The term of the NPA
was extended by one year to 18 December 2015. In May 2015,
the Criminal Division terminated the NPA based on its determina-
tion, in its sole discretion, that certain UBS AG employees commit-
ted criminal conduct that violated the NPA. As a result, UBS
entered into a plea agreement with the DOJ under which it
entered a guilty plea to one count of wire fraud relating to the
manipulation of certain benchmark interest rates, including Yen
LIBOR, and agreed to pay a fine of USD 203 million and accept a
three-year term of probation. Sentencing is currently scheduled
for 9 May 2016.
In 2014, UBS reached a settlement with the European Com-
mission (EC) regarding its investigation of bid-ask spreads in con-
nection with Swiss franc interest rate derivatives and paid a EUR
12.7 million fine, which was reduced to this level based in part on
UBS’s cooperation with the EC. The MAS, HKMA and the Japan
Financial Services Agency have also resolved investigations of UBS
(and in some cases, other banks). We have ongoing obligations to
cooperate with the authorities with whom we have reached reso-
lutions and to undertake certain remediation with respect to
benchmark interest rate submissions.
Investigations by the CFTC, ASIC and other governmental
authorities remain ongoing notwithstanding these resolutions.
475
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
UBS has been granted conditional leniency or conditional
immunity from authorities in certain jurisdictions, including the
Antitrust Division of the DOJ, WEKO and the EC, in connection
with potential antitrust or competition law violations related to
submissions for Yen LIBOR and Euroyen TIBOR. WEKO has also
granted UBS conditional immunity in connection with potential
competition law violations related to submissions for CHF LIBOR
and certain transactions related to CHF LIBOR. 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 conditional 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 oth-
erwise 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
expected 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.
Also pending are actions asserting losses related to various prod-
ucts whose interest rate was linked to USD LIBOR, including
adjustable rate mortgages, preferred and debt securities, bonds
pledged as collateral, loans, depository accounts, investments and
other interest-bearing instruments. All of the complaints allege
manipulation, through various means, of various benchmark
interest rates, including USD LIBOR, Euroyen TIBOR, Yen LIBOR,
EURIBOR, CHF LIBOR, GBP LIBOR or USD ISDAFIX rates and seek
unspecified compensatory and other damages under varying legal
theories. In 2013, the court in the USD action dismissed the fed-
eral antitrust and racketeering claims of certain USD LIBOR plain-
tiffs and a portion of their claims brought under the CEA and
state common law. Plaintiffs have appealed the dismissal, and the
appeal remains pending. In 2014, the court in one of the Euroyen
TIBOR lawsuits dismissed certain of the plaintiff’s claims, including
federal antitrust claims. In 2015, the same court dismissed plain-
tiff’s federal racketeering claims and affirmed its previous dis-
missal of plaintiff’s antitrust claims. UBS and other defendants in
other lawsuits including those related to EURIBOR, CHF LIBOR and
GBP LIBOR have filed motions to dismiss.
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
entered 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
manipulate 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. UBS and other defendants have filed a motion
to dismiss, which remains pending.
Government bonds: Putative class actions have been filed in US
federal courts against UBS and other banks on behalf of persons
who participated in markets for US Treasury securities since 2007.
The complaints generally allege that the banks colluded with
respect to and manipulated prices of US Treasury securities sold at
auction. They assert claims under the antitrust laws and the CEA
and for unjust enrichment. The cases have been consolidated in
the SDNY. Following filing of these complaints, UBS and report-
edly other banks have received requests for information from
various authorities regarding US Treasury securities and other gov-
ernment bond trading practices.
With respect to additional matters and jurisdictions not encom-
passed by the settlements and order referred to above, our bal-
ance sheet at 31 December 2015 reflected a provision in an
amount that UBS believes to be appropriate under the applicable
accounting standard. As in the case of other matters for which we
have established provisions, the future outflow of resources in
respect of such matters cannot be determined with certainty
based on currently available information, and accordingly may
ultimately prove to be substantially greater (or may be less) than
the provision that we have recognized.
476
Note 22 Provisions and contingent liabilities (continued)
6. Swiss retrocessions
The Federal Supreme Court of Switzerland ruled in 2012, in a test
case against UBS, that distribution fees paid to a firm for distribut-
ing third party and intra-group investment funds and structured
products must be disclosed and surrendered to clients who have
entered into a discretionary mandate agreement with the firm,
absent a valid waiver.
FINMA has issued a supervisory note to all Swiss banks in
response to the Supreme Court decision. The note sets forth the
measures 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
potentially surrender retrocessions. Client requests are assessed
on a case-by-case basis. Considerations taken into account when
assessing these cases include, among others, the existence of a
discretionary mandate and whether or not the client documenta-
tion contained a valid waiver with respect to distribution fees.
Our balance sheet at 31 December 2015 reflected a provision
with respect to matters described in this item 6 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.
7. 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 2.4 billion, including interest and penalties, which is
net of liabilities retained by BTG. The claims pertain principally to
several 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 amortiza-
tion in connection with UBS’s 2006 acquisition of Pactual and
payments made to Pactual employees through various profit-shar-
ing plans. These assessments are being challenged in administra-
tive and judicial proceedings. In May 2015, the administrative
court issued a decision that was largely in favor of the tax author-
ity with respect to the goodwill amortization assessment. This
decision has been appealed.
8. Matters relating to the CDS market
In 2013, the EC issued a Statement of Objections against 13 credit
default swap (CDS) dealers including UBS, as well as data service
provider Markit and the International Swaps and Derivatives Asso-
ciation (ISDA). The Statement of Objections broadly alleges that
the dealers infringed European Union antitrust rules by colluding
to prevent exchanges from entering the credit derivatives market
between 2006 and 2009. In December 2015, the EC issued a
statement that it had decided to close its investigation against all
13 dealers, including UBS. The EC’s investigation regarding Markit
and ISDA is ongoing. Since mid-2009, the Antitrust Division of the
DOJ has also been investigating whether multiple dealers, includ-
ing UBS, conspired with each other and with Markit to restrain
competition in the markets for CDS trading, clearing and other
services. In 2014, putative class action plaintiffs filed consolidated
amended complaints in the SDNY against 12 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 pro-
tect the dealers’ profits from trading CDS in the over-the-counter
market. In September 2015, UBS and the other defendants
entered into settlement agreements to resolve the litigation, pur-
suant to which UBS has paid USD 75 million out of a total settle-
ment amount paid by all defendants of approximately USD 1.865
billion. The agreements have received preliminary court approval
but are subject to final court approval.
477
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 23 Other liabilities
CHF million
Prime brokerage payables1
Amounts due under unit-linked investment contracts
Compensation-related liabilities
of which: accrued expenses
of which: deferred contingent capital plans
of which: other deferred compensation plans
of which: net defined benefit pension and post-employment liabilities2
Third-party interest in consolidated investment funds
Settlement and clearing accounts
Current and deferred tax liabilities3
VAT and other tax payables
Deferred income
Accrued interest expenses
Other accrued expenses
Liabilities of disposal group held for sale4
Other
Total other liabilities
31.12.15
45,306
15,718
31.12.14
38,633
17,643
6,839
2,885
1,181
2,038
736
536
894
819
447
210
1,431
2,500
235
718
75,652
6,732
2,633
794
1,931
1,374
648
1,054
643
422
259
1,327
2,473
0
1,279
71,112
1 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading across multiple asset classes. Prime brokerage payables are mainly comprised of
client securities financing and deposits. 2 Refer to Note 28 for more information. 3 Refer to Note 8 for more information. 4 Refer to Note 32 for more information.
478
Additional information
Note 24 Fair value measurement
This Note provides fair value measurement information for both
financial 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 uti-
lizes 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, credit and funding risks, which
are not explicitly captured within the valuation technique, but
which would nevertheless be considered by market participants
when establishing a price. The limitations inherent in a particular
valuation technique are considered in the determination of an
asset or liability’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 account.
However, if certain conditions are met, UBS may estimate the fair
value of a portfolio of financial assets and liabilities with substan-
tially 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
479
Consolidated financial statements Consolidated financial statements
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
ongoing measurement of financial and non-financial instruments
at fair value resides with the business divisions. In carrying out
their valuation responsibilities, the businesses are required to con-
sider the availability and quality of external market data and to
provide justification and rationale for their fair value estimates.
The fair value estimates provided by the businesses are validated
by risk and finance control functions, which are independent of the
business divisions. Independent price verification is performed by
finance through benchmarking the business divisions’ fair value
estimates with observable market prices and other independent
sources. Controls and governance are in place to ensure the quality
of third-party pricing sources where used. For instruments where
valuation models are used to determine fair value, independent
valuation and model control groups within finance and risk evalu-
ate UBS’s models on a regular basis, including valuation and model
input parameters as well as pricing. 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
Pillar 3 | c) Valuation techniques
Valuation techniques are used to value positions for which a
market 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 mar-
ket. UBS uses widely recognized valuation techniques for deter-
mining the fair value of financial and non-financial instruments
that are not actively traded and quoted. The most frequently
applied valuation techniques include discounted value of
expected cash flows, relative value and option pricing method-
ologies.
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
adjustments for differences between the characteristics of the
observed 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. In such cases, the inputs selected are based on
historical experience and practice for similar or analogous instru-
ments, derivation of input levels based on similar products with
observable price levels and knowledge of current market condi-
tions and valuation 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.
480
Note 24 Fair value measurement (continued)
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.
Pillar 3 | d) Valuation adjustments
The output of a valuation technique is always an estimate of a fair
value that cannot be measured with complete certainty. As a
result, valuations are adjusted, where appropriate and when such
factors would be considered by market participants in estimating
fair value, to reflect close-out costs, credit exposure, model-driven
valuation uncertainty, funding costs and benefits, trading restric-
tions and other factors. Valuation adjustments are an important
component of fair value for assets and liabilities that are mea-
sured using valuation techniques. Such adjustments are applied to
reflect uncertainties within the fair value measurement process, to
adjust for an identified model simplification or to incorporate an
aspect of fair value that requires an overall 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 where
any such difference is deferred and not initially recognized in the
income statement. These day-1 profit or loss reserves are reflected,
where appropriate, as valuation adjustments.
The table below summarizes 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 trad-
ing income when pricing of equivalent products or the underly-
ing parameters become observable or when the transaction 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
31.12.15
31.12.14
31.12.13
480
268
(321)
(6)
421
486
344
(384)
35
480
474
694
(653)
(29)
486
481
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
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 in the
valuation of our fair value option liabilities where this component
is considered relevant for valuation purposes by our counterpar-
ties and other market participants. On the other hand, own credit
risk is not reflected in the valuation of our liabilities that are fully
collateralized or for other obligations for which it is established
market practice not to include an own credit component.
In 2015, UBS made enhancements to the valuation methodol-
ogy for the own credit component of fair value of financial liabili-
ties designated at fair value. Prior to the fourth quarter of 2015,
own credit was estimated using a funds transfer pricing curve
(FTP), which was derived by discounting UBS new issuance senior
debt curve spreads, with the discount primarily reflecting the dif-
ferences between the spreads in the senior unsecured debt mar-
ket for UBS debt and the levels at which UBS medium-term notes
(MTN) were issued. A decline in long-dated UBS MTN issuance
volumes, following UBS’s business transformation, resulted in a
reduction in the observable market data available to benchmark
the FTP. From the fourth quarter of 2015 onwards, own credit is
estimated using an own credit adjustment curve (OCA), which
incorporates more observable market data, including market-
observed secondary prices for UBS senior debt, UBS credit default
swap (CDS) spreads and senior debt curves of peers. This change
in accounting estimate was finalized in the fourth quarter of
2015, following a multi-period implementation project to develop
an enhanced fair value approach supported by related infrastruc-
ture enhancements. The change was implemented on a prospec-
tive basis in the fourth quarter of 2015 and resulted in a gain of
CHF 260 million on a total carrying amount of CHF 63 billion in
financial liabilities designated at fair value.
OCA is generally a Level 2 pricing input. However, certain long-
dated exposures that are beyond 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) are summarized in the table below.
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)
As of or for the year ended
31.12.15
31.12.14
31.12.13
553
287
292
(302)
(283)
(577)
482
Note 24 Fair value measurement (continued)
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. A 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 OCA using the
CVA framework.
In the fourth quarter of 2015, as mentioned above, UBS
replaced the FTP curve with the OCA curve for purposes of valu-
ing its liabilities carried at fair value. As applied to the FVA associ-
ated with uncollateralized and partially collateralized derivative
payables, the change resulted in a charge to the income state-
ment of CHF 40 million.
An FVA is also applied to collateralized derivative assets in
cases where the collateral cannot be sold or repledged.
Debit valuation adjustments
A debit valuation adjustment (DVA) is estimated to incorporate
own credit in the valuation of derivatives, effectively consistent
with the CVA framework. DVA is determined for each counter-
party, considering all exposures with that counterparty and taking
into account collateral netting agreements, expected future mark-
to-market movements and UBS’s credit default spreads. Upon the
implementation of FVA in the second half of 2014, UBS reversed
DVA to the extent it overlapped with FVA.
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
liquidity valuation adjustment is then made to the overall net long
or short exposure to move the fair value to bid or offer as appro-
priate, 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 pro-
duced directly by models to incorporate uncertainties in the rele-
vant 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 con-
siders a range of market practices, including how it believes mar-
ket participants would assess these uncertainties. Model reserves
are reassessed periodically in light of data from market transac-
tions, consensus pricing services and other relevant sources.
Valuation adjustments on financial instruments
Life-to-date gain / (loss), CHF billion
Credit valuation adjustments1
Funding valuation adjustments
Debit valuation adjustments
Other valuation adjustments
of which: liquidity
of which: model uncertainty
1 Amounts do not include reserves against defaulted counterparties.
As of
31.12.15
31.12.14
(0.3)
(0.2)
0.0
(0.8)
(0.5)
(0.3)
(0.5)
(0.1)
0.0
(0.9)
(0.5)
(0.4)
483
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
e) Fair value measurements and classification within the fair value hierarchy
The fair value hierarchy classification of financial and non-finan-
cial assets and liabilities measured at fair value is summarized in
the table below. The narrative that follows describes the signifi-
cant 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 techniques1
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.15
31.12.14
Assets measured at fair value on a recurring basis
Financial assets held for trading2
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 assets3
Total assets measured at fair value
484
120.4
101.7
21.9
3.3
8.1
1.8
5.7
1.0
1.5
0.7
164.0
74.4
5.4
64.9
15.9
3.4
2.7
2.3
0.0
0.3
27.7
2.0
22.2
0.1
3.4
0.0
2.1
0.0
0.7
0.8
0.2
0.2
0.1
0.1
2.9
0.1
1.3
0.5
1.0
0.0
3.3
1.7
1.5
0.1
0.7
0.0
0.0
0.1
0.0
0.5
16.2
9.0
2.6
11.9
1.2
64.0
15.5
167.4
74.5
6.7
65.7
16.9
3.4
6.1
4.0
1.6
0.6
62.5
33.1
25.2
0.2
3.4
0.6
96.4
12.9
0.2
0.0
6.1
0.0
62.4
14.8
0.5
0.0
0.0
0.3
0.0
0.0
0.2
0.0
0.0
0.2
34.2
31.1
3.0
0.0
0.0
0.1
3.7
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
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
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
0.0
0.0
3.7
0.3
135.2
0.1
216.4
0.1
9.0
0.4
360.6
0.0
141.4
0.1
304.0
0.2
12.2
0.2
457.5
Note 24 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques1 (continued)
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.15
31.12.14
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
Liabilities measured at fair value on a non-recurring basis
Other liabilities3
Total liabilities measured at fair value
25.5
6.0
0.0
0.7
0.0
18.8
0.6
0.0
0.0
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.5
0.8
2.4
0.1
0.0
0.2
158.5
67.2
5.4
63.0
19.7
3.2
52.3
1.5
45.7
4.7
0.3
0.1
15.7
0.2
0.0
0.1
0.0
0.0
0.0
3.3
0.3
1.3
0.2
1.4
0.0
10.7
2.6
6.7
0.8
0.6
0.0
0.0
29.1
23.9
6.8
2.5
0.7
0.0
7.0
0.1
1.1
0.0
19.1
15.7
162.4
67.6
6.7
63.5
21.2
3.2
63.0
4.1
52.4
5.5
0.8
0.1
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
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
17.6
0.0
26.1
0.2
230.3
0.0
14.1
0.2
270.5
0.0
25.0
0.0
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
0.0
17.0
28.0
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
17.6
0.0
375.0
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 2015, net bifurcated embedded derivative liabilities held at
fair value, totaling CHF 0.1 billion (of which CHF 0.1 billion were net Level 2 assets and CHF 0.2 billion net Level 2 liabilities) were recognized on the balance sheet within Debt issued. 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. 2 Financial assets held for trading do not include precious metals and other physical commodities. 3 Other assets and other liabilities primarily consist of assets held for sale as well as assets and liabili-
ties of a disposal group held for sale, which are measured at the lower of their net carrying amount or fair value less costs to sell. Refer to Note 32 for more information on the disposal group held for sale.
485
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
Financial assets and liabilities held for trading, financial assets
designated at fair value and financial investments classified as
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 remaining positions are classified as Level 2.
Instruments that cannot be priced directly using active market
data are valued using discounted cash flow valuation techniques
that incorporate market data for similar government 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 future index levels for
floating or inflation index-linked instruments. Instruments classi-
fied as Level 3 are limited and are generally classified 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
issued 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
because, although market data is readily available, there is often
insufficient 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 and also cannot be referenced to
other securities issued by the same issuer. Therefore, these instru-
ments 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 directly
using market prices that reflect recent transactions or quoted
dealer prices where available. For illiquid loans where no market
price data are available, alternative valuation techniques are used,
which include relative value benchmarking using pricing derived
from debt instruments in comparable entities or different prod-
ucts in the same entity. The corporate lending portfolio is valued
using either directly observed market prices typically from consen-
sus providers, or by using a credit default swap valuation tech-
nique, which requires inputs for credit spreads, credit recovery
rates and interest rates. Even though price data are generally
available for these instruments, corporate loans typically do not
satisfy Level 1 classification criteria insofar as the price data may
not be directly observable, and moreover the market for these
instruments is not actively traded. Instruments 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 insufficient trading depth are classi-
fied as Level 3. Recently originated commercial real estate loans
that are classified as Level 3 are measured using a securitization
approach based on rating agency guidelines.
Included within loans are various contingent lending transac-
tions 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 estimations
for large homogeneous pools, and contingencies are derived from
a range relative to the actuarially expected amount. In addition,
the pricing technique uses volatility of mortality as an input.
486
Note 24 Fair value measurement (continued)
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
asset 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.
Pillar 3 | 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 valu-
ation 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 lev-
els 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 derived from proprietary models, fundamental
analysis and / or market research based on management’s quan-
titative and qualitative assessment of current and future eco-
nomic conditions. The expected 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 securitization. Expected cash flow
schedules are discounted using a rate or discount margin that
reflects the discount levels required by the market for instru-
ments with similar risk and liquidity profiles. Inputs to discounted
expected cash flow techniques include asset prepayment rates,
discount margin or discount yields, asset default 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 appreciation, foreclo-
sure costs, rental income levels, void periods and employment
rates. RMBS, CMBS and ABS are generally classified as Level 2.
However, if significant inputs are unobservable, or if market or
fundamental data are 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
account any restrictions imposed upon the redemption. These
units are classified as Level 2, except for positions where pub-
lished NAV is not available or which are not redeemable at the
measurement date or in the near future, in which case they are
classified as Level 3.
Unlisted equity holdings, including private equity positions, are
initially marked at their transaction price and are revalued to the
extent reliable evidence of price movements becomes available or
the position is deemed to be impaired.
Financial assets underlying unit-linked investment contracts
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 (reverse) repurchase agreements
Structured (reverse) repurchase agreements designated at fair
value are measured using discounted expected cash flow tech-
niques. The discount rate applied 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 market. As a result, these positions are
mostly classified as Level 3.
487
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
Replacement values
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 derived
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-
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
interest 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
parameter 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
portfolio of both standard options as well as more exotic prod-
ucts. In most cases, there are active and observable markets for
the standard market instruments that form the inputs for yield
curve models as well as the financial instruments from which vola-
tility 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
correlation input levels cannot be implied from observable market
data are classified as Level 3. These options are valued using vola-
tility 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
parameter. 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.
488
Note 24 Fair value measurement (continued)
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
expected cash flows that are then discounted using market stan-
dard 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 ref-
erenced in the credit derivative, adjusted for any funding differ-
ences between 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 defini-
tions and recovery rate assumptions. Inputs to the valuation mod-
els used to value single-name and loan CDS include single-name
credit spreads and upfront pricing points, recovery rates and fund-
ing 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 are available. Where the underlying reference name
is not actively 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
future 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 products
and FTD are valued using industry standard models that, in addi-
tion to default and recovery assumptions as above, incorporate
implied correlations to be applied to the credits within the portfo-
lio in order to apportion the expected credit loss at a portfolio level
across the different tranches or names within the overall structure.
These correlation assumptions are derived from prices of actively
traded index tranches or other FTD baskets. Inputs 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 portfolio of credit names are clas-
sified as Level 2 when credit spreads and recovery rates are deter-
mined from actively traded observable market data, and when the
correlation data used to value bespoke and index tranches are
based on actively traded index tranche instruments. These correla-
tion data undergo a mapping process that takes into account both
the relative tranche attachment / detachment 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 classified 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 posi-
tions, referred to as off-the-run indices, due to the lack of any
active market for the index credit spread.
Credit derivative contracts on securitized products have an
underlying 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
reflect the funding differences between cash and synthetic form.
Inputs to the PAYG CDS and TRS are those used to value the
underlying 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.
489
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
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,
options 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 con-
sideration of interest rate and FX rate interdependency. Inputs to
the option valuation models include spot FX rates, FX forward
points, FX volatilities, interest rate yield curves, interest rate vola-
tilities 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
option 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
equity 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 fund-
ing rate for that portion of the portfolio. As inputs are derived
mostly from standard market contracts traded in active and
observable markets, a significant proportion of equity forward
contracts are classified 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 bas-
ket stock or index call and put options as well as equity option
contracts with more complex features including option contracts
with multiple or continuous exercise dates, option contracts 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 option contracts
with a payoff calculated directly upon equity features other than
price (i.e., dividend rates, volatility or correlation). 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 cor-
relation between stocks within a basket. The probability-weighted
expected option payoff generated is then discounted using mar-
ket standard discounted cash flow models using a rate that
reflects the appropriate funding rate for that portion of the port-
folio. Positions for which inputs are derived from standard mar-
ket contracts traded in active and observable markets are classi-
fied as Level 2. Level 3 positions are those for which volatility,
forward or correlation inputs are not observable and are there-
fore valued using extrapolation of available data, historical divi-
dend, correlation or volatility data, or the equivalent data for a
related equity.
Commodity derivative contracts
Commodity derivative contracts include forward, swap and option
contracts on individual commodities and on commodity indices.
Commodity forward and swap contracts are measured using mar-
ket standard models that use market forward levels on standard
instruments. Commodity option contracts are measured using
market standard option models that estimate the commodity for-
ward level as described above for commodity forward and swap
contracts, incorporating inputs for the volatility of the underlying
index or commodity. The option model produces a probability-
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 port-
folio. 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 are available.
490
Note 24 Fair value measurement (continued)
Financial liabilities designated at fair value
Structured and OTC debt instruments issued
Structured debt instruments issued are comprised of medium-
term notes (MTNs), which are held at fair value under the fair
value option. These MTNs 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
MTNs are closely aligned to the equivalent derivatives business
and the underlying risk, and the valuation techniques used for this
component are the same as the relevant valuation techniques
described above. For example, equity-linked notes should be ref-
erenced to equity / index contracts and credit-linked notes should
be referenced to credit derivative contacts.
Other liabilities – amounts due under unit-linked
investment contracts
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. 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 deter-
mined by reference to the fair value of the corresponding assets.
The liabilities 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 provided below reflect transfers between Level 1
and Level 2 for instruments that were held for the entire reporting
period.
Assets totaling approximately CHF 0.6 billion, which were
mainly comprised of financial investments classified as available-
for-sale, primarily corporate and municipal bonds, and financial
assets held for trading, were transferred from Level 2 to Level 1
during 2015, generally due to increased levels of trading activity
observed within the market. Transfers of financial liabilities from
Level 2 to Level 1 during 2015 were not significant.
Assets totaling approximately CHF 0.8 billion, which were
mainly comprised of financial assets held for trading, primarily
equity instruments and government bills / bonds, and financial
investments classified as available-for-sale, mainly corporate and
municipal bonds, were transferred from Level 1 to Level 2 during
2015, generally due to diminished levels of trading activity
observed within the market. Transfers of financial liabilities from
Level 1 to Level 2 during 2015 were not significant.
491
Consolidated financial statements Consolidated financial statements
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
recurring 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
included in the table may not include the effect of related hedg-
ing activity. Further, the realized and unrealized gains and losses
presented within the table are not limited solely to those arising
from Level 3 inputs, as valuations are generally derived from both
observable and unobservable parameters.
Assets and liabilities transferred into or out of Level 3 are pre-
sented as if those assets or liabilities had been transferred at the
beginning of the year.
As of 31 December 2015, financial instruments measured with
valuation techniques using significant non-market-observable
inputs (Level 3) were mainly comprised of:
– loans (including structured loans);
– structured reverse repurchase and securities borrowing agree-
ments;
Financial assets held for trading
Financial assets held for trading decreased to CHF 2.1 billion from
CHF 3.5 billion during the year. Issuances of CHF 5.4 billion and
purchases of CHF 0.7 billion, mainly comprised of loans and cor-
porate bonds, respectively, were more than offset by sales of CHF
7.6 billion, also primarily comprised of loans and corporate bonds.
Transfers into Level 3 during the year amounted to CHF 0.9 billion
and were mainly comprised of equity instruments and investment
fund units due to decreased observability of the respective equity
volatility inputs. Transfers out of Level 3 amounted to CHF 0.5 bil-
lion and were primarily comprised of loans, reflecting increased
observability of the respective credit spread inputs.
Financial assets designated at fair value
Financial assets designated at fair value decreased to CHF 3.3 bil-
lion from CHF 3.5 billion during the year, mainly reflecting settle-
ments of CHF 1.3 billion, partly offset by issuances of CHF 0.8
billion. Transfers into and out of Level 3 amounted to CHF 0.8
billion and CHF 0.4 billion, respectively.
– credit derivative contracts;
– equity / index contracts;
– non-structured fixed-rate bonds and
– structured debt instruments issued (equity and credit-linked).
Financial investments classified as available-for-sale
Financial investments classified as available-for-sale increased to
CHF 0.7 billion from CHF 0.6 billion during the year, primarily due
to purchases totaling CHF 0.1 billion.
Significant movements in Level 3 instruments during the year
ended 31 December 2015 were as follows.
492
Note 24 Fair value measurement (continued)
Positive replacement values
Positive replacement values decreased to CHF 2.9 billion from
CHF 4.4 billion during the year, primarily due to settlements of
CHF 2.9 billion, primarily related to credit derivative contracts and
equity / index contracts, partly offset by issuances totaling CHF 1.7
billion, also primarily related to credit derivative contracts and
equity / index contracts. Transfers into Level 3, totaling CHF 0.7
billion, were mainly comprised of interest rate contracts and
equity / index contracts and primarily resulted from changes in the
correlation between the portfolios held and the representative
market portfolio used to independently verify market data. Trans-
fers out of Level 3, totaling CHF 0.5 billion, were mainly com-
prised of equity / index contracts and also primarily related to
changes in the correlation between the portfolio held and the
representative market portfolio used to independently verify mar-
ket data.
Negative replacement values
Negative replacement values decreased to CHF 3.3 billion from
CHF 5.0 billion during the year. Settlements and issuances
amounted to CHF 2.2 billion and CHF 1.0 billion, respectively, and
were primarily comprised of equity / index contracts. Transfers into
and out of Level 3 both amounted to CHF 0.5 billion, and primar-
ily related to changes in the availability of the respective observ-
able equity volatility and credit spread inputs.
Financial liabilities designated at fair value
Financial liabilities designated at fair value decreased to CHF 10.7
billion from CHF 11.9 billion during the year. Issuances of CHF 6.1
billion, primarily comprised of structured debt instruments issued
and structured over-the-counter debt instruments, were more
than offset by settlements of CHF 6.7 billion, also primarily com-
prised of structured debt instruments issued and structured over-
the-counter debt instruments. Transfers into Level 3, totaling CHF
1.3 billion, were primarily comprised of equity and credit-linked
structured debt instruments issued, and mainly related to a reduc-
tion in the observable equity volatility inputs and from changes in
the respective credit spreads used to determine the fair value of
the embedded options in these structures. Transfers out of Level 3,
totaling CHF 2.2 billion, were also mainly comprised of equity-
and credit-linked structured debt instruments issued, and mainly
related to changes in the observable equity volatility inputs and
from changes in the respective credit spreads used to determine
the fair value of the embedded options in these structures.
493
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
Total gains / losses included in
comprehensive income
Balance
as of
31 De-
cem-
ber 2013
Net interest
income,
net trading
income
and other
income
of which:
related to
Level 3 in-
struments
held at the
end of the
reporting
period
Other com-
prehensive
income
CHF billion
Purchases
Sales
Issuances Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
trans-
lation
income
Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
Balance
as of
trans-
lation
31 Decem-
ber 20151
Total gains / losses included in
comprehensive income
Net interest
income,
Balance
net trading
as of
31 Decem-
ber 2014
income
and other
income
of which:
related to
Level 3 in-
struments
held at the
end of the
reporting
period
Other com-
prehensive
Financial assets held for trading
4.3
(1.6)
(0.9)
1.4
(6.5)
5.2
0.0
1.0
(0.5)
0.1
3.5
(0.2)
(0.4)
0.7
(7.6)
5.4
0.0
0.9
(0.5)
(0.1)
2.1
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
Negative replacement values
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
1.7
1.0
1.0
0.6
4.4
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)
(0.1)
(0.8)
0.0
0.0
(0.8)
(0.3)
(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
0.4
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
0.3
0.4
(0.1)
0.7
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
0.0
(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
0.0
0.0
0.0
0.0
0.0
5.2
0.0
0.0
1.3
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
7.4
1.9
3.7
1.4
0.5
0.0
0.0
0.0
0.0
(1.2)
(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)
(7.4)
(1.4)
(4.2)
(1.5)
(0.4)
0.2
0.2
0.5
0.1
0.0
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
2.0
0.4
1.2
0.4
0.0
(0.2)
(0.1)
(0.3)
0.0
(0.3)
(0.3)
0.0
0.0
0.0
0.1
0.1
0.0
0.0
0.2
0.0
0.1
0.0
0.0
(0.5)
(0.2)
(0.4)
(0.1)
(0.2)
(0.1)
(0.2)
(0.1)
(0.5)
(0.2)
(0.1)
(0.1)
0.0
(3.2)
(0.4)
(2.6)
(0.2)
0.0
0.1
(0.3)
0.0
0.0
0.2
0.3
0.0
0.0
(0.1)
0.5
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
11.9
2.2
7.3
1.5
0.9
0.0
0.0
(0.1)
(0.1)
0.0
0.0
(0.1)
0.0
(0.1)
0.1
0.0
0.0
(0.1)
(0.1)
0.0
(0.1)
(0.4)
0.3
0.0
(0.4)
(0.2)
0.6
(0.1)
0.5
0.2
0.0
0.0
(0.3)
0.0
(0.1)
0.1
0.0
0.0
0.2
0.0
(0.3)
(0.1)
0.0
0.6
(0.1)
(0.5)
(0.1)
0.0
0.0
0.1
(0.1)
0.0
0.5
0.1
0.1
0.1
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
0.0
(1.0)
(5.5)
(0.6)
(0.5)
0.0
0.0
0.0
0.0
(0.1)
(0.1)
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
5.4
0.0
0.0
0.8
0.7
0.1
0.0
0.0
1.7
0.9
0.1
0.7
0.0
1.0
0.0
0.0
0.9
0.1
6.1
1.1
3.8
1.2
0.0
0.0
0.0
0.0
0.0
(1.3)
(0.2)
(1.0)
0.0
0.0
(2.9)
(1.1)
(0.1)
(1.4)
(0.3)
(2.2)
(0.9)
(0.1)
(1.2)
0.0
(6.7)
(0.2)
(4.2)
(2.0)
(0.3)
0.1
0.2
0.2
0.4
0.8
0.8
0.0
0.0
0.0
0.7
0.1
0.0
0.2
0.4
0.5
0.3
0.0
0.1
0.1
1.3
0.1
1.3
0.0
0.0
(0.4)
(0.1)
(0.1)
(0.3)
(0.1)
0.0
(0.4)
0.0
0.0
0.0
(0.5)
(0.1)
0.0
(0.3)
(0.1)
(0.1)
0.0
(0.4)
0.0
(0.4)
(1.9)
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
(0.1)
0.0
0.0
(0.1)
(0.1)
0.0
0.0
0.0
0.0
0.0
(0.1)
(0.1)
0.0
(0.2)
(0.1)
0.0
(0.5)
(0.1)
(2.2)
(0.3)
10.7
0.7
0.8
0.2
0.4
3.3
1.7
1.5
0.1
0.7
2.9
1.3
0.5
1.0
0.1
3.3
1.3
0.2
1.4
0.3
2.6
6.7
0.8
0.6
1 Total Level 3 assets as of 31 December 2015 were CHF 9.0 billion (31 December 2014: CHF 12.2 billion). Total Level 3 liabilities as of 31 December 2015 were CHF 14.1 billion (31 December 2014: CHF 17.0 billion).
494
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
Total gains / losses included in
comprehensive income
Net interest
Balance
income,
of which:
related to
Level 3 in-
struments
as of
net trading
held at the
31 De-
cem-
income
end of the
Other com-
and other
reporting
prehensive
CHF billion
ber 2013
income
period
income
Purchases
Sales
Issuances Settlements
Transfers
Transfers
into
Level 3
out of
Level 3
Foreign
currency
trans-
lation
of which:
Corporate bonds and municipal
bonds, including bonds issued by
financial institutions
Asset-backed securities
Loans
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
Negative replacement values
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
1.7
1.0
1.0
0.6
4.4
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
(0.8)
(0.3)
(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
0.4
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
0.3
0.4
(0.1)
0.7
0.0
(0.2)
(0.5)
(0.2)
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
0.0
(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
0.0
5.2
0.0
0.0
1.3
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
7.4
1.9
3.7
1.4
0.5
0.0
0.0
0.0
0.0
(1.2)
(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)
(7.4)
(1.4)
(4.2)
(1.5)
(0.4)
0.2
0.2
0.5
0.1
0.0
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
2.0
0.4
1.2
0.4
0.0
(0.2)
(0.1)
(0.3)
0.0
(0.3)
(0.3)
0.0
0.0
0.0
(0.2)
(0.1)
(0.2)
(0.1)
(0.5)
(0.2)
(0.1)
(0.1)
0.0
(3.2)
(0.4)
(2.6)
(0.2)
0.0
0.1
0.1
0.0
0.0
0.2
0.0
0.1
0.0
0.0
0.1
(0.3)
0.0
0.0
0.2
0.3
0.0
0.0
(0.1)
0.5
0.1
0.4
0.0
0.0
1 Total Level 3 assets as of 31 December 2015 were CHF 9.0 billion (31 December 2014: CHF 12.2 billion). Total Level 3 liabilities as of 31 December 2015 were CHF 14.1 billion (31 December 2014: CHF 17.0 billion).
Financial assets held for trading
4.3
(1.6)
(0.9)
1.4
(6.5)
5.2
0.0
1.0
(0.5)
0.1
3.5
(0.2)
(0.4)
0.7
(7.6)
5.4
0.0
0.9
(0.5)
(0.1)
2.1
Total gains / losses included in
comprehensive income
Net interest
income,
net trading
income
and other
income
Balance
as of
31 Decem-
ber 2014
of which:
related to
Level 3 in-
struments
held at the
end of the
reporting
period
Other com-
prehensive
income
Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
trans-
lation
Balance
as of
31 Decem-
ber 20151
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
11.9
2.2
7.3
1.5
0.9
0.0
(0.1)
0.0
(0.1)
0.0
(0.3)
0.0
(0.1)
0.0
0.0
(0.1)
(0.1)
0.1
0.0
0.0
0.1
0.0
0.0
(0.4)
(0.1)
(0.1)
(0.1)
0.0
(0.1)
(0.4)
0.3
0.0
(0.4)
(0.2)
0.6
(0.1)
0.5
0.2
0.0
0.2
0.0
(0.3)
(0.1)
0.0
0.6
(0.1)
(0.5)
(0.1)
0.0
0.0
0.1
(0.1)
0.0
0.5
0.1
0.1
0.1
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
0.0
(1.0)
(5.5)
(0.6)
(0.5)
0.0
0.0
0.0
0.0
(0.1)
(0.1)
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
5.4
0.0
0.0
0.8
0.7
0.1
0.0
0.0
1.7
0.9
0.1
0.7
0.0
1.0
0.0
0.0
0.9
0.1
6.1
1.1
3.8
1.2
0.0
0.0
0.0
0.0
0.0
(1.3)
(0.2)
(1.0)
0.0
0.0
(2.9)
(1.1)
(0.1)
(1.4)
(0.3)
(2.2)
(0.9)
(0.1)
(1.2)
0.0
(6.7)
(0.2)
(4.2)
(2.0)
(0.3)
0.1
0.2
0.2
0.4
0.8
0.8
0.0
0.0
0.0
0.7
0.1
0.0
0.2
0.4
0.5
0.3
0.0
0.1
0.1
1.3
0.1
1.3
0.0
0.0
(0.1)
(0.3)
(0.1)
0.0
(0.1)
0.0
0.0
0.0
(0.4)
(0.1)
(0.4)
0.0
0.0
0.0
(0.5)
(0.1)
0.0
(0.3)
(0.1)
0.0
(0.1)
0.0
0.0
(0.1)
(0.1)
0.0
0.0
0.0
(0.5)
(0.1)
(0.1)
0.0
(0.4)
0.0
0.0
0.0
(0.1)
(0.1)
0.7
0.8
0.2
0.4
3.3
1.7
1.5
0.1
0.7
2.9
1.3
0.5
1.0
0.1
3.3
1.3
0.2
1.4
0.3
(2.2)
(0.3)
10.7
(0.4)
(1.9)
0.0
0.0
0.0
(0.2)
(0.1)
0.0
2.6
6.7
0.8
0.6
495
Consolidated financial statements Consolidated financial statements
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 assets and liabilities
recognized at fair value and classified as Level 3, together with the
valuation techniques used to measure fair value, the significant
inputs used in the valuation technique that are considered unob-
servable and a range of values for those unobservable 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 sheetdate. Further, the
ranges of unobservable inputs may differ across other financial
institutions due to the diversity of the products in each firm’s
inventory.
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
inputs 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
31.12.15
31.12.14
31.12.15
31.12.14
Fair value
Assets
Liabilities
Valuation
technique(s)
Significant
unobservable input(s)1
Range of inputs
31.12.15
31.12.14
low high
low
high
unit1
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 municipal
bonds, including bonds issued
by financial institutions
Traded loans, loans designated
at fair value, loan commitments
and guarantees
Investment fund units3
Asset-backed securities
Equity instruments3
Structured (reverse)
repurchase agreements
Financial assets for unit-linked
investment contracts3
Structured debt instruments and
non-structured fixed-rate bonds4
496
0.7
1.4
2.6
2.2
0.3
0.2
0.6
1.5
0.1
0.5
0.6
0.5
2.4
0.1
0.1
0.0
0.0
0.0
0.0
0.6
0.1
0.0
0.0
0.0
0.0
0.9
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
10.1
11.0
Bond price equivalent
0
134
8
144
points
Loan price equivalent
65
100
Credit spread
30
252
Discount margin / spread
1
14
80
37
0
Volatility of mortality2
270
280
Net asset value
Constant prepayment rate
Discount margin / spread
Bond price equivalent
0
0
1
18
12
92
0
0
0
101
points
basis
points
%
%
%
%
138
13
18
22
102
points
Price
Funding spread
18
183
10
163
basis
points
Price
Note 24 Fair value measurement (continued)
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities (continued)
Fair value
Assets
Liabilities
31.12.15
31.12.14
31.12.15
31.12.14
Valuation
technique(s)
Significant
unobservable input(s)1
Range of inputs
31.12.15
31.12.14
low high
low
high
unit1
CHF billion
Replacement values
Interest rate contracts
0.1
0.2
0.3
0.6 Option model
Volatility of interest rates
Credit derivative contracts
1.3
1.7
1.3
1.7
Discounted expected
cash flows
Discounted expected
cash flow based on
modeled defaults
and recoveries
Discounted cash flow
projection on
underlying bond
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
Foreign exchange contracts
0.5
0.6
0.2
0.3 Option model
Rate-to-FX correlation
Equity / index contracts
1.0
1.9
1.4
2.4 Option model
Discounted expected
cash flows
FX-to-FX correlation
Constant prepayment
rate2
Equity dividend yields
Volatility of equity stocks,
equity and other indices
16
84
36
0
130
94
94
3
1 1,163
8
0
10
1
57
0
0
0
1
0
(57)
(70)
0
0
25
95
85
72
94
15
9
100
15
104
60
80
57
143
82
13
84
50
0
0
15
0
10
0
57
1
0
0
1
12
(57)
(70)
0
0
1
(55)
94
94
94
3
963
83
95
85
32
94
16
9
100
33
100
60
80
13
15
130
84
%
%
%
%
basis
points
%
%
%
%
%
%
%
%
%
points
%
%
%
%
%
%
%
Equity-to-FX correlation
(44)
Non-financial assets3, 5
0.1
0.2
Relative value to
market comparable
Price
Equity-to-equity
correlation
3
99
18
99
Discounted cash flow
projection
Projection of cost and
income related to the
particular property
Discount rate
Assessment of the
particular property’s
condition
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 dis-
closed as of 31 December 2015 because this unobservable input parameter was not significant to the respective valuation technique as of that date. 3 The range of inputs is not disclosed due to the dispersion of pos-
sible values given the diverse nature of the investments. 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 other assets which primarily consist of assets held for sale.
497
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
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 0–134 points
represents the range of prices from reference issuances used in
determining 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 issu-
ances that pay a coupon in excess of the market benchmark as of
the measurement date. The weighted average price is approxi-
mately 94 points, with a majority of positions concentrated
around this price.
For asset-backed securities, the bond price range of 1–92
points represents the range of prices for reference securities used
in determining fair value. An instrument priced at 0 is not expected
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. The weighted average price for Level 3
assets within this portion of the Level 3 portfolio is 72 points.
For credit derivatives, the bond price range of 0–104 points
represents the range of prices used for reference instruments 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
selecting comparable instruments include industry segment, col-
lateral quality, maturity and issuer-specific covenants. Fair value
may be measured either by a direct price comparison or by con-
version of an instrument price into a yield. The range of 65–100
points represents the range of prices derived from reference issu-
ances of a similar credit quality used in measuring fair value for
loans classified 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. The weighted
average is approximately 93 points.
Credit spread: Valuation models for many credit derivatives require
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 Treasury
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 deriva-
tive products. The income statement impact from 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 creditworthiness. The
ranges of 30–252 basis points in loans and 1–1163 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.
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
historical prepayment rates for repaid and existing loans with
similar characteristics and the future economic outlook, consider-
ing 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 pre-
mium 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 on instrument price is
more complicated and depends on both the precise terms of the
securitization and the position of the instrument within the secu-
ritization capital structure.
For asset-backed securities, the range of 0–18% represents
inputs across various classes of asset-backed securities. Securities
with an input of 0% typically reflect no current prepayment
behavior with respect to the underlying collateral, and with no
expectation of this changing in the immediate future, while the
high range of 18% relates to securities that are currently experi-
encing high prepayments. Different classes of asset-backed secu-
rities typically show different ranges of prepayment characteris-
tics depending on a combination of factors, including the
borrowers’ ability to refinance, prevailing refinancing rates, and
the quality or characteristics of the underlying loan collateral
pools. The weighted average constant prepayment rate for the
portfolio is 5.0%.
498
Note 24 Fair value measurement (continued)
For credit derivatives, the range of 0–15% represents the
input assumption for credit derivatives on asset-backed securi-
ties. The range is driven in a similar manner to that for asset-
backed securities.
For interest rate contracts, the range of 0–3% represents the
prepayment assumptions on securitizations underlying the BGS
portfolio.
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.
The range of 0–9% for credit derivatives represents the
expected default percentage across the individual instruments’
underlying 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
asset-backed securities while the recovery rate is the analogous
pricing input for corporate or sovereign credits. Recovery is the
reverse 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 on whether credit pro-
tection 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 (1–14%), asset-backed securities (0–12%) and credit
derivatives (1–72%). 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. This indicates that the market is
pricing an increased risk of credit loss into the security 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 2.7% and for loans the
average effective DM is 2.4%.
Equity dividend yields: The derivation of a forward price for an
individual stock or index is important 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 ques-
tion. Dividend yields are generally expressed as an annualized per-
centage of the 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
determining fair value for instruments that are sensitive to an
equity forward price. The range of 0–57% 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
underlying instrument. The effect of volatility on individual posi-
tions within the portfolio is driven primarily by whether the option
contract 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
reduced 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.
499
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
– Volatility of interest rates – the range of 16–130% 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 1–143% reflects the range of underlying stock volatilities.
Correlation: Correlation measures the inter-relationship between
the movements of two variables. It is expressed as a percentage
between -100% and +100%, where +100% represents perfectly
correlated variables (meaning a movement of one variable is asso-
ciated with a movement of the other variable in the same direc-
tion), and -100% implies the variables are inversely correlated
(meaning a movement of one variable is associated with a move-
ment of the other variable in the opposite direction). The effect of
correlation on the measurement of fair value depends on the spe-
cific terms of 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 36–94%.
– 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 dif-
ference between credits with low correlation and similar highly
correlated credits.
– Rate-to-FX correlation – captures the correlation between
interest 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
depends 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
options that incorporate different FX rates in the projected
payoff. The range of (70)–80% reflects the underlying charac-
teristics across the main FX pairs to which UBS has exposure.
– Equity-to-FX correlation is important for equity options based on
a currency different than the currency of the underlying stock.
The range of (44)–82% represents the range of the relationship
between underlying stock and foreign exchange volatilities.
– 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 3–99%
reflects this.
Funding spread: Structured financing transactions are valued
using synthetic funding curves that best represent the assets that
are pledged as collateral for the transactions. They are not repre-
sentative of where UBS can fund itself on an unsecured basis, but
provide an estimate of where UBS 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
impact of discounting. The range of 18–183 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 was longer
in duration than the actively traded market. Such positions are
within the range of 18–183 basis points reported above.
Upfront price points: These are a component in the price quota-
tion of credit derivative contracts, whereby the overall fair value
price level is split between the credit spread (as described above)
and a component that is quoted and settled upfront on transact-
ing a new contract. This latter component is referred to as
upfront price points and represents the difference between the
credit spread paid as protection premium on a current contract
versus a small number of standard contracts defined by the mar-
ket. Distressed credit names frequently trade and quote CDS
protection only in upfront points rather than as a running credit
in upfront points will
spread. An
increase / (decrease) the value of credit protection offered by CDS
and other credit derivative products. The effect of increases or
decreases in upfront price points depends on the nature and
direction of the positions held. Upfront price points may be neg-
ative where a contract is quoting for a narrower premium than
the market standard, but are generally positive, reflecting an
increase in credit premium required by the market as creditwor-
thiness deteriorates. The range of 8–25% within the table repre-
sents the variety of current market credit spread levels relative to
the benchmarks used as a quotation basis. Upfront points of
25% represent a distressed credit.
increase / (decrease)
500
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
assumptions would change fair value significantly, and the esti-
mated effect thereof. As of 31 December 2015, the total favor-
able and unfavorable effects of changing one or more of the
unobservable inputs to reflect reasonably possible alternative
assumptions for financial instruments classified as Level 3 were
CHF 0.8 billion and CHF 0.6 billion, respectively (31 December
2014: CHF 1.0 billion and CHF 0.8 billion, respectively).
The table shown presents the favorable and unfavorable
effects for each class of financial assets and liabilities for which
the potential change in fair value is considered significant. The
sensitivity data presented represent an estimation of valuation
uncertainty based on reasonably possible alternative values for
Level 3 inputs at the balance sheet date and do not represent the
estimated effect of stress scenarios. Typically, these financial assets
and liabilities are sensitive to a combination of inputs from Levels
1–3. Although well-defined interdependencies may exist between
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
parameters discussed below are not a significant element of the
valuation uncertainty.
Sensitivity data are estimated using a number of techniques
including the estimation of price dispersion among different mar-
ket participants, variation in modeling approaches and reason-
ably possible changes to assumptions used within the fair value
measurement process. The sensitivity ranges are not always sym-
metrical around the fair values as the inputs used in valuations
are not always precisely in the middle of the favorable and unfa-
vorable range.
Sensitivity data are 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 hedge. The main interdependencies across different
Level 3 products to a single unobservable input parameter have
been included in the basis of netting exposures within the calcula-
tion. Aggregation without allowing for diversification involves 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 unfavorable
level at the same time, would result in a significant change in the
valuation. Diversification would incorporate estimated correlations
across different sensitivity results and, as such, would result 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, loan commitments and guarantees
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
31.12.15
31.12.14
Favorable
changes1
0
Unfavorable
changes1
(1)
Favorable changes1
10
Unfavorable
changes1
(1)
24
88
7
166
107
174
33
61
136
14
809
(25)
(28)
(6)
(74)
(67)
(196)
(28)
(57)
(146)
(13)
(640)
33
103
16
105
106
248
35
82
202
23
965
(41)
(63)
(12)
(42)
(58)
(277)
(32)
(83)
(199)
(17)
(824)
1 Of the total favorable changes, CHF 164 million as of 31 December 2015 (31 December 2014: CHF 116 million) related to financial investments available-for-sale. Of the total unfavorable changes, CHF 71 million as
of 31 December 2015 (31 December 2014: CHF 56 million) related to financial investments available-for-sale.
501
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 24 Fair value measurement (continued)
j) Financial instruments not measured at fair value
The table below provides the estimated fair values of financial instruments not measured at fair value.
Financial instruments not measured at fair value
CHF billion
Assets
Cash and balances with central banks
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
Guarantees1
Loan commitments
Carrying
value
31.12.15
Fair value
Carrying
value
31.12.14
Fair value
Total
Total
Level 1
Level 2
Level 3
Total
Total
Level 1
Level 2
Level 3
91.3
11.9
25.6
67.9
23.8
312.0
20.0
11.8
8.0
9.7
38.3
390.2
93.0
51.4
91.3
11.9
25.6
67.9
23.8
314.1
20.0
11.8
8.0
9.7
38.3
390.2
95.5
51.4
0.0
0.0
(0.1)
0.0
91.3
11.5
0.0
0.0
0.0
0.0
0.0
10.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.5
25.6
65.8
23.8
170.2
20.0
1.4
8.0
9.6
38.3
390.2
89.5
51.4
0.0
0.0
0.0
2.1
0.0
143.9
0.0
0.0
0.0
0.0
0.0
0.0
6.0
0.0
0.0
0.0
(0.1)
0.0
104.1
104.1
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
2.0
0.0
131.9
0.0
0.0
0.0
0.2
0.0
0.0
5.8
0.0
0.0
0.0
(0.1)
0.0
1 The carrying value of guarantees represented a liability of CHF 0.0 billion as of 31 December 2015 (31 December 2014: CHF 0.0 billion). The estimated fair value of guarantees represented an asset of CHF 0.1 billion
as of 31 December 2015 (31 December 2014: CHF 0.1 billion).
502
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. 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
instruments with similar credit risk and maturity. These esti-
mates generally include adjustments for counterparty credit
risk 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 esti-
mate of fair value. The following financial instruments not mea-
sured at fair value had remaining maturities of three months or
less as of 31 December 2015: 100% of cash and balances with
central banks, 96% of amounts due from banks, 100% of cash
collateral on securities borrowed, 87% of reverse repurchase
agreements, 100% of cash collateral receivables on derivatives,
51% of loans, 88% of amounts due to banks, 87% of cash
collateral on securities lent, 96% of repurchase agreements,
100% of cash collateral payable on derivatives, 99% of amount
due to customers and 16% of debt issued.
– The fair value estimates for repurchase and reverse repurchase
agreements with variable and fixed interest rates, for all matur-
ities, 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.
503
Consolidated financial statements Consolidated financial statements
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
that are otherwise explicitly restricted such that they cannot be
used to secure funding.
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 mort-
gage institutions and for existing covered bond issuances of CHF
16,727 million as of 31 December 2015 (31 December 2014: CHF
21,644 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.
UBS Group AG and its subsidiaries are generally not subject to
significant restrictions that would prevent the transfer of divi-
dends and capital within the Group. However, certain regulated
subsidiaries are required to maintain capital and / or liquidity to
comply with local regulations and may be subject to prudential
limitations by regulators that limit the amount of funds that they
can distribute or otherwise transfer. Non-regulated subsidiaries
are generally not subject to such requirements and transfer restric-
tions. However, restrictions can also be the result of different
legal, regulatory, contractual, entity or country-specific arrange-
ments and / or requirements.
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 loans1
Financial investments available-for-sale
of which: assets pledged as collateral which may be sold or repledged by counterparties
Total financial assets pledged as collateral2
Other restricted financial assets
Due from banks
Reverse repurchase agreements
Trading portfolio assets
Cash collateral receivables on derivative instruments
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
31.12.15
31.12.14
57,023
51,943
24,980
24,980
632
6
82,635
3,285
1,099
24,388
7,104
337
502
480
37,196
119,830
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
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 4.4
billion for 31 December 2015 (31 December 2014: approximately CHF 4.5 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 2015: CHF 4.9 billion, 31 December 2014: CHF 6.1 billion).
504
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
31.12.15
31.12.14
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
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
51,943
13,406
37,097
1,440
6
51,950
13,146
13,146
0
0
6
13,152
56,018
19,366
35,557
1,095
2,662
58,680
18,289
18,147
0
142
2,584
20,873
Transactions in which 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 and securities lending
arrangements are, for the most part, conducted under standard
market agreements, and are undertaken with counterparties sub-
ject to UBS’s normal credit risk control processes.
➔ Refer to Note 1a items 13 and 14 for more information on
repurchase agreements and securities lending agreements
As of 31 December 2015, approximately a quarter 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 counter-
parties to the associated liabilities presented in the table above
have full recourse 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 transac-
tion, this is not considered to be a transfer of financial assets.
Other financial asset transfers primarily include securities trans-
ferred to collateralize derivative transactions, for which the carry-
ing value of associated liabilities is not provided in the table above
because those replacement values are managed on a portfolio
basis across counterparties and product types, and therefore is
not a direct relationship between the specific collateral pledged
and the associated liability.
Transferred assets other than trading portfolio assets and
financial investments available-for-sale which may be sold or
repledged by counterparties were not material as of 31 December
2015 and as of 31 December 2014.
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 as of
31 December 2015 and as of 31 December 2014.
505
Consolidated financial statements Consolidated financial statements
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 trans-
fer agreement or in a separate agreement with the counterparty
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.
EDTF |
Transferred financial assets that are derecognized in their entirety with continuing involvement
CHF million
31.12.15
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 assets2
Gain / (loss) from continuing
involvement in transferred and
derecognized financial assets
For the year
ended 31.12.15
Life-to-date
31.12.15
Type of continuing involvement
Purchased and retained interest
in securitization structures
Trading portfolio assets/
Replacement values1
Total
CHF million
15
15
15
15
31.12.14
8
8
16
16
(1,566)
(1,566)
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 31.12.14
Life-to-date
31.12.14
Type of continuing involvement
Purchased and retained interest
in securitization structures
Total
Trading portfolio assets/
Replacement values1
(22)
(22)
(22)
(22)
22
22
13
13
(1,582)
(1,582)
1 As of 31 December 2015, total purchased and retained interest in securitization structures consisted of trading portfolio assets of CHF 37 million and negative replacement values of CHF 22 million. 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. 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 vehi-
cles 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 had
a carrying amount of zero as of 31 December 2015. As of
31 December 2015, the maximum exposure to loss related to pur-
chased and retained interests in securitization structures was CHF
55 million compared with CHF 48 million as of 31 December
2014, both mainly related to trading portfolio assets. Undis-
counted cash outflows of CHF 41 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 one month. Life-to-date losses
presented in the table above only relate to retained interests held
as of 31 December 2015.
506
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 transactions1
received in unsecured borrowings
thereof sold or repledged2
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions1
31.12.15
401,511
393,839
7,672
286,757
241,992
29,137
15,628
31.12.14
388,855
383,354
5,502
271,963
227,515
27,958
16,491
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 2015: CHF 47.3 billion, 31 December 2014: CHF 37.6 billion) placed with central banks related to undrawn credit lines and for payment, clearing and settlement pur-
poses 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 (OTC) and exchange-traded
derivatives (ETD). These netting agreements and similar arrange-
ments generally enable the counterparties to set-off liabilities
against available assets received in the ordinary course of busi-
ness and / or in the event that the counterparty to the transac-
tion 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.
The table on the following page provides a summary of finan-
cial assets subject to offsetting, enforceable master netting
arrangements and similar agreements, as well as financial collat-
eral received to mitigate credit exposures for these financial
assets. The gross financial assets of the Group that are subject to
offsetting, enforceable netting arrangements and similar agree-
ments are reconciled to the net amounts presented within the
associated balance sheet line, after giving effect to financial liabil-
ities with the same counterparties that have been offset on the
balance sheet and other financial assets not subject to an enforce-
able netting 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 consideration of netting potential.
The Group engages in a variety of counterparty credit mitiga-
tion strategies in addition to netting and collateral arrange-
ments. Therefore, the net amounts presented in the tables on
the next pages do not purport to represent the Group’s actual
credit exposure.
507
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group 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
31.12.15
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet3
CHF billion
Cash collateral on securities borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on
derivative instruments1
Financial assets designated at fair value
Total assets
Gross assets
before netting
23.9
117.9
161.9
85.9
2.4
392.1
Netting with
gross liabilities2
0.0
(62.1)
(2.5)
(66.3)
0.0
(131.0)
Net assets
recognized
on the
balance
sheet
23.9
55.8
159.3
19.6
2.4
261.1
Assets after
consid-
eration of
netting
potential
0.0
0.0
10.8
7.2
0.6
18.7
Financial
liabilities
Collateral
received
(3.1)
(4.4)
(123.0)
(10.9)
0.0
(20.9)
(51.4)
(25.5)
(1.5)
(1.8)
(141.3)
(101.1)
31.12.14
Assets subject to netting arrangements
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet3
CHF billion
Cash collateral on securities borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on
derivative instruments1
Financial assets designated at fair value
Total assets
Gross assets
before netting
22.7
99.2
249.9
245.7
3.1
620.5
Netting with
gross liabilities2
0.0
(42.8)
(3.1)
(218.4)
0.0
(264.2)
Net assets
recognized
on the
balance
sheet
22.7
56.4
246.8
27.4
3.1
356.3
Assets after
consid-
eration of
netting
potential
0.0
0.1
17.3
7.0
0.1
24.5
Financial
liabilities
Collateral
received
(1.9)
(3.4)
(198.7)
(18.8)
0.0
(20.8)
(52.8)
(30.8)
(1.6)
(3.0)
(222.9)
(108.9)
Assets not
subject to
netting
arrangements4
Assets
recognized
on the
balance
sheet
1.6
12.1
8.1
4.1
3.7
29.7
Assets not
subject to
netting
arrangements4
Assets
recognized
on the
balance
sheet
1.4
12.1
10.1
3.6
1.9
29.1
Total assets
Total assets
after consid-
eration of
netting
potential
Total assets
recognized
on the
balance
sheet
1.6
12.1
18.9
11.3
4.4
48.4
25.6
67.9
167.4
23.8
6.1
290.8
Total assets
Total assets
after consid-
eration of
netting
potential
Total assets
recognized
on the
balance
sheet
1.4
12.2
27.4
10.6
2.0
53.6
24.1
68.4
257.0
31.0
5.0
385.4
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 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 val-
ues 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 presented have been capped by the rel-
evant 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.
508
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 net-
ting 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 counterpar-
ties that have been offset on the balance sheet and other finan-
cial liabilities not subject to an enforceable netting arrangement
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
31.12.15
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet3
Liabilities not
subject to
netting
arrangements4
Total liabilities
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on
derivative instruments1
Financial liabilities designated
at fair value
Total liabilities
Gross
liabilities
before
netting
7.9
69.0
154.2
99.9
3.9
334.9
Netting with
gross assets2
0.0
(62.1)
(2.5)
(66.3)
Net
liabilities
recognized
on the
balance
sheet
Liabilities
after consid-
eration of
netting
potential
Liabilities
recognized
on the
balance
sheet
Total
liabilities
after consid-
eration of
netting
potential
Total
liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
7.9
6.9
(3.1)
(4.4)
151.7
(123.0)
(4.8)
(2.5)
(17.4)
33.6
(19.0)
(2.5)
0.0
(131.0)
3.9
203.9
0.0
(149.4)
(0.7)
(28.0)
Liabilities subject to netting arrangements
31.12.14
0.0
0.0
11.3
12.1
3.1
26.5
0.1
2.8
10.7
4.7
59.1
77.4
0.1
2.8
22.1
16.8
62.3
104.0
8.0
9.7
162.4
38.3
63.0
281.4
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet3
Liabilities not
subject to
netting
arrangements4
Total liabilities
Gross
liabilities
before
netting
8.4
51.5
243.3
Netting with
gross assets2
0.0
(42.8)
(3.1)
Net
liabilities
recognized
on the
balance
sheet
Liabilities
after consid-
eration of
netting
potential
Liabilities
recognized
on the
balance
sheet
Total
liabilities
after consid-
eration of
netting
potential
Total
liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
8.4
8.7
(1.9)
(3.4)
240.2
(198.7)
(6.5)
(5.2)
(21.8)
256.1
(218.4)
37.7
(25.1)
(2.3)
3.8
563.1
0.0
(264.2)
3.8
298.8
0.0
(229.2)
(1.4)
(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
0.8
3.2
33.5
14.9
73.9
126.3
9.2
11.8
254.1
42.4
75.3
392.8
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on
derivative instruments1
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 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 val-
ues 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 presented have been capped by the rel-
evant netting agreement so as not to exceed the net amount of financial liabilities presented on 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.
509
Consolidated financial statements Consolidated financial statements
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 that arefinancial instruments as defined
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 assets1
Held for trading
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Debt issued2
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
Loans3
Other assets
Total
Available-for-sale
Financial investments available-for-sale
Total financial assets
31.12.15
31.12.14
120,393
51,943
106
167,435
287,934
132,392
56,018
283
256,978
389,653
6,146
4,951
91,306
11,948
25,584
67,893
23,763
311,954
20,048
552,496
62,543
909,119
104,073
13,334
24,063
68,414
30,979
315,757
21,251
577,872
57,159
1,029,634
29,137
236
162,430
191,803
Financial liabilities
Held for trading
Trading portfolio liabilities
Debt issued2
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
1 As of 31 December 2015, CHF 123 billion of Loans, CHF 0 billion of Due from banks, CHF 1 billion of Reverse repurchase agreements, CHF 30 billion of Financial investments available-for-sale and CHF 3 billion of
Financial assets designated at fair value are expected to be recovered or settled after 12 months. 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 12 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 bil-
lion as of 31 December 2015 (31 December 2014: CHF 1.1 billion). Refer to Notes 10 and 33 for more information.
11,836
8,029
9,653
38,282
390,185
93,018
51,384
602,387
872,903
10,492
9,180
11,818
42,372
410,207
91,183
45,414
620,665
995,972
27,958
308
254,101
282,367
62,995
15,718
78,713
75,297
17,643
92,940
510
Note 27 Financial assets and liabilities – additional information (continued)
b) Maturity analysis of financial liabilities
The contractual maturities for non-derivative and non-trading
financial liabilities as of 31 December 2015 are based on the ear-
liest 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 2014. 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 signifi-
cantly longer periods.
Maturity analysis of financial liabilities1
CHF billion
Financial liabilities recognized on balance sheet2
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities3, 4
Negative replacement values3
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value5
Due to customers
Debt issued
Other liabilities
Total 31.12.15
Total 31.12.14
Guarantees, commitments and forward starting transactions6
Loan commitments
Guarantees
Forward starting transactions
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.15
Total 31.12.14
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
8.1
5.7
7.9
29.1
162.4
38.3
15.2
371.8
5.7
66.0
710.3
811.0
55.7
15.9
6.6
0.0
78.1
78.3
2.4
1.3
1.4
15.9
13.1
10.2
44.3
48.4
0.2
0.0
0.2
0.1
1.1
1.0
0.2
13.1
4.6
16.5
36.4
39.4
0.2
0.0
0.2
0.2
0.3
0.1
11.9
0.5
40.8
53.6
60.9
0.0
0.1
0.1
0.2
0.0
0.2
12.0
0.1
32.3
44.6
49.8
0.0
0.0
0.0
Total
11.8
8.0
9.7
29.1
162.4
38.3
68.1
390.2
105.4
66.0
889.2
1,009.5
56.1
16.0
6.6
0.0
78.7
78.8
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 relationships. 4 Con-
tractual maturities of trading portfolio liabilities are: CHF 27.2 billion due within one month (2014: CHF 26.7 billion), CHF 1.2 billion due between one month and one year (2014: CHF 1.3 billion), and CHF 0.8 billion
due between 1 and 5 years (2014: CHF 0 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.
511
Consolidated financial statements
Consolidated financial statements
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.
reclassified financial assets, which were entirely comprised of
municipal auction rate securities, was CHF 0.2 billion (31 Decem-
ber 2014: CHF 0.7 billion), which was equal to the fair value of
these assets.
The reclassification of financial assets reflected UBS’s change in
intent and ability to hold these financial assets for the foreseeable
future rather than for trading in the near term. The financial
assets were reclassified using their fair value on the date of the
reclassification, which became their new cost basis at that date.
As of 31 December 2015, the carrying value of the remaining
The overall impact on operating profit before tax from reclas-
sifed financial assets for the year ended 31 December 2015 was a
profit of CHF 23 million (2014: CHF 84 million). If the financial
assets had not been reclassified, the impact on operating profit
before tax for the year ended 31 December 2015 would have
been a profit of less than CHF 10 million.
d) Maximum exposure to credit risk of financial assets designated at fair value
Financial assets designated at fair value totaled CHF 6,146 million
as of 31 December 2015 (31 December 2014: CHF 4,951 million).
Maximum exposure to credit risk from financial assets designated
at fair value was CHF 5.6 billion as of 31 December 2015 (31 Decem-
ber 2014: CHF 4.3 billion). The exposure related to structured loans
and reverse repurchase and securities borrowing agreements was
mitigated by securities collateral of CHF 3.5 billion as of 31 Decem-
ber 2015 (31 December 2014: CHF 3.3 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 “Maximum exposure to credit
risk” in the “Risk management and control” 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 amount1
Credit derivatives related to loans – fair value1
1 Credit derivatives contracts include credit default swaps, total return swaps and similar instruments.
31.12.15
31.12.14
687
630
4
667
644
1
The table below provides the effect 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 risk1
Changes in fair value of credit derivatives and similar instruments which mitigate the maximum
exposure to credit risk of loans designated at fair value1
For the year ended
Cumulative from inception
until the year ended
31.12.15
31.12.14
31.12.15
31.12.14
(3)
3
(3)
3
(4)
4
(2)
1
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.
512
Note 28 Pension and other post-employment benefit plans
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 plans1
of which: Swiss plan
of which: UK plan
of which: other plans
of which: related to post-retirement medical and life insurance plans2
of which: UK plan
of which: US plans
of which: related to remaining plans and other costs3
Pension cost for defined contribution plans4
of which: UK
of which: US
of which: other countries
Total pension and other post-employment benefit plan expenses5
31.12.15
31.12.14
31.12.13
569
546
515
18
12
4
1
2
19
239
86
100
53
808
467
508
458
17
33
(36)
2
(37)
(5)
244
91
91
62
711
651
638
555
24
58
(11)
2
(12)
24
236
91
91
54
887
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 related
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 plans1
of which: Swiss plan
of which: UK plan
of which: other plans
Post-retirement medical and life insurance plans2
of which: UK plan
of which: US plans
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 tax3
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”.
31.12.15
31.12.14
31.12.13
339
58
317
(35)
(3)
6
(9)
(14)
322
(19)
303
298
5
(1,456)
(1,032)
(168)
(256)
(5)
(3)
(2)
7
(1,454)
247
(1,208)
(1,172)
(36)
1,168
1,119
(65)
115
3
2
1
7
1,178
(239)
939
513
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
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.
Balance sheet – net defined benefit pension and post-employment asset
CHF million
Major pension plans1
of which: Swiss plan
of which: UK plan
of which: other plans
Post-retirement medical and life insurance plans
of which: UK plan
of which: US plans
Remaining plans
Total net defined benefit pension and post-employment asset2
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 plans1
of which: Swiss plan
of which: UK plan
of which: other plans2
Post-retirement medical and life insurance plans3
of which: UK plan
of which: US plans
Remaining plans
Total net defined benefit pension and post-employment liability4
31.12.15
31.12.14
50
0
50
0
0
0
0
0
50
31.12.15
622
0
0
622
84
25
59
30
736
0
0
0
0
0
0
0
0
0
31.12.14
1,256
25
568
664
85
32
53
32
1,374
1 Refer to Note 28a for more information. 2 Liability consists of: CHF 315 million related to US plans and CHF 307 million related to German plans (31 December 2014: CHF 297 million related to US plans and CHF
367 million related to German plans). 3 Refer to Note 28b for more information. 4 Refer to Note 23.
514
Note 28 Pension and other post-employment benefit plans (continued)
a) Defined benefit pension plans
UBS has established defined benefit pension plans for its employ-
ees in various locations, with the major plans located in Switzer-
land, the UK, the US and Germany. Independent actuarial valua-
tions 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 strate-
gies 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 consider-
ation of specific asset class risk in the risk profile. Within this
framework, 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 liquid-
ity requirements.
The defined benefit obligation for all of UBS’s defined benefit
pension plans is directly impacted by changes in yields of high-
quality corporate bonds in the respective country in which the plan
is held, as the applicable discount rate used 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 position for each plan. Specific asset-liability
matching strategies for each pension plan are independently
determined by the responsible governance body in each country.
The net asset / liability volatility for each plan is dependent on the
specific financial assets chosen by each plan’s fiduciaries. For cer-
tain 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 employ-
ees of companies having close economic or financial ties with UBS
and exceeds the minimum benefit requirements under Swiss pen-
sion law.
Contributions to the pension plan are paid by the employer
and the employees. The Swiss pension plan allows employees a
choice with regard to the level of contributions paid by them.
Employee contributions are calculated as a percentage of the con-
tributory salary and are deducted monthly. The percentages
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 plan 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 payment. Members can draw early retirement benefits start-
ing from the age of 58. Since 2015, employees have the possibil-
ity to make additional purchases of benefits to fund early retire-
ment benefits (Plan 58+).
The payable pension amount is a result of the conversion rate
applied on the accumulated balance of the individual plan par-
ticipant’s pension account at the retirement date. The accumu-
lated balance of each individual plan participant’s pension account
is based on credited vested benefits transferred from previous
employers, purchases of benefits and the employee 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 obliga-
tion to accrue interest on the pension accounts and the payment
of lifetime pensions. The actuarial assumptions used for the Swiss
pension plan are based on the Swiss economic environment.
➔ Refer to Note 1a item 24 for a description of the accounting
policy for defined benefit pension plans
515
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
The Swiss pension plan is governed by the Pension Foundation
Board as required by Swiss pension law and the responsibilities of
this board are defined by Swiss pension law and by the plan rules.
According to Swiss pension law, a temporary limited underfund-
ing is permitted. However, should an underfunded situation occur,
the Pension Foundation Board is required to take the necessary
measures to ensure that full funding can be expected to be
restored within a maximum period of ten years. Under Swiss pen-
sion law, if a Swiss pension plan became significantly underfunded
on a Swiss pension law basis, then additional employer and
employee contributions could be required. In these situations, the
risk is shared between employer and employees, and the employer
is not legally obliged to cover more than 50% of the additional
contributions required. The Swiss pension plan has a technical
funding ratio under Swiss pension law of 123.3% as of 31 Decem-
ber 2015 (31 December 2014: 123.7%).
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
assets, e.g., there is a 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 determined based on regularly performed asset and liability
management analyses. In order to implement the risk budget, the
Swiss plan may use direct investments, investment funds and
derivatives. 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.
As of 31 December 2015, the Swiss pension plan was in a
surplus situation on an International Financial Reporting Stan-
dards (IFRS) measurement basis, as the fair value of plan assets
exceeded the defined benefit obligation by CHF 1,283 million
(31 December 2014: deficit of CHF 25 million). However, a surplus
can only be recognized on the balance sheet to the extent that it
does not exceed the estimated future economic benefit, which
equals the difference between the present value of the estimated
future net service cost and the present value of the estimated
future employer contributions. The maximum future economic
benefit is highly variable based on changes in the discount rate.
As of 31 December 2015, the estimated future economic benefit
was zero and hence, no net defined benefit asset was recognized
on the balance sheet. The difference of CHF 1,283 million
between the pension plan surplus and the estimated future eco-
nomic benefit, the so-called asset ceiling effect, was recognized in
other comprehensive income.
The employer contributions expected to be made to the Swiss
pension plan in 2016 are estimated to be CHF 474 million.
Non-Swiss pension plans
The non-Swiss locations of UBS offer various defined benefit pen-
sion plans in accordance with local regulations and practices. The
non-Swiss locations with major defined benefit plans are the UK,
the US and Germany. Defined benefit pension plans in other loca-
tions are not material to the financial results of UBS and hence not
separately disclosed.
The non-Swiss plans provide benefits in the event of retire-
ment, death or disability. The level of benefits provided depends
on the specific rate of benefit accrual and the level of employee
compensation. UBS’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 net asset / liability position of the non-
Swiss plans because the fair value of the respective plans’ assets
are not directly correlated to movements in the value of the plans’
defined benefit obligations.
The funding policy for these plans is consistent with local gov-
ernment regulations and tax requirements, and actuarial assump-
tions used 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. On 1 July
2013, UBS closed the UK defined benefit pension plan for future
service. After that date, UBS no longer recognized current service
costs for this plan. Plan participants who were active employees
under the defined benefit plan were eligible to become partici-
pants of the defined contribution plan for any service after the
plan was closed for future service.
516
Note 28 Pension and other post-employment benefit plans (continued)
The responsibility for governance of the UK plan lies jointly
with the Pension Trustee Board, which is required under local pen-
sion laws, and UBS. The employer contributions to the pension
fund included regular contributions and specific deficit-funding
contributions until the date of the closure for future service and
thereafter only reflected agreed-upon deficit-funding contribu-
tions. The deficit-funding contributions are determined 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. In
2015, UBS made a deficit-funding contribution of CHF 316 mil-
lion (2014: CHF 75 million).
The plan assets are invested in a diversified portfolio of finan-
cial assets. A liability-driven investment approach is applied as a
portion of the plan assets are invested in inflation-indexed bonds
which provide a partial hedge against price inflation. If price infla-
tion increases, the defined benefit obligation will likely increase
more significantly than any change in the fair value of plan assets,
which would result in an increase in the net defined benefit liabil-
ity. Plan rules and local pension legislation cap the level of infla-
tionary increase that can be applied to plan benefits.
As the plan is obligated 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 life expectancy.
As of 31 December 2015, the UK plan was in a surplus situa-
tion on an IFRS measurement basis, as the fair value of plan assets
exceeded the defined benefit obligation by CHF 50 million. This
surplus was recognized on the UBS balance sheet, as UBS has a
right to a refund with regards to the UK plan.
No employer contributions are expected to be made to the UK
defined benefit plan in 2016.
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 of the major defined benefit pension plans is a contribu-
tion-based plan in which each participant accrues a percentage of
salary in a pension account. The pension account is credited annu-
ally with interest based on a rate that is linked to the average yield
on one-year US government bonds. For the other major defined
benefit pension plan, retirement benefits accrue based on the
career-average earnings of each individual plan participant. Upon
retirement, the plans allow participants a choice between a lump
sum payment and a lifetime pension.
Both of these defined benefit pension plans have fiduciaries as
required under local state pension laws. The fiduciaries, along
with UBS, are jointly responsible for 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 maintain a funded ratio of at least 80%, as calculated
under local pension regulations. The annual employer contribu-
tions 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.
The plan assets for both plans are invested in a diversified port-
folio of financial assets. Each pension plan’s fiduciaries are respon-
sible 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 / liabil-
ity position. Derivative instruments may also be employed to man-
age volatility, including, but not limited to, interest rate futures,
equity futures and swaps, including credit default swaps and
interest rate swaps.
In 2015, the US pension plan rules were amended such that
former UBS employees with vested benefits in the US defined
benefit pension plans have the option to receive a lump sum pay-
ment (or early annuity payments) instead of a lifetime pension
commencing at retirement age. This resulted in a reduction in the
defined benefit obligation of CHF 24 million and a corresponding
gain recognized in the income statement in 2015, of which CHF
21 million was recorded in Wealth Management Americas.
In 2013, UBS offered a one-time option to former UBS employ-
ees with vested benefits in the US defined benefit pension plans
to receive a lump sum payment (or early annuity payments)
instead of a lifetime pension. This resulted in a reduction in 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.
The employer contributions expected to be made to the
US defined benefit plans in 2016 are estimated to be CHF
43 million.
517
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
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 this 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 rests entirely with UBS. For the Ger-
man plans, a portion of the pension payments is directly increased
in line with price inflation.
The employer contributions expected to be made to the Ger-
man plans in 2016 are estimated to be CHF 8 million.
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.
In 2015, disclosures within this Note have been expanded to
separately present UK plan information, which was previously
included within “Non-Swiss” plans. Consequently, the US and
German plans are now shown together within “Other”. Com-
parative information was adjusted accordingly.
518
Note 28 Pension and other post-employment benefit plans (continued)
Defined benefit pension plans
CHF million
For the year ended
Defined benefit obligation at the beginning of the year
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) / losses1
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)
Swiss
UK
Other
Total
31.12.15
23,956
589
270
205
(1,231)
31.12.14
20,738
496
465
202
3,120
31.12.15
3,949
0
137
0
(441)
31.12.14
3,355
0
158
0
349
31.12.15
1,693
10
57
0
(8)
31.12.14
1,315
10
59
0
270
31.12.15
29,598
599
463
205
(1,681)
31.12.14
25,408
506
682
202
3,739
(1,038)
(237)
44
0
(81)
(1,071)
1
0
22,636
10,359
0
12,278
23,931
109
273
482
1
205
(1,071)
(10)
0
0
23,919
1,283
0
(25)
(515)
58
482
1
0
0
22,636
0
23,919
1,283
1,283
0
66
2,705
349
0
(54)
(1,045)
34
0
23,956
11,480
0
12,477
22,498
1,262
513
478
34
202
(1,045)
(10)
0
0
23,931
0
(25)
952
(458)
(1,032)
478
34
0
(25)
23,956
0
23,931
(25)
0
(25)
(122)
(201)
(119)
0
0
(128)
0
(166)
3,350
255
1,864
1,230
3,381
(124)
118
316
0
0
(128)
0
0
(163)
3,400
0
50
(568)
(18)
317
316
0
3
50
3,350
0
3,400
50
0
50
(15)
489
(126)
0
0
(91)
0
178
3,949
312
2,211
1,425
2,922
181
141
75
0
0
(91)
0
0
154
3,381
0
(568)
(433)
(17)
(168)
75
0
(24)
(568)
3,949
0
3,381
(568)
0
(568)
34
(71)
28
(24)
0
(83)
0
(26)
1,619
267
523
829
1,029
(44)
39
57
0
0
(83)
(8)
0
7
997
0
(622)
(664)
(12)
(35)
57
0
33
(622)
1,288
331
997
(622)
0
(622)
85
180
6
0
0
(81)
0
119
1,693
312
545
836
845
14
43
107
0
0
(81)
(6)
0
107
1,029
0
(664)
(470)
(33)
(256)
107
0
(12)
(664)
1,301
392
1,029
(664)
0
(664)
(1,125)
(509)
(47)
(24)
(81)
(1,283)
1
(192)
27,605
10,881
2,388
14,336
28,341
(59)
430
855
1
205
(1,283)
(18)
0
(156)
28,316
1,283
(572)
(1,256)
(546)
339
855
1
36
136
3,374
228
0
(54)
(1,218)
34
297
29,598
12,104
2,756
14,738
26,266
1,457
697
659
34
202
(1,218)
(16)
0
261
28,341
0
(1,256)
50
(508)
(1,456)
659
34
(36)
(572)
(1,256)
27,274
331
28,316
711
1,283
(572)
29,205
392
28,341
(1,256)
0
(1,256)
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.
519
Consolidated financial statements Consolidated financial statements
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
Swiss
UK
Other
Total
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
589
270
(273)
0
10
0
(81)
1
515
496
465
(513)
19
10
0
(54)
34
458
0
137
(118)
0
158
(141)
0
0
0
0
0
0
0
0
0
0
18
17
10
57
(39)
0
8
(24)
0
0
12
10
59
(43)
0
6
0
0
0
33
599
463
(430)
0
18
(24)
(81)
1
546
506
682
(697)
19
16
0
(54)
34
508
Analysis of amounts recognized in other comprehensive income
CHF million
For the year ended
Swiss
UK
Other
Total
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
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
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
1,231
109
(1,283)
0
58
53
5
(3,120)
1,262
808
19
(1,032)
(995)
(36)
441
(124)
0
0
317
315
2
(349)
181
0
0
(168)
(170)
8
(44)
0
0
(270)
1,681
14
0
0
(59)
(1,283)
0
339
(3,739)
1,457
808
19
(1,456)
(35)
(256)
(35)
(246)
333
(1,412)
2
0
(10)
7
(44)
The table below provides information on the duration of the defined benefit pension obligations and the distribution of the timing of
benefit payments.
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 other plans.
Swiss
UK
Other1
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
15.1
16.7
19.7
20.2
11.3
12.5
1,146
2,218
3,403
5,526
5,173
1,033
2,023
3,035
5,394
5,571
80
177
338
785
981
81
173
322
768
997
92
185
291
509
510
85
171
274
485
513
18,892
26,613
7,348
7,926
1,172
1,363
520
Note 28 Pension and other post-employment benefit plans (continued)
UBS regularly reviews the actuarial assumptions used in calcu-
lating its defined benefit obligations to determine their continu-
ing relevance.
In 2015, UBS carried out a methodology review of the actuarial
assumptions used in calculating its defined benefit obligation for
its Swiss pension plan. As a result, UBS enhanced its methodology
for estimating the discount rate by improving the construction of
the yield curve where the market for long tenor maturities of
Swiss high-quality corporate bonds was not sufficiently deep. Fur-
thermore, UBS refined its approach to estimating the rate of sal-
ary increases, the rate of interest credit on retirement savings, the
employee turnover rate, the rate of employee disabilities and the
rate of marriage. These improvements in estimates resulted in a
total net decrease in the defined benefit obligation (DBO) of the
Swiss pension plan of CHF 2,055 million, of which CHF 1,038 mil-
lion related to demographic assumptions and CHF 1,017 million
related to financial assumptions. Out of the total of CHF 2,055
million, CHF 2,002 million was attributable to UBS Group AG
shareholders and CHF 53 million was attributable to non-control-
ling interests. These reductions in the DBO from improvements in
estimates were partly offset by market-driven discount rate
changes, resulting in an overall downward remeasurement of the
Swiss plan DBO of CHF 1,231 million, which was recognized in
other comprehensive income.
Furthermore, UBS enhanced methodologies and
refined
approaches used to estimate various actuarial assumptions for its
UK and other pension plans. These improvements in estimates
resulted in a total net decrease in the DBO of the UK pension plan
of CHF 192 million, of which CHF 122 million related to demo-
graphic assumptions and CHF 71 million related to financial assump-
tions. Out of the total of CHF 192 million, CHF 188 million was
attributable to UBS Group AG shareholders and CHF 4 million was
attributable to non-controlling interests. In addition, mainly market-
driven discount rate changes reduced the DBO further, resulting in
an overall downward remeasurement of the UK plan DBO of CHF
441 million, which was recognized in other comprehensive income.
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 other plans.
Swiss
UK
Other1
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
1.09
1.75
0.00
1.09
1.15
2.40
0.00
1.40
3.90
0.00
3.02
0.00
3.69
0.00
3.08
0.00
4.01
2.89
1.50
1.48
3.60
3.01
1.75
1.13
Mortality tables and life expectancies for major plans
Country
Switzerland
UK
US
Germany
Country
Switzerland
UK
US
Germany
Mortality table
BVG 2010 G
S2PA CMI_2015, with projections1
RP2014 WCHA, with MP2015 projection scale2
Dr. K. Heubeck 2005 G
Mortality table
BVG 2010 G
S2PA CMI_2015, with projections1
RP2014 WCHA, with MP2015 projection scale2
Dr. K. Heubeck 2005 G
1 In 2014 the mortality table S1NA_L CMI 2014 G, with projections was used. 2 In 2014 the mortality table RP2014 G, with MP2014 projection scale was used.
Life expectancy at age 65 for a male member currently
aged 65
aged 45
31.12.15
31.12.14
31.12.15
31.12.14
21.5
23.9
23.0
20.0
21.4
24.4
21.7
19.9
23.2
25.6
24.5
22.6
23.2
27.2
23.4
22.5
Life expectancy at age 65 for a female member currently
aged 65
aged 45
31.12.15
31.12.14
31.12.15
31.12.14
24.0
25.8
24.6
24.1
23.9
25.7
23.9
23.9
25.7
28.0
26.2
26.6
25.6
28.0
25.6
26.5
521
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
– Rate of interest credit on retirement savings: the Swiss plan
and one of the plans in the US have retirement saving balances
that are increased annually by an interest credit rate. For these
plans, an increase in the interest credit rate would increase the
respective plan’s defined benefit obligation.
– Life expectancy: for most of UBS’s defined benefit pension
plans, the respective plan is obligated to provide guaranteed
lifetime pension benefits. The defined benefit obligation for all
plans is 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 ben-
efit obligation.
The table below presents a sensitivity analysis for each signifi-
cant actuarial assumption showing how the defined benefit obli-
gation would be affected by changes in the relevant 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 rea-
sonably possible. This sensitivity analysis applies to the defined
benefit obligation only and not to the net asset / liability in its
entirety. Caution should be used in extrapolating the sensitivities
below to the overall impact on the defined benefit obligation, as
the sensitivities may not be linear.
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 no longer
accrue 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, therefore 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, pen-
sions 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 respective plan’s defined benefit obligation.
Sensitivity analysis of significant actuarial assumptions1
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
UK plan: increase / (decrease)
in defined benefit obligation
Other plans: increase / (decrease)
in defined benefit obligation
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
(1,416)
1,609
82
(86)
1,163
–3
263
(249)
719
(1,688)
1,936
210
(198)
1,315
–3
334
(315)
755
(308)
354
–2
–2
343
(300)
–4
–4
97
(372)
428
–2
–2
414
(363)
–4
–4
135
(84)
92
1
(1)
6
(5)
8
(8)
42
(98)
108
2
(2)
8
(7)
9
(8)
45
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 plan is closed for future
service, a change in assumption is not applicable. 3 As the assumed rate of pension increase was 0% as of 31 December 2015 and as of 31 December 2014, a downward change in assumption is not applicable. 4 As
the plan does not provide interest credits on retirement savings, a change in assumption is not applicable.
522
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, the UK pension plan
and the other pension plans.
Composition and fair value of plan assets
Swiss plan
31.12.15
31.12.14
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
CHF million
Cash and cash equivalents
Real estate / property
Domestic
Investment funds
Equity
Domestic
Foreign
Bonds1
Domestic, AAA to 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 UBS2
Property occupied by UBS
Derivative financial instruments, counterparty UBS2
Structured products, counterparty UBS
Quoted
in an active
market
517
Other
0
Total
517
0
2,647
2,647
699
6,948
2,112
6,109
1,056
0
1,064
0
18,505
0
1,085
0
0
0
63
1,605
15
5,414
699
8,033
2,112
6,109
1,056
63
2,669
15
23,919
31.12.15
23,919
522
38
962
82
(170)
0
Quoted
in an active
market
829
Other
0
Total
829
0
2,582
2,582
798
6,245
2,591
6,418
104
0
2,513
0
0
994
0
0
0
104
736
17
798
7,239
2,591
6,418
104
104
3,249
17
2
11
3
34
9
26
4
0
11
0
3
11
3
30
11
27
0
0
14
0
100
19,499
4,432
23,931
100
31.12.14
23,931
385
38
921
87
(357)
42
1 The bond credit ratings are primarily based on Standard and 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 (90) million as of 31 December 2015 (31 December 2014: CHF (123) million). Securities lent to UBS were fully covered by collateral
as of 31 December 2015 and 31 December 2014.
523
Consolidated financial statements Consolidated financial statements
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)
UK plan
31.12.15
31.12.14
Quoted
in an active
market
426
98
1,080
1,305
53
189
31
46
(32)
6
3,202
Fair value
Other
0
0
0
0
0
0
0
68
123
7
198
Plan asset
allocation %
Quoted
in an active
market
192
122
1,042
1,344
179
91
153
43
(33)
0
13
3
32
38
2
6
1
3
3
0
Total
426
98
1,080
1,305
53
189
31
115
91
13
3,400
100
3,133
Fair value
Other
0
0
0
0
0
0
0
99
139
10
248
Plan asset
allocation %
6
4
31
40
5
3
5
4
3
0
Total
192
122
1,042
1,344
179
91
153
142
106
10
3,381
100
CHF million
Cash and cash equivalents
Investment funds
Equity
Domestic
Foreign
Bonds1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Other
Other investments
Total fair value of plan assets
1 The bond credit ratings are primarily based on Standard and 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.
524
Note 28 Pension and other post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
Other plans
31.12.15
31.12.14
CHF million
Cash and cash equivalents
Bonds1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Private equity
Investment funds
Equity
Domestic
Foreign
Bonds1
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
Quoted
in an active
market
Fair value
Other
52
56
60
17
6
0
240
240
134
13
31
3
0
56
0
14
5
926
0
0
0
0
0
0
0
0
0
0
0
0
12
42
17
0
0
70
Total
52
56
60
17
6
0
240
240
134
13
31
3
12
98
17
14
5
Weighted
average
plan asset
allocation %
Fair value
Quoted
in an active
market
Other
5
6
6
2
1
0
24
24
13
1
3
0
1
10
2
1
0
32
104
10
24
3
0
250
258
142
13
32
4
0
66
0
17
5
0
0
0
0
0
0
0
0
0
0
0
0
13
39
17
0
0
68
Weighted
average
plan asset
allocation %
3
10
1
2
0
0
24
25
14
1
3
0
1
10
2
2
0
100
Total
32
104
10
24
3
0
250
258
142
13
32
4
13
105
17
17
5
1,029
997
100
961
1 The bond credit ratings are primarily based on Standard and 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.
525
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
b) Post-retirement medical and life insurance plans
In the US and in 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-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 lim-
ited to, the cost of doctor visits, hospitalization, surgery and phar-
maceuticals. These plans are not pre-funded plans and costs are
recognized as incurred. In the US, the retirees also contribute to
the cost of the post-retirement medical benefits.
In 2014, UBS announced changes to the US post-retirement
medical plans in relation to a reduction or elimination of the sub-
sidy provided for medical benefits. This change reduced the post-
retirement benefit obligation by CHF 33 million, resulting in a cor-
responding gain recognized in the income statement in 2014.
Further in 2014, UBS 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.
The employer contributions expected to be made to the post-
retirement medical and life insurance plans in 2016 are estimated
to be CHF 6 million.
The table on the following page provides an analysis of the net
asset / liability recognized on the balance sheet for post-retirement
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.
In 2015, disclosures within this Note have been expanded to
separately present UK post-retirement medical plan information,
which was previously presented together with the US post-retire-
ment medical plans. Comparative information was adjusted
accordingly.
526
Note 28 Pension and other post-employment benefit plans (continued)
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) / losses1
Past service cost related to plan amendments
Benefit payments2
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
UK
US
Total
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
32
0
1
0
(6)
2
(1)
(7)
0
(1)
(2)
25
5
0
20
0
(25)
0
1
0
1
6
6
6
0
28
53
87
85
114
0
1
0
3
0
4
0
0
(2)
1
32
12
0
21
0
(32)
0
1
0
2
(3)
(3)
(3)
0
0
2
2
9
2
(2)
9
0
(8)
1
59
0
0
59
0
0
3
2
2
4
5
(7)
(41)
(9)
8
53
0
0
53
0
0
3
2
3
4
(3)
2
0
(10)
(1)
84
5
0
79
0
0
5
2
5
4
8
(7)
(41)
(10)
10
85
12
0
74
0
(59)
(53)
(84)
(85)
0
2
0
2
(9)
(9)
(9)
0
0
3
(41)
(37)
(2)
(2)
(2)
0
0
3
0
4
(3)
(3)
(3)
0
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 actu-
ally occurred. 2 Benefit payments are funded by employer contributions and plan participant contributions.
527
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
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.
UBS regularly reviews the actuarial assumptions used in calcu-
lating its post-retirement benefit obligations to determine their
continuing relevance. In 2015, UBS enhanced methodologies and
refined approaches used to estimate various actuarial assump-
tions. These improvements in estimates resulted in a net increase
in the post-retirement benefit obligation.
The discount rate and the assumed average health care cost
trend rates are presented in the table below. The basis for life
expectancy assumptions is the same as provided for defined ben-
efit 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.
UK
US
31.12.15
31.12.14
31.12.15
31.12.14
3.90
5.10
5.10
3.69
5.50
5.50
4.23
6.75
5.00
3.93
7.00
5.00
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 measure-
ment 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
increase 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 assumptions1
– Life expectancy: as some plan participants have lifetime bene-
fits under these plans, an increase in life expectancy would
increase 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.
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
UK
US
31.12.15
31.12.14
31.12.15
31.12.14
(1)
2
3
(3)
2
(2)
2
4
(4)
2
(3)
3
1
(1)
5
(2)
2
(1)
1
5
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 sponsors a number of defined contribution plans in locations
outside of Switzerland. The locations with significant defined con-
tribution plans are the UK and the US. Certain plans permit
employees to make contributions and earn matching or other
contributions from UBS. The employer contributions to these
plans are recognized as an expense which, for the years ended
31 December 2015, 2014 and 2013, amounted to CHF 239 mil-
lion, CHF 244 million and CHF 236 million, respectively.
528
Note 28 Pension and other post-employment benefit plans (continued)
d) Related party disclosure
UBS is the principal provider of banking services for the pension
fund of UBS in Switzerland. In this function, UBS is engaged to
execute most of the pension fund’s banking activities. These activ-
ities can include, but are not limited to, trading and securities
lending and borrowing. 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 December 2015, the minimum commitment toward the Swiss
pension fund under the related leases is approximately CHF 11
million (31 December 2014: CHF 14 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 UBS debt instruments are as follows.
Transaction volumes – UBS shares and UBS debt instruments
Financial instruments bought by pension funds
UBS shares1 (in thousands of shares)
UBS debt instruments (par values in CHF million)
Financial instruments sold by pension funds or matured
UBS shares1 (in thousands of shares)
UBS debt instruments (par values in CHF million)
For the year ended
31.12.15
31.12.14
31.12.13
33
5
(1)
14
33
6
0
4
33
8
1
2
For the year ended
31.12.15
31.12.14
1,544
3
2,255
4
2,092
4
1,735
4
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.
UBS defined contribution pension funds held 15,782,722 UBS
Group AG shares with a fair value of CHF 306 million as of
31 December 2015 (31 December 2014: 16,253,804 UBS Group
AG shares with a fair value of CHF 276 million).
More information on the fair value of the plan assets of the
defined benefit pension plans are disclosed in Note 28a.
529
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 29 Equity participation and other compensation plans
a) Plans offered
The UBS Group 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 approximately 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 coun-
tries, business areas (e.g., awards granted within Wealth Manage-
ment Americas), or are only offered to members of the Group
Executive Board (GEB). The UBS Group operates compensation
plans on a mandatory, discretionary and voluntary basis. The
explanations below provide a general description of the terms of
the most significant plans offered by the Group which relate to
the performance year 2015 (awards granted in 2016) and those
from prior years that were partly expensed in 2015.
➔ Refer to Note 1a item 25 for a description of the accounting policy
related to equity participation and other compensation plans
Mandatory share-based compensation plans
Equity Ownership Plan (EOP): Select employees receive a portion
of their annual performance-related compensation above a cer-
tain threshold in the form of an EOP award in UBS shares, notional
shares or UBS performance shares (notional shares that are sub-
ject to performance conditions). From February 2014 onwards,
only notional shares and UBS performance shares have been
granted. Since 2011, performance shares have been granted to
EOP participants who are Key Risk-Takers, Group Managing Direc-
tors (GMD) or employees whose incentive awards exceed a cer-
tain threshold, and since 2013 to GEB members. For performance
shares granted in respect of the performance years 2012 and
thereafter, the performance conditions are based on the Group
return on tangible equity and the divisional return on attributed
equity (for Corporate Center participants, the return on attributed
equity of the Group excluding Corporate Center). Awards issued
outside the normal 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
carry voting rights during the vesting period. Notional and perfor-
mance 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 that 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 vested in three equal increments
over a three-year vesting period and awards granted since March
2013 generally vest in equal increments in years two and three
following grant. The awards are generally forfeitable upon,
among other circumstances, voluntary termination of employ-
ment with UBS. Compensation expense is recognized in the per-
formance 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, on
a tiered basis.
Senior Executive Equity Ownership Plan (SEEOP): Up to 2012
(performance year 2011), GEB members and selected senior exec-
utives 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 sched-
uled vesting. Awards granted under SEEOP are settled by deliver-
ing UBS shares at vesting. Compensation expense is recognized
on the same basis as for share-settled EOP awards. No new SEEOP
awards were granted since 2012. From 2013 (performance year
2012), GEB members have received EOP performance awards.
Incentive Performance Plan (IPP): In 2010, GEB members and
certain other senior employees received part of their annual incen-
tive in the form of performance shares granted under the IPP.
Each performance share granted was a contingent right to receive
between one and three UBS shares at vesting, depending on the
achievement of share price targets. Vesting was subject to contin-
ued employment with UBS and certain other conditions. The IPP
awards vested in March 2015. Compensation expense was recog-
nized 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.
530
Note 29 Equity participation and other compensation plans (continued)
Performance Equity Plan (PEP): In 2012 GEB members received
part of their annual incentive in the form of performance shares
granted under the PEP. Each performance share was 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. Vesting was subject to contin-
ued employment with UBS and certain other conditions. The last
PEP awards vested in March 2015. Compensation expense was
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 after 2012.
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 vested in 2015. Vesting was subject to
performance conditions, continued employment with the firm
and certain other conditions. Compensation expense was recog-
nized 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 is generally paid in
cash and above a threshold it is granted in blocked shares. Such
shares will be unblocked in equal instalments after two and
three years. The compensation expense is recognized in the year
of grant.
Mandatory deferred cash compensation plans
Deferred Contingent Capital Plan (DCCP): The DCCP is a manda-
tory performance award deferral plan for all employees whose
total compensation exceeds a certain threshold. For awards
granted up to January 2015, employees received part of their
annual incentive in the form of notional bonds, which are a right
to receive a cash payment at vesting. For awards granted for the
performance years 2014 and 2015, employees have been
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
common equity 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 pro-
vides a written notice to UBS that the DCCP awards 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 Janu-
ary 2015, interest on the awards is paid annually for perfor-
mance years in which the firm generates an adjusted profit
before tax. For awards granted since February 2015 interest pay-
ments are discretionary. The awards are subject to standard for-
feiture and harmful acts provisions, including voluntary termina-
tion 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. Other-
wise, compensation expense is recognized ratably 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
employees 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
installments to be reduced if the business has a loss during the
calendar year preceding vesting. The awards are generally forfeit-
able upon voluntary termination of employment with UBS. Com-
pensation 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 rat-
ably from the grant date to the earlier of the vesting date or the
retirement eligibility date of the employee. 2014 was the last year
awards were granted under LTDRSIS.
Asset Management Equity Ownership Plan: In order to align
their compensation with the performance of the funds they man-
age, Asset Management employees who receive EOP awards
receive them in the form of cash-settled notional funds. The
amount depends on the value of the relevant underlying Asset
Management funds at the time of vesting. The awards are gener-
ally forfeitable upon, among other circumstances, voluntary ter-
mination 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 retirement 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.
531
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 29 Equity participation and other compensation plans (continued)
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, 2011 and 2015, with potential arrangements to
be granted in 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 con-
tributions) 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
certain percentage of their pay, which are vested upon contribu-
tion. Company contributions and voluntary contributions are
credited with interest in accordance with the terms of the plan.
Rather than being credited with interest, a participant may elect
to have voluntary contributions, along with vested company con-
tributions, credited with notional earnings based on the perfor-
mance of various mutual funds. Company contributions and
interest on both company and voluntary contributions ratably vest
in 20% increments six to ten years following grant date. Com-
pany contributions and interest / notional earnings on both com-
pany and voluntary contributions 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 com-
mencing in the performance year to the earlier of the vesting date
or the qualifying separation eligibility date of the employee. Com-
pensation expense for voluntary contributions 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
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 permitted for legal reasons. These
awards are generally forfeitable upon termination of employ-
ment with UBS. 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. If the shares purchased are held for three years,
and in general if the employee remains in employment, the
notional UBS shares vest. For notional UBS shares granted from
April 2014 onwards, employees are entitled to receive a dividend
equivalent which may be paid in either notional shares and / or
cash. Prior to 2010, instead of notional shares participants
received two UBS options for each share they purchased under
this plan. The options 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 deliver-
ing 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 retire-
ment eligibility date of the employee.
Share delivery obligations
As of 31 December 2015, total future share delivery obligations in
relation to employee share-based compensation awards were 138
million shares (31 December 2014: 131 million shares), taking the
respective performance conditions into account. Share delivery
obligations related to unvested and vested notional share awards,
options and stock appreciation rights.
532
Note 29 Equity participation and other compensation plans (continued)
As of 31 December 2015, UBS held 98 million UBS Group AG
treasury shares (31 December 2014: 88 million) which were avail-
able to satisfy the share delivery obligations. Additionally, 131 mil-
lion UBS Group AG shares (31 December 2014: 136 million) to be
issued out of conditional share capital were available to satisfy the
share delivery obligation specifically 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 2015 and deferred com-
pensation expenses that will be recognized as an expense in the
income statements of 2016 and later. The deferred compensation
expenses in the table also include vested and non-vested awards
granted mainly in February 2016, which relate to the performance
year 2015.
Personnel expenses – Recognized and deferred1
Personnel expenses for the year ended 2015
Personnel expenses deferred to 2016 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 compensation5
Total
Expenses
relating to
awards for
2015
Expenses
relating to
awards for
prior years
2,073
172
0
261
0
261
28
2,535
184
2,460
43
132
37
2,673
5,391
(94)
258
12
461
0
461
38
675
162
0
692
142
45
879
1,716
Relating to
awards for
2015
Relating to
awards for
prior years
0
343
0
524
0
524
34
900
2483
0
940
710
66
1,716
2,864
0
446
3
338
0
338
35
822
2934
0
1,899
456
115
2,470
3,585
Total
1,980
429
12
722
0
722
67
3,210
3462
2,460
735
275
82
3,552
7,108
Total
0
789
3
861
0
861
69
1,722
541
0
2,839
1,166
182
4,186
6,449
1 Total share-based personnel expenses recognized for the year ended 31 December 2015 were CHF 1,028 million and were comprised of UBS share plans of CHF 807 million, Equity Ownership Plan – notional funds of
CHF 67 million, related social security costs of CHF 56 million and other compensation plans (reported within Variable compensation – other) of CHF 98 million. 2 Includes replacement payments of CHF 76 million (of
which CHF 65 million related to prior years), forfeiture credits of CHF 86 million (all related to prior years), severance payments of CHF 157 million (all related to 2015) and retention plan and other payments of CHF 198
million (of which CHF 183 million related to prior years). 3 Includes DCCP interest expense of CHF 160 million for DCCP awards 2015 (granted in 2016). 4 Includes DCCP interest expense of CHF 200 million for DCCP
awards 2014, 2013 and 2012 (granted in 2015, 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.
533
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 29 Equity participation and other compensation plans (continued)
Personnel expenses – Recognized and deferred1
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 compensation5
Total
Personnel expenses for the year ended 2014
Personnel expenses deferred to 2015 and later
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
4662
2,396
675
234
80
3,385
6,671
0
312
0
459
0
459
36
807
3073
0
524
189
41
754
1,868
0
386
8
367
0
367
33
794
3404
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 2014) 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 million 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.
During 2015 and 2014, UBS accelerated the recognition of
expenses for certain deferred compensation arrangements relat-
ing 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 employees are not required to provide future service, com-
pensation expense relating to these awards was accelerated to
the termination date based on the shortened service period. The
amounts accelerated and recognized relating to share-based pay-
ment awards in 2015 and 2014 were CHF 9 million and CHF 38
million respectively, and the amounts related to deferred cash
awards were CHF 10 million and CHF 29 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 accelerated to the termination date. The amounts acceler-
ated and recognized relating to share-based payment awards in
2015 and 2014 were CHF 6 million and CHF 11 million, respec-
tively, and the amounts related to deferred cash awards were
CHF 11 million and CHF 8 million, respectively.
534
Note 29 Equity participation and other compensation plans (continued)
Personnel expenses – Recognized and deferred
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 compensation5
Total
Personnel expenses for the year ended 2013
Personnel expenses deferred to 2014 and later
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
3403
0
440
107
45
592
1,844
0
230
12
307
0
21
328
36
606
3984
0
2,098
564
165
2,827
3,831
Total
1,912
248
55
656
3
33
692
79
2,986
2882
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 2013) 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 million 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 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.
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 2015, 2014 and 2013 were CHF 1,028
million, CHF 999 million and CHF 1,042 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
employee to provide future services.
The total compensation expenses for non-vested share-based
awards granted up to 31 December 2015 relating to prior years to
be recognized in future periods is CHF 553 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
2015 table differ from this amount as the deferred compensation
amounts also include non-vested awards granted in February
2016 related to the performance year 2015.
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 2015 and 2014 were
CHF 98 million and CHF 90 million, respectively. The total carry-
ing amount of the liability related to these plans was CHF 170
million as of 31 December 2015 and CHF 143 million as of
31 December 2014.
535
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
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
16
14
16
17
Number of
shares
2015
168,778,334
66,444,272
(84,411,907)
(6,625,596)
144,185,104
58,920,339
Number of
shares
2014
186,633,491
58,925,185
(69,921,325)
(6,859,017)
168,778,334
48,749,489
Weighted
average grant
date fair
value (CHF)
15
18
16
16
15
The fair value of shares that became legally vested and were distributed (i.e., all restrictions were fulfilled) during the years ended 2015
and 2014 was CHF 1,443 million and CHF 1,269 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
2015
Weighted average fair
value of IPP
performance shares at
grant date (CHF)1
22
22
22
22
22
22
22
22
Number
of performance
shares
12,742,168
(12,017,543)2
(673,468)
51,1573
51,157
2014
13,151,023
(240,064)
(168,791)
12,742,1683
12,742,168
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 2015 was 12,017,543. In
2014 it amounted to 240,064. 3 As of 31 December 2015 and 31 December 2014, the number of deliverable UBS shares was equal to the number of forfeitable performance shares.
536
Note 29 Equity participation and other compensation plans (continued)
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
2015
Weighted average fair
value of PEP
performance shares at
grant date (CHF)1
13
2014
13
13
16
19
19
13
Number
of performance
shares
767,531
(337,718)2
(429,813)
03
0
1,380,958
(613,427)
0
767,5313
767,531
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 2015 was 337,718. In 2014
it amounted to 245,371. 3 As of 31 December 2015, the number of deliverable UBS shares was zero as the remaining awards vested in 2015. As of 31 December 2014, the number of deliverable UBS shares was
337,714 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
2015
108,396,107
(2,971,211)
(113,015)
(24,463,664)
80,848,217
80,848,217
Weighted
average exercise
price (CHF)1
45
13
47
48
45
45
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
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)
31.12.15
31.12.14
19
19.5
18
8.0
537
Consolidated financial statements
Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
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 2015:
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)
8,373,024
7,947,669
23,259,254
1,525,691
1,724,376
3,363,167
34,646,511
80,839,692
0
8,525
8,525
11.37
19.09
31.48
35.67
53.65
60.14
67.52
0.00
50.30
68.3
12.5
0.0
0.0
0.0
0.0
0.0
80.8
0.0
0.0
0.0
2.9
2.9
2.0
2.0
1.7
1.1
0.7
0.0
0.1
8,373,024
7,947,669
23,259,254
1,525,691
1,724,376
3,363,167
34,646,511
80,839,692
0
8,525
8,525
11.37
19.09
31.48
35.67
53.65
60.14
67.52
0.00
50.30
68.3
12.5
0.0
0.0
0.0
0.0
0.0
80.8
0.0
0.0
0.0
2.9
2.9
2.0
2.0
1.7
1.1
0.7
0.0
0.1
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
36.91–45.00
45.01–55.00
36.91–55.00
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
2015
17,689,089
(4,917,534)
(14,500)
(237,290)
12,519,765
12,519,765
Weighted
average exercise
price (CHF)
12
11
12
12
12
12
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)
12
11
14
12
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)
31.12.15
31.12.14
19
38.9
18
22.8
538
Note 29 Equity participation and other compensation plans (continued)
The following table provides additional information about SARs outstanding as of 31 December 2015:
SARs outstanding
SARs exercisable
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)
12,161,765
4,000
42,000
312,000
12,519,765
11.34
14.22
16.80
19.25
99.5
0.0
0.1
0.1
99.7
0.4
3.5
3.4
3.7
12,161,765
4,000
42,000
312,000
12,519,765
11.34
14.22
16.80
19.25
99.5
0.0
0.1
0.1
99.7
0.4
3.5
3.4
3.7
Range of exercise prices
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
2015 is approximately 16.7% (2014: 12.9%) 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
employee 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
future dividends are derived from traded UBS options or from the
historical dividend pattern. No options or SARs have been granted
since 2009.
539
Consolidated financial statements
Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities
a) Interests in subsidiaries
UBS defines its significant subsidiaries as those entities that,
either 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 and loss before
tax, in accordance with the requirements set by IFRS 12, Swiss
regulations and the regulations of the US Securities and Exchange
Commission (SEC).
Individually significant subsidiaries
The two tables below list the Group’s individually significant sub-
sidiaries as of 31 December 2015. 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 |
Subsidiaries of UBS Group AG as of 31 December 2015
Company
UBS AG
Registered office
Zurich and Basel, Switzerland
UBS Business Solutions AG
Zurich, Switzerland
UBS Group Funding (Jersey) Ltd.
St. Helier, Jersey
Share capital in million
CHF
CHF
CHF
385.8
1.0
0.0
Pillar 3 |
Individually significant subsidiaries of UBS AG as of 31 December 2015
Company
Registered office
Primary business division
UBS Americas Holding LLC
Wilmington, Delaware, USA
Corporate Center
UBS Bank USA
Salt Lake City, Utah, USA
Wealth Management Americas
UBS Financial Services Inc.
Wilmington, Delaware, USA
Wealth Management Americas
UBS Limited
UBS Securities LLC
UBS Switzerland AG
London, United Kingdom
Wilmington, Delaware, USA
Zurich, Switzerland
Investment Bank
Investment Bank
Personal & Corporate Banking
Share capital in million
1,200.01
0.0
USD
USD
USD
GBP
USD
CHF
0.0
226.6
1,283.12
10.0
Equity interest
accumulated in %
100.0
100.0
100.0
Equity interest
accumulated in %
100.0
100.0
100.0
100.0
100.0
100.0
1 Comprised of common share capital of USD 1,000 and non-voting preferred share capital of USD 1,200,000,000. 2 Comprised of common share capital of USD 100,000 and non-voting preferred share capital of
USD 1,283,000,000.
In 2015, UBS Group AG increased its ownership interest in UBS
AG to 100% following the successful completion of the proce-
dure under article 33 of the Swiss Stock Exchange Act (SESTA
procedure). In addition, UBS Business Solutions AG was estab-
lished as a direct subsidiary of UBS Group AG, to act as the Group
service company.
Also in 2015, UBS transferred its Personal & Corporate Banking
and Wealth Management business booked in Switzerland from
UBS AG to UBS Switzerland AG, a newly formed bank subsidiary.
➔ Refer to Note 32 for more information
UBS Americas Holding LLC, UBS Limited and UBS Switzerland
AG are fully held by UBS AG. UBS Bank USA, UBS Financial Ser-
vices Inc. and UBS Securities LLC are fully held, directly or indi-
rectly, by UBS Americas Holding LLC.
540
Note 30 Interests in subsidiaries and other entities (continued)
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 SEC.
Other subsidiaries of UBS AG as of 31 December 2015
Registered office
Primary business division
Share capital in million
Equity interest
accumulated in %
Company
Topcard Service AG
UBS (Italia) SpA
UBS (Luxembourg) S.A.
UBS Americas Inc.
Glattbrugg, Switzerland
Personal & Corporate Banking
Milan, Italy
Luxembourg, Luxembourg
Wealth Management
Wealth Management
Wilmington, Delaware, USA
Corporate Center
UBS Asset Management (Americas) Inc.
Wilmington, Delaware, USA
UBS Asset Management (Australia) Ltd
UBS Asset Management (Deutschland) GmbH
Sydney, Australia
Frankfurt, Germany
UBS Asset Management (Hong Kong) Limited
Hong Kong, Hong Kong
UBS Asset Management (Japan) Ltd
Tokyo, Japan
Asset Management
Asset Management
Asset Management
Asset Management
Asset Management
Asset Management
Asset Management
Asset Management
Investment Bank
Wealth Management
Wealth Management
Asset Management
Asset Management
Asset Management
Investment Bank
Asset Management
UBS Asset Management (Singapore) Ltd
UBS Asset Management (UK) Ltd
UBS Asset Management AG
UBS Australia Holdings Pty Ltd
UBS Bank, S.A.
UBS Beteiligungs-GmbH & Co. KG
UBS Card Center AG
UBS Credit Corp.
UBS Deutschland AG
UBS Fund Advisor, L.L.C.
Singapore, Singapore
London, United Kingdom
Zurich, Switzerland
Sydney, Australia
Madrid, Spain
Frankfurt, Germany
Glattbrugg, Switzerland
Personal & Corporate Banking
Wilmington, Delaware, USA
Wealth Management Americas
Frankfurt, Germany
Wealth Management
Wilmington, Delaware, USA
Wealth Management Americas
UBS Fund Mangement (Luxembourg) S.A.
Luxembourg, Luxembourg
UBS Fund Mangement (Switzerland) AG
Basel, Switzerland
UBS Hedge Fund Solutions LLC
Wilmington, Delaware, USA
UBS Italia SIM SpA
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
UBS South Africa (Proprietary) Limited
UBS Trust Company of Puerto Rico
UBS UK Properties Limited
Milan, Italy
Dover, Delaware, USA
Wilmington, Delaware, USA
Investment Bank
Boston, Massachusetts, USA
Asset Management
Bangkok, Thailand
Sydney, Australia
Toronto, Canada
Madrid, Spain
Mumbai, India
Tokyo, Japan
Singapore, Singapore
Wilmington, Delaware, USA
Sandton, South Africa
Hato Rey, Puerto Rico
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Corporate Center
Investment Bank
Wealth Management Americas
London, United Kingdom
Corporate Center
1 Includes a nominal amount relating to redeemable preference shares.
CHF
EUR
CHF
USD
USD
AUD
EUR
HKD
JPY
SGD
GBP
CHF
AUD
EUR
EUR
CHF
USD
EUR
USD
EUR
CHF
USD
EUR
USD
USD
USD
THB
AUD
CAD
EUR
INR
JPY
SGD
USD
ZAR
USD
GBP
0.2
95.0
150.0
0.0
0.0
20.11
7.7
150.0
2,200.0
4.0
125.0
0.1
46.7
97.2
568.8
0.1
0.0
176.0
0.0
13.0
1.0
0.1
15.1
1.0
0.0
9.0
500.0
0.31
10.0
15.0
140.0
46,450.0
420.4
0.0
0.0
0.1
132.0
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
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
541
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
Changes in consolidation scope
During 2015, a number of subsidiaries were incorporated in
order to improve the resolvability of the Group in response to too
big to fail requirements, namely UBS Business Solutions AG, UBS
Americas Holding LLC, UBS Switzerland AG and UBS Asset Man-
agement AG. UBS Fund Services (Cayman) Ltd and a few smaller
subsidiaries of Asset Management were removed from the scope
of consolidation as part of the sale of the Alternative Fund Ser-
vices business.
Non-controlling interests
As of 31 December 2015, non-controlling interests mainly com-
prised preferred notes issued by UBS AG. Apart from this, non-
controlling interests were not material to the Group. As of
31 December 2014, UBS Group AG recognized equity attribut-
able to non-controlling interests in relation to the 3.32% of UBS
AG shares held by non-controlling shareholders.
➔ Refer to the “Statement of changes in equity” and Note 32 for
more information
As of 31 December 2015 and 31 December 2014, there were
no significant restrictions on UBS’s ability to access or use the
assets and settle the liabilities of the Group resulting from protec-
tive 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 client
investment vehicles. UBS has no individually significant subsidiar-
ies 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
have control and therefore consolidates the fund.
Securitization SEs are generally consolidated when the Group
holds a significant percentage of the asset backed securities
issued 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 2015 and 2014, the Group has not entered into any con-
tractual obligation that could require the Group to provide finan-
cial support to 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 that resulted in the Group controlling the SE
during the reporting period.
542
Note 30 Interests in subsidiaries and other entities (continued)
Pillar 3 | b) Interests in associates and joint ventures
As of 31 December 2015 and 2014, 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 profit1, 2
of which: share of other comprehensive income3
Dividends received
Foreign currency translation
Carrying amount at the end of the year
of which: associates
of which: UBS Securities Co. Limited, Beijing4
of which: SIX Group AG, Zurich5
of which: other associates
of which: joint ventures
31.12.15
31.12.14
927
12
(2)
151
169
(18)
(114)
(20)
954
925
411
413
102
29
842
1
(2)
103
94
9
(54)
38
927
900
404
406
90
27
1 For 2015, consists of CHF 158 million from associates and CHF 11 million from joint ventures. For 2014, consists of CHF 83 million from associates and CHF 11 million from joint ventures. 2 In 2015, the SIX Group
sold its stake in STOXX Ltd and Indexium Ltd. The UBS share of the resulting gain on sale was CHF 81 million. 3 For 2015, consists of CHF (18) million from associates and CHF 0 million from joint ventures. For 2014,
consists of CHF 8 million from associates and CHF 0 million from joint ventures. 4 During 2015, UBS AG’s equity interest increased to 24.99% (20.0% as of 31 December 2014). 5 UBS AG’s equity interest amounts
to 17.3%. UBS AG is represented on the Board of Directors.
543
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
Pillar 3 | c) Interests in unconsolidated structured entities
During 2015, 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 investment
funds, which UBS did not consolidate as of 31 December 2015
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 2015. In addition, the total assets held by the SEs in which
UBS had an interest as of 31 December 2015 are provided, except
for investment funds sponsored by third parties, for which the
carrying value of UBS’s interest as of 31 December 2015 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
1,060
41
0
0
1,1013
304
305
1416
463
101
972
0
3,396
452
4,102
631
631
437
Securitization
vehicles
Client
vehicles
1,955
26
466
2,4473
2454
2455
3556
676
83
1152
40
4,029
522
4,996
27
27
1137
31.12.15
Investment
funds
6,102
57
95
101
102
0
6,457
0
0
3208
31.12.14
Investment
funds
8,079
2
102
206
94
8,482
75
75
3048
Maximum
exposure to loss1
7,624
200
1,730
101
3,498
937
19
Maximum
exposure to loss1
10,711
111
2,422
712
4,123
1,248
21
Total
7,624
200
191
101
3,498
45
11,660
661
661
Total
10,711
111
217
712
4,123
52
15,925
347
347
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 2015, CHF 0.9 billion of the CHF 1.1 billion was held in
Corporate Center – Non-core and Legacy Portfolio. As of 31 December 2014, CHF 2.2 billion of the CHF 2.4 billion 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 in 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 2015: CHF 310 billion, 31 December 2014: CHF 296 billion) and the carrying value of UBS’s interests in the investment funds not sponsored by UBS (31 December
2015: CHF 10 billion, 31 December 2014: CHF 8 billion).
544
Note 30 Interests in subsidiaries and other entities (continued)
Pillar 3 | The Group retains or purchases interests in unconsoli-
dated SEs in the form of direct investments, financing, guaran-
tees, 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 deriva-
tive swap instruments with a positive replacement value only,
such as total return swaps, is presented as UBS’s maximum expo-
sure 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
activities, including effects from financial instruments that the
Group may utilize to economically hedge the risks inherent in the
unconsolidated SE or the risk-reducing effects of collateral or
other credit enhancements.
In 2015 and 2014, 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 2015 and 2014, income and expenses from interests in
unconsolidated SEs primarily resulted from mark-to-market move-
ments recognized in net trading income, which have generally
been hedged with other financial instruments, as well as fee and
commission income received from UBS sponsored funds.
Interests in securitization vehicles
As of 31 December 2015 and 31 December 2014, the Group
retained interests in various securitization vehicles. As of
31 December 2015, a majority of our interests in securitization
vehicles related to a portfolio of credit default swap (CDS) posi-
tions referencing asset-backed securities (ABS), which are held
within Corporate Center – Non-core and Legacy Portfolio. The
Investment Bank also retained interests in securitization vehicles
related to financing, underwriting, secondary market and deriva-
tive trading activities.
In some cases the Group may be required to absorb losses from
an unconsolidated SE before other parties because the Group’s
interest is subordinated to others in the ownership structure. An
overview of the Group’s interests in unconsolidated securitization
vehicles and the relative ranking and external credit rating of
those interests as of 31 December 2015 and 31 December 2014
is presented 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 2015 and 31 December 2014, the Group
retained 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
investments are securities guaranteed by US government agen-
cies.
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
table on the previous page, the Group manages the assets of
various pooled investment funds and receives fees that 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 that 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
2015 or as of 31 December 2014.
545
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
Pillar 3 |
Interests in unconsolidated securitization vehicles1
CHF million, except where indicated
Sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: defaulted
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
Total
of which: Trading portfolio assets
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
Interests in mezzanine tranches
of which: rated investment grade
of which: defaulted
Interests in junior tranches
of which: rated investment grade
of which: not rated
Total
of which: Trading portfolio assets
Total assets held by the vehicles in which UBS had an interest (CHF billion)
Residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
31.12.15
Other
asset-backed
securities2
Re-securiti-
zation3
Total
0
3
2
1
3
3
0
284
284
61
58
3
11
11
0
356
356
64
54
54
7
7
61
61
28
66
65
17
17
3
0
3
86
86
37
0
0
0
0
0
0
383
383
17
17
0
400
400
6
13
13
0
13
13
1
140
140
0
0
0
140
140
2
66
54
13
10
7
2
1
77
77
29
873
872
95
92
3
14
11
3
983
983
109
1 This table excludes derivative transactions with securitization vehicles. 2 Includes credit card, car and student loan structures. 3 Includes collateralized debt obligations.
546
Note 30 Interests in subsidiaries and other entities (continued)
Interests in unconsolidated securitization vehicles1 (continued)
CHF million, except where indicated
Sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: defaulted
Interests in mezzanine tranches
of which: rated 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)
Not sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
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
31.12.14
Other
asset-backed
securities2
Re-securiti-
zation3
0
0
1
1
1
1
1
376
369
6
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
18
11
6
0
1
453
453
0
115
1
1
0
1
1
3
454
452
2
172
164
8
1
1
627
588
39
88
389
381
8
6
6
395
14
381
2
207
205
1
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
8
22
13
2
8
472
91
381
20
1,329
1,313
15
531
457
69
5
89
67
10
1
11
1,949
1,865
85
331
547
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
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 2015 or as of 31 December 2014. However, during
the respective reporting period the Group transferred assets, pro-
vided services and held instruments that did not qualify as an inter-
est in 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 2015 and 2014 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 SEs.
Sponsored unconsolidated structured entities in which UBS did not have an interest at year end1
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
31.12.15
Securitization
vehicles Client vehicles
Investment
funds
2
0
18
20
82
(11)
0
208
197
13
0
57
48
104
124
As of or for the year ended
31.12.14
Securitization
vehicles
Client vehicles
Investment
funds
6
63
69
42
(51)
(158)
(208)
13
54
10
64
144
Total
(10)
57
274
321
Total
(44)
54
(85)
(75)
1 These tables exclude profit attributable to non-controlling interests of CHF 77 million for the year ended 31 December 2015 and CHF 142 million of profit attributable to preferred noteholders for the year ended
31 December 2014. 2 Represents the amount of assets transferred to the respective securitization vehicles. Of the total amount transferred, CHF 3 billion was transferred by UBS (31 December 2014: CHF 1 billion) and
CHF 5 billion was transferred by third parties (31 December 2014: CHF 3 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 2014: CHF 1 billion) and CHF 1 billion was transferred by third parties (31 December 2014: CHF 1 billion). 4 Represents the total net asset value of the respective investment funds.
548
Note 30 Interests in subsidiaries and other entities (continued)
During 2015 and 2014, the Group primarily earned fees and
recognized net trading income from sponsored SEs in which UBS
did not hold an interest. The majority of the fee income arose
from investment funds that 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 income 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
income reported does not reflect economic hedges or other miti-
gating effects from the Group’s risk management activities.
During 2015, UBS and third parties transferred assets totaling
CHF 9 billion (2014: CHF 6 billion) into sponsored securitization
and client vehicles created in 2015. For sponsored investment
funds, transfers arose during the period as investors invested and
redeemed positions, thereby changing the overall size of the
funds, which, when combined with market movements, resulted
in a total closing net asset value of CHF 12 billion (31 December
2014: CHF 14 billion).
Note 31 Business combinations
In 2015 and 2014, UBS did not complete any significant business combinations.
549
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 32 Changes in organization and disposals
Measures to improve the resolvability of the Group in
response to too big to fail requirements in Switzerland
and other countries in which the Group operates
In December 2014, UBS Group AG completed an exchange offer
for the shares of UBS AG and established UBS Group AG as the
holding company for UBS Group. During 2015, UBS Group AG
filed and completed a court procedure under article 33 of the
Swiss Stock Exchange Act (SESTA procedure) resulting in the can-
cellation of the shares of the remaining minority shareholders of
UBS AG. As a result, UBS Group AG now owns 100% of the
outstanding shares of UBS AG.
In June 2015, UBS transferred its Personal & Corporate Bank-
ing and Wealth Management business booked in Switzerland
from UBS AG to UBS Switzerland AG.
In the second quarter of 2015, UBS also completed the imple-
mentation of a more self-sufficient business and operating model
for UBS Limited, its investment banking subsidiary in the UK,
under which UBS Limited bears and retains a larger proportion of
the risk and reward in its business activities.
In the third quarter, UBS established UBS Business Solutions AG
as a direct subsidiary of UBS Group AG to act as the Group service
company. The purpose of the service company structure is to
improve the resolvability of the Group by enabling to maintain
operational continuity of critical services should a recovery or res-
olution event occur.
Also during 2015, UBS AG established a new subsidiary, UBS
Americas Holding LLC, which UBS intends to designate as its
intermediate holding company for its US subsidiaries prior to the
1 July 2016 deadline under new rules for foreign banks in the US
pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank). During the third quarter of 2015,
UBS AG contributed its equity participation in the principal US
operating subsidiaries to UBS Americas Holding LLC to meet the
requirement under Dodd-Frank that the intermediate holding
company own all of our US operations, except branches of UBS
AG.
Lastly, UBS also established UBS Asset Management AG, a new
subsidiary of UBS AG, in 2015.
Sale of subsidiaries and businesses
In 2015, UBS sold its Alternative Fund Services (AFS) business to
Mitsubishi UFJ Financial Group Investor Services. The Asset Man-
agement Investment Fund Services business, which provides fund
administration for traditional mutual funds, was not included in
the sale. Upon completion of the sale, UBS recognized a gain on
sale of CHF 56 million and reclassified an associated net foreign
currency translation gain of CHF 119 million from Other compre-
hensive income to the Income statement.
Also during 2015, UBS completed the sale of certain subsidiar-
ies and businesses within Wealth Management, which resulted in
the recognition of a combined gain of CHF 197 million.
Finally, in 2015, UBS agreed to sell certain businesses within
Wealth Management and these sales are expected to close in
2016 subject to customary closing conditions. As of 31 December
2015, the assets and liabilities of these subsidiaries and businesses
were presented as a disposal group held-for-sale within Other
assets and Other liabilities and amounted to CHF 279 million and
CHF 235 million, respectively. UBS recognized a loss of CHF 28
million in 2015 related to these sales.
Restructuring expenses
Restructuring expenses arise from programs that materially
change either the scope of business undertaken by the Group or
the manner in which such business is conducted. Restructuring
expenses are temporary costs that are necessary to effect such
programs and include items such as severance and other person-
nel-related expenses, duplicate headcount costs, impairment and
accelerated depreciation of assets, contract termination costs,
consulting fees, and related infrastructure and system costs. These
costs are presented in the income statement according to the
underlying nature 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.
550
Note 32 Changes in organization and disposals
Net restructuring expenses by business division and Corporate Center unit
CHF million
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
of which: Services
of which: Non-core and Legacy Portfolio
Total net restructuring expenses
of which: personnel expenses
of which: general and administrative expenses
of which: depreciation and impairment of property, equipment and software
of which: amortization and impairment of intangible assets
Net restructuring expenses 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 expenses: personnel expenses
Net restructuring expenses 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
Other1
Total net restructuring expenses: general and administrative expenses
1 Mainly comprised of onerous real estate lease contracts.
For the year ended
31.12.15
31.12.14
31.12.13
323
137
101
82
396
196
140
56
1,235
460
761
12
2
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
For the year ended
31.12.15
31.12.14
31.12.13
312
38
108
46
5
(65)
15
460
145
35
138
28
4
(29)
6
327
65
(15)
88
3
5
8
3
156
For the year ended
31.12.15
31.12.14
31.12.13
109
31
6
17
187
316
95
761
49
23
3
11
148
82
2
319
35
8
2
4
76
59
364
548
551
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 33 Operating leases and finance leases
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 2015, 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.
CHF million
Expenses for operating leases to be recognized in:
2016
2017
2018
2019
2020
2021 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
31.12.15
746
688
563
479
415
1,869
4,759
348
4,411
31.12.15
31.12.14
31.12.13
743
70
673
759
73
686
792
74
718
b) Finance lease receivables
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.
As of 31 December 2015, unguaranteed residual values of
CHF 167 million had been accrued, and the accumulated allow-
ance for uncollectible minimum lease payments receivable
amounted to CHF 10 million. No contingent rents were received
in 2015.
Lease receivables
CHF million
2016
2017–2020
thereafter
Total
552
31.12.15
Total minimum lease
payments
Unearned finance
income
Present value
341
651
158
1,150
23
38
6
67
318
613
152
1,083
Note 34 Related parties
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 management employment contracts and receive pension benefits upon retire-
ment. Total remuneration of the non-independent members of the BoD and GEB members, including those who stepped down during
2015, is provided in the table below.
Remuneration of key management personnel
CHF million
Base salaries and other cash payments
Incentive awards – cash2
Annual incentive award under DCCP
Employer’s contributions to retirement benefit plans
Benefits in kind, fringe benefits (at market value)
Equity-based compensation3
Total
31.12.15
231
10
31.12.14
221
8
21
2
2
42
99
18
2
1
35
86
31.12.13
19
10
19
2
2
38
89
1 Includes role-based allowances that have been made in line with 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 2015, 2014 and 2013, 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 6.7 million in 2015, CHF 7.1 million in 2014 and CHF 7.6 million in 2013.
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 members1
Number of shares held by members of the BoD, GEB and parties closely linked to them2
1 Refer to Note 29 for more information. 2 Excludes shares granted under variable compensation plans with forfeiture provisions.
31.12.15
1,401,686
3,326,165
31.12.14
1,738,598
3,716,957
Of the share totals above, 95,597 shares were held by close
family members of key management personnel on 31 December
2015 and 31 December 2014. 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 December 2015 and 31 December 2014. Refer to Note 29 for
more information. As of 31 December 2015, no member of the
BoD or GEB was the beneficial owner of more than 1% of UBS
Group AG’s shares.
553
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 34 Related parties (continued)
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 personnel1
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.
2015
2014
27
6
(1)
33
20
10
(3)
27
d) Other related party transactions with entities controlled by key management personnel
In 2015, UBS did not enter into transactions with entities which are directly or indirectly controlled or jointly controlled by UBS’s key
management personnel or their close family members. In 2014, UBS entered into transactions with 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 year1
1 Comprised of loans.
2015
2014
0
0
0
0
10
0
10
0
In 2014 and 2015, entities controlled by key management personnel did not sell goods or provide services to UBS, and therefore did
not receive any fees from UBS. Furthermore, UBS did not provide services to such entities in both 2014 and 2015, and therefore also
did not receive any fees.
554
Note 34 Related parties (continued)
e) Transactions with associates and joint ventures
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
2015
552
9
(85)
0
0
476
464
1
2014
288
313
(1)
(51)
3
552
539
1
As of or for the year ended
31.12.15
31.12.14
149
7
4
169
1
2
555
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 35 Invested assets and net new money
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 secu-
rities or brokerage accounts. All assets held for purely transac-
tional purposes and custody-only assets, including corporate
client assets held for cash management and transactional pur-
poses, are excluded from invested assets as the Group only
administers the assets and does not offer advice on how the
assets should be invested. Also excluded are non-bankable
assets (e.g., art collections) and deposits from third-party banks
for funding or trading purposes.
Discretionary assets are defined as client assets that UBS
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
another, it is counted in both the business division that manages
the investment and the one that distributes it. This results in dou-
ble counting within UBS total invested assets, as both business
divisions are independently providing a service 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 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
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 Invest-
ment Bank to another business division, this produces net new
money even though client assets were already with UBS. There
were no such transfers between the Investment Bank and other
business divisions in 2015 and 2014.
Invested assets and net new money
CHF billion
Fund assets managed by UBS
Discretionary assets
Other invested assets
Total invested assets1
of which: double count
Net new money1
1 Includes double counts.
Development of invested assets
CHF billion
Total invested assets at the beginning of the year1
Net new money
Market movements2
Foreign currency translation
Other effects
of which: acquisitions / (divestments)
Total invested assets at the end of the year1
1 Includes double counts. 2 Includes interest and dividend income.
556
For the year ended
31.12.15
31.12.14
282
830
1,577
2,689
185
27.7
270
854
1,610
2,734
173
58.9
For the year ended
31.12.15
2,734
31.12.14
2,390
28
(24)
(31)
(16)
(16)
59
115
173
(3)
0
2,689
2,734
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 rate1
For the year ended
31.12.15
31.12.14
31.12.15
31.12.14
31.12.13
1.00
1.09
1.48
0.83
0.99
1.20
1.55
0.83
0.97
1.06
1.47
0.80
0.92
1.21
1.51
0.86
0.92
1.23
1.45
0.95
1 Monthly income statement items of foreign operations with a functional currency other than the Swiss franc are translated with month-end rates into Swiss francs. Disclosed average rates for a year represent an aver-
age of 12 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.
EDTF | Note 37 Events after the reporting period
There have been no material events after the reporting period which would require disclosure in or adjustment to the 31 December
2015 Financial Statements.
557
Consolidated financial statements Consolidated financial statements
Notes to the UBS Group AG consolidated financial statements
Note 38 Swiss GAAP requirements
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 that present their financial
statements under IFRS to provide a narrative explanation of the
main differences between IFRS and Swiss GAAP (FINMA Circular
2015 / 1 and the Banking Ordinance). Included in this Note are the
significant differences in the recognition and measurement
between IFRS and the provisions of the Banking Ordinance and
the guidelines of FINMA governing true and fair view financial
statement reporting pursuant to Article 25 through Article 42 of
the Banking Ordinance.
1. Consolidation
Under IFRS, all entities that are controlled by the holding entity are
consolidated.
Under Swiss GAAP, controlled entities that are deemed imma-
terial to the group or that are held temporarily only are exempt
from consolidation, but instead are recorded as participations or
financial investments.
2. Financial investments classified as available-for-sale
Under IFRS, financial investments classified as 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 dis-
posed 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 included in net profit or loss for the period. On disposal
of a financial investment classified as available-for-sale, the cumu-
lative unrealized gain or loss previously recognized in equity is
reclassified to the income statement.
Under Swiss GAAP, classification and measurement of financial
investments designated as available-for-sale depends on the
nature of the investment. Equity instruments with no permanent
holding intent, as well as debt instruments, are classified as Finan-
cial 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 invest-
ment are recorded 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.
Impairment 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
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 equity. When the hedged cash
flows materialize, the accumulated unrealized 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
exposures is deferred on the balance sheet as Other assets or
Other liabilities. The deferred amounts are released to the income
statement 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
reverse 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 debt instruments that consist of a debt host contract
and one or more embedded derivatives that do not relate to own
equity. Furthermore, changes in fair value attributable to changes
in unrealized own credit are not recognized in the income state-
ment and the balance sheet.
558
Note 38 Swiss GAAP requirements (continued)
5. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is not
amortized but tested annually for impairment. Intangible assets
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 10 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 the non-Swiss
defined benefit plans in UBS AG standalone financial statements
and Swiss GAAP (FER 16) for the Swiss pension plan in the UBS
AG and the UBS Switzerland AG standalone financial statements.
The requirements of Swiss GAAP are better aligned with the spe-
cific 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 IFRS 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 IFRS 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 Pen-
sion 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 requires that employer contributions to the pen-
sion fund are recognized as personnel expenses in the income
statement. Further, Swiss GAAP 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 economic benefit to, or obligation of, the employer arises from
the pension 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 available 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 and related cash collateral are
reported on a gross basis unless the restrictive IFRS netting require-
ments are met: i) existence of master netting agreements and
related collateral arrangements that are unconditional and legally
enforceable, both in the normal course of business and in the
event of default, bankruptcy or insolvency of UBS and its counter-
parties, and ii) UBS’s intention to either settle on a net basis or to
realize the asset and settle the liability simultaneously.
Under Swiss GAAP, replacement values and related cash col-
lateral are generally reported on a net basis, provided the master
netting and the related collateral agreements are legally enforce-
able in the event of default, bankruptcy or insolvency of UBS’s
counterparties.
8. Negative interest
Under IFRS, negative interest income arising on a financial asset
does not meet the definition of interest income and, therefore,
negative interest on financial assets and negative interest on
financial liabilities is presented within interest expense and inter-
est income, respectively.
Under Swiss GAAP, negative interest on financial assets is pre-
sented within interest income and negative interest on financial
liabilities is presented within interest expense.
9. Extraordinary income and expense
Certain non-recurring and non-operating income and expense
items, such as realized gains or losses from the disposal of partici-
pations, fixed and intangible assets, as well as reversals of impair-
ments of participations and fixed assets, are classified as extraor-
dinary items under Swiss GAAP. This distinction is not available
under IFRS.
10. 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, the concept
of other comprehensive income does not exist and consequently
no Statement of comprehensive income is required. In addition,
various other presentational differences exist.
559
Consolidated financial statements Consolidated financial statements
UBS AG consolidated financial information
UBS AG consolidated financial information
This section contains key figures for UBS AG (consolidated), as
well as a comparison of selected financial and capital informa-
tion between UBS Group AG (consolidated) and UBS AG
(consolidated).
Comparison UBS Group AG (consolidated) vs UBS AG
(consolidated)
The accounting policies applied under International Financial
Reporting Standards (IFRS) to both UBS Group AG and UBS AG
consolidated financial statements are identical. However, there
are certain scope and presentation differences which relate to:
– Assets, liabilities, operating income, operating expenses and
operating profit before tax relating to UBS Group AG and its
directly held subsidiaries, including UBS Business Solutions AG,
are reflected in the consolidated financial statements of UBS
Group AG but not of UBS AG. UBS AG’s assets, liabilities, oper-
ating income, and operating expenses related to transactions
with UBS Group AG and its directly held subsidiaries are not
subject to elimination in the UBS AG consolidated financial
statements, but are eliminated in the UBS Group AG consoli-
dated financial statements.
– Total equity of UBS Group AG consolidated includes non-con-
trolling interests (NCI) in UBS AG as of 31 December 2014.
Most of the difference in equity attributable to shareholders
between the consolidated equity of UBS Group AG and UBS
AG as of 31 December 2014 related to these non-controlling
interests. Net profit attributable to minority shareholders of
UBS AG was presented as net profit attributable to NCI in the
consolidated income statement of UBS Group AG.
– Preferred notes issued by UBS AG are presented in the consoli-
dated 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 presented as equity attribut-
able to preferred noteholders.
– Fully applied total capital of UBS AG (consolidated) was lower
than for UBS Group AG (consolidated) as of 31 December
2015, reflecting lower AT1 capital and lower tier 2 capital,
partly offset by higher CET1 capital. The difference in CET1
capital was primarily due to compensation-related regulatory
capital accruals, liabilities and capital instruments which are
reflected at the UBS Group AG level. The difference in AT1
capital relates to issuances of AT1 capital notes by UBS Group
AG in 2015, as well as to deferred contingent capital plan
(DCCP) awards granted for the performance years 2014 and
2015. The difference in tier 2 capital relates to DCCP awards
for performance years 2012 and 2013, held at the UBS Group
AG level.
➔ Refer to the “Capital management” section of this report for
more information on differences in capital information between
UBS Group AG (consolidated) and UBS AG (consolidated)
560
UBS AG (consolidated) key figures
CHF million, except where indicated
Results
Operating income
Operating expenses
Operating profit / (loss) before tax
Net profit / (loss) attributable to UBS AG shareholders
Key performance indicators1
Profitability
Return on tangible equity (%)
Return on assets, gross (%)
Cost / income ratio (%)
Growth
Net profit growth (%)
Net new money growth for combined wealth management businesses (%)2
Resources
Common equity tier 1 capital ratio (%, fully applied)3
Leverage ratio (phase-in, %)4
Additional information
Profitability
Return on equity (RoE) (%)
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
Leverage ratio (fully applied, %)4
Leverage ratio denominator (fully applied)4
Leverage ratio denominator (phase-in)4
Other
Invested assets (CHF billion)6
Personnel (full-time equivalents)
As of or for the year ended
31.12.15
31.12.14
31.12.13
30,605
25,198
5,407
6,235
28,026
25,557
2,469
3,502
27,732
24,461
3,272
3,172
13.5
3.1
82.0
78.0
2.2
15.4
5.7
11.7
14.1
8.2
2.8
90.9
10.4
2.5
14.2
5.4
7.0
12.4
8.0
2.5
88.0
3.4
12.8
4.7
6.7
11.4
943,256
1,062,327
1,013,355
55,248
32,042
41,516
208,186
212,609
19.5
21.0
24.9
4.9
898,251
904,518
2,689
58,131
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
2,734
60,155
2,390
60,205
1 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators. 2 Based on adjusted net new money, which excludes the negative effect on net new money in
2015 of CHF 9.9 billion from our balance sheet and capital optimization program. 3 Based on the Basel III framework as applicable for systemically relevant banks (SRBs). Refer to the “Capital management” section
of this report for more information. 4 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the Swiss SRB leverage ratio denominator calculation is fully aligned with the BIS Basel III rules.
Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the “Capital management” section of this report for more information. 5 Based on phase-
in risk-weighted assets. 6 Includes invested assets for Personal & Corporate Banking.
561
Consolidated financial statements Consolidated financial statements
UBS AG consolidated financial information
Comparison UBS Group AG (consolidated) versus UBS AG (consolidated)
As of or for the year ended 31.12.15
As of or for the year ended 31.12.14
UBS Group AG
(consolidated)
UBS AG
(consolidated)
Difference
(absolute)
Difference
(%)
UBS Group AG
(consolidated)
UBS AG
(consolidated)
Difference
(absolute)
Difference
(%)
30,605
25,116
5,489
2,689
718
1,646
584
1,892
(2,040)
(818)
282
(1,503)
6,386
6,203
183
(605)
(506)
(99)
5,781
5,698
83
942,819
885,511
57,308
55,313
30,044
6,154
11,237
47,435
30,605
25,198
5,407
2,676
692
1,646
583
1,852
(2,042)
(822)
281
(1,501)
6,314
6,235
77
3
(606)
(545)
(59)
(2)
5,709
5,690
18
1
943,256
886,013
57,243
55,248
1,954
41
32,042
1,252
10,325
43,619
0
(82)
82
13
26
0
1
40
2
4
1
(2)
72
(32)
(77)
180
1
39
59
(97)
72
8
(18)
82
(437)
(502)
65
65
(1,954)
1,954
(1,998)
4,902
912
3,816
(656)
(0.9)
1.9
(644)
0.4
0
0
2
0
4
0
0
2
0
0
0
0
1
(1)
0
(7)
1
0
0
0
0
0
(6)
9
9
0
0
28,027
25,567
2,461
2,326
900
1,506
467
(84)
(2,655)
(652)
2
(2,005)
3,640
3,466
142
32
1,580
1,453
80
47
5,220
4,920
221
79
28,026
25,557
2,469
2,326
900
1,506
467
(84)
(2,646)
(643)
2
(2,005)
3,649
3,502
142
5
1,580
1,459
119
3
5,229
4,961
260
7
1
10
(8)
0
0
0
0
0
(9)
(9)
0
0
(9)
(36)
0
27
0
(6)
(39)
44
(9)
(41)
(39)
72
1,062,478
1,008,110
54,368
50,608
3,760
28,941
467
11,398
40,806
216,462
13.4
18.9
1,062,327
1,008,162
54,165
52,108
2,013
45
151
(52)
203
(1,500)
(2,013)
3,715
30,805
(1,864)
0
10,451
41,257
217,158
14.2
19.0
467
947
(451)
(696)
(0.8)
(0.1)
0
0
0
0
0
0
0
0
0
1
0
0
0
(1)
0
540
0
0
(33)
0
(1)
(15)
0
0
0
(3)
(6)
9
(1)
0
997,822
999,124
(1,302)
0
4.1
4.1
0.0
207,530
208,186
14.5
22.9
15.4
21.0
897,607
898,251
5.3
4.9
CHF million, except where indicated
Income statement
Operating income
Operating expenses
Operating profit / (loss) before tax
of which: Wealth Management
of which: Wealth Management Americas
of which: Personal & Corporate Banking
of which: Asset Management
of which: Investment Bank
of which: Corporate Center
of which: Services
of which: Group ALM
of which: Non-core and Legacy Portfolio
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
Statement of comprehensive income
Other comprehensive income
of which: attributable to shareholders
of which: attributable to preferred noteholders
of which: attributable to non-controlling interests
Total comprehensive income
of which: attributable to shareholders
of which: attributable to preferred noteholders
of which: 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
Capital information (fully applied)
Common equity tier 1 capital
Additional tier 1 capital
Tier 2 capital
Total capital
Risk-weighted assets
Common equity tier 1 capital ratio (%)
Total capital ratio (%)
Leverage ratio denominator
Leverage ratio (%)
562
of which: equity attributable to non-controlling interests
1,995
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 respon-
sible 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
detail, 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
financial 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 2015
UBS AG management has assessed the effectiveness of UBS AG’s
internal control over financial reporting as of 31 December 2015
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 2015,
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 2015 has been audited by Ernst &
Young Ltd, UBS AG’s independent registered public accounting
firm, as stated in their report appearing on pages 564 to 565,
which expresses an unqualified opinion on the effectiveness
of UBS AG’s internal control over financial reporting as of
31 December 2015.
563
Consolidated financial statements Consolidated financial statements
UBS AG consolidated financial statements
564
565
Consolidated financial statements Consolidated financial statements
UBS AG consolidated financial statements
566
567
Consolidated financial statements Consolidated financial statements
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, equipment and software
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
Note
3
3
3
12
4
3
5
6
7
16
17
8
31.12.15
13,178
(6,449)
6,729
(117)
6,612
17,184
5,696
1,112
30,605
15,954
8,219
918
107
25,198
5,407
(908)
6,314
77
3
6,235
For the year ended
% change from
31.12.14
31.12.13
31.12.14
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
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
0
(3)
3
50
2
1
48
76
9
4
(12)
12
29
(1)
119
(23)
73
(46)
(40)
78
568
Statement of comprehensive income
CHF million
Comprehensive income attributable to UBS AG shareholders
Net profit / (loss)
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
304
(1,208)
Total other comprehensive income
Total comprehensive income attributable to UBS AG shareholders
Table continues on the next page.
(545)
5,690
1,459
4,961
For the year ended
31.12.15
31.12.14
31.12.13
6,235
3,502
3,172
(174)
(90)
(1)
(266)
180
1
(298)
45
8
(64)
550
(1,199)
131
(518)
(848)
322
(19)
304
0
0
0
0
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
(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
569
Consolidated financial statements Consolidated financial statements
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 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 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
For the year ended
31.12.15
31.12.14
31.12.13
77
(59)
0
(59)
(59)
18
3
(2)
0
(2)
(2)
1
142
119
0
119
119
260
5
3
0
3
3
7
204
355
0
355
355
559
5
(1)
0
(1)
(1)
4
6,314
(606)
(848)
243
5,709
3,649
1,580
2,667
(1,087)
5,229
3,381
(857)
(2,145)
1,288
2,524
570
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, equipment and software
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
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
31.12.15
31.12.14
31.12.14
% change from
10, 12
11, 26
11, 26
13, 24
25
14, 24, 26
11, 26
24, 26, 27
10, 12
15, 24
30
16
17
8
18
19
11, 26
11, 26
13, 24
14, 24, 26
11, 26
20, 24, 26
19
21
22
8, 23
91,306
11,866
25,584
67,893
124,047
51,943
167,435
23,763
5,808
312,723
62,543
954
7,683
6,568
12,833
22,249
943,256
11,836
8,029
9,653
29,137
162,430
38,282
62,995
402,522
82,359
4,163
74,606
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
886,013
1,008,162
386
29,477
0
29,433
(4,047)
55,248
1,954
41
57,243
943,256
384
32,057
(37)
22,902
(3,199)
52,108
2,013
45
54,165
1,062,327
(12)
(11)
6
(1)
(10)
(7)
(35)
(23)
29
(1)
9
3
12
(3)
16
(4)
(11)
13
(13)
(18)
4
(36)
(10)
(16)
(2)
(10)
(5)
6
(12)
1
(8)
(100)
29
27
6
(3)
(9)
6
(11)
571
Consolidated financial statements Consolidated financial statements
UBS AG consolidated financial statements
Statement of changes in equity
CHF million
Balance as of 1 January 2013
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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
Balance as of 31 December 2013
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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
572
Other comprehensive
income recognized
directly in equity,
net of tax1
(3,715)
of which:
Financial invest-
of which:
ments avail-
able-for-sale
249
of which:
Cash flow
hedges
2,983
Total equity
attributable to
UBS AG
shareholders
45,949
Foreign currency
translation
(6,954)
Preferred
Non-controlling
noteholders
interests
Total equity
3,109
42
49,100
Share
premium
33,862
Treasury
shares
(1,071)
Retained
earnings
16,491
Share
capital
384
1
(846)
887
203
30
305
91
(564)2
(9)
(11)
6
4,111
3,172
939
(2,151)
(2,145)
(471)
(471)
(154)
(154)
(1,520)
(1,520)
33,906
(1,031)
20,608
(5,866)
(7,425)
95
1,463
48,002
384
0
(953)
1,946
24
802
(1,785)
3
(938)2
46
2,294
3,502
(1,208)
2,667
2,667
1,834
1,834
140
140
693
693
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
1,961
3,172
(2,145)
939
0
0
3
0
0
0
0
(953)
1,946
24
802
(1,785)
(938)
46
4,961
3,502
2,667
(1,208)
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
3,381
(2,145)
939
355
49,936
0
(953)
1,946
24
802
(1,785)
(1,084)
46
3
1
1
0
5,229
3,649
2,667
(1,208)
121
(204)
(6)
(1,572)
0
559
204
355
1,893
(142)
1
260
142
119
4
5
(1)
41
(4)
1
7
5
3
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 2013
Issuance of share capital
Acquisition of treasury shares
Disposal 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
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year
of which: Net profit / (loss)
net of tax – foreign currency translation
Balance as of 31 December 2013
Issuance of share capital
Acquisition of treasury shares
Disposal of treasury shares
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Equity classified as obligation to purchase own shares
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 – defined benefit plans
of which: Other comprehensive income that will not be reclassified to the income statement,
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity
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
33,862
Treasury
shares
(1,071)
Retained
earnings
16,491
Share
capital
384
1
(846)
887
203
30
305
91
(564)2
(9)
(11)
24
802
(1,785)
(938)2
3
46
384
0
(953)
1,946
6
4,111
3,172
939
2,294
3,502
(1,208)
Other comprehensive
income recognized
directly in equity,
net of tax1
(3,715)
of which:
Foreign currency
translation
of which:
Financial invest-
ments avail-
able-for-sale
(6,954)
249
of which:
Cash flow
hedges
2,983
Total equity
attributable to
UBS AG
shareholders
45,949
Preferred
noteholders
Non-controlling
interests
3,109
42
Total equity
49,100
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
1,961
3,172
(2,145)
939
0
(2,151)
(2,145)
(471)
(471)
(154)
(154)
(1,520)
(1,520)
33,906
(1,031)
20,608
(5,866)
(7,425)
95
1,463
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
2,667
2,667
1,834
1,834
140
140
693
693
(204)
(6)
(1,572)
0
559
204
355
1,893
(142)
1
260
142
119
4
5
(1)
41
(4)
1
7
5
3
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
3,381
(2,145)
939
355
49,936
0
(953)
1,946
24
802
(1,785)
3
(1,084)
46
1
1
0
5,229
3,649
2,667
(1,208)
121
573
Consolidated financial statements Consolidated financial statements
UBS AG consolidated financial statements
Statement of changes in equity (continued)
CHF million
Balance as of 31 December 2014
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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
32,057
Treasury
shares
(37)
Retained
earnings
22,902
Share
capital
384
1
(292)
328
42
290
(6)
9
(2,914)2
0
(8)
6,538
6,235
304
Balance as of 31 December 2015
386
29,477
0
29,433
(4,047)
(5,857)
172
1,638
55,248
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment out of the capital contribution reserve of UBS AG of CHF 0.75 (2014: CHF 0.25, 2013: CHF 0.15) per CHF 0.10
par value share.
Other comprehensive
income recognized
directly in equity,
net of tax1
(3,199)
of which:
Financial invest-
of which:
ments avail-
able-for-sale
236
of which:
Cash flow
hedges
2,156
Total equity
attributable to
UBS AG
shareholders
52,108
Foreign currency
translation
(5,591)
Preferred
Non-controlling
noteholders
interests
Total equity
2,013
45
54,165
(848)
(848)
(266)
(266)
(64)
(64)
(518)
(518)
(2,922)
(77)
(5)
(3,004)
1
(292)
328
42
290
(6)
9
0
0
0
0
5,690
6,235
(848)
304
0
1
(292)
328
42
290
(6)
9
0
1
0
(1)
5,709
6,314
(848)
304
(61)
57,243
1
18
77
(59)
1,954
(1)
1
3
(2)
41
574
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 2014
Issuance of share capital
Acquisition of treasury shares
Disposal 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
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
Balance as of 31 December 2015
par value share.
Share
premium
32,057
Treasury
shares
(37)
Retained
earnings
22,902
Share
capital
384
1
(292)
328
42
290
(6)
9
0
(2,914)2
(8)
6,538
6,235
304
Other comprehensive
income recognized
directly in equity,
net of tax1
(3,199)
of which:
Foreign currency
translation
of which:
Financial invest-
ments avail-
able-for-sale
(5,591)
236
of which:
Cash flow
hedges
2,156
Total equity
attributable to
UBS AG
shareholders
52,108
Preferred
noteholders
Non-controlling
interests
2,013
45
Total equity
54,165
1
(292)
328
42
290
(6)
9
1
(292)
328
42
290
(6)
9
(2,922)
(77)
(5)
(3,004)
1 Excludes defined benefit plans that are recorded directly in retained earnings. 2 Reflects the payment out of the capital contribution reserve of UBS AG of CHF 0.75 (2014: CHF 0.25, 2013: CHF 0.15) per CHF 0.10
386
29,477
0
29,433
(4,047)
(5,857)
172
1,638
55,248
(848)
(848)
(266)
(266)
(64)
(64)
(518)
(518)
0
0
0
0
5,690
6,235
(848)
304
0
1
18
77
(59)
1,954
0
1
0
(1)
5,709
6,314
(848)
304
(61)
57,243
(1)
1
3
(2)
41
575
Consolidated financial statements Consolidated financial statements
UBS AG consolidated financial statements
UBS AG shares issued and treasury shares held
Conditional share capital
As of 31 December 2015, shares issued by UBS AG totaled
3,858,408,466 (31 December 2014: 3,844,560,913 shares).
As of 1 January 2015, UBS AG held 2,115,255 treasury shares,
which were exchanged with UBS Group AG shares in 2015. No
treasury shares were held as of 31 December 2015.
➔ Refer to the “UBS shares” section of this report for more
information
As of 31 December 2015, UBS AG’s share capital could have been
increased through the issuance of 136,200,312 shares upon exer-
cise of employee options.
Additional conditional capital up to a maximum number of
380,000,000 shares was available as of 31 December 2015 for
conversion rights and warrants granted in connection with the
issuance of bonds or similar financial instruments.
Furthermore, UBS AG’s share capital could have been increased
by a maximum of 36,152,447 shares as of 31 December 2015
through the exercise of options granted in connection with the
cash or title dividend distributed in 2015.
576
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, equipment and software
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 change 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 assets2
Purchase of property, equipment and software
Disposal of property, equipment and software
Net (investment in) / divestment of financial investments available-for-sale3
Net cash flow from / (used in) investing activities
Table continues on the next page.
31.12.151
For the year ended
31.12.141
31.12.131
6,314
3,649
3,381
918
107
117
(169)
(1,614)
(934)
(1,654)
3,628
1,768
(2,712)
(2,909)
5,407
3,285
841
(17,362)
7,516
(551)
1,997
(13)
477
(1,841)
547
(7,605)
(8,434)
817
83
78
(94)
(1,635)
(227)
2,135
(7,250)
(1,235)
32,262
(3,698)
(2,879)
(7,301)
(20,427)
8,803
4,751
(600)
7,231
(18)
70
(1,915)
350
4,108
2,596
816
83
50
(49)
(545)
(522)
3,988
5,326
(7,551)
43,754
(23,659)
43,944
(22,412)
(7,108)
19,195
(3,935)
(382)
54,374
(49)
136
(1,236)
639
5,966
5,457
577
Consolidated financial statements Consolidated financial statements
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
Money market paper4
Total5
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 associates6
31.12.151
For the year ended
31.12.141
31.12.131
(6,404)
0
0
(2,626)
47,790
(44,221)
(108)
(5)
(5,573)
(1,742)
(13,753)
116,715
102,962
91,306
10,732
924
102,962
11,144
5,267
2,120
(2,921)
(719)
0
(938)
40,982
(34,210)
(110)
(3)
2,081
8,522
20,430
96,284
116,715
104,073
11,772
869
116,715
11,321
5,360
1,961
(4,290)
(341)
1
(564)
28,014
(68,954)
(1,415)
(6)
(47,555)
(2,705)
9,569
86,715
96,284
80,879
11,117
4,288
96,284
12,148
7,176
1,421
1 In 2015, UBS AG refined its definition of cash and cash equivalents to exclude cash collateral receivables on derivatives with bank counterparties. Prior periods were restated. Refer to Note 1b for more informa-
tion. 2 Includes dividends received from associates. 3 Includes gross cash inflows from sales and maturities (CHF 93,584 million for the year ended 31 December 2015, 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 101,189 million for the year ended 31 December 2015, CHF 136,330 million for the
year ended 31 December 2014, CHF 147,921 million for the year ended 31 December 2013). 4 Money market paper is included in the balance sheet under Trading portfolio assets (31 December 2015: CHF 795 mil-
lion, 31 December 2014: CHF 835 million, 31 December 2013: CHF 1,716 million) and Financial investments available-for-sale (31 December 2015: CHF 129 million, 31 December 2014: CHF 34 million, 31 December
2013: CHF 2,571 million). 5 CHF 3,963 million, CHF 4,178 million and CHF 4,534 million of cash and cash equivalents (mainly reflected in Due from banks) were restricted as of 31 December 2015, 31 December
2014 and 31 December 2013, respectively. Refer to Note 25 for more information. 6 Includes dividends received from associates (2015: CHF 114 million, 2014: CHF 54 million, 2013: CHF 69 million) reported within
cash flow from / (used in) investing activities.
578
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies
a) Significant accounting policies
The 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 accounting
UBS 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. UBS
Group AG was established in 2014 as the holding company of the
Group and in 2015 it increased its ownership interest in UBS AG
to 100%, following the successful completion of the procedure
under article 33 of the Swiss Stock Exchange Act (SESTA proce-
dure). Refer to Note 32 for more information.
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 AG is incorporated. On 10 March 2016, 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.
Intercompany transactions and balances have been eliminated.
Disclosures incorporated in the “Risk, treasury and capital
management” section of this Annual Report, which form part of
these Financial Statements, are marked as audited. These disclo-
sures relate to requirements 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 estimates
Preparation of these Financial Statements under IFRS requires
management 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. Estimates
are reviewed regularly and revisions 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 entities
The 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 shareholders.
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.
579
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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 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 UBS AG has power over the rele-
vant 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 removal 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 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 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 investors 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 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.
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
nature 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 uniform 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 invest-
ment objective, are managed by an investment manager and
are either passively managed, such that any decision-making
does not have a substantive effect on variability, or are actively
managed and investors or their governing bodies do not have
substantive 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 investment. In addition, UBS AG has interests in a num-
ber of funds created and sponsored by third parties, including
exchange-traded funds and hedge funds, to hedge issued
structured products.
580
Note 1 Summary of significant accounting policies (continued)
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 either at
fair value or at their proportionate share of the acquiree’s identifi-
able net assets. Generally, non-controlling interests are present
ownership interests that entitle their holders to a proportionate
share of the net assets of the acquiree in the event of liquidation.
The cost of an acquisition is the aggregate of the assets trans-
ferred, the liabilities owed 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 as of the date of acquisition.
If the contingent consideration is classified as an asset or liabil-
ity, subsequent changes in the fair value of the contingent consid-
eration are recognized in the income statement. If the contingent
consideration 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 considered goodwill and
is recognized as a separate asset on the balance sheet, initially
measured at cost. If the fair value of the net assets of the subsid-
iary acquired exceeds the aggregate of the consideration trans-
ferred 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 on business combinations
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
influence 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 decreased after the date of acquisition to recognize UBS AG’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 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
UBS AG’s 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 instru-
ments, provided the recognition criteria are met. UBS AG also acts
in a trustee or other fiduciary capacity, which results in the holding
or placing of assets on behalf of individuals, trusts, retirement ben-
efit plans and other institutions. 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
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 AG retaining all or substantially all risks and
rewards include 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 substan-
tially all risks and rewards 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 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,
respectively. 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.
581
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
For the purposes of UBS AG’s disclosures of transferred financial
assets, a financial asset is typically considered to have been trans-
ferred when UBS AG 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 con-
tractual 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 exam-
ple, 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 liability
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 for the sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants in the principal market (or most
advantageous market, in the absence of a principal market) as of
the measurement date.
➔ Refer to Note 24 for more information on fair value measurement
7) Trading portfolio assets and liabilities
Non-derivative financial assets and liabilities are classified at
acquisition as held for trading and presented in the trading port-
folio 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 UBS AG (long positions). Trading portfolio liabilities
include 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 income or
Interest expense.
UBS AG 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 AG recognizes any unrealized profits and losses arising
from changes in fair value in Net trading income. The correspond-
ing receivable or payable is presented on the balance sheet as a
Positive replacement value or Negative replacement value. On
settlement date, the resulting financial 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 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 AG bal-
ance 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.
582
Note 1 Summary of significant accounting policies (continued)
8) Financial assets and financial liabilities designated at fair value
through profit or loss
A financial instrument may be designated at fair value through
profit or loss only 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
applied only if one of the following criteria is met:
– the financial instrument is a hybrid instrument that includes a
substantive embedded derivative;
– the financial instrument is part of a portfolio that 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 also applied to certain loans and loan
commitments, 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 deferred
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-
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 classified as available-for-sale
Financial investments classified as available-for-sale are non-deriv-
ative financial assets that are not classified as held for trading,
designated at fair value through profit or loss, or loans and receiv-
ables. They are recognized on a settlement date basis.
Financial investments classified as available-for-sale include: (a)
debt securities held as part of a large multi-currency portfolio of
unencumbered, high-quality assets managed centrally by Corpo-
rate Center – Group Asset and Liability Management, a majority
of which is short-term, (b) strategic equity investments, (c) certain
investments in real estate funds, (d) certain equity instruments
including private equity investments, and (e) debt instruments
and non-performing loans acquired in the secondary market.
Financial investments that are classified as available-for-sale are
recognized initially at fair value less transaction costs and are mea-
sured 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 disposed of, or until any such investment is deter-
mined to be impaired. Unrealized gains before tax are presented
separately from unrealized losses before tax in Note 15.
For monetary instruments (such as debt securities), foreign
exchange translation gains and losses determined by reference to
the amortized cost basis of the instruments are recognized in Net
trading income. Foreign exchange translation gains and losses
related to other changes in fair value are recognized in Other
comprehensive income within Equity. Foreign exchange transla-
tion gains and losses associated with non-monetary instruments
(such as equity securities) are part of the overall fair value change
of the instruments and are recognized in Other comprehensive
income within Equity.
Interest and dividend income on financial investments classi-
fied as available-for-sale are included in Interest and dividend
income from financial investments available-for-sale. Interest
income is determined 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 reclassified to the
income statement and reported in Other income. Gains or losses
on disposal are determined using the average cost method.
583
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
At each balance sheet date, UBS AG assesses whether indica-
tors of impairment are present for an available-for-sale invest-
ment. 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 esti-
mated future cash flows from the investment have decreased. A
significant or prolonged decline in the fair value of an available-
for-sale equity instrument below its original cost is considered
objective evidence of impairment. In the event of a significant
decline in fair value below its original cost (20%) or a prolonged
decline (six months), an impairment is recorded unless facts and
circumstances clearly indicate that the decline in value, on its
own, is not evidence of an impairment.
For debt investments, objective evidence of impairment
includes significant financial difficulty of the issuer or counter-
party, default or delinquency in interest or principal payments, or
it becoming probable that the borrower will enter bankruptcy or
financial reorganization. If an available-for-sale financial invest-
ment is determined to be impaired, the related cumulative net
unrealized 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 directly in the income statement, whereas for debt
instruments, any further loss is recognized in the income state-
ment only if there is additional objective evidence of impairment.
After an impairment of an equity instrument that is classified as
available-for-sale, increases in the fair value are reported in Other
comprehensive income within Equity. Subsequent increases in the
fair value of debt instruments up to an amount that equals their
amortized cost in original currency are recognized in Other
income, provided that the fair value increase is related to an event
occurring after the impairment loss was recorded. Increases in
excess of that amount are reported in Other comprehensive
income within Equity.
UBS AG applies the same recognition and derecognition prin-
ciples to financial assets classified as 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 at fair
value through profit and loss or classified as available-for-sale, and
are not assets for which UBS AG may not recover substantially all
of its initial net investment other than because of credit deteriora-
tion. Financial assets classified as loans and receivables include:
– originated loans where funding is provided directly to the
borrower;
– participation in a loan from another lender and purchased
loans; and
– securities which were classified as loans and receivables at
acquisition date, such as municipal auction rate securities in
the Corporate Center – Non-core and Legacy Portfolio (refer to
Note 27c for more information).
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 assets, together with any transaction costs directly
attributable to the acquisition. Subsequently, they are measured
at amortized cost using the EIR method, less allowances for credit
losses. Refer to item 11 for information on allowances for credit
losses and to Note 27a for an overview of the financial assets clas-
sified 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.
Upfront fees and direct costs relating to loan origination, refinanc-
ing or restructuring as well as to loan commitments are generally
deferred 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 that are available on demand are pre-
sented 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.
584
Note 1 Summary of significant accounting policies (continued)
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
income 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 on reclassified assets
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.
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 derecognized and is not
attributed 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 guar-
antee, or another similar instrument. Objective evidence of
impairment includes significant financial difficulty of the issuer or
counterparty, default or delinquency in interest or principal pay-
ments, or a likelihood that the borrower will enter bankruptcy or
financial reorganization.
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.
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.
If a loan is renegotiated with preferential conditions (i.e., new
or 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., addi-
tional collateral is provided by the client, or new terms and condi-
tions 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 circumstances,
the loan is removed from impaired status and included in the col-
lective assessment of loan loss allowances, unless an indication of
impairment exists, in which case the loan is assessed for impair-
ment on an individual basis. For the purposes of measuring credit
losses within the collective loan loss assessment, these loans are
not segregated from other loans which have not been renegoti-
ated. 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. Refer to item 11 for more
information on allowances and provisions for credit losses.
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.
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 expo-
sures are evaluated based on the borrower’s overall financial con-
dition, resources and payment record, the prospects of support
from contractual guarantors and, where applicable, the realizable
value of any collateral. 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 restruc-
turing or the liquidation of collateral. If a loan has a variable inter-
est rate, the discount rate used for calculating the recoverable
amount is the current EIR. Impairment is measured and allow-
ances 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 in
the present value of the impaired loan due to the passage of time
is reported as Interest income.
585
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
All impaired loans are reviewed and analyzed at least annually.
Any subsequent changes to the amounts and timing of the
expected 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 impair-
ment 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 char-
acteristics such as asset type, industry, geographical location, col-
lateral type, past-due status and other relevant factors, to col-
lectively assess whether impairment exists within a portfolio.
Future cash flows for a group of financial assets that are collec-
tively evaluated for impairment are estimated on the basis of his-
torical 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 financial 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 differences between loss estimated and actual loss
experience. Allowances for collective impairment assessments
are recognized as Credit loss expense / recovery and result in an
offset to the aggregated loan position. As the allowance 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 impaired, it is
removed 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
assets 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 reviewed periodi-
cally. Adverse revisions in cash flow estimates related to credit
events are recognized in the income statement as Credit loss
expense / recovery. For a reclassified loan, a change in expectation
regarding the recoverability of the security and its future cash
receipts requires 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 Trad-
ing portfolio assets to SEs that issue securities to investors. UBS
AG 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 transferred financial
assets is appropriate. The following statements mainly apply to
transfers of financial assets that 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; the resulting gain or loss is included 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
derivative financial instruments for which the principles set out in
item 15 apply.
586
Note 1 Summary of significant accounting policies (continued)
UBS AG acts as structurer and placement agent in various
mortgage-backed securities (MBS) and other asset-backed secu-
rities (ABS) securitizations. In such capacity, UBS AG may pur-
chase collateral on its own behalf or on behalf of clients during
the period prior to securitization. UBS AG then typically sells the
collateral into designated trusts upon closing of the securitiza-
tion. 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. Furthermore, UBS AG under-
writes 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 subse-
quently determined using market price quotations where avail-
able or internal pricing models 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 observ-
able information is available.
➔ 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
obligation 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 balance 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 counter-
parties. Securities received in a borrowing transaction are dis-
closed as off-balance-sheet items if UBS AG has the right to resell
or repledge them, with additional disclosure provided for securi-
ties that UBS AG 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 received or delivered nor the obligation to
return or right to receive the securities are recognized on the bal-
ance sheet, as derecognition criteria are not met. Refer to item 5
for more information.
Interest is recognized in the income statement on an accrual
basis and is recorded as Interest income or Interest expense. Inter-
est income includes interest earned on securities borrowing, and
negative interest, including fees, on securities lending. Interest
expense includes interest on securities lent and negative interest,
including fees, on securities borrowing.
➔ 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 repur-
chase (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 partici-
pants 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 received or delivered and
requests or provides additional collateral or returns or recalls sur-
plus collateral in accordance with the underlying agreements.
In a reverse repurchase agreement, the cash delivered is derec-
ognized and a corresponding receivable, including accrued inter-
est, is recorded in the balance sheet line Reverse repurchase
agreements, representing UBS AG’s right to receive the cash back.
Similarly, in a repurchase agreement, the cash received is recog-
nized and a corresponding obligation, including accrued interest,
is recorded in the balance sheet line Repurchase agreements.
Securities received under reverse repurchase agreements and
securities delivered under repurchase agreements are not recog-
nized on or derecognized from the balance sheet, unless the risks
and rewards of ownership are transferred. UBS AG-owned securi-
ties 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
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 securi-
ties which is settled by delivering securities received in reverse
repurchase transactions generally triggers the recognition of a
trading liability (short sale).
587
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Interest is recognized in the income statement on an accrual
basis and is recorded as Interest income or Interest expense. Inter-
est income includes interest earned on reverse repurchase agree-
ments and negative interest on repurchase agreements. Interest
expense includes interest on repurchase agreements and negative
interest on reverse repurchase agreements.
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
Derivative instruments that UBS AG enters into are initially recog-
nized, and remain carried, at fair value. Fair value changes are
generally recognized in the income statement unless and to the
extent they are designated in hedge relationships which require
recognition of the effective portion of such changes within other
comprehensive income.
Derivative instruments are generally reported on the balance
sheet as Positive replacement values or Negative replacement val-
ues. Exchange-traded derivatives that economically settle on a
daily basis, and certain OTC derivatives that in substance net set-
tle on a daily basis, are classified as Cash collateral receivables on
derivative instruments 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 value of derivative instruments are recorded in
Net trading income, unless the derivatives are designated and
effective as hedging instruments 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 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 rela-
tionship, 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 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 criteria 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 transac-
tion 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 accounting
voluntarily, or when UBS AG determines that a hedging instru-
ment 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 transac-
tions 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 cash flows of the hedged item.
Such ineffectiveness is recorded in current period earnings in Net
trading income. Interest income and expense on derivatives desig-
nated as hedging instruments in effective hedge relationships is
included in 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 attrib-
utable 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
to the income statement over the remaining term to maturity of
the hedged item.
588
Note 1 Summary of significant accounting policies (continued)
For a portfolio hedge of interest rate risk, the equivalent
change in fair value is reflected within Other assets or Other liabil-
ities. 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 state-
ment 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
reclassified from Equity to the income statement.
If a cash flow hedge of forecasted transactions is no longer
considered effective, or if the hedge relationship is terminated, the
cumulative gains or losses on the hedging derivatives previously
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 rec-
ognized directly in Equity (and presented in the statement of
changes in equity and statement of comprehensive income under
Foreign currency translation), while any gains or losses relating to
the ineffective and / or undesignated portion (for example, the
interest element of a forward contract) are recognized in the
income statement. Upon disposal or partial disposal of the foreign
operation, the cumulative value of any such gains or losses associ-
ated with the entity, and recognized directly in Equity, is reclassi-
fied 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 income),
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-
sion feature embedded in a convertible bond. Such hybrid instru-
ments arise predominantly from the issuance of certain structured
debt instruments. An embedded 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 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 con-
tract 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 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 condi-
tions, are not recognized on the balance sheet and are not
included in the off-balance-sheet disclosures. Upon a loan draw-
down by the counterparty, the amount of the loan is accounted
for in accordance with Loans and receivables. Refer to item 10 for
more information.
589
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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 a
past practice of selling those loans resulting from similar loan
commitments 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.
17) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer
to make specified payments to reimburse the holder for an
incurred 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
expense / 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 activ-
ities 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.
improvements,
20) Property, equipment and software
Property, equipment and software includes own-used properties,
information technology hardware,
leasehold
externally purchased and internally generated software and com-
munication and other similar equipment. All Property, equipment
and software is carried at cost (which includes capitalized interest
from associated borrowings, where applicable), less accumulated
depreciation and impairment losses, and is reviewed periodically
for impairment.
➔ Refer to Note 16 for more information on property and
equipment
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.
590
Note 1 Summary of significant accounting policies (continued)
Reinstatement costs are recognized in the income statement
through depreciation of the capitalized leasehold improvements
over their estimated useful lives and the resulting liability is extin-
guished as cash payments are made.
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-current
assets held for sale and are reclassified to Other assets. Upon clas-
sification 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 capitalized only when the costs
can be measured reliably and it is probable that future economic
benefits will arise.
Estimated useful life of property, equipment and software
An asset within property, equipment and software is depreciated
on a straight-line basis over its estimated useful life. Depreciation
of an asset within property, equipment and software begins when
it is available for use; that is, when it is in the location and condi-
tion necessary for it to be capable of operating in the manner
intended by management.
Estimated useful life of property, equipment and software
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 amor-
tized. It is tested annually for impairment and, additionally, when
an indication of impairment exists at the end of each reporting
period. For goodwill impairment testing purposes, UBS AG con-
siders the segments reported in Note 2a as separate cash-gener-
ating units, since this is the level at which the performance of
investments is reviewed and assessed by management. The recov-
erable 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 life, generally not exceed-
ing 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 indications
exist, the intangible assets are analyzed to assess whether their
carrying amount is fully recoverable. An impairment loss is recog-
nized 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
includes mainly intangible assets for client relationships, non-
compete 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.
Deferred tax liabilities are recognized for temporary differences
between the carrying amounts of assets and liabilities in the bal-
ance sheet that reflect the expectation that certain items will give
rise to taxable income 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 liability will
be settled.
Deferred and current tax assets and liabilities 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.
591
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Current and deferred taxes are recognized as income tax benefit
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 that are
classified as available-for-sale, for changes in fair value of deriva-
tive instruments designated as cash flow hedges, for remeasure-
ments of defined benefit plans, and for certain foreign currency
translations of foreign operations, and (iii) for gains and losses on
the sale of treasury shares. Deferred taxes recognized in a busi-
ness combination (point (i)) are considered when determining
goodwill. Amounts relating to points (ii) and (iii) are recognized in
Other comprehensive income within Equity.
instruments 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 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 pension
plans are located in Switzerland, the UK, the US and Germany.
➔ Refer to Note 28 for more information on pension and other
➔ Refer to Note 8 for more information on income taxes
post-employment benefit plans
23) Debt issued
Debt issued is carried at amortized cost. In cases where there is a
legal mechanism for write-down or conversion into equity (as is
the case for instance with senior unsecured debt issued by UBS
AG that is subject to write-down or conversion under resolution
authority granted to FINMA under Swiss law) this is not part of
the contractual terms, and, therefore, it does not affect the
amortized cost accounting treatment applied to these instru-
ments. If the debt were to be written down or converted into
equity in a future period, this would result in the full or partial
derecognition of the financial liabilities, with the difference
between the carrying value of the debt written down or con-
verted into equity and the fair value of any equity shares issued
recognized in the income statement.
In cases where, as part of UBS AG’s risk management activity,
fair value hedge accounting is applied to fixed-rate debt instru-
ments carried at amortized cost, their carrying amount is
adjusted for changes in fair value related to the hedged expo-
sure. Refer to item 15 for more information on hedge account-
ing. In most cases, structured notes issued 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 struc-
tured notes contain an embedded derivative, or both. Refer to
item 8 for more information on the fair value option. The fair
value option is not applied to certain structured notes that con-
tain embedded derivatives that reference foreign exchange rates
and / or precious metal prices. For these instruments, the embed-
ded 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 presented together
within Debt issued. Refer to item 15 for more information on
embedded derivatives.
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 recognition of the resulting net defined benefit
asset 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 obli-
gations, 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-employment and other benefits are paid. UBS AG 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
AG’s contributions are expensed when the employees have ren-
dered 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.
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
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.
592
Note 1 Summary of significant accounting policies (continued)
25) Equity participation and other compensation plans
Transfer of deferred compensation plans
As part of the Group reorganization in 2014, UBS Group AG
assumed obligations of UBS AG as grantor in connection with
certain outstanding awards under employee share, option,
notional fund and deferred cash compensation plans. This section
separately describes the accounting policies applied to these plans
during the periods prior to and post the Group reorganization and
transfer of deferred compensation plans.
Periods prior to the Group reorganization and transfer of
deferred compensation plans
Equity participation plans
UBS AG has established several equity participation plans which
include mandatory, discretionary and voluntary plans. UBS AG
recognizes the fair value of awards granted under these plans,
determined at the date of grant, as compensation expense, over
the period during which the employee is required to provide ser-
vices 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
reversal 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
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.
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
compensation expense and, on a cumulative basis, no compen-
sation expense 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 man-
datory 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 pro-
vide services to earn the award. If the employee is not required
to provide future services, such as for awards granted to employ-
ees who are retirement eligible, including those employees who
meet full career retirement criteria, compensation expense is rec-
ognized 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 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 at the grant date 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 com-
pensation 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 which are granted to
employees of UBS AG. UBS Group AG’s equity participation plans
include mandatory, discretionary and 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.
593
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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
reversal of compensation expense.
UBS AG has no obligation to settle the awards and therefore
awards over UBS Group AG shares 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 subse-
quently 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
expense, 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 compensation
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
required 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 employ-
ees 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 ultimately equals the cash distrib-
uted to employees. For awards in the form of alternative invest-
ment 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 recog-
nized 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 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
required 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 pre-
sented under Other provisions. Provisions are presented sepa-
rately on the balance sheet and, when they are no longer
considered uncertain in timing or amount, are reclassified to
Other liabilities – Other.
594
Note 1 Summary of significant accounting policies (continued)
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. Where these factors are other-
wise satisfied, a provision may be established for claims that have
not yet been asserted against UBS AG, but are nevertheless
expected to be, based on the experience of UBS AG with similar
asserted claims.
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,
either 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 a leased property is expected to be
vacant for an extended period.
Provisions for employee benefits are recognized mainly in
respect 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 obli-
gation 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
interests 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 pre-
ferred 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
UBS AG issued subordinated notes (that is, the preferred notes)
to certain non-consolidated entities that issued preferred securi-
ties. UBS AG has fully and unconditionally guaranteed all con-
tractual payments on the preferred securities. UBS AG’s obliga-
tions under these guarantees are subordinated to the full prior
payment of the deposit liabilities of UBS AG and all other liabili-
ties of UBS AG. The preferred notes do not contain a contractual
obligation to deliver cash and, therefore, they are classified as
equity instruments. They are presented as Equity attributable to
preferred noteholders on the consolidated balance sheet and
statement of changes in equity. Distributions on these preferred
notes are presented as Net profit attributable to preferred note-
holders in the consolidated income statement and statement of
comprehensive 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.
595
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
29) Non-current assets and disposal groups held for sale
UBS AG classifies individual non-current assets and disposal
groups as held for sale if such assets or disposal groups are avail-
able 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. Further-
more, 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. 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 Notes 18 and 23 for more information on non-current
assets and disposal groups 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, but not necessarily legal title in the underlying assets, are
classified as finance leases. All other leases are classified as oper-
ating 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
incentives are treated as a reduction of rental expense and are
recognized 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 that 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
interest 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
inception of the arrangement whether the fulfillment of the
arrangement 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
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.
596
Note 1 Summary of significant accounting policies (continued)
With respect to loan commitment fees on lending arrange-
ments where there is an initial expectation that the facility will be
drawn down, such fees 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 is that the facil-
ity is unlikely to be drawn down, the loan commitment fees are
recognized on a straight-line basis over the commitment period. If,
in such cases, the facility is ultimately drawn down, the unamor-
tized component of the loan commitment fees is 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
When a foreign operation is disposed or partially disposed of,
the cumulative amount in Foreign currency translation within
Equity related to that foreign operation is reclassified to the
income statement 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 operation but retains control, the related por-
tion 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 signifi-
cant influence or joint control, the related portion of the cumula-
tive currency translation balance is reclassified to the income
statement.
➔ Refer to Note 36 for more information on currency translation
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 classified
as available-for-sale are generally recorded directly in Equity until
the asset is sold or becomes impaired. However, translation differ-
ences on available-for-sale monetary financial investments are
reported in Net trading income, along with all other foreign cur-
rency 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.
rates
33) Earnings per share (EPS)
During 2015, UBS AG shares were delisted from the SIX and the
NYSE. As of 31 December 2015, 100% of UBS AG’s issued shares
were held by UBS Group AG and therefore were not publicly
traded. Accordingly, earnings per share information is not pro-
vided for UBS AG.
34) Segment reporting
UBS AG’s businesses are organized globally into five business
divisions: Wealth Management, Wealth Management Americas,
Personal & Corporate Banking, Asset Management and the
Investment Bank, supported by the Corporate Center. The five
business divisions qualify as reportable segments for the purpose
of segment reporting and, together with the Corporate Center
and its components, reflect the management structure of UBS
AG. Additionally, the non-core activities and legacy positions for-
merly in the Investment Bank are managed and 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 com-
ponents) 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 Operat-
ing Segments.
597
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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 and are also reflected in the operating results of
the reportable segments. Revenue-sharing agreements are used
to allocate external client revenues to reportable segments where
several reportable segments are involved in the value-creation
chain. Commissions are credited to the reportable segments
based on the corresponding client relationship. Net interest
income is generally allocated to the reportable segments based on
their balance sheet positions. Interest income earned from man-
aging UBS AG’s consolidated equity is allocated to the reportable
segments based on average attributed equity. Own credit gains
and losses on financial liabilities designated at fair value are
excluded from the measurement of performance of the business
divisions, are considered reconciling differences to UBS AG results
and are reported collectively under Corporate Center – Group
Asset and Liability Management (Group ALM).
Assets and liabilities of the reportable segments are funded
through and invested with Corporate Center – Group Asset and
Liability Management, 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.
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 – Services and Corporate Center –
Group Asset and Liability Management (including property and
equipment and certain financial assets) may be allocated to the
segments on a basis different to that which the corresponding
costs and / or revenues are allocated. For example, certain assets
that are reported in Corporate Center – Services or Corporate
Center – Group Asset and Liability Management may be retained
on the balance sheets of these components of Corporate Center
notwithstanding that the costs and / or revenues associated with
these assets may be entirely or partially allocated to the segments.
Similarly, certain assets are reported in the business divisions,
whereas the corresponding costs and / or revenues are entirely or
partially allocated to Corporate Center – Services and Corporate
Center – Group Asset and Liability Management.
For the purpose of segment reporting under IFRS 8, non-current
assets consist of investments in associates and joint ventures, good-
will, other intangible assets and property, equipment and software.
➔ 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, and repurchase and reverse
repurchase transactions entered into with both the London Clear-
ing House and the Fixed Income Clearing Corporation, netted by
counterparty, currency, central securities depository and maturity,
as well as transactions with various other counterparties,
exchanges 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 that 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.
➔ Refer to Note 26 for more information on offsetting financial
assets and financial liabilities
36) Negative interest
Negative interest income arising on a financial asset does not meet
the definition of interest income and therefore negative interest on
financial assets and negative interest on financial liabilities is pre-
sented within Interest expense and Interest income respectively.
➔ Refer to Note 3 for more information on interest income and
interest expense
598
Note 1 Summary of significant accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
Statement of cash flows – definition of cash and cash equivalents
In 2015, UBS AG refined its definition of cash and cash equiva-
lents presented in the statement of cash flows to exclude cash
collateral receivables on derivative instruments with bank coun-
terparties. The refined definition is consistent with the treatment
of these receivables in UBS AG’s liquidity and funding manage-
ment framework and with liquidity and funding regulations,
which became effective in 2015, and is considered to result in the
presentation of more relevant information.
Comparative period information was restated accordingly. As a
result, cash and cash equivalents as of 31 December 2014,
31 December 2013 and 31 December 2012 were reduced by CHF
10,265 million, CHF 8,982 million and CHF 12,393 million,
respectively. On a restated basis, cash flow from operating activi-
ties for the year ended 31 December 2014 decreased by CHF
1,195 million (2013: increase by CHF 3,415 million) and the gain
from effects of exchange rate differences on cash and cash equiv-
alents decreased by CHF 89 million for the same period (2013:
loss from currency effects increased by CHF 3 million).
Review of actuarial assumptions used in calculating defined
benefit obligations
UBS AG regularly reviews the actuarial assumptions used in
calculating its defined benefit obligations to determine their con-
tinuing relevance.
In 2015, UBS AG carried out a methodology review of the
actuarial assumptions used in calculating its defined benefit
obligation for its Swiss pension plan. As a result, UBS AG
enhanced its methodology for estimating the discount rate by
improving the construction of the yield curve where the market
for long tenor maturities of Swiss high-quality corporate bonds
was not sufficiently deep. Furthermore, UBS AG refined its
approach to estimating the rate of salary increases, the rate of
interest credit on retirement savings, the employee turnover
rate, the rate of employee disabilities and the rate of marriage.
These improvements in estimates resulted in a total net decrease
in the defined benefit obligation (DBO) of the Swiss pension
plan of CHF 2.1 billion, of which CHF 1.0 billion related to
demographic assumptions and CHF 1.0 billion related to finan-
cial assumptions, and a corresponding increase in Other com-
prehensive income.
Furthermore, UBS AG enhanced methodologies and refined
approaches used to estimate various actuarial assumptions for its
UK and other pension plans. These improvements in estimates
resulted in a total net decrease in the DBO of the UK pension plan
of CHF 0.2 billion, of which CHF 0.1 billion related to demo-
graphic assumptions and CHF 0.1 billion related to financial
assumptions, and a corresponding increase in Other comprehen-
sive income.
Valuation methodology for the own credit component of
financial liabilities designated at fair value
In 2015, UBS AG made enhancements to its valuation methodol-
ogy for the own credit component of fair value of financial liabili-
ties designated at fair value. Prior to the fourth quarter of 2015,
own credit was estimated using a funds transfer pricing curve
(FTP), which was derived by discounting UBS Group AG (consoli-
dated) new issuance senior debt curve spreads, with the discount
primarily reflecting the differences between the spreads in the
senior unsecured debt market for UBS Group AG (consolidated)
debt and the levels at which UBS Group AG (consolidated)
medium-term notes (MTN) were issued. A decline in long-dated
UBS Group AG (consolidated) MTN issuance volumes, following
UBS Group AG’s (consolidated) business transformation, resulted
in a reduction in the observable market data available to bench-
mark the FTP. From the fourth quarter of 2015 onwards, own
credit is estimated using an own credit adjustment curve (OCA),
which incorporates more observable market data, including mar-
ket-observed secondary prices for UBS Group AG (consolidated)
senior debt, UBS Group AG (consolidated) credit default swap
(CDS) spreads and senior debt curves of peers. This change in
accounting estimate was finalized in the fourth quarter of 2015,
following a multi-period implementation project to develop an
enhanced fair value approach supported by related infrastructure
enhancements. The change was implemented on a prospective
basis in the fourth quarter of 2015 and resulted in a gain of CHF
260 million on a total carrying amount of CHF 63 billion in finan-
cial liabilities designated at fair value.
599
Consolidated financial statements
Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Additionally, UBS AG will early adopt the own credit presenta-
tion requirements of IFRS 9 in the first quarter of 2016. No restate-
ment of prior periods is required. Under IFRS 9, changes in the fair
value of financial liabilities designated at fair value through profit
and loss related to own credit will be recognized in Other compre-
hensive income and will not be reclassified to the income state-
ment. UBS AG will adopt the other requirements of IFRS 9 (clas-
sification and measurement, impairment and hedge accounting)
as of the mandatory effective date in 2018.
Global Asset Management renamed Asset Management
During 2015, the business division Global Asset Management
was renamed Asset Management. This change is reflected
throughout this report.
Retail & Corporate renamed Personal & Corporate Banking
Effective 2016, the business division Retail & Corporate has been
renamed Personal & Corporate Banking. This change is reflected
throughout this report.
New structure of the Corporate Center
As of 1 January 2015, Corporate Center – Core Functions was
reorganized into two new units, Corporate Center – Services and
Corporate Center – Group Asset and Liability Management
(Group ALM). Therefore, UBS AG now reports: (i) Corporate Cen-
ter – Services, (ii) Corporate Center – Group ALM and (iii) Corpo-
rate Center – Non-Core and Legacy Portfolio separately, which
enhances the transparency on Corporate Center activities.
Group ALM is responsible for centrally managing UBS AG’s
liquidity and funding position, as well as providing other balance
sheet and capital management services to UBS AG. Most of the
income generated and expenses incurred by Group ALM from
these activities continues to be allocated to the business divisions
and other Corporate Center units. Additional transparency on
revenue allocations from Group ALM to business divisions and
other Corporate Center units is provided in Note 2. Own credit
gains and losses on financial liabilities designated at fair value are
presented in Group ALM.
Corporate Center – Services includes UBS AG’s central control
functions and all logistics and support functions serving the busi-
ness divisions and other Corporate Center units. Most of the
expenses of Corporate Center – Services are allocated to the busi-
ness divisions and other Corporate Center units.
➔ Refer to Note 2 for more information
Service and personnel allocations from Corporate Center –
Services to business divisions and other Corporate Center units
In 2015, UBS AG revised the presentation of service allocations
from Corporate Center – Services to the business divisions and
other Corporate Center units to better reflect the economic rela-
tion-ship between them. These cost allocations were previously
presented within the Personnel expenses, General and adminis-
trative expenses and Depreciation and impairment of property,
equipment and software line items and are newly presented in
the Services (to) / from business divisions and Corporate Center
line items. Prior-period information was restated to reflect this
change. This change in presentation did not affect total operating
expenses or performance before tax of the business divisions and
Corporate Center units for any period presented. Similarly, per-
sonnel of Corporate Center – Services are no longer allocated to
the business divisions and other Corporate Center units. Prior-
period information was restated accordingly.
➔ Refer to Note 2 for more information
Change in segment reporting related to fair value gains and
losses on certain internal funding transactions
Consistent with changes in the manner in which operating seg-
ment performance is assessed, beginning in 2015, UBS AG has
applied fair value accounting for certain internal funding
transactions between Corporate Center – Group ALM and the
Investment Bank and Corporate Center – Non-core and Legacy
Portfolio rather than applying amortized cost accounting. This
treatment better aligns with the mark-to-market basis on which
these internal transactions are risk managed within the Invest-
ment Bank and Corporate Center – Non-core and Legacy Portfo-
lio. The terms of the funding transactions remain otherwise
unchanged. Prior periods have been restated to reflect this
change. As a result, Investment Bank operating income and per-
formance before tax decreased by CHF 37 million for the year
ended 31 December 2014 and by CHF 162 million for the year
ended 31 December 2013, with offsetting increases in Corporate
Center. This change did not affect UBS AG’s total operating
income or net profit for any period presented.
➔ Refer to Note 2 for more information
600
Note 1 Summary of significant accounting policies (continued)
c) International Financial Reporting Standards and Interpretations to be adopted in 2016 and later and other adjustments
IFRS 9, Financial Instruments
In July 2014, the IASB published the final version of IFRS 9, Finan-
cial Instruments. The standard reflects the classification and mea-
surement, impairment and hedge accounting phases of the IASB’s
project to replace IAS 39, Financial Instruments: Recognition and
Measurement.
The standard requires all financial assets, except equity instru-
ments, to be classified at fair value through profit or loss, fair
value through other comprehensive income (OCI) or amortized
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
measured at amortized cost or at fair value through OCI, it can be
designated at fair value through profit or loss under the fair value
option if doing so would significantly reduce or eliminate an
accounting mismatch. Equity instruments that are not held for
trading may be accounted for at fair value through OCI, with no
subsequent reclassification of realized gains or losses to the
income statement, while all other equity instruments will be
accounted for at fair value through profit or loss.
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 reclassification of realized gains or losses
on own credit from OCI to the income statement.
In addition, the standard
introduces a forward-looking
expected credit loss impairment model, replacing the incurred loss
model of IAS 39. IFRS 9 also incorporates a reformed approach to
hedge accounting that introduces substantial changes to hedge
effectiveness and eligibility requirements as well as new disclo-
sures. The standard does not explicitly address macro hedge
accounting strategies.
The mandatory effective date of the new standard is 1 January
2018, with earlier adoption permitted. Adoption of the IFRS 9
hedge accounting requirements is optional, pending the comple-
tion by the IASB of its project on macro hedge accounting strate-
gies.
UBS AG will adopt the own credit presentation changes in the
first quarter of 2016 and is currently assessing the impact of the
other requirements of IFRS 9 on its 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
requires 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 to in exchange
for those goods or services. It also establishes a cohesive set of
disclosure 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 2018, 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
its financial statements.
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16, Leases. The standard
substantially changes the accounting by lessees as operating
leases previously accounted for as off-balance sheet financing
arrangements will be recognized as on-balance sheet liabilities
with a corresponding right of use asset also being recorded. The
standard replaces IAS 17, Leases and is effective for UBS AG from
1 January 2019. Early application is permitted for companies that
also apply IFRS 15, Revenue from Contracts with Customers. UBS
AG is currently assessing the impact of the new standard on its
financial statements. UBS AG’s undiscounted minimum lease pay-
ments for operating leases are disclosed in Note 33.
601
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
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
Arrangements, IAS 16, Property, Plant and Equipment and IAS 38,
Intangible Assets. The standard is effective for UBS AG reporting
periods beginning on 1 January 2016. The amendments will have
no material impact on UBS AG’s financial statements. UBS AG’s
joint arrangements are immaterial, both individually and in aggre-
gate (refer to Note 30), and UBS AG does not use revenue-based
depreciation methodologies, which the amendments to IAS 16
and IAS 38 prohibit.
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 (IFRS 5, Non-current asset held for sale and discontinued
operations, IFRS 7, Financial Instruments Disclosures, IAS 19,
Employee Benefits and IAS 34, Interim Financial Reporting). Gen-
erally, the amendments are effective for UBS AG on 1 January
2016. UBS AG expects that the adoption of these amendments
will not have a material impact on its 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
determining 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. The
adoption of these amendments will not have a material impact on
the financial statements.
Amendments to IAS 12, Income Taxes:
In January 2016, the IASB issued narrow scope amendments to
IAS 12, Income Taxes, clarifying how to account for deferred tax
assets related to debt instruments measured at fair value. Enti-
ties are required to apply the amendments for annual periods
beginning on or after 1 January 2017. UBS AG expects that the
adoption of these amendments will not have a material impact on
its financial statements.
Amendments to IAS 7, Statement of Cash Flows
In January 2016, the IASB issued amendments to IAS 7, State-
ment of Cash Flows, which inter-alia requires companies to pro-
vide information about changes in their financial liabilities arising
from financing activities, including changes from cash flows and
non-cash changes (such as foreign exchange gains or losses). Enti-
ties are required to apply the amendments for annual periods
beginning on or after 1 January 2017.
602
Note 2a Segment reporting
The operational structure of UBS AG is comprised of the Corpo-
rate Center and five business divisions: Wealth Management,
Wealth Management Americas, Personal & Corporate Banking,
Asset Management and the Investment Bank.
Asset Management
Asset Management is a large-scale global asset manager. It offers
investment capabilities and investment styles across all major tra-
ditional and alternative asset classes to institutions, wholesale
intermediaries and wealth management clients around the world.
Wealth Management
Wealth Management provides comprehensive financial services to
wealthy private clients around the world, with the exception of
those served by Wealth Management Americas. UBS AG is a
global firm with global capabilities, and its clients benefit from a
full spectrum of resources, including wealth planning, investment
management solutions and corporate finance advice, banking
and lending solutions as well as a wide range of specific offerings.
Wealth Management’s guided architecture model gives clients
access to a wide range of products from the world’s leading third-
party institutions that complement its 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. Its business includes UBS AG’s domestic US
and Canadian wealth management businesses, as well as interna-
tional business booked in the US. It provides a fully integrated set
of wealth management solutions designed to address the needs
of ultra high net worth and high net worth clients.
Personal & Corporate Banking
Personal & Corporate Banking provides comprehensive financial
products and services to UBS AG’s private, corporate and institu-
tional clients in Switzerland, maintaining a leading position in
these segments and embedding its offering in a multi-channel
approach. The business is a central element of UBS AG’s universal
bank delivery model in Switzerland, supporting other business
divisions by referring clients and growing the wealth of the firm’s
private clients so they can be transferred to Wealth Management.
Personal & Corporate Banking leverages the cross-selling poten-
tial of UBS AG’s asset-gathering and investment bank businesses,
and manages a substantial part of UBS AG’s Swiss infrastructure
and banking products platform.
Investment Bank
The Investment Bank provides corporate, institutional and wealth
management clients with expert advice, innovative solutions, exe-
cution and comprehensive access to international capital markets.
It offers advisory services and provides in-depth 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 Services, Group Asset and Lia-
bility Management (Group ALM) and Non-core and Legacy Port-
folio. Services includes UBS AG’s control functions such as finance,
risk control (including compliance) and legal. In addition, it pro-
vides all logistics and support services, including operations, infor-
mation technology, human resources, regulatory relations and
strategic initiatives, communications and branding, corporate ser-
vices, physical security, information security as well as outsourc-
ing, nearshoring and offshoring. Group ALM is responsible for
centrally managing UBS AG’s liquidity and funding position, as
well as providing other central internal balance sheet and capital
management services. Non-core and Legacy Portfolio is com-
prised of the non-core businesses and legacy positions that were
part of the Investment Bank prior to its restructuring.
603
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 2a Segment reporting (continued)
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CHF million
For the year ended 31 December 2015
Net interest income
Non-interest income
Allocations from Corporate Center – Group
ALM to business divisions and other CC units
Income1, 2
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business
divisions and Corporate Center
of which: services from CC – Services
Depreciation and impairment of property,
equipment and software
Amortization and impairment of intangible
assets3
Total operating expenses4
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
Corporate Center
UBS
Services Group ALM
Non-core
and Legacy
Portfolio
1,825
5,859
471
8,155
0
8,155
2,532
650
2,289
2,209
5
3
5,478
2,676
1,067
6,213
104
7,384
(4)
7,381
4,579
848
1,209
1,193
3
51
6,689
692
1,890
1,603
421
3,913
(37)
3,876
873
264
1,077
1,180
17
0
2,231
1,646
(34)
2,077
15
2,057
0
2,057
729
233
502
523
2
8
1,475
583
1,573
7,525
(211)
8,889
(68)
8,821
3,220
882
2,816
2,730
26
24
6,969
1,852
(337)
434
145
243
0
243
3,875
4,517
(8,214)
(8,243)
866
21
1,065
(822)
789
361
(876)
275
0
275
30
20
(56)
95
0
0
(6)
281
(44)
(79)
(71)
(195)
(8)
(203)
116
805
378
314
0
0
1,298
(1,501)
6,729
23,993
0
30,721
(117)
30,605
15,954
8,219
0
0
918
107
25,198
5,407
(908)
6,314
Additions to non-current assets
6
4
14
1
18
119,850
60,993
141,174
12,874
253,571
22,866
1,844
237,560
94,369
943,256
0
1
1,888
1 Impairments of financial investments available-for-sale for the year ended 31 December 2015 totaled CHF 1 million, of which CHF 1 million was incurred in Wealth Management. 2 Refer to Note 24 for more infor-
mation on own credit in Corporate Center – Group ALM. 3 Refer to Note 17 for more information. 4 Refer to Note 32 for information on restructuring expenses.
604
Note 2a Segment reporting (continued)1
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Corporate Center
UBS
Services Group ALM
Non-core
and Legacy
Portfolio
CHF million
For the year ended 31 December 2014
Net interest income
Non-interest income
Allocations from Corporate Center – Group
ALM to business divisions and other CC units
Income2, 3
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business
divisions and Corporate Center
of which: services from CC – Services
Depreciation and impairment of property,
equipment and software
Amortization and impairment of intangible
assets4
Total operating expenses5
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
1,693
5,726
481
7,902
(1)
7,901
2,467
918
2,180
2,122
4
5
5,574
2,326
864
6,004
116
6,984
15
6,998
4,363
550
1,137
1,121
0
48
6,099
900
1,801
1,575
461
3,836
(95)
3,741
850
293
1,074
1,196
17
0
2,235
1,506
(39)
1,914
27
1,902
0
1,902
643
305
478
495
2
9
1,435
467
1,583
6,823
(100)
8,306
2
8,308
2,964
2,671
2,711
2,658
32
15
8,392
(84)
(338)
157
217
35
0
35
3,843
4,113
(8,046)
(8,084)
762
6
679
(643)
816
307
(1,120)
2
0
2
26
21
(47)
82
0
0
0
2
174
(956)
(82)
(863)
2
(862)
124
507
513
411
0
0
1,144
(2,005)
6,555
21,549
0
28,104
(78)
28,026
15,280
9,377
0
0
817
83
25,557
2,469
(1,180)
3,649
Additions to non-current assets
7
6
9
2
7
127,588
56,026
143,711
15,207
292,347
19,720
1,677
237,901
169,826
1,062,327
0
0
1,708
1 Figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting
standards or changes in accounting policies, and events after the reporting period. Refer to Note 1b for more information. 2 Impairments of financial investments available-for-sale for the year ended 31 December 2014
totaled CHF 76 million, of which CHF 49 million were incurred in the Investment Bank and CHF 23 million were incurred in Corporate Center – Non-core and Legacy Portfolio. 3 Refer to Note 24 for more information
on own credit in Corporate Center – Group ALM. 4 Refer to Note 17 for more information. 5 Refer to Note 32 for information on restructuring expenses.
605
Consolidated financial statements
Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 2a Segment reporting (continued)1
Wealth
Management
Wealth
Management
Americas
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
CHF million
For the year ended 31 December 2013
Net interest income
Non-interest income
Allocations from Corporate Center – Group ALM
to business divisions and other CC units
Income2, 3
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions and
Corporate Center
of which: services from CC – Services
Depreciation and impairment of property,
equipment and software
Amortization and impairment of intangible
assets4
Total operating expenses5
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets
Corporate Center
UBS
Services Group ALM
Non-core
and Legacy
Portfolio
1,568
5,519
486
7,573
(10)
7,563
2,433
708
2,165
2,074
3
7
5,316
2,247
742
5,629
193
6,565
(27)
6,538
4,102
383
1,145
1,127
0
49
5,680
858
1,822
1,556
396
3,774
(18)
3,756
843
297
1,140
1,301
19
0
2,298
1,458
(44)
1,954
23
1,935
0
1,935
609
218
521
535
4
8
1,359
576
1,102
7,552
(217)
8,436
2
8,438
2,899
843
2,517
2,487
28
13
6,300
2,138
(388)
347
218
178
0
178
4,065
4,249
(8,276)
(8,304)
761
4
804
624
(544)
(921)
(841)
0
(841)
26
14
3
87
0
0
43
(626)
(884)
359
(18)
(179)
163
3
166
205
1,668
785
693
0
2
2,660
(2,494)
5,786
21,997
0
27,782
(50)
27,732
15,182
8,380
0
0
816
83
24,461
3,272
(110)
3,381
Additions to non-current assets
5
1
17
1
81
109,758
45,491
141,369
14,223
239,971
17,203
1,236
230,204
215,135
1,013,355
0
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, restatements due to the retrospective adoption of new accounting
standards or changes in accounting policies, and events after the reporting period. Refer to Note 1b for more information. 2 Impairments of financial investments available-for-sale for the year ended 31 December
2013 totaled CHF 41 million, of which CHF 10 million was incurred in Wealth Management, CHF 20 million was incurred in the Investment Bank and CHF 8 million was incurred in Corporate Center – Non-core and
Legacy Portfolio. 3 Refer to Note 24 for more information on own credit in Corporate Center – Group ALM. 4 Refer to Note 17 for more information. 5 Refer to Note 32 for information on restructuring expenses.
606
Note 2b Segment reporting by geographic location
The operating regions shown in the table below correspond to
the regional management structure of UBS AG. The allocation of
operating income to these regions reflects, and is consistent with,
the basis on which the business is managed and its performance
evaluated. These allocations involve assumptions and judgments
that management considers to be reasonable, and may be refined
to reflect changes in estimates or management structure. The
main principles of the allocation methodology are that client rev-
enues are attributed to the domicile of the client and trading and
portfolio management revenues are 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 Corporate Center – Non-core
and Legacy Portfolio, are managed at a global level. These reve-
nues 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.
For the year ended 31 December 2015
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
Switzerland
Global
Total
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
Total operating income
Total non-current assets
CHF billion
Share %
CHF billion
Share %
11.3
10.7
5.0
6.8
7.1
0.5
30.6
37
35
16
22
23
2
100
7.1
6.7
0.5
1.7
5.9
0.0
15.2
47
44
3
11
39
0
100
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
607
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Income statement notes
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
Personal & Corporate Banking
Asset Management
Investment Bank
of which: Corporate Client Solutions
of which: Investor Client Services
Corporate Center
of which: Services
of which: Group ALM
of which: own credit on financial liabilities designated at fair value1
of which: Non-core and Legacy Portfolio
Total net interest and trading income
Net interest income
Interest income
Interest earned on loans and advances2
Interest earned on securities financing transactions3
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 financing transactions4
Interest expense from trading portfolio5
Interest on financial liabilities designated at fair value
Interest on debt issued
Total
Net interest income
Net trading income
Investment Bank Corporate Client Solutions
Investment Bank Investor Client Services
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 value1, 6
For the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
6,729
5,696
12,425
3,034
1,537
2,613
(5)
5,186
1,001
4,185
61
(1)
375
553
(313)
6,555
3,841
10,396
2,845
1,352
2,536
0
4,517
1,030
3,487
(855)
33
16
292
(904)
5,786
5,130
10,915
2,868
1,323
2,485
9
4,852
1,146
3,707
(622)
(166)
(535)
(283)
79
12,425
10,396
10,915
8,626
896
3,071
194
391
8,722
752
3,196
208
315
8,686
852
2,913
364
322
13,178
13,194
13,137
774
976
1,670
730
2,299
6,449
6,729
321
3,494
1,882
5,696
(119)
3,701
708
827
1,804
919
2,382
6,639
6,555
276
2,760
806
3,841
(81)
(2,380)
893
829
1,846
1,197
2,586
7,351
5,786
425
3,541
1,164
5,130
99
(2,056)
3
48
20
7
14
3
15
(3)
20
89
(65)
20
(1)
19
(4)
(7)
24
0
9
18
(7)
(21)
(3)
(3)
3
16
27
133
48
47
1 Refer to Note 24 for more information on own credit. 2 Includes interest income on impaired loans and advances of CHF 16 million for 2015, CHF 15 million for 2014 and CHF 15 million for 2013. 3 Includes
interest income on securities borrowed and reverse repurchase agreements and negative interest, including fees, on securities lent and repurchase agreements. 4 Includes interest expense on securities lent and repur-
chase agreements and negative interest, including fees, on securities borrowed and reverse repurchase agreements. 5 Includes expense related to dividend payment obligations on trading liabilities. 6 Excludes fair
value changes of hedges related to financial liabilities designated at fair value and foreign currency translation effects arising from translating foreign currency transactions into the respective functional currency, both
of which are reported within net trading income.
608
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
Note 5 Other income
CHF million
Associates and subsidiaries
Net gains / (losses) from disposals of subsidiaries1
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)3
Net gains / (losses) from investment properties4
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
31.12.15
1,290
31.12.14
1,470
31.12.13
1,374
836
455
737
3,930
3,567
7,858
1,678
19,060
869
1,007
1,876
17,184
3,060
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
% change from
31.12.14
(12)
(12)
(13)
1
0
(4)
7
(5)
1
6
(4)
1
1
(1)
For the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
2642
0
169
433
252
(1)
251
28
(1)
378
26
(4)5
1,112
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
371
(100)
80
98
15
(99)
76
(7)
759
(33)
76
1 Includes foreign exchange gains / (losses) reclassified from other comprehensive income related to disposed or dormant subsidiaries. 2 Includes a net gain on sale of subsidiaries of CHF 113 million in Wealth Man-
agement and a net gain on sale of subsidiaries of CHF 56 million in Asset Management. Refer to Note 32 for more information. 3 Includes net rent received from third parties and net operating expenses. 4 Includes
unrealized and realized gains / (losses) from investment properties and foreclosed assets. 5 Includes a net gain on sale of businesses of CHF 56 million in Wealth Management. Refer to Note 32 for more information.
609
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 6 Personnel expenses
CHF million
Salaries1
Variable compensation – performance awards2
of which: guarantees for new hires
Variable compensation – other2
of which: replacement payments3
of which: forfeiture credits
of which: severance payments4
of which: retention plan and other payments
Contractors
Social security
Pension and other post-employment benefit plans5
Wealth Management Americas: Financial advisor compensation2, 6
Other personnel expenses
Total personnel expenses7
For the year ended
% change from
31.12.15
31.12.14
31.12.13
31.12.14
6,260
3,209
38
346
76
(86)
157
198
365
817
807
3,552
597
15,954
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
0
14
(21)
(26)
(6)
23
(3)
(32)
56
3
14
5
(1)
4
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 Refer to Note 28 for more information. 6 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues gener-
ated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes expenses related to compensation commitments with
financial advisors entered into at the time of recruitment which are subject to vesting requirements. 7 Includes net restructuring expenses of CHF 458 million, CHF 327 million and CHF 156 million for the years ended
31 December 2015, 31 December 2014 and 31 December 2013, respectively. Refer to Note 32 for more information.
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 matters1
Other
Total general and administrative expenses2
31.12.15
928
510
610
855
484
456
1,351
1,742
1,087
195
8,219
For the year ended
31.12.14
1,005
31.12.13
1,044
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
% change from
31.12.14
(8)
6
0
41
3
0
3
9
(58)
(21)
(12)
1 Reflects the net increase in provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to Note 22 for more information. Also includes recoveries from third parties of CHF 10 mil-
lion, CHF 10 million and CHF 15 million for the years ended 31 December 2015, 31 December 2014 and 31 December 2013, respectively. 2 Includes net restructuring expenses of CHF 760 million, CHF 319 million and
CHF 548 million for the years ended 31 December 2015, 31 December 2014 and 31 December 2013, respectively. Refer to Note 32 for more information.
610
Note 8 Income taxes
CHF million
Tax expense / (benefit)
Swiss
Current
Deferred
Non-Swiss
Current
Deferred
Total income tax expense / (benefit)
For the year ended
31.12.15
31.12.14
31.12.13
230
329
476
(1,943)
(908)
46
1,348
409
(2,983)
(1,180)
93
455
342
(1,000)
(110)
Income tax expense / (benefit)
The Swiss current tax expense of CHF 230 million related to tax-
able profits against which no losses were available to offset,
mainly earned by Swiss subsidiaries. The Swiss deferred tax
expense of CHF 329 million mainly reflected a net decrease of
deferred tax assets previously recognized in relation to tax losses
carried forward, partially offset by an increase in recognized
deferred tax assets related to temporary differences.
The non-Swiss current tax expense of CHF 476 million related
to taxable profits earned by non-Swiss subsidiaries and branches,
against which no losses were available to offset. The non-Swiss
net deferred tax benefit of CHF 1,943 million was primarily due to
an increase in US deferred tax assets, reflecting updated profit
forecasts and an extension of the relevant taxable profit forecast
period used in valuing deferred tax assets. Based on the perfor-
mance of its businesses and the accuracy of historical forecasts,
UBS AG extended the deferred tax asset forecast period for US
taxable profits to seven years from six. In addition, UBS AG con-
siders 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 taxable
profit beyond the current forecast period. Estimating future prof-
itability is inherently subjective and is particularly sensitive to
future economic, market and other conditions which are difficult
to predict.
CHF million
Operating profit / (loss) before tax
of which: Swiss
of which: Non-Swiss
Income taxes at Swiss tax rate of 21%
Increase / (decrease) resulting from:
Non-Swiss 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
31.12.15
31.12.14
31.12.13
5,407
3,665
1,742
1,135
(69)
107
(107)
(273)
519
29
(48)
(2,419)
191
26
(908)
2,469
1,181
1,288
519
68
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)
611
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 8 Income taxes (continued)
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
provided in the table on the previous page and explained below.
expense arises in relation to those taxable profits. Therefore, the
tax expense calculated by applying the local rate on those profits
is reversed.
Non-Swiss tax rates differing from Swiss tax rate
To the extent that UBS AG 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 appli-
cable local tax rate. If an entity generates a profit, a tax expense
arises where the local tax rate is in excess of the Swiss tax rate
and a tax benefit arises where the local tax rate is below the
Swiss tax rate. Conversely, if an entity incurs a loss, a tax benefit
arises where the local tax rate is in excess of the Swiss tax rate
and a tax expense arises where the local tax rate is less than 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
described 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
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 per-
manently 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.
612
Note 8 Income taxes (continued)
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.
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 recognized in equity
Certain tax expenses and benefits were recognized directly in
equity. These included a tax benefit of CHF 131 million related to
cash flow hedges (2014: expense of CHF 196 million), a tax ben-
efit of CHF 8 million related to financial investments classified as
available-for-sale (2014: expense of CHF 52 million), a tax expense
of CHF 1 million related to foreign currency translation gains and
losses (2014: expense of CHF 7 million) and a tax expense of CHF
19 million related to defined benefit plans (2014: benefit of CHF
246 million) recognized in other comprehensive income. In addi-
tion, they included a tax benefit of CHF 9 million recognized in
share premium (2014: benefit of CHF 3 million). Furthermore,
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. As of 31 December
2015, deferred tax assets of CHF 2,094 million (CHF 1,378 million
as of 31 December 2014) were recognized by entities which
incurred losses in either the current or preceding year.
The valuation allowance reflects deferred tax assets which
were not recognized because it was 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 assets1
Tax loss carry-forwards
Temporary differences
of which: related to compensation and benefits
of which: related to trading assets
of which: related to investments in subsidiaries and goodwill
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.
31.12.15
Valuation
allowance
(18,378)
(1,284)
(267)
(77)
0
(940)
Recognized
7,093
5,739
1,310
1,038
2,310
1,081
Gross
25,471
7,023
1,576
1,116
2,310
2,021
32,494
(19,661)
12,833
31.12.14
Valuation
allowance
(22,271)
(1,264)
(317)
(61)
0
(886)
(23,535)
Gross
29,727
4,869
1,424
1,459
0
1,986
34,596
Recognized
7,456
3,605
1,107
1,398
0
1,100
11,060
28
1
27
56
32
13
35
80
613
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 8 Income taxes (continued)
As of 31 December 2015, tax loss carry-forwards totaling CHF
56,973 million (31 December 2014: CHF 68,869 million), which
are not recognized as deferred tax assets, were available to be
offset against future taxable profits. These tax losses expire as out-
lined 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
31.12.15
31.12.14
3,727
33
753
34,833
17,627
56,973
9,341
43
613
39,899
18,973
68,869
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 recognizes deferred tax liabilities on undistributed
earnings of subsidiaries except to the extent that those earnings
are indefinitely invested. As of 31 December 2015, no such earn-
ings were considered indefinitely invested.
Note 9 Earnings per share (EPS) and shares outstanding
During 2015, UBS AG shares were delisted from the SIX and the NYSE. As of 31 December 2015, 100% of UBS AG’s issued shares
were held by UBS Group AG and therefore were not publicly traded. Accordingly, earnings per share information is not provided for
UBS AG.
614
Balance sheet notes: assets
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
Due from banks, net
Loans, gross
Residential mortgages
Commercial mortgages
Lombard loans
Other loans1
Finance lease receivables2
Securities3
Subtotal
Allowance for credit losses
Loans, net
Total due from banks and loans, net4
31.12.15
31.12.14
11,869
1,035
(3)
11,866
141,608
21,509
107,084
39,321
1,083
2,807
313,413
(689)
312,723
324,590
13,347
648
(13)
13,334
142,380
22,368
108,230
39,152
1,101
3,448
316,679
(695)
315,984
329,317
1 Includes corporate loans. 2 Refer to Note 33 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 expo-
sure to credit risk” in the “Risk management and control” section of this report for information on collateral and credit enhancements.
615
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
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
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
UBS AG when deemed necessary.
➔ Refer to Note 26 for more information on offsetting between
financial assets and financial liabilities
Balance sheet assets
CHF million
By counterparty
Banks
Customers
Total
Balance sheet liabilities
CHF million
By counterparty
Banks
Customers
Total
31.12.15
31.12.14
Cash collateral
on securities
borrowed
Reverse
repurchase
agreements
Cash collateral
receivables
on derivative
instruments
Cash collateral
on securities
borrowed
Reverse
repurchase
agreements
8,658
16,925
25,584
12,903
54,991
67,893
6,037
17,727
23,763
10,517
13,546
24,063
13,746
54,668
68,414
31.12.15
31.12.14
Cash collateral
on securities
lent
Repurchase
agreements
Cash collateral
payables
on derivative
instruments
Cash collateral
on securities
lent
7,078
951
8,029
5,637
4,016
9,653
17,041
21,241
38,282
7,041
2,138
9,180
Repurchase
agreements
5,174
6,644
11,818
Cash collateral
receivables
on derivative
instruments
10,265
20,713
30,979
Cash collateral
payables
on derivative
instruments
20,895
21,477
42,372
616
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
Reclassifications
Foreign currency translation
Other
Balance at the end of the year
Specific
allowances
Collective
allowances
Total
allowances
704
(162)
48
114
(9)
(11)
2
686
8
(2)
0
0
0
0
0
6
711
(164)
48
114
(9)
(11)
2
692
Provisions1
23
0
0
2
9
0
0
35
Total
31.12.15
Total
31.12.14
735
(164)
48
117
0
(11)
2
727
750
(154)
29
78
0
21
11
735
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.
By balance sheet line
Due from banks
Loans
Cash collateral on securities borrowed
Provisions1
Balance at the end of the year
1 Represents provisions for loan commitments and guarantees.
Specific
allowances
Collective
allowances
Total
allowances
Provisions
Total
31.12.15
Total
31.12.14
3
683
0
686
0
6
0
6
3
689
0
692
3
689
0
35
727
13
695
4
23
735
35
35
617
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 13 Trading portfolio
CHF million
Trading portfolio assets by issuer type1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: United Kingdom
of which: Australia
of which: Sweden
of which: Singapore
of which: Germany
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 type1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: France
of which: Italy
of which: Australia
of which: Japan
of which: Germany
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.
618
31.12.15
31.12.14
18,768
16,625
119
6,050
3,915
1,649
1,274
1,259
796
2,691
19,443
40,902
63,984
15,519
120,405
3,642
124,047
7,257
50
2,754
915
838
798
725
510
782
2,014
10,053
19,084
29,137
293
3,816
2,103
2,307
191
822
1,280
4,342
24,252
45,219
69,763
17,410
132,392
5,764
138,156
8,716
232
2,987
1,259
569
1,087
810
335
743
2,591
12,050
15,908
27,958
Note 14 Derivative instruments and hedge accounting
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, foreign currency exchange or interest rates, or the
value of shares, commodities, bonds or other financial instru-
ments. A derivative commonly requires little or no initial net
investment by either counterparty to the trade.
The majority of derivative contracts are negotiated with respect
to notional amounts, tenor, price and settlement mechanisms, 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
toward CCP clearing and settlement will generally facilitate the
reduction of systemic credit exposures.
Other derivative contracts are standardized in terms of their
amounts and settlement dates, and are bought and sold on regu-
lated 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 net-
ting provisions for derivative contracts. Derivative instruments
are measured at fair value and generally classified as Positive
replacement values and Negative replacement values on the
face of the balance sheet. However, ETD which are economi-
cally settled on a daily basis and certain OTC derivatives which
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
income, unless 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
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
instruments.”
➔ 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.
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).
619
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
The main derivative product types 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 occur-
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 deriv-
atives 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
include 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
index, 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 commod-
ity derivatives trading business, which includes the commodity
index and structured commodities business. The index and
structured business are client facilitation businesses trading
exchange-traded funds, OTC swaps and options on commod-
ity indices and individual underlying commodities. The underly-
ing 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-settled 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 and certain non-vanilla OTC. The
vanilla OTC are in forwards, swaps and options.
Measurement techniques applied to determine the fair value of
each derivative product type are described in Note 24.
Risks of derivative instruments
Derivative instruments are transacted in many trading portfolios,
which generally include several types of instruments, not just
derivatives. The market risk of derivatives is predominantly man-
aged and controlled as an integral part of the market risk of these
portfolios. UBS AG’s approach to market risk is described in the
audited sections of 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 UBS AG’s overall credit exposure to its
counterparties. 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 generally the case because, on
the 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 UBS AG to control credit risk and the capital require-
ments imposed 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
620
Note 14 Derivative instruments and hedge accounting (continued)
Derivative instruments1
31.12.15
31.12.14
Notional
values
related
to PRVs3
Total
PRV2
Notional
values
related
to NRVs3
Other
notional
values3, 5
Total
NRV4
Notional
values
related
to PRVs3
Total
PRV2
Notional
values
related
to NRVs3
Other
notional
values3, 5
Total
NRV4
48.6
840.1
581.7
22.7
0.1
57.0
17.3
0.0
0.1
0.2
48.2
19.1
0.0
0.1
51.9
2,351.4
5,904.7
782.0
549.8
0.1
91.8
31.7
49.0
1,323.4
799.8
346.0
169.4
15.5
15.7
0.0
0.1
55.9
2,622.8
1,233.4
10,244.3
790.3
446.0
134.7
4.9
0.2
83.7
33.9
0.0
0.1
74.5
1,493.1
67.6
1,399.3
8,771.4
123.7
2,187.9
117.9
2,084.5
13,447.7
6.1
0.6
0.0
6.7
152.7
5.0
4.2
161.9
6.0
0.6
0.0
6.7
165.7
4.1
0.1
169.8
17.8
38.3
9.5
727.6
1,429.9
496.8
16.6
37.6
9.3
673.9
1,330.1
478.0
0.0
0.0
3.4
0.0
0.0
4.6
8.1
238.1
3.8
6.5
248.4
817.6
1,626.3
667.3
4.9
11.1
0.4
0.0
11.5
20.6
62.2
15.6
0.0
0.0
11.3
0.4
0.0
11.7
19.2
62.3
16.0
0.1
0.0
245.8
5.1
1.6
252.4
741.4
1,554.0
601.4
14.8
3.7
65.7
2,657.7
63.5
2,486.6
8.1
98.4
3,116.2
97.6
2,900.5
14.8
0.0
2.9
4.8
4.3
5.0
16.9
0.0
64.1
59.1
107.2
230.3
0.0
4.3
6.7
5.2
4.9
21.2
0.0
87.0
92.6
126.0
30.0
13.4
305.6
43.3
0.1
3.4
6.4
4.8
4.9
19.5
0.1
58.5
71.7
109.4
239.6
0.0
4.7
8.9
4.8
4.8
23.3
0.1
70.0
115.4
124.2
27.9
10.1
309.6
38.0
CHF billion
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts6
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions7
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 transactions7
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions7
Total
Table continues on the next page.
621
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
Derivative instruments1 (continued)
Table continued from the previous page.
CHF billion
Commodity contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Forward contracts
Options
Agency transactions7
Total
Unsettled purchases of non-derivative financial
investments8
Unsettled sales of non-derivative financial
investments8
Total derivative instruments, based on IFRS netting9
31.12.15
31.12.14
Notional
values
related
to PRVs3
Total
PRV2
Notional
values
related
to NRVs3
Other
notional
values3, 5
Total
NRV4
Notional
values
related
to PRVs3
Total
PRV2
Notional
values
related
to NRVs3
Other
notional
values3, 5
Total
NRV4
0.3
0.7
0.9
0.0
0.0
1.5
3.4
0.1
0.2
2.8
9.9
11.8
4.4
1.0
30.0
9.6
20.1
0.3
0.5
0.6
0.2
0.1
1.5
3.2
0.2
0.1
2.3
9.4
7.5
3.7
1.9
24.6
16.7
6.4
8.2
0.1
8.3
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
7.3
0.1
7.3
167.4
4,602.7
162.4
4,409.0
8,831.1
257.0
5,857.8
254.1
5,600.2
13,507.9
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 2015, these derivatives amounted to a PRV of CHF 0.1 bil-
lion (related notional values of CHF 0.6 billion) and an NRV of CHF 0.2 billion (related notional values of CHF 3.4 billion). As of 31 December 2014, these derivatives amounted to a PRV of CHF 0.3 billion (related notional
values of CHF 6.5 billion) and an NRV of CHF 0.3 billion (related notional values of CHF 7.8 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 was not material for the periods presented. 6 Negative replacement values as of 31 December 2015 include CHF 0.1 billion related to derivative
loan commitments (31 December 2014: CHF 0.0 billion). No notional amounts related to these replacement values are included the table. The maximum irrevocable amount related to these commitments was CHF 15.8
billion as of 31 December 2015 (31 December 2014: CHF 4.5 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 values. 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 2015, based on notional values, was: approximately
53% (31 December 2014: 45%) mature within one year, 29%
(31 December 2014: 34%) within one to five years and 18%
(31 December 2014: 22%) after five years. Notional values of inter-
est 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 contrac-
tual maturities of the cleared underlying derivative contracts.
Derivatives transacted for trading purposes
Most of UBS AG’s derivative transactions relate to sales and trad-
ing activities. Sales activities include the structuring and market-
ing of derivative products to customers to enable them to take,
transfer, modify, or reduce current or expected risks. Trading activ-
ities 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 intention 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.
.
622
Note 14 Derivative instruments and hedge accounting (continued)
Market-making activity, which is undertaken within the Invest-
ment Bank, consists of buying and selling single-name CDS, index
CDS, loan CDS and related referenced cash instruments to facili-
tate client trading activity. UBS AG also actively utilizes CDS to
economically hedge specific counterparty credit risks in its accrual
and traded loan portfolios (including off-balance sheet loan com-
mitments) with the aim of reducing concentrations in individual
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.
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 instru-
ments 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 2015 matures in a range
of approximately 22% (31 December 2014: 27%) within one
year, approximately 68% (31 December 2014: 64%) within one
to five years and approximately 10% (31 December 2014: 8%)
after five years.
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 2015
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 2014
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
3.1
0.3
0.1
0.5
0.0
4.0
2.7
1.4
1.9
0.6
0.1
0.2
0.0
2.8
2.4
0.4
115.5
48.0
2.4
6.3
4.2
176.4
152.8
23.6
1.9
0.6
0.0
0.1
0.0
2.6
2.2
0.4
2.9
0.5
0.1
0.4
0.0
3.9
2.5
1.3
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
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
105.1
45.6
1.8
2.8
0.1
155.3
132.8
22.5
Notional
values
148.8
80.7
3.4
3.5
1.6
238.0
220.5
17.4
623
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
Credit derivatives by counterparty
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2015
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2014
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
0.8
1.9
0.4
0.8
4.0
0.3
1.3
0.8
0.4
2.8
27.3
78.0
55.3
15.8
176.4
0.2
1.2
0.9
0.3
2.6
0.6
1.6
0.9
0.8
3.9
19.5
68.3
58.9
8.7
155.3
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
UBS AG’s CDS trades are documented using industry standard
forms of documentation or equivalent terms documented in a
bespoke agreement. The agreements that govern CDS generally
do not contain recourse provisions that would enable UBS AG to
recover from third parties any amounts paid out by UBS AG.
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 2015, contractual
outflows related to OTC derivative transactions of approximately
CHF 0.2 billion, CHF 1.6 billion and CHF 1.9 billion would have
been required in the event of a one-notch, two-notch and three-
notch reduction in long-term credit ratings, respectively. In evalu-
ating UBS AG’s liquidity requirements, UBS AG considers addi-
tional collateral or termination payments that would be required
in the event of a reduction in UBS AG’s long-term credit ratings,
and a corresponding reduction in short-term ratings.
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
according 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,
where 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,
options and, to a lesser extent, swaps for economic hedging in a
variety 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
credit derivatives section of this Note). 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.
624
Note 14 Derivative instruments and hedge accounting (continued)
Fair value hedges: interest rate risk related to debt instruments
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 debt instruments, such as non-structured fixed-rate
bonds, covered bonds and subordinated debt, due to movements
in market interest rates. The fair values of outstanding interest
rate derivatives designated as fair value hedges were assets of
CHF 1,656 million and liabilities of CHF 11 million as of 31 Decem-
ber 2015 and assets of CHF 2,236 million and liabilities of CHF 37
million as of 31 December 2014.
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
31.12.15
31.12.14
31.12.13
554
(552)
2
1,113
(1,111)
2
(1,123)
1,116
(7)
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 2015 were assets of CHF 7 million and
liabilities of CHF 327 million (31 December 2014: liabilities of CHF
256 million).
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
31.12.15
31.12.14
31.12.13
(176)
147
(29)
(694)
676
(18)
636
(625)
11
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 vari-
able 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 prepay-
ments and defaults. The aggregate principal balances and interest
cash flows across all portfolios over time form the basis for identify-
ing the non-trading interest rate risk of UBS AG, which is hedged
with interest rate swaps, the maximum maturity of which is 13
years. The table on the following page shows forecasted principal
balances on which expected interest cash flows arise as of 31 Decem-
ber 2015. 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 2015, the fair values of outstanding deriva-
tives designated as cash flow hedges of forecasted transactions
were CHF 2,176 million assets and CHF 195 million liabilities
(31 December 2014: CHF 4,521 million assets and CHF 1,262 mil-
lion liabilities).
In 2015, a gain of CHF 150 million was recognized in Net trad-
ing income due to hedge ineffectiveness, compared with a gain of
CHF 87 million in 2014 and a loss of CHF 80 million in 2013.
625
Consolidated financial statements
Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
Principal balances subject to cash flow forecasts
CHF billion
Assets
Liabilities
Net balance
Within 1 year
1–3 years
3–5 years
5–10 years
Over 10 years
61
4
57
81
7
74
48
3
45
54
3
51
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 2015, the positive replace-
ment values and negative replacement values of FX derivatives
(mainly FX swaps) designated as hedging instruments in net
investment hedge accounting relationships were CHF 170 million
and CHF 79 million, respectively (31 December 2014: positive
replacement values of CHF 158 million and negative replacement
values of CHF 305 million). As of 31 December 2015, the underly-
ing hedged structural exposures in several currencies amounted
to CHF 5.5 billion (31 December 2014: CHF 8.0 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 2015 was CHF 11.2 billion in total
(31 December 2014: CHF 14.7 billion) including CHF 5.6 billion
notional values related to US dollar versus Swiss franc swaps and
CHF 5.6 billion notional values related to derivatives hedging for-
eign currencies (other than the US dollar) versus the US dollar. The
effective portion of gains and losses of these FX swaps is trans-
ferred 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 indi-
vidual foreign branches and subsidiaries and hence on the total
FCT OCI of UBS AG.
UBS AG designates certain non-derivative foreign currency
financial assets and liabilities of foreign branches or subsidiaries as
hedging instruments in net investment hedge accounting arrange-
ments. The FX translation difference recorded in FCT OCI of the
non-derivative hedging instrument of one foreign entity offsets
the structural FX exposure of another foreign entity. Therefore,
the aggregated FCT OCI of UBS AG is unchanged from this hedge
designation. As of 31 December 2015, the nominal amount of
non-derivative financial assets and liabilities designated as hedg-
ing instruments in such net investment hedges was CHF 3.1 bil-
lion and CHF 3.1 billion, respectively (31 December 2014: CHF
14.3 billion non-derivative financial assets and CHF 14.3 billion
non-derivative financial liabilities).
Ineffectiveness of hedges of net investments in foreign opera-
tions was not material in 2015, 2014 and 2013.
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 December 2015. 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.
Derivatives designated in hedge accounting relationships (undiscounted cash flows)
CHF billion
Interest rate swaps1
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
0
0
3
3
0
2
1
0
0
1
4
3
0
0
2
2
1
0
0
0
Total
8
5
10
10
3
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 2015.
626
Note 15 Financial investments available-for-sale
CHF million
31.12.15
31.12.14
Financial investments available-for-sale by issuer type1
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Germany
of which: France
of which: Netherlands
of which: United Kingdom
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.
47,245
702
21,424
8,583
3,566
2,934
2,782
12,268
2,385
61,898
645
62,543
462
(171)
291
167
45,334
43
17,219
10,145
5,351
2,528
2,348
8,490
2,670
56,494
664
57,159
430
(64)
365
238
627
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 16 Property, equipment and software
At historical cost less accumulated depreciation
CHF million
Historical cost
Balance at the beginning of the year
Additions
Disposals / write-offs1
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
Balance at the beginning of the year
Depreciation
Impairment2
Disposals / write-offs1
Reclassifications
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year3, 4
Own-used
properties
Leasehold
improvements
IT hardware
and
communication
Internally
generated
software
Purchased
software
Other
machines and
equipment
Projects
in progress
31.12.15
31.12.14
7,756
68
(181)
220
0
7,863
4,365
161
2
(157)
(11)
(3)
4,356
3,506
3,060
2,377
1,525
47
(97)
194
(36)
3,169
2,120
180
10
(81)
1
(25)
2,206
963
262
(750)
21
(39)
26
(54)
888
(9)
1,872
2,375
1,976
1,089
227
1
(748)
(2)
(35)
1,420
452
230
3
(46)
0
(1)
1,275
1,100
536
85
(210)
9
(9)
411
452
41
0
(209)
2
(8)
276
135
847
26
(30)
27
(8)
862
592
62
1
(29)
(14)
(6)
606
256
1,341
1,331
0
(1,394)
(7)
17,442
1,846
(1,322)
(35)6
(108)
16,136
1,690
(518)
(359)
493
1,270
17,823
17,442
0
0
0
0
0
0
0
1,2705
10,593
10,140
901
18
(1,270)
(25)6
(77)
10,140
7,683
799
19
(474)
(217)
326
10,593
6,8497
1 Includes write-offs of fully depreciated assets. 2 Impairment charges recorded in 2015 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired
assets: CHF 0 million Leasehold improvements, CHF 2 million Internally generated software). 3 As of 31 December 2015, contractual commitments to purchase property in the future amounted to approximately CHF
0.6 billion. 4 Includes CHF 47 million related to leased assets, mainly IT hardware and communication. 5 Includes CHF 928 million related to Internally generated software, CHF 86 million related to Own-used prop-
erties and CHF 257 million related to Leasehold improvements. 6 Reflects reclassifications to Properties held-for-sale (CHF 11 million on a net basis) reported within Other assets. 7 Excludes investment properties of
CHF 5 million.
628
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 2015, total goodwill recognized on the bal-
ance sheet was CHF 6.2 billion, of which CHF 1.3 billion, CHF 3.5
billion and CHF 1.4 billion was carried by Wealth Management,
Wealth Management Americas and Asset Management, respec-
tively. Based on the impairment testing methodology described
below, UBS AG concluded that the goodwill balances as of
31 December 2015 allocated to these segments remain recover-
able 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 three
forecasted years and the terminal value. The terminal value, which
covers all periods beyond the third year, is calculated on the basis
of the forecast of third-year profit, the discount rate and the long-
term growth rate and is adjusted for the effect of the capital
assumed to be needed to support the perpetual growth implied
by the long-term growth rate.
The carrying amount for each segment is determined by refer-
ence to the Group’s equity attribution framework. Within this
framework, which is described in the “Capital management” sec-
tion of this report, the Board of Directors (BoD) attributes equity
to the businesses after considering their risk exposure, risk-
weighted assets and leverage ratio denominator 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 framework 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 carry-
ing value of the segments. The attributed equity methodology is
aligned with the business planning process, the inputs from
which are used in calculating 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 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 three, 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 different regions worldwide. Earnings available to sharehold-
ers are estimated based on forecast results, which are part of the
business 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. The discount rates were
unchanged between 2014 and 2015.
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
reduce IFRS equity 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.
629
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 17 Goodwill and intangible assets (continued)
Discount and growth rates
In %
Wealth Management
Wealth Management Americas
Investment Bank
Asset Management
CHF million
Historical cost
Balance at the beginning of the year
Additions
Disposals
Write-offs
Foreign currency translation
Balance at the end of the year
Accumulated amortization and impairment
Balance at the beginning of the year
Amortization
Impairment1
Disposals
Write-offs
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year
Discount rates
Growth rates
31.12.15
31.12.14
31.12.15
31.12.14
9.0
9.0
11.0
9.0
9.0
9.0
11.0
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
Total
31.12.15
31.12.14
6,368
(30)
(97)
6,240
0
0
6,240
756
5
761
536
37
5
578
183
833
30
(1)
(20)
(22)
820
635
57
13
(1)
(20)
(10)
675
145
1,589
30
(1)
(20)
(16)
1,581
1,171
94
13
(1)
(20)
(5)
1,253
328
7,957
30
(32)
(20)
(114)
7,821
1,171
94
13
(1)
(20)
(5)
1,253
6,568
7,283
17
(1)
0
657
7,957
990
80
2
0
0
99
1,171
6,785
1 Impairment charges recorded in 2015 and 2014 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired assets: CHF 4 million for 2015 and CHF
3 million for 2014).
The table below presents the disclosure of goodwill and intangible assets by segment for the year ended 31 December 2015.
CHF million
Goodwill
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Asset
Management
Corporate Center
– Services
Balance at the beginning of the year
1,359
3,490
44
1,476
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
630
(7)
(40)
1,312
45
(3)
(4)
38
25
3,514
246
4
(51)
0
199
(14)
29
84
0
0
(13)
(11)
(6)
53
(23)
(68)
1,385
17
(5)
(2)
(1)
8
25
25
(21)
30
Total
6,368
0
(30)
0
(97)
6,240
417
30
0
(94)
(13)
(12)
328
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:
2016
2017
2018
2019
2020
Thereafter
Not amortized due to indefinite useful life
Total
Note 18 Other assets
CHF million
Prime brokerage receivables1
Recruitment loans to financial advisors
Other loans to financial advisors
Bail deposit2
Accrued interest income
Accrued income – other
Prepaid expenses
Net defined benefit pension and post-employment assets3
Settlement and clearing accounts
VAT and other tax receivables
Properties and other non-current assets held for sale
Assets of disposal group held for sale4
Other
Total other assets
Intangible assets
93
66
56
45
37
23
9
328
31.12.15
11,341
31.12.14
12,534
3,184
418
1,221
462
844
1,032
50
402
397
134
279
2,485
22,249
2,909
372
1,323
453
1,009
1,027
0
616
272
236
0
2,317
23,069
1 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading across multiple asset classes. Prime brokerage receivables are mainly comprised of
margin lending receivables. 2 Refer to item 1 in Note 22b for more information. 3 Refer to Note 28 for more information. 4 Refer to Note 32 for more information.
631
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Balance sheet notes: liabilities
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
of which: issued by UBS AG with original maturity greater than one year1, 2
Structured debt instruments issued
Equity-linked3
Credit-linked
Rates-linked4
Other
Total structured debt instruments issued
of which: issued by UBS AG with original maturity greater than one year1, 5
Structured over-the-counter debt instruments
Equity-linked3
Other
Total structured over-the-counter debt instruments
of which: issued by UBS AG with original maturity greater than one year1, 6
Repurchase agreements
Loan commitments and guarantees7
Total
of which: life-to-date own credit (gain) / loss
31.12.15
11,836
174,262
60,274
6,139
161,848
402,522
414,358
31.12.14
10,492
187,516
52,269
14,766
156,427
410,979
421,471
31.12.15
31.12.14
4,098
3,542
30,965
3,652
16,587
1,231
52,436
36,539
2,885
2,608
5,493
4,497
849
119
62,995
(287)
4,488
3,616
37,725
4,645
19,380
2,138
63,888
45,851
2,508
3,154
5,662
3,691
1,167
93
75,297
302
1 Issued by UBS AG (standalone). Based on original contractual maturity without considering any early redemption features. 2 100% of the balance as of 31 December 2015 was unsecured. 3 Includes investment
fund unit-linked instruments issued. 4 Includes non-structured rates-linked debt instruments issued. 5 More than 98% of the balance as of 31 December 2015 was unsecured. 6 More than 35% of the balance as
of 31 December 2015 was unsecured. 7 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 2015, the contractual redemption amount at
maturity of Financial liabilities designated at fair value through
profit or loss was CHF 0.1 billion higher than the carrying value.
As of 31 December 2014, the contractual redemption amount at
maturity of such liabilities was CHF 0.7 billion lower than the car-
rying value.
The table on the following page shows the residual 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 does not consider any early
redemption features. Interest rate ranges for future interest pay-
ments related to these financial liabilities designated at fair value
have not been included in the table on the following page 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
632
Note 20 Financial liabilities designated at fair value (continued)
Contractual maturity of carrying value
CHF million
UBS AG1
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Other subsidiaries2
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Total
2016
2017
2018
2019
2020
2021–2025
Thereafter
Total
31.12.15
Total
31.12.14
2,873
23,148
26,021
29
260
288
1,912
5,314
7,226
58
484
542
776
3,559
4,335
179
188
367
279
2,839
3,118
17
122
139
302
3,286
3,588
34
127
161
1,623
2,838
4,461
164
178
342
2,938
8,839
11,777
10,702
49,824
60,526
513
116
629
993
1,475
2,469
12,891
58,643
71,535
1,473
2,289
3,762
26,310
7,768
4,702
3,257
3,749
4,803
12,406
62,995
75,297
1 Comprises instruments issued by UBS AG (standalone). 2 Comprises instruments issued by subsidiaries of UBS AG.
Note 21 Debt issued held at amortized cost
CHF million
Certificates of deposit
Commercial paper
Other short-term debt
Short-term debt1
Non-structured fixed-rate bonds
of which: issued by UBS AG with original maturity greater than one year2
Covered bonds
Subordinated debt
of which: phase-out additional tier 1 capital
of which: low-trigger loss-absorbing tier 2 capital
of which: phase-out tier 2 capital
Debt issued through the central bond institutions of the Swiss regional or cantonal banks
Other long-term debt
of which: issued by UBS AG with original maturity greater than one year2
Long-term debt3
Total debt issued held at amortized cost4
31.12.15
11,967
31.12.14
16,591
3,824
5,424
21,215
31,240
31,078
8,490
12,600
0
10,346
2,254
8,237
577
278
61,144
82,359
4,841
5,931
27,363
24,582
24,433
13,614
16,123
1,197
10,464
4,462
8,029
1,495
861
63,844
91,207
1 Debt with an original maturity of less than one year. 2 Issued by UBS AG (standalone). Based on original contractual maturity without considering any early redemption features. 100% of the balance as of 31 Decem-
ber 2015 was unsecured. 3 Debt with original maturity greater than or equal to one year. 4 Net of bifurcated embedded derivatives with a net negative fair value of CHF 130 million as of 31 December 2015
(31 December 2014: net negative fair value of CHF 25 million).
UBS AG uses interest rate and foreign exchange derivatives to
manage the risks inherent in certain debt instruments held at
amortized cost. In certain cases, UBS AG applies hedge account-
ing 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 1,024 million and by CHF
1,703 million as of 31 December 2015 and 2014, respectively,
reflecting changes in fair value due to interest rate movements.
633
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 21 Debt issued held at amortized cost (continued)
Subordinated debt consists of unsecured debt obligations that
are contractually subordinated in right of payment to all other
present and future non-subordinated obligations of the respective
issuing entity. All of the subordinated debt instruments outstand-
ing as of 31 December 2015 pay a fixed rate of interest.
ing-rate based on the contractual terms and does not consider
any early redemption features. The effects from interest rate
swaps, which are used to hedge various fixed-rate debt issuances
by changing the repricing characteristics into those similar to
floating-rate debt, are also not considered in the table below.
The table below shows the residual contractual maturity of the
carrying value of debt issued, split between fixed-rate and float-
➔ Refer to Note 27b for maturity information on an undiscounted
cash flow basis
Contractual maturity dates of carrying value
CHF million, except where indicated
UBS AG1
Non-subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subordinated debt
Fixed-rate
Interest rates (range in %)
Subtotal
Subsidiaries2
Non-subordinated debt
Fixed-rate
Interest rates (range in %)
Floating-rate
Subtotal
Total
2016
2017
2018
2019
2020
2021–2025
Thereafter
Total
31.12.15
Total
31.12.14
13,064
0–6.4
10,014
918
3.1–5.9
23,996
3,936
0–8.3
0
3,936
27,932
6,334
0–5.9
3,721
414
4.1–7.4
10,468
8,004
0–6.6
963
4,036
2.4–4.0
939
4,340
0–4.9
239
0
0
0
8,967
4,974
4,579
728
791
742
732
0.3–8.1
0.4–3.7
0.5–2.9
0.1–2.8
0
728
11,196
7
798
9,765
0
742
5,717
0
732
5,311
4,375
1.3–4.0
0
40,153
59,327
0
2,031
17,907
11,296
8,772
4.8–8.8
13,147
3,592
0–3.4
0
3,593
16,740
2,497
4.8–7.8
4,528
1,171
0.4–2.8
0
1,171
5,699
12,600
16,123
70,659
86,746
11,692
4,460
8
11,700
82,359
1
4,462
91,207
1 Comprises debt issued by UBS AG (standalone). 2 Comprises debt issued by subsidiaries of UBS AG.
634
Note 22 Provisions and contingent liabilities
a) Provisions
CHF million
Balance at the beginning of the year
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
matters2
3,053
Operational
risks1
50
43
(7)
(37)
0
0
(1)
47
1,263
(166)
(1,174)
0
0
7
2,983
Loan com-
mitments
and
guarantees
Restruc-
turing
647
361
(102)
(287)
0
0
5
6243
23
6
(3)
0
0
9
0
35
Real
estate
153
27
(1)
(28)
5
0
2
1574
Employee
benefits5
215
7
(18)
(1)
0
0
(5)
198
Other
224
71
(40)
(133)
0
0
(3)
120
Total
31.12.15
Total
31.12.14
4,366
1,778
(337)
(1,660)
5
9
3
4,163
2,971
3,308
(528)
(1,659)
0
8
266
4,366
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 restruc-
turing provisions of CHF 110 million as of 31 December 2015 (31 December 2014: CHF 116 million) and provisions for onerous lease contracts of CHF 514 million as of 31 December 2015 (31 December 2014: CHF 530
million). 4 Includes reinstatement costs for leasehold improvements of CHF 94 million as of 31 December 2015 (31 December 2014: CHF 98 million) and provisions for onerous lease contracts of CHF 62 million as of
31 December 2015 (31 December 2014: CHF 55 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 payments. The utilization of onerous lease
provisions is driven by the maturities of the underlying lease con-
tracts. 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.
635
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
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
expense, 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. Where these
factors are otherwise satisfied, a provision may be established for
claims that have not yet been asserted against UBS, but are nev-
ertheless expected to be, based on UBS’s experience with similar
asserted claims. If any of those conditions is not met, such matters
result in contingent liabilities. If the amount of an obligation 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
effects. The amount of damages claimed, the size of a transac-
tion or other information is provided where available and appro-
priate 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 mat-
ters for which we have established provisions, we are able to
estimate the expected timing of outflows. However, the aggre-
gate amount of the expected outflows for those matters for
which we are able to estimate expected timing is immaterial rela-
tive to our current and expected levels of liquidity over the rele-
vant time periods.
636
Note 22 Provisions and contingent liabilities (continued)
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.
Although we therefore cannot provide a numerical estimate of
the future losses that could arise from litigation, regulatory and
similar matters, we believe that the aggregate amount of possible
future losses from this class that are more than remote substan-
tially exceeds the level of current provisions. Litigation, regulatory
and similar matters may also result in non-monetary penalties and
consequences. For example, the non-prosecution agreement
(NPA) described in paragraph 5 of this Note, which we entered
into with the US Department of Justice (DOJ), Criminal Division,
Fraud Section in connection with our submissions of benchmark
interest rates, including, among others, the British Bankers’ Asso-
ciation London Interbank Offered Rate (LIBOR), was terminated by
the DOJ based on its determination that we had committed a US
crime in relation to foreign exchange matters. As a consequence,
UBS AG has pleaded guilty to one count of wire fraud for conduct
in the LIBOR matter, and has agreed to pay a USD 203 million fine
and accept a three-year term of probation. A guilty plea to, or
conviction of, a crime (including as a result of termination of the
NPA) could have material consequences for UBS. Resolution of
regulatory proceedings may require us to obtain waivers of regu-
latory disqualifications to maintain certain operations, may entitle
regulatory authorities to limit, suspend or terminate licenses and
regulatory authorizations and may permit financial market utilities
to limit, suspend or terminate our participation in such utilities.
Failure to obtain such waivers, or any limitation, suspension or
termination of licenses, authorizations or participations, could
have material consequences for 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 business division and Corporate Center unit1
CHF million
Balance at the beginning of the year
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
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
CC –
Services
CC –
Group ALM
188
114
(10)
(36)
0
(12)
245
209
372
(19)
(110)
0
7
459
92
0
(3)
(5)
0
(2)
83
53
0
(3)
(33)
0
(1)
16
1,258
17
(15)
(675)
0
0
585
312
15
(1)
(13)
0
(3)
310
0
0
0
0
0
0
0
CC –
Non-core
and Legacy
Portfolio
Total
31.12.15
Total
31.12.14
941
744
(115)
(302)
0
18
3,053
1,263
(166)
(1,174)
0
7
1,284
2,983
1,622
2,941
(395)
(1,286)
(2)
172
3,053
1 Provisions, if any, for the matters described in this Note are recorded in Wealth Management (item 3), Wealth Management Americas (item 4), Corporate Center – Services (item 7) and Corporate Center – Non-core
and Legacy Portfolio (items 2 and 8). Provisions, if any, for the matters described in this Note in items 1 and 6 are allocated between Wealth Management and Personal & Corporate Banking, and provisions, if any, for
the matters described in this Note in item 5 are allocated between the Investment Bank, Corporate Center – Services and Corporate Center – Non-core and Legacy Portfolio.
637
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
1. Inquiries regarding cross-border wealth management busi-
nesses
Tax and regulatory authorities in a number of countries have
made inquiries, served requests for information or examined
employees located in their respective jurisdictions relating to the
cross-border wealth management services provided by UBS and
other financial institutions. 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 2013, 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 proceeds of tax
fraud and of banking and financial solicitation by unauthorized
persons. In 2014, UBS AG was placed under formal examination
with respect to the potential charges of laundering of proceeds of
tax fraud, and the investigating judges ordered UBS to provide
bail (“caution”) of EUR 1.1 billion. UBS AG appealed the determi-
nation of the bail amount, but both the appeal court (“Cour
d’Appel”) and the French Supreme Court (“Cour de Cassation”)
upheld the bail amount and rejected the appeal in full in late
2014. UBS AG has filed and has had accepted a petition to the
European Court of Human Rights to challenge various aspects of
the French court’s decision. In September 2015, the former CEO
of UBS Wealth Management was placed under formal examina-
tion in connection with these proceedings. In addition, the inves-
tigating judges have sought to issue arrest warrants against three
Swiss-based former employees of UBS AG who did not appear
when summoned by the investigating judge. In February 2016,
the investigating judge notified UBS that he does not intend to
conduct further investigation. This notification commences a
period in which the prosecutor may file a request for a judge to
issue formal charges.
In March 2015, UBS (France) S.A. was placed under formal
examination for complicity regarding the laundering of proceeds
of tax fraud and of banking and financial solicitation by unauthor-
ized persons for the years 2004 until 2008 and declared witness
with legal assistance for the years 2009 to 2012. A bail of EUR 40
million was imposed, and was reduced by the Court of Appeals in
May 2015 to EUR 10 million. Separately, in 2013, the French
banking supervisory authority’s disciplinary commission repri-
manded UBS (France) S.A. for having had insufficiencies in its con-
trol and compliance framework around its cross-border activities
and know your customer obligations. It imposed a penalty of EUR
10 million, which was paid.
UBS AG has been notified by the Brussels public prosecutor’s
office that it is investigating various aspects of UBS’s cross-border
business.
In January 2015, UBS 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. UBS is cooperating with the
authorities in these investigations.
UBS has, and reportedly numerous other financial institutions
have, received inquiries from authorities concerning accounts
relating to the Fédération Internationale de Football Association
(FIFA) and other constituent soccer associations and related per-
sons and entities. UBS is cooperating with authorities in these
inquiries.
Our balance sheet at 31 December 2015 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 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.
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 active
from 2006 to 2008, and securitized less than half of these loans.
638
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 lawsuits related to approximately USD 6.2 billion in original face
amount of RMBS underwritten or issued by UBS. Of the USD 6.2
billion in original face amount of RMBS that remains at issue in
these cases, approximately USD 3.2 billion was issued in offerings
in which a UBS subsidiary transferred underlying loans (the major-
ity of which were purchased from third-party originators) into a
securitization trust and made representations and warranties
about those loans (UBS-sponsored RMBS). The remaining USD 3
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.
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 Kan-
sas and the other in the Southern District of New York (SDNY). The
original principal balance at issue in the Kansas case is approxi-
mately USD 1.15 billion and the original principal balance at issue
in the SDNY case is approximately USD 400 million. In February
2016, UBS made an offer of judgment to NCUA in the SDNY case,
which NCUA has accepted, pursuant to which UBS will pay USD 33
million plus an amount of prejudgment interest that will be deter-
mined by the court and reasonable attorneys’ fees. Once these
amounts are determined and judgment is entered, the SDNY case
will end. Prejudgment interest and attorneys’ fees are expected to
significantly increase the total amount to be paid in the SDNY case.
Lawsuits related to contractual representations and warranties
concerning mortgages and RMBS: When UBS acted as an RMBS
sponsor or mortgage seller, we generally made certain representa-
tions relating to the characteristics of the underlying loans. In the
event of a material breach of these representations, we were in
certain circumstances contractually obligated to repurchase the
loans to which the representations related or to indemnify certain
parties against losses. UBS has received demands to repurchase
US residential mortgage loans as to which UBS made certain rep-
resentations at the time the loans were transferred to the securi-
tization trust aggregating approximately USD 4.1 billion in origi-
nal principal balance. Of this amount, UBS considers claims
relating to approximately USD 2 billion in original principal bal-
ance to be resolved, including claims barred by the statute of
limitations. Substantially all of the remaining claims are in litiga-
tion, including the matters described in the next paragraph. UBS
believes that new demands to repurchase US residential mort-
gage loans are time-barred under a decision rendered by the New
York Court of Appeals.
In 2012, certain RMBS trusts filed an action (Trustee Suit) in the
SDNY seeking to enforce UBS RESI’s obligation to repurchase
loans in the collateral pools for three RMBS securitizations (Trans-
actions) with an original principal balance of approximately USD 2
billion, for which Assured Guaranty Municipal Corp. (Assured
Guaranty), a financial guaranty insurance company, had previ-
ously demanded repurchase. In January 2015, the court rejected
plaintiffs’ efforts to seek damages for all loans purportedly in
breach of representations and warranties in any of the three
Transactions and limited plaintiffs to pursuing claims based solely
on alleged breaches for loans identified in the complaint or other
breaches that plaintiffs can establish were independently discov-
ered by UBS. In 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. Trial is currently scheduled for April 2016.
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.
639
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
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
31.12.15
31.12.14
849
662
(94)
(199)
1,218
817
239
(120)
(87)
849
Mortgage-related regulatory matters: In 2014, UBS received 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. In September 2015, the Eastern District of
New York identified a number of transactions that are currently
the focus of their inquiry, as to which we are providing additional
information. UBS continues to respond to the FIRREA subpoena
and to subpoenas 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 Gen-
eral for the Troubled Asset Relief Program (SIGTARP) (who is work-
ing in conjunction with the US Attorney’s Office for Connecticut
and the DOJ) and the SEC relating to trading practices in connec-
tion with purchases and sales of mortgage-backed securities in
the secondary market from 2009 through the present. We are
cooperating with the authorities in these matters. Numerous
other banks reportedly are responding to similar inquiries from
these authorities.
As reflected in the table “Provision for claims related to sales
of residential mortgage-backed securities and mortgages,” our
balance sheet at 31 December 2015 reflected a provision of USD
1,218 million with respect to matters described in this item 2. As
in the case of other matters for which we have established provi-
sions, the future outflow of resources in respect of this matter
cannot be determined with certainty based on currently avail-
able information, and accordingly may ultimately prove to be
substantially greater (or may be less) than the provision that we
have recognized.
640
Note 22 Provisions and contingent liabilities (continued)
3. 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
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
aggregate, although that figure likely includes fictitious profit
reported by BMIS. The documentation establishing both funds
identifies UBS entities in various roles including custodian, admin-
istrator, manager, distributor and promoter, and indicates that
UBS employees serve as board members. UBS (Luxembourg) SA
and certain other UBS subsidiaries are responding to inquiries by
Luxembourg 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 indi-
viduals including current and former UBS employees. The amounts
claimed are approximately EUR 890 million and EUR 305 million,
respectively. 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 entities (and non-UBS entities) for purported
losses relating to the Madoff scheme. The majority of these cases
are pending in Luxembourg, 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
July 2014, the Luxembourg Court of Appeal dismissed one test
appeal in its entirety, which decision was appealed by the investor.
In July 2015, the Luxembourg Supreme Court found in favor of
UBS and dismissed the investor’s appeal. 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 SDNY dismissed all of the BMIS Trustee’s claims
other than claims for recovery 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 rul-
ing. In December 2014, several claims, including a purported class
action, were filed in the US by BMIS customers against UBS enti-
ties, asserting claims similar to the ones made by the BMIS Trustee,
seeking unspecified damages. One claim was voluntarily with-
drawn by the plaintiff. In July 2015, following a motion by UBS,
the SDNY dismissed the two remaining claims on the basis that
the New York courts did not have jurisdiction to hear the claims
against the UBS entities. In Germany, certain clients of UBS are
exposed to Madoff-managed positions through third-party funds
and funds administered by UBS entities in Germany. A small num-
ber of claims have been filed with respect to such funds. In Janu-
ary 2015, a court of appeal reversed a lower court decision in
favor of UBS in one such case and ordered UBS to pay EUR 49
million, plus interest (approximately EUR 15.3 million). UBS filed
an application for leave to appeal the decision. That application
was rejected by the German Federal Supreme Court in December
2015, meaning that the Court of Appeal’s decision is final.
641
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
4. 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 Company of Puerto
Rico and distributed by UBS Financial Services Incorporated of
Puerto Rico (UBS PR) have led to multiple regulatory inquiries, as
well as customer complaints and arbitrations with aggregate
claimed damages of USD 1.6 billion, of which claims with aggre-
gate claimed damages of approximately USD 374 million have
been resolved through settlements or arbitration. 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-purpose loans; customer complaint and
arbitration allegations include fraud, misrepresentation and
unsuitability of the funds and of the loans. A shareholder deriva-
tive action was filed in 2014 against various UBS entities and cur-
rent and certain former directors of the funds, alleging hundreds
of millions in losses in the funds. In 2015, defendants’ motion to
dismiss was denied. Defendants are seeking leave to appeal that
ruling to the Puerto Rico Supreme Court. In 2014, a federal class
action complaint also was filed against various UBS entities, cer-
tain members of UBS PR senior management, and the co-man-
ager of certain of the funds seeking damages for investor losses in
the funds during the period from May 2008 through May
2014. Defendants have moved to dismiss that complaint. In
March 2015, a class action was filed in Puerto Rico state court
against UBS PR seeking equitable relief in the form of a stay of any
effort by UBS PR to collect on non-purpose loans it acquired from
UBS Bank USA in December 2013 based on plaintiffs’ allegation
that the loans are not valid.
In 2014, UBS reached a settlement with the Office of the Com-
missioner 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. Pursu-
ant 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. That review resulted
in an additional USD 2.1 million in restitution being offered to
certain investors.
In September 2015, the SEC and the Financial Industry Regula-
tory Authority (FINRA) announced settlements with UBS PR of their
separate investigations stemming from the 2013 market events.
Without admitting or denying the findings in either matter, UBS PR
agreed in the SEC settlement to pay USD 15 million (which includes
USD 1.18 million in disgorgement, a civil penalty of USD 13.63
million and pre-judgment interest), and USD 18.5 million in the
FINRA matter (which includes up to USD 11 million in restitution to
165 UBS PR customers and a civil penalty of USD 7.5 million). The
SEC settlement involves a charge against UBS PR of failing to
supervise the activities of a former financial advisor who had rec-
ommended the impermissible investment of non-purpose loan
proceeds into the UBS PR closed-end funds, in violation of firm
policy and the customer loan agreements. In the FINRA settlement,
UBS PR is alleged to have failed to supervise certain customer
accounts which were both more than 75% invested in UBS PR
closed-end funds and leveraged against those positions. We also
understand that the DOJ is conducting a criminal inquiry into the
impermissible reinvestment of non-purpose loan proceeds. We are
cooperating with the authorities in this inquiry.
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, but that dis-
missal was subsequently overturned on appeal. Defendants have
renewed their motion to dismiss the complaint on grounds not
addressed when the court issued its prior ruling.
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. A
motion for class certification was denied without prejudice to the
right to refile the motion after limited discovery, and that motion
has since been refiled.
642
Note 22 Provisions and contingent liabilities (continued)
In June 2015 Puerto Rico’s Governor stated that the Common-
wealth is unable to meet its obligations. In addition, certain agen-
cies and public corporations of the Commonwealth have held
discussions with their creditors to restructure their outstanding
debt, and certain agencies and public corporations of the Com-
monwealth have defaulted on certain interest payments that
were due in August 2015 and January 2016. The United States
Supreme Court has agreed to hear Puerto Rico’s appeal of a US
District Court’s invalidation of the Puerto Rico Public Corporations
Debt Enforcement and Recovery Act (the Act), under which Puerto
Rico’s public corporations would be permitted to effect a manda-
tory restructuring of their respective debts with a specified credi-
tor vote that would be binding on all applicable creditors, once
approved by a court or, alternatively, under a court-supervised
bankruptcy type restructuring. The foregoing events, any further
defaults by the Commonwealth or its agencies and public corpo-
rations on (or any debt restructurings proposed by them with
respect to) their outstanding debt, a Supreme Court decision
upholding the Act (or sending it back to the District Court for
further proceedings) and any further actions taken by Puerto
Rico’s public corporations under the Act, as well as any market
reactions to any of the foregoing, may increase the number of
claims against UBS concerning Puerto Rico securities as well as
potential damages sought.
Our balance sheet at 31 December 2015 reflected provisions
with respect to matters described in this item 4 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.
5. Foreign exchange, LIBOR, and benchmark rates, and other
trading practices
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
review of its foreign exchange business, which includes our pre-
cious metals and related structured products businesses. Since
then, various authorities have commenced investigations con-
cerning possible manipulation of foreign exchange markets,
including FINMA, the Swiss Competition Commission (WEKO),
the DOJ, the SEC, the US Commodity Futures Trading Commis-
sion (CFTC), the Board of Governors of the Federal Reserve Sys-
tem (Federal Reserve Board), the UK Financial Conduct Authority
(FCA) (to which certain responsibilities of the UK Financial Services
Authority (FSA) have passed), the UK Serious Fraud Office (SFO),
the Australian Securities and Investments Commission (ASIC), the
Hong Kong Monetary Authority (HKMA), the Korea Fair Trade
Commission (KFTC) and the Brazil Competition Authority (CADE).
In addition, WEKO is, and a number of other authorities report-
edly are, investigating potential manipulation of precious metals
prices. UBS has taken and will take appropriate action with respect
to certain personnel as a result of its ongoing review.
In 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 met-
als 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 mil-
lion to FINMA representing confiscation of costs avoided and
profits. In May 2015, the Federal Reserve Board and the Con-
necticut Department of Banking issued an Order to Cease and
Desist and Order of Assessment of a Civil Monetary Penalty
Issued upon Consent (Federal Reserve Order) to UBS AG. As part
of the Federal Reserve Order, UBS AG paid a USD 342 million civil
monetary penalty.
643
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
In May 2015, the DOJ’s Criminal Division (Criminal Division)
terminated the December 2012 Non-Prosecution Agreement
(NPA) with UBS AG related to UBS’s submissions of benchmark
interest rates. As a result, UBS AG entered into a plea agreement
with the Criminal Division pursuant to which UBS AG agreed to
and did plead guilty to a one-count criminal information filed in
the US District Court for the District of Connecticut charging UBS
AG with one count of wire fraud in violation of 18 USC Sections
1343 and 2. Under the plea agreement, UBS AG agreed to a sen-
tence that includes a USD 203 million fine and a three-year term
of probation. The criminal information charges that between
approximately 2001 and 2010, UBS AG engaged in a scheme to
defraud counterparties to interest rate derivatives transactions by
manipulating benchmark interest rates, including Yen LIBOR. Sen-
tencing is currently scheduled for 9 May 2016. The Criminal Divi-
sion terminated the NPA based on its determination, in its sole
discretion, that certain UBS AG employees committed criminal
conduct that violated the NPA, including fraudulent and deceptive
currency trading and sales practices in conducting certain foreign
exchange market transactions with clients and collusion with
other participants in certain foreign exchange markets.
We have ongoing obligations to cooperate with these authori-
ties and to undertake certain remediation, including actions to
improve processes and controls.
UBS has been granted conditional immunity by the Antitrust
Division of the DOJ (Antitrust Division) from prosecution for
EUR / USD collusion and entered into a non-prosecution agree-
ment covering other currency pairs. As a result, UBS AG will not
be subject to prosecutions, fines or other sanctions for antitrust
law violations by the Antitrust Division, subject to UBS AG’s con-
tinuing cooperation. However, the conditional immunity grant
does not bar government agencies from asserting other claims
and imposing sanctions against UBS AG, as evidenced by the set-
tlements and ongoing investigations referred to above. UBS has
also been granted conditional leniency by authorities in certain
jurisdictions, including WEKO, in connection with potential com-
petition law violations relating to precious metals, and as a result,
will not be subject to prosecutions, fines or other sanctions for
antitrust or competition law violations in those jurisdictions, sub-
ject to UBS AG’s continuing cooperation.
In October 2015, UBS AG settled charges with the SEC relating
to structured notes issued by UBS AG that were linked to the UBS
V10 Currency Index with Volatility Cap.
Investigations relating to foreign exchange and precious metals
matters by numerous authorities, including the CFTC, remain
ongoing notwithstanding these resolutions.
Foreign exchange-related civil litigation: Putative class actions
have been filed since November 2013 in US federal courts and in
other jurisdictions against UBS and other banks on behalf of puta-
tive classes of persons who engaged in foreign currency transac-
tions with any of the defendant banks. They allege collusion by
the defendants and assert claims under the antitrust laws and for
unjust enrichment. In 2015, additional putative class actions were
filed in federal court in New York against UBS and other banks on
behalf of a putative class of persons who entered into or held any
foreign exchange futures contracts and options on foreign
exchange futures contracts since 1 January 2003. The complaints
assert claims under the Commodity Exchange Act (CEA) and the
US antitrust laws. In July 2015, a consolidated complaint was filed
on behalf of both putative classes of persons covered by the US
federal court class actions described above. UBS has entered into
a settlement agreement that would resolve all of these US federal
court class actions. The agreement, which has been preliminarily
approved by the court and is subject to final court approval,
requires, among other things, that UBS pay an aggregate of USD
141 million and provide cooperation to the settlement classes.
644
Note 22 Provisions and contingent liabilities (continued)
In June 2015, a putative class action was filed in federal court
in New York against UBS and other banks on behalf of partici-
pants, beneficiaries, and named fiduciaries of plans qualified
under the Employee Retirement Income Security Act of 1974
(ERISA) for whom a defendant bank provided foreign currency
exchange transactional services, exercised discretionary authority
or discretionary control over management of such ERISA plan, or
authorized or permitted the execution of any foreign currency
exchange transactional services involving such plan’s assets. The
complaint asserts claims under ERISA.
In 2015, UBS was added to putative class actions pending
against other banks in federal court in New York and other juris-
dictions on behalf of putative classes of persons who bought or
sold physical precious metals and various precious metal products
and derivatives. The complaints in these lawsuits assert claims
under the antitrust laws and the CEA, and other claims.
LIBOR and other benchmark-related regulatory matters:
Numerous 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.
These investigations focus on whether there were improper
attempts by UBS, among others, either acting 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
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 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 manip-
ulation 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 the 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. Under the
NPA, we 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. The term of the NPA
was extended by one year to 18 December 2015. In May 2015,
the Criminal Division terminated the NPA based on its determina-
tion, in its sole discretion, that certain UBS AG employees commit-
ted criminal conduct that violated the NPA. As a result, UBS
entered into a plea agreement with the DOJ under which it
entered a guilty plea to one count of wire fraud relating to the
manipulation of certain benchmark interest rates, including Yen
LIBOR, and agreed to pay a fine of USD 203 million and accept a
three-year term of probation. Sentencing is currently scheduled
for 9 May 2016.
In 2014, UBS reached a settlement with the European Com-
mission (EC) regarding its investigation of bid-ask spreads in con-
nection with Swiss franc interest rate derivatives and paid a EUR
12.7 million fine, which was reduced to this level based in part on
UBS’s cooperation with the EC. The MAS, HKMA and the Japan
Financial Services Agency have also resolved investigations of UBS
(and in some cases, other banks). We have ongoing obligations to
cooperate with the authorities with whom we have reached reso-
lutions and to undertake certain remediation with respect to
benchmark interest rate submissions.
Investigations by the CFTC, ASIC and other governmental
authorities remain ongoing notwithstanding these resolutions.
645
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
UBS has been granted conditional leniency or conditional
immunity from authorities in certain jurisdictions, including the
Antitrust Division of the DOJ, WEKO and the EC, in connection
with potential antitrust or competition law violations related to
submissions for Yen LIBOR and Euroyen TIBOR. WEKO has also
granted UBS conditional immunity in connection with potential
competition law violations related to submissions for CHF LIBOR
and certain transactions related to CHF LIBOR. 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 conditional 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 oth-
erwise 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
expected 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.
Also pending are actions asserting losses related to various prod-
ucts whose interest rate was linked to USD LIBOR, including
adjustable rate mortgages, preferred and debt securities, bonds
pledged as collateral, loans, depository accounts, investments and
other interest-bearing instruments. All of the complaints allege
manipulation, through various means, of various benchmark
interest rates, including USD LIBOR, Euroyen TIBOR, Yen LIBOR,
EURIBOR, CHF LIBOR, GBP LIBOR or USD ISDAFIX rates and seek
unspecified compensatory and other damages under varying legal
theories. In 2013, the court in the USD action dismissed the
federal antitrust and racketeering claims of certain USD LIBOR
plaintiffs and a portion of their claims brought under the CEA and
state common law. Plaintiffs have appealed the dismissal, and the
appeal remains pending. In 2014, the court in one of the Euroyen
TIBOR lawsuits dismissed certain of the plaintiff’s claims, including
federal antitrust claims. In 2015, the same court dismissed plain-
tiff’s federal racketeering claims and affirmed its previous dis-
missal of plaintiff’s antitrust claims. UBS and other defendants in
other lawsuits including those related to EURIBOR, CHF LIBOR and
GBP LIBOR have filed motions to dismiss.
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
entered 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
manipulate 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. UBS and other defendants have filed a motion
to dismiss, which remains pending.
Government bonds: Putative class actions have been filed in US
federal courts against UBS and other banks on behalf of persons
who participated in markets for US Treasury securities since 2007.
The complaints generally allege that the banks colluded with
respect to and manipulated prices of US Treasury securities sold at
auction. They assert claims under the antitrust laws and the CEA
and for unjust enrichment. The cases have been consolidated in
the SDNY. Following filing of these complaints, UBS and report-
edly other banks have received requests for information from
various authorities regarding US Treasury securities and other gov-
ernment bond trading practices.
With respect to additional matters and jurisdictions not encom-
passed by the settlements and order referred to above, our bal-
ance sheet at 31 December 2015 reflected a provision in an
amount that UBS believes to be appropriate under the applicable
accounting standard. As in the case of other matters for which we
have established provisions, the future outflow of resources in
respect of such matters cannot be determined with certainty
based on currently available information, and accordingly may
ultimately prove to be substantially greater (or may be less) than
the provision that we have recognized.
646
Note 22 Provisions and contingent liabilities (continued)
6. Swiss retrocessions
The Federal Supreme Court of Switzerland ruled in 2012, in a test
case against UBS, that distribution fees paid to a firm for distribut-
ing third party and intra-group investment funds and structured
products must be disclosed and surrendered to clients who have
entered into a discretionary mandate agreement with the firm,
absent a valid waiver.
FINMA has issued a supervisory note to all Swiss banks in
response to the Supreme Court decision. The note sets forth the
measures 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
potentially surrender retrocessions. Client requests are assessed
on a case-by-case basis. Considerations taken into account when
assessing these cases include, among others, the existence of a
discretionary mandate and whether or not the client documenta-
tion contained a valid waiver with respect to distribution fees.
Our balance sheet at 31 December 2015 reflected a provision
with respect to matters described in this item 6 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.
7. 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 2.4 billion, including interest and penalties, which is
net of liabilities retained by BTG. The claims pertain principally to
several 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 amortiza-
tion in connection with UBS’s 2006 acquisition of Pactual and
payments made to Pactual employees through various profit-shar-
ing plans. These assessments are being challenged in administra-
tive and judicial proceedings. In May 2015, the administrative
court issued a decision that was largely in favor of the tax author-
ity with respect to the goodwill amortization assessment. This
decision has been appealed.
8. Matters relating to the CDS market
In 2013, the EC issued a Statement of Objections against 13 credit
default swap (CDS) dealers including UBS, as well as data service
provider Markit and the International Swaps and Derivatives Asso-
ciation (ISDA). The Statement of Objections broadly alleges that
the dealers infringed European Union antitrust rules by colluding
to prevent exchanges from entering the credit derivatives market
between 2006 and 2009. In December 2015, the EC issued a
statement that it had decided to close its investigation against all
13 dealers, including UBS. The EC’s investigation regarding Markit
and ISDA is ongoing. Since mid-2009, the Antitrust Division of the
DOJ has also been investigating whether multiple dealers, includ-
ing UBS, conspired with each other and with Markit to restrain
competition in the markets for CDS trading, clearing and other
services. In 2014, putative class action plaintiffs filed consolidated
amended complaints in the SDNY against 12 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 pro-
tect the dealers’ profits from trading CDS in the over-the-counter
market. In September 2015, UBS and the other defendants
entered into settlement agreements to resolve the litigation, pur-
suant to which UBS has paid USD 75 million out of a total settle-
ment amount paid by all defendants of approximately USD 1.865
billion. The agreements have received preliminary court approval
but are subject to final court approval.
647
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 23 Other liabilities
CHF million
Prime brokerage payables1
Amounts due under unit-linked investment contracts
Compensation-related liabilities
of which: accrued expenses
of which: other deferred compensation plans
of which: net defined benefit pension and post-employment liabilities2
Third-party interest in consolidated investment funds
Settlement and clearing accounts
Current and deferred tax liabilities3
VAT and other tax payables
Deferred income
Accrued interest expenses
Other accrued expenses
Liabilities of disposal group held for sale4
Other
Total other liabilities
31.12.15
31.12.14
45,306
15,718
5,122
2,827
1,559
736
594
893
810
446
210
1,438
2,492
235
1,343
74,606
38,633
17,643
5,414
2,583
1,457
1,374
707
1,054
642
420
259
1,327
2,472
0
1,820
70,392
1 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading across multiple asset classes. Prime brokerage payables are mainly comprised of
client securities financing and deposits. 2 Refer to Note 28 for more information. 3 Refer to Note 8 for more information. 4 Refer to Note 32 for more information.
648
Additional information
Note 24 Fair value measurement
This Note provides fair value measurement information for both
financial 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 mar-
ket) 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 mar-
ket 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, credit and funding risks, which
are not explicitly captured within the valuation technique, but
which would nevertheless be considered by market participants
when establishing a price. The limitations inherent in a particular
valuation technique are considered in the determination of an
asset or liability’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 account.
However, if certain conditions are met, UBS may estimate the fair
value of a portfolio of financial assets and liabilities with substan-
tially 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
649
Consolidated financial statements Consolidated financial statements
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. 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.
The fair value estimates provided by the businesses are vali-
dated by risk and finance control functions, which are indepen-
dent of the business divisions. Independent price verification is
performed by finance through benchmarking the business divi-
sions’ fair value estimates with observable market prices and
other independent sources. Controls and governance are in place
to ensure the quality of third-party pricing sources where used.
For instruments where valuation models are used to determine
fair value, independent valuation and model control groups within
finance and risk evaluate UBS AG’s models on a regular basis,
including valuation and model input parameters as well as pric-
ing. 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 calculation
are generated using industry standard yield curve modeling tech-
niques and models.
Relative value models measure fair value based on the market
prices of equivalent or comparable assets or liabilities, making
adjustments for differences between the characteristics of the
observed 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. In such cases, the inputs selected are based on
historical experience and practice for similar or analogous instru-
ments, derivation of input levels based on similar products with
observable price levels and knowledge of current market condi-
tions and valuation 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.
650
Note 24 Fair value measurement (continued)
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 correlation. Refer to Notes 24e and 24h for more informa-
tion. The discount curves used by UBS AG incorporate the fund-
ing and credit characteristics of the instruments to which they
are applied.
d) Valuation adjustments
The output of a valuation technique is always an estimate of a fair
value that cannot be measured with complete certainty. As a
result, valuations are adjusted, where appropriate and when such
factors would be considered by market participants in estimating
fair value, to reflect close-out costs, credit exposure, model-driven
valuation uncertainty, funding costs and benefits, trading restric-
tions and other factors. Valuation adjustments are an important
component of fair value for assets and liabilities that are mea-
sured using valuation techniques. Such adjustments are applied to
reflect uncertainties within the fair value measurement process, to
adjust for an identified model simplification or to incorporate an
aspect of fair value that requires an overall 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 where
any such difference is deferred and not initially recognized in the
income statement. These day-1 profit or loss reserves are reflected,
where appropriate, as valuation adjustments.
The table below summarizes 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 trad-
ing income when pricing of equivalent products or the underly-
ing parameters become observable or when the transaction 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
31.12.15
31.12.14
31.12.13
480
268
(321)
(6)
421
486
344
(384)
35
480
474
694
(653)
(29)
486
651
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
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 in the
valuation of our fair value option liabilities where this component
is considered relevant for valuation purposes by our counterpar-
ties and other market participants. On the other hand, own credit
risk is not reflected in the valuation of our liabilities that are fully
collateralized or for other obligations for which it is established
market practice not to include an own credit component.
In 2015, UBS AG made enhancements to the valuation method-
ology for the own credit component of fair value of financial liabil-
ities designated at fair value. Prior to the fourth quarter of 2015,
own credit was estimated using a funds transfer pricing curve (FTP),
which was derived by discounting UBS Group AG (consolidated)
new issuance senior debt curve spreads, with the discount primarily
reflecting the differences between the spreads in the senior unse-
cured debt market for UBS Group AG (consolidated) debt and the
levels at which UBS Group AG (consolidated) medium-term notes
(MTN) were issued. A decline in long-dated UBS Group AG (con-
solidated) MTN issuance volumes, following UBS Group AG’s (con-
solidated) business transformation, resulted in a reduction in the
observable market data available to benchmark the FTP. From the
fourth quarter of 2015 onwards, own credit is estimated using an
own credit adjustment curve (OCA), which incorporates more
observable market data, including market-observed secondary
prices for UBS Group AG (consolidated) senior debt, UBS Group AG
(consolidated) credit default swap (CDS) spreads and senior debt
curves of peers. This change in accounting estimate was finalized in
the fourth quarter of 2015, following a multi-period implementa-
tion project to develop an enhanced fair value approach supported
by related infrastructure enhancements. The change was imple-
mented on a prospective basis in the fourth quarter of 2015 and
resulted in a gain of CHF 260 million on a total carrying amount of
CHF 63 billion in financial liabilities designated at fair value.
OCA is generally a Level 2 pricing input. However, certain long-
dated exposures that are beyond 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) are summarized in the table below.
Life-to-date amounts reflect the cumulative change since initial
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 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)
As of or for the year ended
31.12.15
31.12.14
31.12.13
553
287
292
(302)
(283)
(577)
652
Note 24 Fair value measurement (continued)
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. A 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 OCA using the
CVA framework.
In the fourth quarter of 2015, as mentioned above, UBS AG
replaced the FTP curve with the OCA curve for purposes of valu-
ing its liabilities carried at fair value. As applied to the FVA associ-
ated with uncollateralized and partially collateralized derivative
payables, the change resulted in a charge to the income state-
ment of CHF 40 million.
An FVA is also applied to collateralized derivative assets in
cases where the collateral cannot be sold or repledged.
Valuation adjustments on financial instruments
Life-to-date gain / (loss), CHF billion
Credit valuation adjustments1
Funding valuation adjustments
Debit valuation adjustments
Other valuation adjustments
of which: liquidity
of which: model uncertainty
1 Amounts do not include reserves against defaulted counterparties.
Debit valuation adjustments
A debit valuation adjustment (DVA) is estimated to incorporate
own credit in the valuation of derivatives, effectively consistent
with the CVA framework. DVA is determined for each counter-
party, 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 in the second half of 2014, UBS AG
reversed DVA to the extent it overlapped with FVA.
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
liquidity valuation adjustment is then made to the overall net long
or short exposure to move the fair value to bid or offer as appro-
priate, 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 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, UBS AG considers a
range of market practices, including how it believes market par-
ticipants would assess these uncertainties. Model reserves are
reassessed periodically in light of data from market transactions,
consensus pricing services and other relevant sources.
As of
31.12.15
31.12.14
(0.3)
(0.2)
0.0
(0.8)
(0.5)
(0.3)
(0.5)
(0.1)
0.0
(0.9)
(0.5)
(0.4)
653
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
e) Fair value measurements and classification within the fair value hierarchy
The fair value hierarchy classification of financial and non-finan-
cial assets and liabilities measured at fair value is summarized in
the table below. The narrative that follows describes the signifi-
cant 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 techniques1
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.15
31.12.14
Assets measured at fair value on a recurring basis
Financial assets held for trading2
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 assets3
Total assets measured at fair value
654
96.4
12.9
0.2
0.0
6.1
0.0
62.4
14.8
0.5
0.0
0.0
0.3
0.0
0.0
0.2
0.0
0.0
0.2
34.2
31.1
3.0
0.0
0.0
0.1
3.7
120.4
101.7
21.9
3.3
8.1
1.8
5.7
1.0
1.5
0.7
164.0
74.4
5.4
64.9
15.9
3.4
2.3
2.3
0.0
0.0
27.7
2.0
22.2
0.1
3.4
0.0
2.1
0.0
0.7
0.8
0.2
0.2
0.1
0.1
2.9
0.1
1.3
0.5
1.0
0.0
3.3
1.7
1.5
0.1
0.7
0.0
0.0
0.1
0.0
0.5
16.2
9.0
2.6
11.9
1.2
64.0
15.5
167.4
74.5
6.7
65.7
16.9
3.4
5.8
4.0
1.6
0.3
62.5
33.1
25.2
0.2
3.4
0.6
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
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
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
0.0
0.0
3.7
0.3
135.2
0.1
216.0
0.1
9.0
0.4
360.3
0.0
141.4
0.1
303.5
0.2
12.2
0.2
457.1
Note 24 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques1 (continued)
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.15
31.12.14
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
Liabilities measured at fair value on a non-recurring basis
Other liabilities3
Total liabilities measured at fair value
25.5
6.0
0.0
0.7
0.0
18.8
0.6
0.0
0.0
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.5
0.8
2.4
0.1
0.0
0.2
158.5
67.2
5.4
63.0
19.7
3.2
52.3
1.5
45.7
4.7
0.3
0.1
15.7
0.2
0.0
0.1
0.0
0.0
0.0
3.3
0.3
1.3
0.2
1.4
0.0
10.7
2.6
6.7
0.8
0.6
0.0
0.0
29.1
6.8
2.5
0.7
0.0
19.1
162.4
67.6
6.7
63.5
21.2
3.2
63.0
4.1
52.4
5.5
0.8
0.1
15.7
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
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
17.6
0.0
26.1
0.2
230.3
0.0
14.1
0.2
270.5
0.0
25.0
0.0
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
0.0
17.0
28.0
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
17.6
0.0
375.0
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 2015, net bifurcated embedded derivative liabilities held at
fair value, totaling CHF 0.1 billion (of which CHF 0.1 billion were net Level 2 assets and CHF 0.2 billion net Level 2 liabilities) were recognized on the balance sheet within Debt issued. 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. 2 Financial assets held for trading do not include precious metals and other physical commodities. 3 Other assets and other liabilities primarily consist of assets held for sale as well as assets and liabili-
ties of a disposal group held for sale, which are measured at the lower of their net carrying amount or fair value less costs to sell. Refer to Note 32 for more information on the disposal group held for sale.
655
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
Financial assets and liabilities held for trading, financial assets
designated at fair value and financial investments classified as
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 remaining positions are classified as Level 2.
Instruments that cannot be priced directly using active market
data are valued using discounted cash flow valuation techniques
that incorporate market data for similar government 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 future index levels for
floating or inflation index-linked instruments. Instruments classi-
fied as Level 3 are limited and are generally classified 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
issued 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
because, although market data is readily available, there is often
insufficient 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 and also cannot be referenced to
other securities issued by the same issuer. Therefore, these instru-
ments 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 directly
using market prices that reflect recent transactions or quoted
dealer prices where available. For illiquid loans where no market
price data are available, alternative valuation techniques are used,
which include relative value benchmarking using pricing derived
from debt instruments in comparable entities or different prod-
ucts in the same entity. The corporate lending portfolio is valued
using either directly observed market prices typically from consen-
sus providers, or by using a credit default swap valuation tech-
nique, which requires inputs for credit spreads, credit recovery
rates and interest rates. Even though price data are generally
available for these instruments, corporate loans typically do not
satisfy Level 1 classification criteria insofar as the price data may
not be directly observable, and moreover the market for these
instruments is not actively traded. Instruments 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 insufficient trading depth are classi-
fied as Level 3. Recently originated commercial real estate loans
that are classified as Level 3 are measured using a securitization
approach based on rating agency guidelines.
Included within loans are various contingent lending transac-
tions 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 estimations
for large homogeneous pools, and contingencies are derived from
a range relative to the actuarially expected amount. In addition,
the pricing technique uses volatility of mortality as an input.
656
Note 24 Fair value measurement (continued)
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
asset 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.
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 valu-
ation 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 lev-
els 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 derived from proprietary models, fundamental
analysis and / or market research based on management’s quan-
titative and qualitative assessment of current and future eco-
nomic conditions. The expected 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 securitization. Expected cash flow
schedules are discounted using a rate or discount margin that
reflects the discount levels required by the market for instru-
ments with similar risk and liquidity profiles. Inputs to discounted
expected cash flow techniques include asset prepayment rates,
discount margin or discount yields, asset default 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 appreciation, foreclo-
sure costs, rental income levels, void periods and employment
rates. RMBS, CMBS and ABS are generally classified as Level 2.
However, if significant inputs are unobservable, or if market or
fundamental data are 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
account any restrictions imposed upon the redemption. These
units are classified as Level 2, except for positions where pub-
lished NAV is not available or which are not redeemable at the
measurement date or in the near future, in which case they are
classified as Level 3.
Unlisted equity holdings, including private equity positions, are
initially marked at their transaction price and are revalued to the
extent reliable evidence of price movements becomes available or
the position is deemed to be impaired.
Financial assets underlying unit-linked investment contracts
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 (reverse) repurchase agreements
Structured (reverse) repurchase agreements designated at fair
value are measured using discounted expected cash flow tech-
niques. The discount rate applied 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 market. As a result, these positions are
mostly classified as Level 3.
657
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
Replacement values
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 derived
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-
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
interest 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
parameter 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
portfolio of both standard options as well as more exotic prod-
ucts. In most cases, there are active and observable markets for
the standard market instruments that form the inputs for yield
curve models as well as the financial instruments from which vola-
tility 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
correlation input levels cannot be implied from observable market
data are classified as Level 3. These options are valued using vola-
tility 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
parameter. 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.
658
Note 24 Fair value measurement (continued)
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
expected cash flows that are then discounted using market stan-
dard 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 ref-
erenced in the credit derivative, adjusted for any funding differ-
ences between 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 defini-
tions and recovery rate assumptions. Inputs to the valuation mod-
els used to value single-name and loan CDS include single-name
credit spreads and upfront pricing points, recovery rates and fund-
ing 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 are available. Where the underlying reference name
is not actively 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
future 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 products
and FTD are valued using industry standard models that, in addi-
tion to default and recovery assumptions as above, incorporate
implied correlations to be applied to the credits within the portfo-
lio in order to apportion the expected credit loss at a portfolio level
across the different tranches or names within the overall structure.
These correlation assumptions are derived from prices of actively
traded index tranches or other FTD baskets. Inputs 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 portfolio of credit names are clas-
sified as Level 2 when credit spreads and recovery rates are deter-
mined from actively traded observable market data, and when the
correlation data used to value bespoke and index tranches are
based on actively traded index tranche instruments. These correla-
tion data undergo a mapping process that takes into account both
the relative tranche attachment / detachment 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 classified 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 posi-
tions, referred to as off-the-run indices, due to the lack of any
active market for the index credit spread.
Credit derivative contracts on securitized products have an
underlying 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
reflect the funding differences between cash and synthetic form.
Inputs to the PAYG CDS and TRS are those used to value the
underlying 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.
659
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
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,
options 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 con-
sideration of interest rate and FX rate interdependency. Inputs to
the option valuation models include spot FX rates, FX forward
points, FX volatilities, interest rate yield curves, interest rate vola-
tilities 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
option 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
equity 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 fund-
ing rate for that portion of the portfolio. As inputs are derived
mostly from standard market contracts traded in active and
observable markets, a significant proportion of equity forward
contracts are classified 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 bas-
ket stock or index call and put options as well as equity option
contracts with more complex features including option contracts
with multiple or continuous exercise dates, option contracts 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 option contracts
with a payoff calculated directly upon equity features other than
price (i.e., dividend rates, volatility or correlation). 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 cor-
relation between stocks within a basket. The probability-weighted
expected option payoff generated is then discounted using mar-
ket standard discounted cash flow models using a rate that
reflects the appropriate funding rate for that portion of the port-
folio. Positions for which inputs are derived from standard mar-
ket contracts traded in active and observable markets are classi-
fied as Level 2. Level 3 positions are those for which volatility,
forward or correlation inputs are not observable and are there-
fore valued using extrapolation of available data, historical divi-
dend, correlation or volatility data, or the equivalent data for a
related equity.
Commodity derivative contracts
Commodity derivative contracts include forward, swap and option
contracts on individual commodities and on commodity indices.
Commodity forward and swap contracts are measured using mar-
ket standard models that use market forward levels on standard
instruments. Commodity option contracts are measured using
market standard option models that estimate the commodity for-
ward level as described above for commodity forward and swap
contracts, incorporating inputs for the volatility of the underlying
index or commodity. The option model produces a probability-
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 port-
folio. 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 are available.
660
Note 24 Fair value measurement (continued)
Financial liabilities designated at fair value
Structured and OTC debt instruments issued
Structured debt instruments issued are comprised of medium-
term notes (MTNs), which are held at fair value under the fair
value option. These MTNs 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
MTNs are closely aligned to the equivalent derivatives business
and the underlying risk, and the valuation techniques used for this
component are the same as the relevant valuation techniques
described above. For example, equity-linked notes should be ref-
erenced to equity / index contracts and credit-linked notes should
be referenced to credit derivative contacts.
Other liabilities – amounts due under unit-linked
investment contracts
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 refer-
ence 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 liabilities themselves are not actively traded, but are
mainly referenced to instruments that are and are therefore clas-
sified as Level 2.
f) Transfers between Level 1 and Level 2 in the fair value hierarchy
The amounts provided below reflect transfers between Level 1
and Level 2 for instruments that were held for the entire reporting
period.
Assets totaling approximately CHF 0.6 billion, which were
mainly comprised of financial investments classified as available-
for-sale, primarily corporate and municipal bonds, and financial
assets held for trading, were transferred from Level 2 to Level 1
during 2015, generally due to increased levels of trading activity
observed within the market. Transfers of financial liabilities from
Level 2 to Level 1 during 2015 were not significant.
Assets totaling approximately CHF 0.8 billion, which were
mainly comprised of financial assets held for trading, primarily
equity instruments and government bills / bonds, and financial
investments classified as available-for-sale, mainly corporate and
municipal bonds, were transferred from Level 1 to Level 2 during
2015, generally due to diminished levels of trading activity
observed within the market. Transfers of financial liabilities from
Level 1 to Level 2 during 2015 were not significant.
661
Consolidated financial statements Consolidated financial statements
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
recurring 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
included in the table may not include the effect of related hedg-
ing activity. Further, the realized and unrealized gains and losses
presented within the table are not limited solely to those arising
from Level 3 inputs, as valuations are generally derived from both
observable and unobservable parameters.
Assets and liabilities transferred into or out of Level 3 are pre-
sented as if those assets or liabilities had been transferred at the
beginning of the year.
As of 31 December 2015, financial instruments measured with
valuation techniques using significant non-market-observable
inputs (Level 3) were mainly comprised of:
– loans (including structured loans);
– structured reverse repurchase and securities borrowing agree-
ments;
Financial assets held for trading
Financial assets held for trading decreased to CHF 2.1 billion from
CHF 3.5 billion during the year. Issuances of CHF 5.4 billion and
purchases of CHF 0.7 billion, mainly comprised of loans and cor-
porate bonds, respectively, were more than offset by sales of CHF
7.6 billion, also primarily comprised of loans and corporate bonds.
Transfers into Level 3 during the year amounted to CHF 0.9 billion
and were mainly comprised of equity instruments and investment
fund units due to decreased observability of the respective equity
volatility inputs. Transfers out of Level 3 amounted to CHF 0.5 bil-
lion and were primarily comprised of loans, reflecting increased
observability of the respective credit spread inputs.
Financial assets designated at fair value
Financial assets designated at fair value decreased to CHF 3.3 bil-
lion from CHF 3.5 billion during the year, mainly reflecting settle-
ments of CHF 1.3 billion, partly offset by issuances of CHF 0.8
billion. Transfers into and out of Level 3 amounted to CHF 0.8
billion and CHF 0.4 billion, respectively.
– credit derivative contracts;
– equity / index contracts;
– non-structured fixed-rate bonds and
– structured debt instruments issued (equity and credit-linked).
Financial investments classified as available-for-sale
Financial investments classified as available-for-sale increased to
CHF 0.7 billion from CHF 0.6 billion during the year, primarily due
to purchases totaling CHF 0.1 billion.
Significant movements in Level 3 instruments during the year
ended 31 December 2015 were as follows.
662
Note 24 Fair value measurement (continued)
Positive replacement values
Positive replacement values decreased to CHF 2.9 billion from
CHF 4.4 billion during the year, primarily due to settlements of
CHF 2.9 billion, primarily related to credit derivative contracts and
equity / index contracts, partly offset by issuances totaling CHF 1.7
billion, also primarily related to credit derivative contracts and
equity / index contracts. Transfers into Level 3, totaling CHF 0.7
billion, were mainly comprised of interest rate contracts and
equity / index contracts and primarily resulted from changes in the
correlation between the portfolios held and the representative
market portfolio used to independently verify market data. Trans-
fers out of Level 3, totaling CHF 0.5 billion, were mainly com-
prised of equity / index contracts and also primarily related to
changes in the correlation between the portfolio held and the
representative market portfolio used to independently verify mar-
ket data.
Negative replacement values
Negative replacement values decreased to CHF 3.3 billion from
CHF 5.0 billion during the year. Settlements and issuances
amounted to CHF 2.2 billion and CHF 1.0 billion, respectively, and
were primarily comprised of equity / index contracts. Transfers into
and out of Level 3 both amounted to CHF 0.5 billion, and primar-
ily related to changes in the availability of the respective observ-
able equity volatility and credit spread inputs.
Financial liabilities designated at fair value
Financial liabilities designated at fair value decreased to CHF 10.7
billion from CHF 11.9 billion during the year. Issuances of CHF 6.1
billion, primarily comprised of structured debt instruments issued
and structured over-the-counter debt instruments, were more
than offset by settlements of CHF 6.7 billion, also primarily com-
prised of structured debt instruments issued and structured over-
the-counter debt instruments. Transfers into Level 3, totaling CHF
1.3 billion, were primarily comprised of equity and credit-linked
structured debt instruments issued, and mainly related to a reduc-
tion in the observable equity volatility inputs and from changes in
the respective credit spreads used to determine the fair value of
the embedded options in these structures. Transfers out of Level 3,
totaling CHF 2.2 billion, were also mainly comprised of equity-
and credit-linked structured debt instruments issued, and mainly
related to changes in the observable equity volatility inputs and
from changes in the respective credit spreads used to determine
the fair value of the embedded options in these structures.
663
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
Total gains / losses included in
comprehensive income
of which:
related to
Level 3 in-
struments
held at the
end of the
reporting
period
Net interest
income,
net trading
income
and other
income
Balance
as of
31 Decem-
ber 2013
Other com-
prehensive
income
CHF billion
Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
trans-
lation
income
Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
Balance
as of
trans-
lation
31 Decem-
ber 20151
Total gains / losses included in
comprehensive income
Net interest
income,
Balance
net trading
of which
related to
Level 3 in-
struments
held at the
as of
income
end of the re-
31 Decem-
ber 2014
and other
income
porting
period
Other com-
prehensive
Financial assets held for trading
4.3
(1.6)
(0.9)
1.4
(6.5)
5.2
0.0
1.0
(0.5)
0.1
3.5
(0.2)
(0.4)
0.7
(7.6)
5.4
0.0
0.9
(0.5)
(0.1)
2.1
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
Negative replacement values
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
1.7
1.0
1.0
0.6
4.4
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)
(0.1)
(0.8)
0.0
0.0
(0.8)
(0.3)
(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
0.4
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
0.3
0.4
(0.1)
0.7
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
0.0
(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
0.0
0.0
0.0
0.0
0.0
5.2
0.0
0.0
1.3
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
7.4
1.9
3.7
1.4
0.5
0.0
0.0
0.0
0.0
0.2
0.2
0.5
0.1
(0.2)
(0.1)
(0.3)
0.0
(1.2)
0.0
(0.3)
(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
0.1
0.1
0.0
0.0
0.2
0.0
0.1
0.0
(0.3)
0.0
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)
(7.4)
2.0
(3.2)
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
1 Total Level 3 assets as of 31 December 2015 were CHF 9.0 billion (31 December 2014: CHF 12.2 billion). Total Level 3 liabilities as of 31 December 2015 were CHF 14.1 billion (31 December 2014: CHF 17.0 billion).
664
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
11.9
2.2
7.3
1.5
0.9
0.0
(0.1)
0.0
(0.1)
0.0
(0.1)
0.1
0.0
0.0
(0.4)
(0.1)
(0.1)
0.0
(0.1)
(0.4)
0.3
0.0
(0.4)
(0.2)
0.6
(0.1)
0.5
0.2
0.0
0.0
(0.3)
0.0
(0.1)
0.0
(0.1)
0.1
0.0
0.0
(0.1)
0.2
0.0
(0.3)
(0.1)
0.0
0.6
(0.1)
(0.5)
(0.1)
0.0
0.0
0.1
(0.1)
0.0
0.5
0.1
0.1
0.1
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
0.0
(1.0)
(5.5)
(0.6)
(0.5)
0.0
0.0
0.0
0.0
(0.1)
(0.1)
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
5.4
0.0
0.0
0.8
0.7
0.1
0.0
0.0
1.7
0.9
0.1
0.7
0.0
1.0
0.0
0.0
0.9
0.1
6.1
1.1
3.8
1.2
0.0
0.0
0.0
0.0
0.0
(1.3)
(0.2)
(1.0)
0.0
0.0
(2.9)
(1.1)
(0.1)
(1.4)
(0.3)
(2.2)
(0.9)
(0.1)
(1.2)
0.0
(6.7)
(0.2)
(4.2)
(2.0)
(0.3)
0.1
0.2
0.2
0.4
0.8
0.8
0.0
0.0
0.0
0.7
0.1
0.0
0.2
0.4
0.5
0.3
0.0
0.1
0.1
1.3
0.1
1.3
0.0
0.0
(0.4)
(0.1)
(0.1)
(0.3)
(0.1)
0.0
(0.4)
0.0
0.0
0.0
(0.5)
(0.1)
0.0
(0.3)
(0.1)
(0.1)
0.0
(0.4)
0.0
(0.4)
(1.9)
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
(0.1)
0.0
0.0
(0.1)
(0.1)
0.0
0.0
0.0
0.0
0.0
(0.1)
(0.1)
0.0
(0.2)
(0.1)
0.0
(0.5)
(0.1)
(2.2)
(0.3)
10.7
0.7
0.8
0.2
0.4
3.3
1.7
1.5
0.1
0.7
2.9
1.3
0.5
1.0
0.1
3.3
1.3
0.2
1.4
0.3
2.6
6.7
0.8
0.6
(0.8)
(0.3)
(1.2)
0.0
(0.3)
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
Total gains / losses included in
comprehensive income
of which:
related to
Net interest
Level 3 in-
income,
struments
Balance
net trading
held at the
as of
income
end of the
Other com-
and other
reporting
prehensive
31 Decem-
ber 2013
CHF billion
income
period
income
Purchases
Sales
Issuances
Settlements
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
Positive replacement values
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
Negative replacement values
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
1.7
1.0
1.0
0.6
4.4
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
0.4
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
0.3
0.4
(0.1)
0.7
0.0
(0.2)
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
0.0
(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
0.0
5.2
0.0
0.0
1.3
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
7.4
1.9
3.7
1.4
0.5
Transfers
Transfers
into
Level 3
out of
Level 3
Foreign
currency
trans-
lation
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
0.2
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
(7.4)
2.0
(3.2)
0.5
1 Total Level 3 assets as of 31 December 2015 were CHF 9.0 billion (31 December 2014: CHF 12.2 billion). Total Level 3 liabilities as of 31 December 2015 were CHF 14.1 billion (31 December 2014: CHF 17.0 billion).
Financial assets held for trading
4.3
(1.6)
(0.9)
1.4
(6.5)
5.2
0.0
1.0
(0.5)
0.1
3.5
(0.2)
(0.4)
0.7
(7.6)
5.4
0.0
0.9
(0.5)
(0.1)
2.1
Total gains / losses included in
comprehensive income
of which
related to
Level 3 in-
struments
held at the
end of the re-
porting
period
Net interest
income,
net trading
income
and other
income
Balance
as of
31 Decem-
ber 2014
Other com-
prehensive
income
Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
trans-
lation
Balance
as of
31 Decem-
ber 20151
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
11.9
2.2
7.3
1.5
0.9
0.0
(0.1)
0.0
(0.1)
0.0
(0.1)
0.1
0.0
0.0
(0.4)
(0.1)
(0.1)
0.0
(0.1)
(0.4)
0.3
0.0
(0.4)
(0.2)
0.6
(0.1)
0.5
0.2
0.0
0.0
(0.3)
0.0
(0.1)
0.0
(0.1)
0.1
0.0
0.0
(0.1)
0.2
0.0
(0.3)
(0.1)
0.0
0.6
(0.1)
(0.5)
(0.1)
0.0
0.0
0.1
(0.1)
0.0
0.5
0.1
0.1
0.1
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
0.0
(1.0)
(5.5)
(0.6)
(0.5)
0.0
0.0
0.0
0.0
(0.1)
(0.1)
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
5.4
0.0
0.0
0.8
0.7
0.1
0.0
0.0
1.7
0.9
0.1
0.7
0.0
1.0
0.0
0.0
0.9
0.1
6.1
1.1
3.8
1.2
0.0
0.0
0.0
0.0
0.0
(1.3)
(0.2)
(1.0)
0.0
0.0
(2.9)
(1.1)
(0.1)
(1.4)
(0.3)
(2.2)
(0.9)
(0.1)
(1.2)
0.0
(6.7)
(0.2)
(4.2)
(2.0)
(0.3)
0.1
0.2
0.2
0.4
0.8
0.8
0.0
0.0
0.0
0.7
0.1
0.0
0.2
0.4
0.5
0.3
0.0
0.1
0.1
1.3
0.1
1.3
0.0
0.0
(0.1)
(0.3)
(0.1)
0.0
(0.1)
0.0
0.0
0.0
(0.4)
(0.1)
(0.4)
0.0
0.0
0.0
(0.5)
(0.1)
0.0
(0.3)
(0.1)
0.0
(0.1)
0.0
0.0
(0.1)
(0.1)
0.0
0.0
0.0
(0.5)
(0.1)
(0.1)
0.0
(0.4)
0.0
0.0
0.0
(0.1)
(0.1)
0.7
0.8
0.2
0.4
3.3
1.7
1.5
0.1
0.7
2.9
1.3
0.5
1.0
0.1
3.3
1.3
0.2
1.4
0.3
(2.2)
(0.3)
10.7
(0.4)
(1.9)
0.0
0.0
0.0
(0.2)
(0.1)
0.0
2.6
6.7
0.8
0.6
665
Consolidated financial statements Consolidated financial statements
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 the assets and liabilities
recognized at fair value and classified as Level 3, together with the
valuation techniques used to measure fair value, the significant
inputs used in the valuation technique that are considered unob-
servable and a range of values for those unobservable 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 charac-
teristics of the instruments held at each balance sheetdate. Fur-
ther, the ranges of unobservable inputs may differ across other
financial institutions due to the diversity of the products in each
firm’s inventory.
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
inputs 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
31.12.15 31.12.14
31.12.15 31.12.14
Valuation technique(s)
Fair value
Assets
Liabilities
Significant
unobservable input(s)1
Range of inputs
31.12.15
31.12.14
low
high
low
high
unit1
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 municipal
bonds, including bonds issued
by financial institutions
Traded loans, loans designated
at fair value, loan commitments
and guarantees
Investment fund units3
Asset-backed securities
Equity instruments3
Structured (reverse) repurchase
agreements
Financial assets for unit-linked
investment contracts3
Structured debt instruments and
non-structured fixed-rate bonds4
666
0.7
2.6
0.3
0.2
0.6
1.5
0.1
1.4
2.2
0.5
0.6
0.5
2.4
0.1
0.1
0.0
0.0
0.0
0.0
0.6
0.1
0.0
0.0
0.0
0.0
0.9
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
10.1
11.0
Bond price equivalent
0
134
8
144 points
Loan price equivalent
Credit spread
Discount margin / spread
Volatility of mortality2
Net asset value
Constant prepayment rate
Discount margin / spread
Bond price equivalent
Price
65
30
1
0
0
1
100
252
14
18
12
92
270
280
80
37
0
0
0
0
101 points
basis
points
%
%
%
%
138
13
18
22
102 points
Funding spread
18
183
10
163
basis
points
Price
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
31.12.15 31.12.14
31.12.15 31.12.14
Valuation technique(s)
Fair value
Assets
Liabilities
Significant
unobservable input(s)1
Range of inputs
31.12.15
31.12.14
low
high
low
high
unit1
Replacement values
Interest rate contracts
0.1
0.2
0.3
0.6 Option model
Volatility of interest rates
Credit derivative contracts
1.3
1.7
1.3
1.7
Discounted expected
cash flows
Discounted expected cash
flow based on modeled
defaults and recoveries
Discounted cash flow
projection on underlying
bond
Foreign exchange contracts
0.5
0.6
0.2
0.3 Option model
Equity / index contracts
1.0
1.9
1.4
2.4 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
Rate-to-FX correlation
FX-to-FX correlation
Constant prepayment
rate2
Equity dividend yields
Volatility of equity stocks,
equity and other indices
Equity-to-FX correlation
Equity-to-equity correlation
16
84
36
0
1
8
0
10
1
57
0
0
0
1
0
(57)
(70)
0
0
(44)
3
130
94
94
3
1,163
25
95
85
72
94
15
9
100
15
104
60
80
57
143
82
99
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
%
%
%
%
basis
points
963
83
95
85
32
94
16
9
100
33
%
%
%
%
%
%
%
%
%
100
points
60
80
13
15
130
84
99
%
%
%
%
%
%
%
Non-financial assets3, 5
0.1
0.2
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
particular property’s
condition
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 dis-
closed as of 31 December 2015 because this unobservable input parameter was not significant to the respective valuation technique as of that date. 3 The range of inputs is not disclosed due to the dispersion of pos-
sible values given the diverse nature of the investments. 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 other assets which primarily consist of assets held for sale.
667
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
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 0–134 points
represents the range of prices from reference issuances used in
determining 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 issu-
ances that pay a coupon in excess of the market benchmark as of
the measurement date. The weighted average price is approxi-
mately 94 points, with a majority of positions concentrated
around this price.
For asset-backed securities, the bond price range of 1–92
points represents the range of prices for reference securities used
in determining fair value. An instrument priced at 0 is not expected
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. The weighted average price for Level 3
assets within this portion of the Level 3 portfolio is 72 points.
For credit derivatives, the bond price range of 0–104 points
represents the range of prices used for reference instruments 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
selecting comparable instruments include industry segment, col-
lateral quality, maturity and issuer-specific covenants. Fair value
may be measured either by a direct price comparison or by con-
version of an instrument price into a yield. The range of 65–100
points represents the range of prices derived from reference issu-
ances of a similar credit quality used in measuring fair value for
loans classified 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. The weighted
average is approximately 93 points.
Credit spread: Valuation models for many credit derivatives require
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 Treasury
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 deriva-
tive products. The income statement impact from 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 creditworthiness. The
ranges of 30–252 basis points in loans and 1–1163 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.
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
historical prepayment rates for repaid and existing loans with
similar characteristics and the future economic outlook, consider-
ing 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 pre-
mium 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 on instrument price is
more complicated and depends on both the precise terms of the
securitization and the position of the instrument within the secu-
ritization capital structure.
For asset-backed securities, the range of 0–18% represents
inputs across various classes of asset-backed securities. Securities
with an input of 0% typically reflect no current prepayment behav-
ior with respect to the underlying collateral, and with no expecta-
tion of this changing in the immediate future, while the high range
of 18% relates to securities that are currently experiencing high
prepayments. Different classes of asset-backed securities typically
show different ranges of prepayment characteristics depending on
a combination of factors, including the borrowers’ ability to refi-
nance, prevailing refinancing rates, and the quality or characteris-
tics of the underlying loan collateral pools. The weighted average
constant prepayment rate for the portfolio is 5.0%.
668
Note 24 Fair value measurement (continued)
For credit derivatives, the range of 0–15% represents the
input assumption for credit derivatives on asset-backed securi-
ties. The range is driven in a similar manner to that for asset-
backed securities.
For interest rate contracts, the range of 0–3% represents the
prepayment assumptions on securitizations underlying the BGS
portfolio.
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.
The range of 0–9% for credit derivatives represents the
expected default percentage across the individual instruments’
underlying 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
asset-backed securities while the recovery rate is the analogous
pricing input for corporate or sovereign credits. Recovery is the
reverse 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 on whether credit pro-
tection 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 (1–14%), asset-backed securities (0–12%) and credit
derivatives (1–72%). 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. This indicates that the market is
pricing an increased risk of credit loss into the security 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 2.7% and for loans the
average effective DM is 2.4%.
Equity dividend yields: The derivation of a forward price for an
individual stock or index is important 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 ques-
tion. Dividend yields are generally expressed as an annualized per-
centage of the 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
determining fair value for instruments that are sensitive to an
equity forward price. The range of 0–57% 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
underlying instrument. The effect of volatility on individual posi-
tions within the portfolio is driven primarily by whether the option
contract 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
reduced 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.
669
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
– Volatility of interest rates – the range of 16–130% 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 1–143% reflects the range of underlying stock volatilities.
Correlation: Correlation measures the inter-relationship between
the movements of two variables. It is expressed as a percentage
between -100% and +100%, where +100% represents perfectly
correlated variables (meaning a movement of one variable is asso-
ciated with a movement of the other variable in the same direc-
tion), and -100% implies the variables are inversely correlated
(meaning a movement of one variable is associated with a move-
ment of the other variable in the opposite direction). The effect of
correlation on the measurement of fair value depends on the spe-
cific terms of 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 36–94%.
– 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 dif-
ference between credits with low correlation and similar highly
correlated credits.
– Rate-to-FX correlation – captures the correlation between
interest 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
depends 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
options 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 exposure.
– Equity-to-FX correlation is important for equity options based on
a currency different than the currency of the underlying stock.
The range of (44)–82% represents the range of the relationship
between underlying stock and foreign exchange volatilities.
– 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 3–99%
reflects this.
Funding spread: Structured financing transactions are valued
using synthetic funding curves that best represent the assets that
are pledged as collateral for 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
impact of discounting. The range of 18–183 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 was longer
in duration than the actively traded market. Such positions are
within the range of 18–183 basis points reported above.
Upfront price points: These are a component in the price quota-
tion of credit derivative contracts, whereby the overall fair value
price level is split between the credit spread (as described above)
and a component that is quoted and settled upfront on transact-
ing a new contract. This latter component is referred to as upfront
price points and represents 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. Dis-
tressed credit names frequently 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 protection offered by CDS and other credit deriva-
tive products. The effect of increases or decreases in upfront price
points depends on the nature and direction of the positions held.
Upfront price points may be negative where a contract is quoting
for a narrower premium than the market standard, but are gener-
ally positive, reflecting an increase in credit premium required by
the market as creditworthiness deteriorates. The range of 8–25%
within the table represents the variety of current market credit
spread levels relative to the benchmarks used as a quotation basis.
Upfront points of 25% represent a distressed credit.
670
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
assumptions would change fair value significantly, and the esti-
mated effect thereof. As of 31 December 2015, the total favor-
able and unfavorable effects of changing one or more of the
unobservable inputs to reflect reasonably possible alternative
assumptions for financial instruments classified as Level 3 were
CHF 0.8 billion and CHF 0.6 billion, respectively (31 December
2014: CHF 1.0 billion and CHF 0.8 billion, respectively).
The table shown presents the favorable and unfavorable
effects for each class of financial assets and liabilities for which
the potential change in fair value is considered significant. The
sensitivity data presented represent an estimation of valuation
uncertainty based on reasonably possible alternative values for
Level 3 inputs at the balance sheet date and do not represent the
estimated effect of stress scenarios. Typically, these financial assets
and liabilities are sensitive to a combination of inputs from Levels
1–3. Although well-defined interdependencies may exist between
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
parameters discussed below are not a significant element of the
valuation uncertainty.
Sensitivity data are estimated using a number of techniques
including the estimation of price dispersion among different mar-
ket participants, variation in modeling approaches and reason-
ably possible changes to assumptions used within the fair value
measurement process. The sensitivity ranges are not always sym-
metrical around the fair values as the inputs used in valuations
are not always precisely in the middle of the favorable and unfa-
vorable range.
Sensitivity data are 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 hedge. The main interdependencies across different
Level 3 products to a single unobservable input parameter have
been included in the basis of netting exposures within the calcula-
tion. Aggregation without allowing for diversification involves 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 unfavorable
level at the same time, would result in a significant change in the
valuation. Diversification would incorporate estimated correlations
across different sensitivity results and, as such, would result in an
overall sensitivity that would be less than the sum of the individual
component sensitivities. UBS AG 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, loan commitments and guarantees
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
31.12.15
31.12.14
Favorable
changes1
0
Unfavorable
changes1
(1)
Favorable
changes1
10
Unfavorable
changes1
(1)
24
88
7
166
107
174
33
61
136
14
809
(25)
(28)
(6)
(74)
(67)
(196)
(28)
(57)
(146)
(13)
(640)
33
103
16
105
106
248
35
82
202
23
965
(41)
(63)
(12)
(42)
(58)
(277)
(32)
(83)
(199)
(17)
(824)
1 Of the total favorable changes, CHF 164 million as of 31 December 2015 (31 December 2014: CHF 116 million) related to financial investments available-for-sale. Of the total unfavorable changes, CHF 71 million as
of 31 December 2015 (31 December 2014: CHF 56 million) related to financial investments available-for-sale.
671
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 24 Fair value measurement (continued)
j) Financial instruments not measured at fair value
The table below provides the estimated fair values of financial instruments not measured at fair value.
Financial instruments not measured at fair value
CHF billion
Assets
Cash and balances with central banks
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
Carrying
value
31.12.15
Fair value
Total
Total
Level 1
Level 2
Level 3
Carrying
value
Total
31.12.14
Fair value
Total
Level 1
Level 2
Level 3
91.3
11.9
25.6
67.9
23.8
312.7
20.1
11.8
8.0
9.7
38.3
402.5
82.2
52.1
0.0
0.0
91.3
11.9
25.6
67.9
23.8
314.9
20.1
11.8
8.0
9.7
38.3
402.8
84.4
52.1
(0.1)
0.0
91.3
11.4
0.0
0.0
0.0
0.0
0.0
10.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.5
25.6
65.8
23.8
170.9
20.1
1.4
8.0
9.6
38.3
402.8
78.4
52.1
0.0
0.0
0.0
0.0
0.0
2.1
0.0
143.9
0.0
0.0
0.0
0.0
0.0
0.0
6.0
0.0
(0.1)
0.0
104.1
104.1
13.3
24.1
68.4
31.0
316.0
21.3
10.5
9.2
11.8
42.4
411.0
91.2
46.0
0.0
0.0
13.3
24.1
68.4
31.0
318.6
21.2
10.5
9.2
11.8
42.4
411.0
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
1 The carrying value of guarantees represented a liability of CHF 0.0 billion as of 31 December 2015 (31 December 2014: CHF 0.0 billion). The estimated fair value of guarantees represented an asset of CHF 0.1 billion
as of 31 December 2015 (31 December 2014: CHF 0.1 billion).
672
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. 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
instruments with similar credit risk and maturity. These esti-
mates generally include adjustments for counterparty credit
risk 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 esti-
mate of fair value. The following financial instruments not mea-
sured at fair value had remaining maturities of three months or
less as of 31 December 2015: 100% of cash and balances with
central banks, 96% of amounts due from banks, 100% of cash
collateral on securities borrowed, 87% of reverse repurchase
agreements, 100% of cash collateral receivables on derivatives,
52% of loans, 88% of amounts due to banks, 87% of cash
collateral on securities lent, 96% of repurchase agreements,
100% of cash collateral payable on derivatives, 96% of amount
due to customers and 18% of debt issued.
– The fair value estimates for repurchase and reverse repurchase
agreements with variable and fixed interest rates, for all matur-
ities, 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.
673
Consolidated financial statements Consolidated financial statements
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
that are otherwise explicitly restricted such that they cannot be
used to secure funding.
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 mort-
gage institutions and for existing covered bond issuances of
CHF 16,727 million as of 31 December 2015 (31 December 2014:
CHF 21,644 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.
UBS AG and its subsidiaries are generally not subject to signifi-
cant restrictions that would prevent the transfer of dividends and
capital between UBS AG and its subsidiaries. However, certain
regulated subsidiaries are required to maintain capital and / or
liquidity to comply with local regulations and may be subject to
prudential limitations by regulators that limit the amount of funds
that they can distribute or otherwise transfer. Non-regulated sub-
sidiaries are generally not subject to such requirements and trans-
fer restrictions. However, restrictions can also be the result of dif-
ferent legal, regulatory, contractual, entity or country-specific
arrangements and / or requirements.
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 loans1
Financial investments available-for-sale
of which: assets pledged as collateral which may be sold or repledged by counterparties
Total financial assets pledged as collateral2
Other restricted financial assets
Due from banks
Reverse repurchase agreements
Trading portfolio assets
Cash collateral receivables on derivative instruments
Financial investments available-for-sale
Other
Total other restricted financial assets
Total financial assets pledged and other restricted financial assets
31.12.15
31.12.14
57,024
51,943
24,980
24,980
632
6
82,636
3,285
1,099
24,388
7,104
502
480
36,858
119,494
61,304
56,018
27,973
27,973
2,868
2,662
92,144
3,511
1,896
25,567
6,135
1,209
679
38,997
131,142
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 4.4
billion for 31 December 2015 (31 December 2014: approximately CHF 4.5 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 2015: CHF 4.9 billion, 31 December 2014: CHF 6.1 billion).
674
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
31.12.15
31.12.14
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
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
51,943
13,406
37,097
1,440
6
51,950
13,146
13,146
0
0
6
13,152
56,018
19,366
35,557
1,095
2,662
58,680
18,289
18,147
0
142
2,584
20,873
Transactions in which 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 and securities lending
arrangements are, for the most part, conducted under standard
market agreements, and are undertaken with counterparties sub-
ject to UBS AG’s normal credit risk control processes.
➔ Refer to Note 1a items 13 and 14 for more information on
repurchase agreements and securities lending agreements
As of 31 December 2015, approximately a quarter of the trans-
ferred financial assets were trading portfolio assets transferred in
exchange for cash, in which case the associated recognized liability
represents the amount to be repaid to counterparties. For securities
lending and repurchase agreements, a haircut between 0% and
15% is generally applied to the collateral, which results in associ-
ated liabilities having a carrying value below the carrying value of
the transferred assets. The counterparties to the associated liabili-
ties presented in the table above have full recourse to UBS AG.
In securities lending arrangements entered into in exchange
for the receipt of other securities as collateral, neither the secu-
rities received nor the obligation to return them are recognized
on UBS AG’s balance sheet, as the risks and rewards of owner-
ship are not transferred to UBS AG. In cases where such finan-
cial assets received are subsequently sold or repledged in
another transaction, this is not considered to be a transfer of
financial assets.
Other financial asset transfers primarily include securities trans-
ferred to collateralize derivative transactions, for which the carry-
ing value of associated liabilities is not provided in the table above
because those replacement values are managed on a portfolio
basis across counterparties and product types, and therefore is
not a direct relationship between the specific collateral pledged
and the associated liability.
Transferred assets other than trading portfolio assets and
financial investments available-for-sale which may be sold or
repledged by counterparties were not material as of 31 December
2015 and as of 31 December 2014.
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 as of
31 December 2015 and as of 31 December 2014.
675
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 25 Restricted and transferred financial assets (continued)
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 trans-
fer agreement or in a separate agreement with the counterparty
or a third party entered into in connection with the transfer. The
table below provides information on UBS AG’s continuing involve-
ment in transferred and fully derecognized financial assets.
Transferred financial assets that are derecognized in their entirety with continuing involvement
CHF million
31.12.15
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 assets2
Gain / (loss) from continuing
involvement in transferred and
derecognized financial assets
For the year
ended 31.12.15
Life-to-date
31.12.15
Type of continuing involvement
Purchased and retained interest
in securitization structures
Trading portfolio assets/
Replacement values1
Total
CHF million
15
15
15
15
31.12.14
8
8
16
16
(1,566)
(1,566)
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 31.12.14
Life-to-date
31.12.14
Type of continuing involvement
Purchased and retained interest
in securitization structures
Total
Trading portfolio assets/
Replacement values1
(22)
(22)
(22)
(22)
22
22
13
13
(1,582)
(1,582)
1 As of 31 December 2015, total purchased and retained interest in securitization structures consisted of trading portfolio assets of CHF 37 million and negative replacement values of CHF 22 million. 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. 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 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 had
a carrying amount of zero as of 31 December 2015. As of
31 December 2015, the maximum exposure to loss related to pur-
chased and retained interests in securitization structures was CHF
55 million compared with CHF 48 million as of 31 December
2014, both mainly related to trading portfolio assets. Undis-
counted cash outflows of CHF 41 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 one month. Life-to-date losses
presented in the table above only relate to retained interests held
as of 31 December 2015.
676
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 transactions1
received in unsecured borrowings
thereof sold or repledged2
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions1
31.12.15
401,511
393,839
7,672
286,757
241,992
29,137
15,628
31.12.14
388,855
383,354
5,502
271,963
227,515
27,958
16,491
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 2015: CHF 47.3 billion, 31 December 2014: CHF 37.6 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 (OTC) and exchange-traded derivatives
(ETD). 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.
The table on the following page provides a summary of finan-
cial assets subject to offsetting, enforceable master netting
arrangements and similar agreements, as well as financial collat-
eral 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 agree-
ments are reconciled to the net amounts presented within the
associated balance sheet line, after giving effect to financial liabil-
ities with the same counterparties that have been offset on the
balance sheet and other financial assets not subject to an enforce-
able netting 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 consideration 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 UBS AG’s actual credit exposure.
677
Consolidated financial statements Consolidated financial statements
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
31.12.15
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet3
Gross assets
before netting
Netting with
gross liabilities2
Net assets
recognized
on the
balance
sheet
Assets after
consid-
eration of
netting
potential
Financial
liabilities
Collateral
received
Assets not
subject to
netting
arrangements4
Assets
recognized
on the
balance
sheet
Total assets
Total assets
after consid-
eration of
netting
potential
Total assets
recognized
on the
balance
sheet
23.9
117.9
161.9
85.9
2.4
392.1
0.0
(62.1)
(2.5)
(66.3)
23.9
55.8
159.3
(3.1)
(4.4)
(123.0)
19.6
(10.9)
0.0
(131.0)
2.4
261.1
0.0
(20.9)
(51.4)
(25.5)
(1.5)
(1.8)
(141.3)
(101.1)
31.12.14
0.0
0.0
10.8
7.2
0.6
18.7
1.6
12.1
8.1
4.1
3.4
29.3
1.6
12.1
18.9
11.3
4.0
48.0
25.6
67.9
167.4
23.8
5.8
290.5
Assets subject to netting arrangements
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet3
Gross assets
before netting
Netting with
gross liabilities2
Net assets
recognized
on the
balance
sheet
Assets after
consid-
eration of
netting
potential
Financial
liabilities
Collateral
received
Assets not
subject to
netting
arrangements4
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)
0.0
(264.2)
3.1
356.3
0.0
(222.9)
(108.9)
(20.8)
(52.8)
(30.8)
(1.6)
(3.0)
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
CHF billion
Cash collateral on securities
borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on
derivative instruments1
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 instruments1
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 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 val-
ues 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 presented have been capped by the rel-
evant 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.
678
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
financial 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
31.12.15
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet3
Liabilities not
subject to
netting
arrangements4
Gross
liabilities
before
netting
7.9
69.0
154.2
99.9
3.9
334.9
Netting with
gross assets2
0.0
(62.1)
(2.5)
(66.3)
0.0
(131.0)
Net
liabilities
recognized
on the
balance
sheet
Liabilities
after consid-
eration of
netting
potential
Liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
7.9
6.9
(3.1)
(4.4)
151.7
(123.0)
(4.8)
(2.5)
(17.4)
33.6
(19.0)
(2.5)
3.9
203.9
0.0
(149.4)
(0.7)
(28.0)
0.0
0.0
11.3
12.1
3.1
26.5
0.1
2.8
10.7
4.7
59.1
77.4
Liabilities subject to netting arrangements
31.12.14
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet3
Liabilities not
subject to
netting
arrangements4
Gross
liabilities
before
netting
8.4
51.5
243.3
Netting with
gross assets2
0.0
(42.8)
(3.1)
Net
liabilities
recognized
on the
balance
sheet
Liabilities
after consid-
eration of
netting
potential
Liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
8.4
8.7
(1.9)
(3.4)
240.2
(198.7)
(6.5)
(5.2)
(21.8)
256.1
(218.4)
37.7
(25.1)
(2.3)
3.8
563.1
0.0
(264.2)
3.8
298.8
0.0
(229.2)
(1.4)
(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
Total liabilities
Total
liabilities
after consid-
eration of
netting
potential
Total
liabilities
recognized
on the
balance
sheet
0.1
2.8
22.1
16.8
62.3
104.0
8.0
9.7
162.4
38.3
63.0
281.4
Total liabilities
Total
liabilities
after consid-
eration 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
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on
derivative instruments1
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 instruments1
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 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 val-
ues 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 presented have been capped by the rel-
evant netting agreement so as not to exceed the net amount of financial liabilities presented on 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.
679
Consolidated financial statements Consolidated financial statements
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 that arefinancial instruments as defined
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 assets1
Held for trading
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Debt issued2
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
Loans3
Other assets
Total
Available-for-sale
Financial investments available-for-sale
Total financial assets
31.12.15
31.12.14
120,405
51,943
106
167,435
287,946
132,392
56,018
283
256,978
389,653
5,808
4,493
91,306
11,866
25,584
67,893
23,763
312,723
20,139
553,275
62,543
909,572
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
29,137
236
162,430
191,803
Financial liabilities
Held for trading
Trading portfolio liabilities
Debt issued2
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
1 As of 31 December 2015, CHF 123 billion of Loans, CHF 0 billion of Due from banks, CHF 1 billion of Reverse repurchase agreements, CHF 30 billion of Financial investments available-for-sale and CHF 3 billion of
Financial assets designated at fair value are expected to be recovered or settled after 12 months. 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 12 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 bil-
lion as of 31 December 2015 (31 December 2014: CHF 1.1 billion). Refer to Notes 10 and 33 for more information.
11,836
8,029
9,653
38,282
402,522
82,230
52,065
604,617
875,133
10,492
9,180
11,818
42,372
410,979
91,183
46,013
622,036
997,343
62,995
15,718
78,713
75,297
17,643
92,940
680
Note 27 Financial assets and liabilities – additional information (continued)
b) Maturity analysis of financial liabilities
The contractual maturities for non-derivative and non-trading
financial liabilities as of 31 December 2015 are based on the ear-
liest 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 2014. 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 signifi-
cantly longer periods.
Maturity analysis of financial liabilities1
CHF billion
Financial liabilities recognized on balance sheet2
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities3, 4
Negative replacement values3
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value5
Due to customers
Debt issued
Other liabilities
Total 31.12.15
Total 31.12.14
Guarantees, commitments and forward starting transactions6
Loan commitments
Guarantees
Forward starting transactions
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.15
Total 31.12.14
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
8.1
5.7
7.9
29.1
162.4
38.3
15.2
373.3
5.7
66.7
712.5
812.3
55.7
15.9
6.6
0.0
78.1
78.3
2.4
1.3
1.4
15.9
13.4
9.9
44.3
48.4
0.2
0.0
0.2
0.1
1.1
1.0
0.2
13.1
4.8
16.3
36.4
39.4
0.2
0.0
0.2
0.2
0.3
0.1
11.9
4.1
36.6
53.0
60.9
0.0
0.1
0.1
0.2
0.0
0.2
12.0
9.7
22.7
44.6
49.8
0.0
0.0
0.0
Total
11.8
8.0
9.7
29.1
162.4
38.3
68.1
405.3
91.2
66.7
890.7
1,010.9
56.1
16.0
6.6
0.0
78.7
78.8
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 relationships. 4 Con-
tractual maturities of trading portfolio liabilities are: CHF 27.2 billion due within one month (2014: CHF 26.7 billion), CHF 1.2 billion due between one month and one year (2014: CHF 1.3 billion), and CHF 0.8 billion
due between 1 and 5 years (2014: CHF 0 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.
681
Consolidated financial statements
Consolidated financial statements
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.
reclassified financial assets, which were entirely comprised of
municipal auction rate securities, was CHF 0.2 billion (31 Decem-
ber 2014: CHF 0.7 billion), which was equal to the fair value of
these assets.
The reclassification of financial assets reflected UBS’s change in
intent and ability to hold these financial assets for the foreseeable
future rather than for trading in the near term. The financial
assets were reclassified using their fair value on the date of the
reclassification, which became their new cost basis at that date.
As of 31 December 2015, the carrying value of the remaining
The overall impact on operating profit before tax from reclas-
sifed financial assets for the year ended 31 December 2015 was a
profit of CHF 23 million (2014: CHF 84 million). If the financial
assets had not been reclassified, the impact on operating profit
before tax for the year ended 31 December 2015 would have
been a profit of less than CHF 10 million.
d) Maximum exposure to credit risk of financial assets designated at fair value
Financial assets designated at fair value totaled CHF 5,808 million
as of 31 December 2015 (31 December 2014: CHF 4,493 million).
Maximum exposure to credit risk from financial assets designated
at fair value was CHF 5.6 billion as of 31 December 2015
(31 December 2014: CHF 4.3 billion). The exposure related to
structured loans and reverse repurchase and securities borrowing
agreements was mitigated by securities collateral of CHF 3.5 bil-
lion as of 31 December 2015 (31 December 2014: CHF 3.3 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 “Maximum exposure to credit
risk” in the “Risk management and control” 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 amount1
Credit derivatives related to loans – fair value1
1 Credit derivatives contracts include credit default swaps, total return swaps and similar instruments.
31.12.15
31.12.14
687
630
4
667
644
1
The table below provides the effect 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 risk1
Changes in fair value of credit derivatives and similar instruments which mitigate the maximum
exposure to credit risk of loans designated at fair value1
For the year ended
Cumulative from inception
until the year ended
31.12.15
31.12.14
31.12.15
31.12.14
(3)
3
(3)
3
(4)
4
(2)
1
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.
682
Note 28 Pension and other post-employment benefit plans
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 plans1
of which: Swiss plan
of which: UK plan
of which: other plans
of which: related to post-retirement medical and life insurance plans2
of which: UK plan
of which: US plans
of which: related to remaining plans and other costs3
Pension cost for defined contribution plans4
of which: UK
of which: US
of which: other countries
Total pension and other post-employment benefit plan expenses5
31.12.15
31.12.14
31.12.13
569
546
515
18
12
4
1
2
19
239
86
100
53
808
467
508
458
17
33
(36)
2
(37)
(5)
244
91
91
62
711
651
638
555
24
58
(11)
2
(12)
24
236
91
91
54
887
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 related
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 plans1
of which: Swiss plan
of which: UK plan
of which: other plans
Post-retirement medical and life insurance plans2
of which: UK plan
of which: US plans
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 tax3
1 Refer to Note 28a for more information. 2 Refer to Note 28b for more information. 3 Refer to the “Statement of comprehensive income”.
31.12.15
31.12.14
31.12.13
339
58
317
(35)
(3)
6
(9)
(14)
322
(19)
303
(1,456)
(1,032)
(168)
(256)
(5)
(3)
(2)
7
(1,454)
247
(1,208)
1,168
1,119
(65)
115
3
2
1
7
1,178
(239)
939
683
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
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.
Balance sheet – net defined benefit pension and post-employment asset
CHF million
Major pension plans1
of which: Swiss plan
of which: UK plan
of which: other plans
Post-retirement medical and life insurance plans
of which: UK plan
of which: US plans
Remaining plans
Total net defined benefit pension and post-employment asset2
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 plans1
of which: Swiss plan
of which: UK plan
of which: other plans2
Post-retirement medical and life insurance plans3
of which: UK plan
of which: US plans
Remaining plans
Total net defined benefit pension and post-employment liability4
31.12.15
31.12.14
50
0
50
0
0
0
0
0
50
31.12.15
622
0
0
622
84
25
59
30
736
0
0
0
0
0
0
0
0
0
31.12.14
1,256
25
568
664
85
32
53
32
1,374
1 Refer to Note 28a for more information. 2 Liability consists of: CHF 315 million related to US plans and CHF 307 million related to German plans (31 December 2014: CHF 297 million related to US plans and CHF
367 million related to German plans). 3 Refer to Note 28b for more information. 4 Refer to Note 23.
684
Note 28 Pension and other post-employment benefit plans (continued)
a) Defined benefit pension plans
UBS AG has established defined benefit pension plans for its
employees in various locations, with the major plans located
in Switzerland, the UK, the US and Germany. Independent
actuarial valuations for the plans in these countries are per-
formed as required.
Swiss pension plan
The Swiss pension plan covers employees of UBS AG and employ-
ees of companies having close economic or financial ties with UBS
AG and exceeds the minimum benefit requirements under Swiss
pension law.
The overall investment policy and strategy for UBS AG’s
defined benefit pension plans is guided by the objective of
achieving an investment return which, together with contribu-
tions, 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 invest-
ment 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 pre-
vailing current and expected economic and market conditions
and in consideration of specific asset class risk in the risk profile.
Within this framework, UBS AG ensures that the fiduciaries con-
sider how the asset investment strategy correlates with the matu-
rity 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 is directly impacted by changes in yields of
high-quality corporate bonds in the respective country in which
the plan is held, as the applicable discount rate used to deter-
mine 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, invest-
ment funds and cash across geographic regions to ensure a bal-
ance of risk and return to the extent allowed under local pension
laws. The market value of these financial assets is not fully cor-
related to changes in high-quality corporate bond yields. This
results in volatility in the net asset / liability position for each plan.
Specific asset-liability matching strategies for each pension plan
are independently determined by the responsible governance
body in each country. The net asset / liability volatility for each
plan is dependent on the specific financial assets chosen 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.
Contributions to the pension plan are paid by the employer
and the employees. The Swiss pension plan allows employees a
choice with regard to the level of contributions paid by them.
Employee contributions are calculated as a percentage of the con-
tributory salary and are deducted monthly. The percentages
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 plan 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 payment. Members can draw early retirement benefits start-
ing from the age of 58. Since 2015, employees have the possibil-
ity to make additional purchases of benefits to fund early retire-
ment benefits (Plan 58+).
The payable pension amount is a result of the conversion rate
applied on the accumulated balance of the individual plan par-
ticipant’s pension account at the retirement date. The accumu-
lated balance of each individual plan participant’s pension account
is based on credited vested benefits transferred from previous
employers, purchases of benefits and the employee 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 obliga-
tion to accrue interest on the pension accounts and the payment
of lifetime pensions. The actuarial assumptions used for the Swiss
pension plan are based on the Swiss economic environment.
➔ Refer to Note 1a item 24 for a description of the accounting
policy for defined benefit pension plans
685
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
The Swiss pension plan is governed by the Pension Foundation
Board as required by Swiss pension law and the responsibilities of
this board are defined by Swiss pension law and by the plan rules.
According to Swiss pension law, a temporary limited underfund-
ing is permitted. However, should an underfunded situation occur,
the Pension Foundation Board is required to take the necessary
measures to ensure that full funding can be expected to be
restored within a maximum period of ten years. Under Swiss pen-
sion law, if a Swiss pension plan became significantly underfunded
on a Swiss pension law basis, then additional employer and
employee contributions could be required. In these situations, the
risk is shared between employer and employees, and the employer
is not legally obliged to cover more than 50% of the additional
contributions required. The Swiss pension plan has a technical
funding ratio under Swiss pension law of 123.3% as of 31 Decem-
ber 2015 (31 December 2014: 123.7%).
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
assets, e.g., there is a 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 determined based on regularly performed asset and liability
management analyses. In order to implement the risk budget, the
Swiss plan may use direct investments, investment funds and
derivatives. 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.
As of 31 December 2015, the Swiss pension plan was in a
surplus situation on an International Financial Reporting Stan-
dards (IFRS) measurement basis, as the fair value of plan assets
exceeded the defined benefit obligation by CHF 1,283 million
(31 December 2014: deficit of CHF 25 million). However, a surplus
can only be recognized on the balance sheet to the extent that it
does not exceed the estimated future economic benefit, which
equals the difference between the present value of the estimated
future net service cost and the present value of the estimated
future employer contributions. The maximum future economic
benefit is highly variable based on changes in the discount rate.
As of 31 December 2015, the estimated future economic benefit
was zero and hence, no net defined benefit asset was recognized
on the balance sheet. The difference of CHF 1,283 million
between the pension plan surplus and the estimated future eco-
nomic benefit, the so-called asset ceiling effect, was recognized in
other comprehensive income.
The employer contributions expected to be made to the Swiss
pension plan in 2016 are estimated to be CHF 474 million.
Non-Swiss pension plans
The non-Swiss locations of UBS AG offer various defined benefit
pension plans in accordance with local regulations and practices.
The non-Swiss locations with major defined benefit plans are the
UK, the US and Germany. Defined benefit pension plans in other
locations are not material to the financial results of UBS AG and
hence not separately disclosed.
The non-Swiss plans provide benefits in the event of retire-
ment, death or disability. The level of benefits provided depends
on the specific rate of benefit accrual and the level of employee
compensation. 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
additional contributions are required. Similar to the Swiss pension
plan, volatility arises in the net asset / liability position of the non-
Swiss plans because the fair value of the respective plans’ assets
are not directly correlated to movements in the value of the plans’
defined benefit obligations.
The funding policy for these plans is consistent with local gov-
ernment regulations and tax requirements, and actuarial assump-
tions used 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. On 1 July
2013, UBS AG closed the UK defined benefit pension plan for
future service. After that date, UBS AG no longer recognized cur-
rent service costs for this plan. Plan participants who were active
employees under the defined benefit plan were eligible to become
participants of the defined contribution plan for any service after
the plan was closed for future service.
686
Note 28 Pension and other post-employment benefit plans (continued)
The responsibility for governance of the UK plan lies jointly
with the Pension Trustee Board, which is required under local pen-
sion laws, and UBS AG. The employer contributions to the pen-
sion fund included regular contributions and specific deficit-fund-
ing contributions until the date of the closure for future service
and thereafter only reflected agreed-upon deficit-funding contri-
butions. The deficit-funding contributions are determined based
on the most recent actuarial valuation, which is conducted 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. In 2015, UBS AG made a deficit-funding contribution
of CHF 316 million (2014: CHF 75 million).
The plan assets are invested in a diversified portfolio of
financial assets. A liability-driven investment approach is applied
as a portion of the plan assets are invested 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, which would result in an increase in the net
defined benefit liability. Plan rules and local pension legislation
cap the level of inflationary increase that can be applied to plan
benefits.
As the plan is obligated 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 life expectancy.
As of 31 December 2015, the UK plan was in a surplus situa-
tion on an IFRS measurement basis, as the fair value of plan assets
exceeded the defined benefit obligation by CHF 50 million. This
surplus was recognized on the UBS AG balance sheet, as UBS AG
has a right to a refund with regards to the UK plan.
No employer contributions are expected to be made to the UK
defined benefit plan in 2016.
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 of the major defined benefit pension plans is a contribu-
tion-based plan in which each participant accrues a percentage of
salary in a pension account. The pension account is credited annu-
ally with interest based on a rate that is linked to the average yield
on one-year US government bonds. For the other major defined
benefit pension plan, retirement benefits accrue based on the
career-average earnings of each individual plan participant. Upon
retirement, the plans allow participants a choice between a lump
sum payment and a lifetime pension.
Both of these defined benefit pension plans have fiduciaries as
required under local state pension laws. The fiduciaries, along
with UBS AG, are jointly responsible for 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 maintain a funded ratio of at least 80%, as calculated
under local pension regulations. The annual employer contribu-
tions 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.
The plan assets for both plans are invested in a diversified port-
folio of financial assets. Each pension plan’s fiduciaries are respon-
sible 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 / liabil-
ity position. Derivative instruments may also be employed to man-
age volatility, including, but not limited to, interest rate futures,
equity futures and swaps, including credit default swaps and
interest rate swaps.
In 2015, the US pension plan rules were amended such that
former UBS AG employees with vested benefits in the US defined
benefit pension plans have the option to receive a lump sum pay-
ment (or early annuity payments) instead of a lifetime pension
commencing at retirement age. This resulted in a reduction in the
defined benefit obligation of CHF 24 million and a corresponding
gain recognized in the income statement in 2015, of which CHF
21 million was recorded in Wealth Management Americas.
In 2013, UBS AG offered a one-time option to former UBS AG
employees with vested benefits in the US defined benefit pension
plans to receive a lump sum payment (or early annuity payments)
instead of a lifetime pension. This resulted in a reduction in 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.
The employer contributions expected to be made to the US
defined benefit plans in 2016 are estimated to be CHF 43 million.
687
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
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 par-
ticipant accrues a percentage of salary in a pension account. On
an annual basis the accumulated account balance of the plan par-
ticipant 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 this deferred
compensation 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 German pension law, under which the responsibility to pay
pension benefits when they are due rests entirely with UBS AG.
For the German plans, a portion of the pension payments is
directly increased in line with price inflation.
The employer contributions expected to be made to the Ger-
man plans in 2016 are estimated to be CHF 8 million.
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.
In 2015, disclosures within this Note have been expanded to
separately present UK plan information, which was previously
included within “Non-Swiss” plans. Consequently, the US and
German plans are now shown together within “Other”. Com-
parative information was adjusted accordingly.
688
Note 28 Pension and other post-employment benefit plans (continued)
Defined benefit pension plans
CHF million
For the year ended
Swiss
UK
Other
Total
31.12.15 31.12.14
31.12.15 31.12.14
31.12.15 31.12.14
31.12.15 31.12.14
Defined benefit obligation at the beginning of the year
23,956
20,738
3,949
3,355
1,693
1,315
29,598
25,408
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) / losses1
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)
589
270
205
(1,231)
(1,038)
496
465
202
3,120
66
(237)
2,705
44
0
(81)
349
0
(54)
(1,071)
(1,045)
1
0
22,636
10,359
0
12,278
23,931
109
273
482
1
205
34
0
23,956
11,480
0
12,477
22,498
1,262
513
478
34
202
0
137
0
(441)
(122)
(201)
(119)
0
0
(128)
0
(166)
3,350
255
1,864
1,230
3,381
(124)
118
316
0
0
0
158
0
349
(15)
489
(126)
0
0
(91)
0
178
3,949
312
2,211
1,425
2,922
181
141
75
0
0
(1,071)
(1,045)
(128)
(91)
(10)
(10)
0
0
0
0
23,919
23,931
1,283
0
0
(25)
(25)
(515)
58
482
1
0
0
952
(458)
(1,032)
478
34
0
(25)
0
0
(163)
3,400
0
50
(568)
(18)
317
316
0
3
50
0
0
154
3,381
0
(568)
(433)
(17)
(168)
75
0
(24)
(568)
10
57
0
(8)
34
(71)
28
(24)
0
(83)
0
(26)
10
59
0
270
85
180
6
0
0
(81)
0
119
1,619
1,693
312
545
836
845
14
43
107
0
0
(81)
(6)
0
107
1,029
267
523
829
1,029
(44)
39
57
0
0
(83)
(8)
0
7
997
0
599
463
205
(1,681)
(1,125)
(509)
(47)
(24)
(81)
506
682
202
3,739
136
3,374
228
0
(54)
(1,283)
(1,218)
1
(192)
27,605
10,881
2,388
14,336
28,341
(59)
430
855
1
205
34
297
29,598
12,104
2,756
14,738
26,266
1,457
697
659
34
202
(1,283)
(1,218)
(18)
0
(156)
(16)
0
261
28,316
28,341
0
1,283
0
(622)
(664)
(572)
(1,256)
(664)
(12)
(35)
57
0
33
(622)
(470)
(33)
(256)
107
0
(12)
(664)
(1,256)
(546)
339
855
1
36
50
(508)
(1,456)
659
34
(36)
(572)
(1,256)
22,636
23,956
3,350
3,949
1,288
0
0
0
23,919
23,931
3,400
1,283
1,283
0
(25)
0
(25)
50
0
50
0
3,381
(568)
0
(568)
1,301
392
1,029
27,274
29,205
331
392
28,316
28,341
331
997
(622)
(664)
711
(1,256)
0
0
1,283
0
(622)
(664)
(572)
(1,256)
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.
689
Consolidated financial statements Consolidated financial statements
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
Total gains / (losses) recognized in other comprehensive income, before tax
Swiss
UK
Other
Total
31.12.15 31.12.14
31.12.15 31.12.14
31.12.15 31.12.14
31.12.15 31.12.14
589
270
496
465
(273)
(513)
0
137
(118)
0
158
(141)
0
10
0
(81)
1
515
19
10
0
(54)
34
458
0
0
0
0
0
0
0
0
0
0
18
17
10
57
(39)
0
8
(24)
0
0
12
10
59
(43)
0
6
0
0
0
33
599
463
(430)
0
18
(24)
(81)
1
546
506
682
(697)
19
16
0
(54)
34
508
Swiss
UK
Other
Total
31.12.15 31.12.14
31.12.15 31.12.14
31.12.15 31.12.14
31.12.15 31.12.14
1,231
(3,120)
109
1,262
(1,283)
0
58
808
19
441
(124)
0
0
(349)
181
0
0
8
(44)
0
0
(270)
1,681
(3,739)
14
0
0
(59)
1,457
(1,283)
0
339
808
19
(1,456)
(1,032)
317
(168)
(35)
(256)
The table below provides information on the duration of the defined benefit pension obligations and the distribution of the timing of
benefit payments.
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 other plans.
Swiss
UK
Other1
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
15.1
16.7
19.7
20.2
11.3
12.5
1,146
2,218
3,403
5,526
5,173
1,033
2,023
3,035
5,394
5,571
80
177
338
785
981
81
173
322
768
997
92
185
291
509
510
85
171
274
485
513
18,892
26,613
7,348
7,926
1,172
1,363
690
Note 28 Pension and other post-employment benefit plans (continued)
UBS AG regularly reviews the actuarial assumptions used in
calculating its defined benefit obligations to determine their con-
tinuing relevance.
In 2015, UBS AG carried out a methodology review of the
actuarial assumptions used in calculating its defined benefit obli-
gation for its Swiss pension plan. As a result, UBS AG enhanced its
methodology for estimating the discount rate by improving the
construction of the yield curve where the market for long tenor
maturities of Swiss high-quality corporate bonds was not suffi-
ciently deep. Furthermore, UBS AG refined its approach to esti-
mating the rate of salary increases, the rate of interest credit on
retirement savings, the employee turnover rate, the rate of
employee disabilities and the rate of marriage. These improve-
ments in estimates resulted in a total net decrease in the defined
benefit obligation (DBO) of the Swiss pension plan of CHF 2,055
million, of which CHF 1,038 million related to demographic
assumptions and CHF 1,017 million related to financial assump-
tions. These reductions in the DBO from improvements in esti-
mates were partly offset by market-driven discount rate changes,
resulting in an overall downward remeasurement of the Swiss
plan DBO of CHF 1,231 million, which was recognized in other
comprehensive income.
Furthermore, UBS AG enhanced methodologies and refined
approaches used to estimate various actuarial assumptions for its
UK and other pension plans. These improvements in estimates
resulted in a total net decrease in the DBO of the UK pension plan
of CHF 192 million, of which CHF 122 million related to demo-
graphic assumptions and CHF 71 million related to financial
assumptions. In addition, mainly market-driven discount rate
changes reduced the DBO further, resulting in an overall down-
ward remeasurement of the UK plan DBO of CHF 441 million,
which was recognized in other comprehensive income.
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 other plans.
Mortality tables and life expectancies for major plans
Country
Switzerland
UK
US
Germany
Country
Switzerland
UK
US
Germany
Mortality table
BVG 2010 G
S2PA CMI_2015, with projections1
RP2014 WCHA, with MP2015 projection scale2
Dr. K. Heubeck 2005 G
Mortality table
BVG 2010 G
S2PA CMI_2015, with projections1
RP2014 WCHA, with MP2015 projection scale2
Dr. K. Heubeck 2005 G
Swiss
UK
Other1
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
1.09
1.75
0.00
1.09
1.15
2.40
0.00
1.40
3.90
0.00
3.02
0.00
3.69
0.00
3.08
0.00
4.01
2.89
1.50
1.48
3.60
3.01
1.75
1.13
Life expectancy at age 65 for a male member currently
aged 65
aged 45
31.12.15
31.12.14
31.12.15
31.12.14
21.5
23.9
23.0
20.0
21.4
24.4
21.7
19.9
23.2
25.6
24.5
22.6
23.2
27.2
23.4
22.5
Life expectancy at age 65 for a female member currently
aged 65
aged 45
31.12.15
31.12.14
31.12.15
31.12.14
24.0
25.8
24.6
24.1
23.9
25.7
23.9
23.9
25.7
28.0
26.2
26.6
25.6
28.0
25.6
26.5
1 In 2014 the mortality table S1NA_L CMI 2014 G, with projections was used. 2 In 2014 the mortality table RP2014 G, with MP2014 projection scale was used.
691
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
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 no
longer accrue 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 contin-
ues to accrue benefits for future service, therefore the impact
of a salary increase on the defined benefit obligation is mini-
mal.
– 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, pen-
sions 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 respective plan’s defined benefit obligation.
– Rate of interest credit on retirement savings: the Swiss plan
and one of the plans in the US have retirement saving balances
that are increased annually by an interest credit rate. For these
plans, an increase in the interest credit rate would increase the
respective plan’s defined benefit obligation.
– Life expectancy: for most of UBS AG’s defined benefit pension
plans, the respective plan is obligated to provide guaranteed
lifetime pension benefits. The defined benefit obligation for all
plans is 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 ben-
efit obligation.
The table below presents a sensitivity analysis for each signifi-
cant actuarial assumption showing how the defined benefit obli-
gation would be affected by changes in the relevant 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 rea-
sonably possible. This sensitivity analysis applies to the defined
benefit obligation only and not to the net asset / liability in its
entirety. Caution should be used in extrapolating the sensitivities
below to the overall impact on the defined benefit obligation, as
the sensitivities may not be linear.
Sensitivity analysis of significant actuarial assumptions1
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
UK plan: increase / (decrease)
in defined benefit obligation
Other plans: increase / (decrease)
in defined benefit obligation
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
(1,416)
1,609
82
(86)
1,163
–3
263
(249)
719
(1,688)
1,936
210
(198)
1,315
–3
334
(315)
755
(308)
354
–2
–2
343
(300)
–4
–4
97
(372)
428
–2
–2
414
(363)
–4
–4
135
(84)
92
1
(1)
6
(5)
8
(8)
42
(98)
108
2
(2)
8
(7)
9
(8)
45
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 plan is closed for future
service, a change in assumption is not applicable. 3 As the assumed rate of pension increase was 0% as of 31 December 2015 and as of 31 December 2014, a downward change in assumption is not applicable. 4 As
the plan does not provide interest credits on retirement savings, a change in assumption is not applicable.
692
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, the UK pension plan
and the other pension plans.
Composition and fair value of plan assets
Swiss plan
31.12.15
31.12.14
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
Quoted
in an active
market
517
Other
0
Total
517
0
2,647
2,647
699
6,948
2,112
6,109
1,056
0
1,085
0
0
0
0
63
1,064
1,605
0
15
699
8,033
2,112
6,109
1,056
63
2,669
15
Quoted
in an active
market
829
Other
0
Total
829
0
2,582
2,582
798
6,245
2,591
6,418
104
0
2,513
0
0
994
0
0
0
104
736
17
798
7,239
2,591
6,418
104
104
3,249
17
2
11
3
34
9
26
4
0
11
0
18,505
5,414
23,919
100
19,499
4,432
23,931
3
11
3
30
11
27
0
0
14
0
100
CHF million
Cash and cash equivalents
Real estate / property
Domestic
Investment funds
Equity
Domestic
Foreign
Bonds1
Domestic, AAA to 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 Group AG shares
Securities lent to UBS AG2
Property occupied by UBS AG
Derivative financial instruments, counterparty UBS AG2
Structured products, counterparty UBS AG
31.12.15
23,919
522
38
962
82
(170)
0
31.12.14
23,931
385
38
921
87
(357)
42
1 The bond credit ratings are primarily based on Standard and 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 (90) million as of 31 December 2015 (31 December 2014: CHF (123) million). Securities lent to UBS AG were fully covered by
collateral as of 31 December 2015 and 31 December 2014.
693
Consolidated financial statements Consolidated financial statements
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)
UK plan
31.12.15
31.12.14
CHF million
Cash and cash equivalents
Investment funds
Equity
Domestic
Foreign
Bonds1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Other
Other investments
Total fair value of plan assets
Fair value
Plan asset
allocation %
Quoted in
an active
market
426
98
1,080
1,305
53
189
31
46
(32)
6
3,202
Other
0
0
0
0
0
0
0
68
123
7
198
Total
426
98
1,080
1,305
53
189
31
115
91
13
Quoted
in an active
market
192
122
1,042
1,344
179
91
153
43
(33)
0
13
3
32
38
2
6
1
3
3
0
3,400
100
3,133
Fair value
Other
0
0
0
0
0
0
0
99
139
10
248
Plan asset
allocation %
6
4
31
40
5
3
5
4
3
0
Total
192
122
1,042
1,344
179
91
153
142
106
10
3,381
100
1 The bond credit ratings are primarily based on Standard and 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.
694
Note 28 Pension and other post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
Other plans
31.12.15
31.12.14
CHF million
Cash and cash equivalents
Bonds1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Private equity
Investment funds
Equity
Domestic
Foreign
Bonds1
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
Fair value
Quoted in
an active
market
Other
52
56
60
17
6
0
240
240
134
13
31
3
0
56
0
14
5
926
0
0
0
0
0
0
0
0
0
0
0
0
12
42
17
0
0
70
Total
52
56
60
17
6
0
240
240
134
13
31
3
12
98
17
14
5
Weighted
average
plan asset
allocation %
Fair value
Quoted
in an active
market
Other
Weighted
average
plan asset
allocation %
3
10
1
2
0
0
24
25
14
1
3
0
1
10
2
2
0
Total
32
104
10
24
3
0
250
258
142
13
32
4
13
105
17
17
5
1,029
100
0
0
0
0
0
0
0
0
0
0
0
0
13
39
17
0
0
68
5
6
6
2
1
0
24
24
13
1
3
0
1
10
2
1
0
32
104
10
24
3
0
250
258
142
13
32
4
0
66
0
17
5
997
100
961
1 The bond credit ratings are primarily based on Standard and 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.
695
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
b) Post-retirement medical and life insurance plans
In the US and in 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 provides 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 lim-
ited to, the cost of doctor visits, hospitalization, surgery and phar-
maceuticals. These plans are not pre-funded plans and costs are
recognized as incurred. In the US, the retirees also contribute to
the cost of the post-retirement medical benefits.
In 2014, UBS AG announced changes to the US post-retire-
ment medical plans in relation to a reduction or elimination of
the subsidy provided for medical benefits. This change reduced
the post-retirement benefit obligation by CHF 33 million, result-
ing in a corresponding 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.
The employer contributions expected to be made to the post-
retirement medical and life insurance plans in 2016 are estimated
to be CHF 6 million.
The table on the following page provides an analysis of the net
asset / liability recognized on the balance sheet for post-retirement
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.
In 2015, disclosures within this Note have been expanded to
separately present UK post-retirement medical plan information,
which was previously presented together with the US post-
retirement medical plans. Comparative information was adjusted
accordingly.
696
Note 28 Pension and other post-employment benefit plans (continued)
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) / losses1
Past service cost related to plan amendments
Benefit payments2
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
UK
US
Total
31.12.15
31.12.14
31.12.15
31.12.14
31.12.15
31.12.14
32
0
1
0
(6)
2
(1)
(7)
0
(1)
(2)
25
5
0
20
0
(25)
0
1
0
1
6
6
28
0
1
0
3
0
4
0
0
(2)
1
32
12
0
21
0
(32)
0
1
0
2
(3)
(3)
53
0
2
2
9
2
(2)
9
0
(8)
1
59
0
0
59
0
87
0
3
2
2
4
5
(7)
(41)
(9)
8
53
0
0
53
0
(59)
(53)
0
2
0
2
(9)
(9)
0
3
(41)
(37)
(2)
(2)
85
0
3
2
3
4
(3)
2
0
(10)
(1)
84
5
0
79
0
(84)
0
3
0
4
(3)
(3)
114
0
5
2
5
4
8
(7)
(41)
(10)
10
85
12
0
74
0
(85)
0
5
(41)
(36)
(5)
(5)
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 actu-
ally occurred. 2 Benefit payments are funded by employer contributions and plan participant contributions.
697
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
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.
UBS AG regularly reviews the actuarial assumptions used in
calculating its post-retirement benefit obligations to determine
their continuing relevance. In 2015, UBS AG enhanced method-
ologies and refined approaches used to estimate various actuarial
assumptions. These improvements in estimates resulted in a net
increase in the post-retirement benefit obligation.
The discount rate and the assumed average health care cost
trend rates are presented in the table below. The basis for life
expectancy assumptions is the same as provided for defined ben-
efit 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.
UK
US
31.12.15
31.12.14
31.12.15
31.12.14
3.90
5.10
5.10
3.69
5.50
5.50
4.23
6.75
5.00
3.93
7.00
5.00
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 measure-
ment 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
increase 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 obli-
gation.
– Life expectancy: as some plan participants have lifetime bene-
fits under these plans, an increase in life expectancy would
increase 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.
Sensitivity analysis of significant actuarial assumptions1
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
UK
US
31.12.15
31.12.14
31.12.15
31.12.14
(1)
2
3
(3)
2
(2)
2
4
(4)
2
(3)
3
1
(1)
5
(2)
2
(1)
1
5
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 sponsors a number of defined contribution plans in loca-
tions outside of Switzerland. 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 2015, 2014 and 2013, amounted to CHF 239 mil-
lion, CHF 244 million and CHF 236 million, respectively.
698
Note 28 Pension and other post-employment benefit plans (continued)
d) Related party disclosure
UBS AG is the principal provider of banking services for the pen-
sion fund of UBS AG in Switzerland. In this function, UBS AG is
engaged to execute most of the pension fund’s banking activi-
ties. These activities can include, but are not limited to, trading
and securities lending and borrowing. The non-Swiss UBS AG
pension funds do not have a similar banking relationship with
UBS AG.
In 2008, UBS AG 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 AG renegotiated one of the
lease contracts, which reduced UBS AG’s remaining lease commit-
ment. 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 2015, the minimum commitment toward the
Swiss pension fund under the related leases is approximately CHF
11 million (31 December 2014: CHF 14 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 UBS AG debt instruments are as follows.
Transaction volumes – UBS shares and UBS AG debt instruments
Financial instruments bought by pension funds
UBS shares1 (in thousands of shares)
UBS AG debt instruments (par values in CHF million)
Financial instruments sold by pension funds or matured
UBS shares1 (in thousands of shares)
UBS AG debt instruments (par values in CHF million)
For the year ended
31.12.15
31.12.14
31.12.13
33
5
(1)
14
33
6
0
4
33
8
1
2
For the year ended
31.12.15
31.12.14
1,544
3
2,255
4
2,092
4
1,735
4
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.
UBS AG defined contribution pension funds held 15,782,722
UBS Group AG shares with a fair value of CHF 306 million as of
31 December 2015 (31 December 2014: 16,253,804 UBS Group
AG shares with a fair value of CHF 276 million).
More information on the fair value of the plan assets of the
defined benefit pension plans are disclosed in Note 28a.
699
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 29 Equity participation and other compensation plans
a) Plans offered
The UBS Group 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 approximately 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 coun-
tries, business areas (e.g., awards granted within Wealth Manage-
ment Americas), or are only offered to members of the Group
Executive Board (GEB). The UBS Group operates compensation
plans on a mandatory, discretionary and voluntary basis. The
explanations below provide a general description of the terms of
the most significant plans offered by the Group which relate to
the performance year 2015 (awards granted in 2016) and those
from prior years that were partly expensed in 2015.
➔ 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 2014, UBS Group AG
assumed obligations of UBS AG as grantor in connection with
certain outstanding awards under employee share, option,
notional fund and deferred cash compensation plans. As a result
of the transfer, UBS Group AG assumed all responsibilities and
rights associated with the grantor role for the plans from UBS AG,
including the right of recharge to its subsidiaries employing the
personnel. Obligations relating to deferred compensation plans
which are required to be, and have been, granted by employing
and / or sponsoring subsidiaries have not been assumed by UBS
Group AG and will continue on this basis. Furthermore, obliga-
tions related to other compensation awards, such as defined ben-
efit 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. For the purpose of this Note, ref-
erences to shares, performance 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.
The tables within this Note outline the effects from equity par-
ticipation and other compensation plans on the UBS AG income
statement, as well as the movements in UBS share and notional
share awards retained by UBS AG.
Mandatory share-based compensation plans
Equity Ownership Plan (EOP): Select employees receive a portion
of their annual performance-related compensation above a cer-
tain threshold in the form of an EOP award in UBS shares, notional
shares or UBS performance shares (notional shares that are sub-
ject to performance conditions). From February 2014 onwards,
only notional shares and UBS performance shares have been
granted. Since 2011, performance shares have been granted to
EOP participants who are Key Risk-Takers, Group Managing Direc-
tors (GMD) or employees whose incentive awards exceed a cer-
tain threshold, and since 2013 to GEB members. For performance
shares granted in respect of the performance years 2012 and
thereafter, the performance conditions are based on the Group
return on tangible equity and the divisional return on attributed
equity (for Corporate Center participants, the return on attributed
equity of the Group excluding Corporate Center). Awards issued
outside the normal 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
carry voting rights during the vesting period. Notional and perfor-
mance 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 that 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 vested in three equal increments over
a three-year vesting period and awards granted since March 2013
generally vest in equal increments in years two and three 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 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 and selected senior exec-
utives 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 sched-
uled vesting. Awards granted under SEEOP are settled by deliver-
ing UBS shares at vesting. Compensation expense is recognized
on the same basis as for share-settled EOP awards. No new SEEOP
awards were granted since 2012. From 2013 (performance year
2012), GEB members have received EOP performance awards.
700
Note 29 Equity participation and other compensation plans (continued)
Incentive Performance Plan (IPP): In 2010, GEB members and
certain other senior employees received part of their annual incen-
tive in the form of performance shares granted under the IPP.
Each performance share granted was a contingent right to receive
between one and three UBS shares at vesting, depending on the
achievement of share price targets. Vesting was subject to contin-
ued employment with UBS AG and certain other conditions. The
IPP awards vested in March 2015. Compensation expense was
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): In 2012 GEB members received
part of their annual incentive in the form of performance shares
granted under the PEP. Each performance share was 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. Vesting was subject to contin-
ued employment with UBS AG and certain other conditions. The
last PEP awards vested in March 2015. Compensation expense
was 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 after 2012.
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 vested in 2015. Vesting was subject to
performance conditions, continued employment with the firm
and certain other conditions. Compensation expense was recog-
nized 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 is generally paid in
cash and above a threshold it is granted in blocked shares. Such
shares will be unblocked in equal instalments after two and three
years. The compensation expense is recognized in the year of
grant.
Mandatory deferred cash compensation plans
Deferred Contingent Capital Plan (DCCP): The DCCP is a manda-
tory performance award deferral plan for all employees whose
total compensation exceeds a certain threshold. For awards
granted up to January 2015, employees received part of their
annual incentive in the form of notional bonds, which are a right
to receive a cash payment at vesting. For awards granted for the
performance years 2014 and 2015, employees have been
awarded notional additional 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 consolidated phase-in common equity
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 awards 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
additional performance condition applies. If UBS Group AG
(consolidated) 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 perfor-
mance years in which the firm generates an adjusted profit
before tax. For awards granted since February 2015 interest pay-
ments are discretionary. The awards are subject to standard for-
feiture and harmful acts provisions, including voluntary termina-
tion 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. Other-
wise, compensation expense is recognized ratably 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
employees 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
installments to be reduced if the business has a loss during the
calendar year preceding vesting. The awards are generally forfeit-
able upon 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 the grant. Otherwise, compensation expense is recog-
nized ratably from the grant date to the earlier of the vesting date
or the retirement eligibility date of the employee. 2014 was the
last year awards were granted under LTDRSIS.
Asset Management Equity Ownership Plan: In order to align
their compensation with the performance of the funds they man-
age, Asset Management employees who receive EOP awards
receive them in the form of cash-settled notional funds. The
amount depends on the value of the relevant underlying Asset
Management funds at the time of vesting. The awards are gener-
ally forfeitable upon, among other circumstances, voluntary ter-
mination 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 retirement eligibility date of the
employee, on a tiered basis.
701
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 29 Equity participation and other compensation plans (continued)
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, 2011 and 2015, with potential arrangements to
be granted in 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
certain percentage of their pay, which are vested upon contribu-
tion. Company contributions and voluntary contributions are cred-
ited with interest in accordance with the terms of the plan. Rather
than being 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 vari-
ous mutual funds. Company contributions and interest on both
company and voluntary contributions ratably vest in 20% incre-
ments six to ten years following grant date. Company contribu-
tions and interest / notional earnings on both company and volun-
tary contributions are forfeitable under certain circumstances.
Compensation expense for awards is recognized in the perfor-
mance year if the employee meets the qualifying separation eligi-
bility requirements at the date of grant. Otherwise, compensation
expense for awards is recognized ratably commencing in the per-
formance year to the earlier of the vesting date or the qualifying
separation eligibility date of the employee. Compensation expense
for voluntary contributions 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 AG. Com-
pensation 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. If the shares purchased are held for three years,
and in general if the employee remains in employment, the
notional UBS shares vest. For notional UBS shares granted from
April 2014 onwards, employees are entitled to receive a dividend
equivalent which may be paid in either notional shares and / or
cash. Prior to 2010, instead of notional shares participants
received two UBS options for each share they purchased under
this plan. The options 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 deliver-
ing 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 retire-
ment eligibility date of the employee.
702
Note 29 Equity participation and other compensation plans (continued)
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 2015 and deferred com-
pensation expenses that will be recognized as an expense in the
income statements of 2016 and later. The deferred compensation
expenses in the table also include vested and non-vested awards
granted mainly in February 2016, which relate to the performance
year 2015.
Personnel expenses – Recognized and deferred1
Personnel expenses for the year ended 2015
Personnel expenses deferred to 2016 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 compensation5
Total
Expenses
relating to
awards for
2015
Expenses
relating to
awards for
prior years
2,073
172
0
261
0
261
28
2,535
184
2,460
43
132
37
2,673
5,391
(94)
258
12
461
0
461
38
675
162
0
692
142
45
879
1,716
Relating to
awards for
2015
Relating to
awards for
prior years
0
343
0
524
0
524
34
900
2483
0
940
710
66
1,716
2,864
0
446
3
338
0
338
35
822
2934
0
1,899
456
115
2,470
3,585
Total
1,980
429
12
722
0
722
67
3,210
3462
2,460
735
275
82
3,552
7,108
Total
0
789
3
861
0
861
69
1,722
541
0
2,839
1,166
182
4,186
6,449
1 Total share-based personnel expenses recognized for the year ended 31 December 2015 were CHF 1,028 million and were comprised of UBS share plans of CHF 807 million, Equity Ownership Plan – notional funds of
CHF 67 million, related social security costs of CHF 56 million and other compensation plans (reported within Variable compensation – other) of CHF 98 million. 2 Includes replacement payments of CHF 76 million (of
which CHF 65 million related to prior years), forfeiture credits of CHF 86 million (all related to prior years), severance payments of CHF 157 million (all related to 2015) and retention plan and other payments of CHF 198
million (of which CHF 183 million related to prior years). 3 Includes DCCP interest expense of CHF 160 million for DCCP awards 2015 (granted in 2016). 4 Includes DCCP interest expense of CHF 200 million for DCCP
awards 2014, 2013 and 2012 (granted in 2015, 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.
703
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 29 Equity participation and other compensation plans (continued)
Personnel expenses – Recognized and deferred1
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 compensation5
Total
Personnel expenses for the year ended 2014
Personnel expenses deferred to 2015 and later
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
4662
2,396
675
234
80
3,385
6,671
0
312
0
459
0
459
36
807
3073
0
524
189
41
754
1,868
0
386
8
367
0
367
33
794
3404
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 2014) 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 million 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.
During 2015 and 2014, UBS AG accelerated the recognition of
expenses for certain deferred compensation arrangements relat-
ing 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 employees are not required to provide future service, com-
pensation expense relating to these awards was accelerated to
the termination date based on the shortened service period. The
amounts accelerated and recognized relating to share-based pay-
ment awards in 2015 and 2014 were CHF 9 million and CHF 38
million respectively, and the amounts related to deferred cash
awards were CHF 10 million and CHF 29 million, respectively.
UBS AG also shortened the service period for certain employ-
ees in accordance with the mutually agreed termination provi-
sions of their deferred compensation awards. Expense recognition
was accelerated to the termination date. The amounts acceler-
ated and recognized relating to share-based payment awards in
2015 and 2014 were CHF 6 million and CHF 11 million, respec-
tively, and the amounts related to deferred cash awards were CHF
11 million and CHF 8 million, respectively.
704
Note 29 Equity participation and other compensation plans (continued)
Personnel expenses – Recognized and deferred
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 compensation5
Total
Personnel expenses for the year ended 2013
Personnel expenses deferred to 2014 and later
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
3403
0
440
107
45
592
1,844
0
230
12
307
0
21
328
36
606
3984
0
2,098
564
165
2,827
3,831
Total
1,912
248
55
656
3
33
692
79
2,986
2882
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 2013) 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 million 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 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.
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 2015, 2014 and 2013 were CHF 1,028
million, CHF 999 million and CHF 1,042 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
employee to provide future services.
The total compensation expenses for non-vested share-based
awards granted up to 31 December 2015 relating to prior years to
be recognized in future periods is CHF 553 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
2015 table differ from this amount as the deferred compensation
amounts also include non-vested awards granted in February
2016 related to the performance year 2015.
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 2015 and 2014 were
CHF 98 million and CHF 90 million, respectively. The total carry-
ing amount of the liability related to these plans was CHF 170
million as of 31 December 2015 and CHF 143 million as of
31 December 2014.
705
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
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
17
15
19
18
Number of
shares
2015
467,848
259,334
(279,415)
(20,323)
427,443
138,908
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
The fair value of shares that became legally vested and were distributed (i.e., all restrictions were fulfilled) during the years ended 2015
and 2014 was CHF 1,443 million and CHF 1,269 million, respectively.
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
2015 is approximately 16.7% (2014: 12.9%) 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.
706
Note 30 Interests in subsidiaries and other entities
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 num-
ber of criteria, including the subsidiaries’ equity and their contri-
bution to UBS AG’s total assets and profit and loss before tax, in
accordance with the requirements set by IFRS 12, Swiss regula-
tions 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 2015. 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 located
is also generally the principal place of business.
Individually significant subsidiaries as of 31 December 2015
Company
UBS Americas Holding LLC
UBS Bank USA
UBS Financial Services Inc.
UBS Limited
UBS Securities LLC
UBS Switzerland AG
Registered office
Primary business division
Wilmington, Delaware, USA
Corporate Center
Salt Lake City, Utah, USA
Wealth Management Americas
Wilmington, Delaware, USA
Wealth Management Americas
London, United Kingdom
Wilmington, Delaware, USA
Zurich, Switzerland
Investment Bank
Investment Bank
Personal & Corporate Banking
Share capital in million
1,200.01
0.0
USD
USD
USD
GBP
USD
CHF
0.0
226.6
1,283.12
10.0
Equity interest accumu-
lated in %
100.0
100.0
100.0
100.0
100.0
100.0
1 Comprised of common share capital of USD 1,000 and non-voting preferred share capital of USD 1,200,000,000. 2 Comprised of common share capital of USD 100,000 and non-voting preferred share capital of
USD 1,283,000,000.
In 2015, UBS transferred its Personal & Corporate Banking and
Wealth Management business booked in Switzerland from UBS
AG to UBS Switzerland AG, a newly formed bank subsidiary.
➔ Refer to Note 32 for more information
UBS Americas Holding LLC, UBS Limited and UBS Switzerland
AG are fully held by UBS AG. UBS Bank USA, UBS Financial Ser-
vices Inc. and UBS Securities LLC are fully held, directly or indi-
rectly, by UBS Americas Holding LLC.
707
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
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 SEC.
Other subsidiaries as of 31 December 2015
Registered office
Primary business division
Share capital in million
Equity interest
accumulated in %
Glattbrugg, Switzerland
Personal & Corporate Banking
Company
Topcard Service AG
UBS (Italia) SpA
UBS (Luxembourg) S.A.
UBS Americas Inc.
Milan, Italy
Luxembourg, Luxembourg
Wilmington, Delaware, USA
UBS Asset Management (Americas) Inc.
Wilmington, Delaware, USA
UBS Asset Management (Australia) Ltd
Sydney, Australia
UBS Asset Management (Deutschland) GmbH
Frankfurt, Germany
UBS Asset Management (Hong Kong) Limited
Hong Kong, Hong Kong
UBS Asset Management (Japan) Ltd
Tokyo, Japan
UBS Asset Management (Singapore) Ltd
Singapore, Singapore
UBS Asset Management (UK) Ltd
London, United Kingdom
UBS Asset Management AG
UBS Australia Holdings Pty Ltd
UBS Bank, S.A.
UBS Beteiligungs-GmbH & Co. KG
UBS Card Center AG
UBS Credit Corp.
UBS Deutschland AG
UBS Fund Advisor, L.L.C.
Zurich, Switzerland
Sydney, Australia
Madrid, Spain
Frankfurt, Germany
Wealth Management
Wealth Management
Corporate Center
Asset Management
Asset Management
Asset Management
Asset Management
Asset Management
Asset Management
Asset Management
Asset Management
Investment Bank
Wealth Management
Wealth Management
Glattbrugg, Switzerland
Personal & Corporate Banking
Wilmington, Delaware, USA
Wealth Management Americas
Frankfurt, Germany
Wealth Management
Wilmington, Delaware, USA
Wealth Management Americas
UBS Fund Mangement (Luxembourg) S.A.
Luxembourg, Luxembourg
UBS Fund Mangement (Switzerland) AG
Basel, Switzerland
UBS Hedge Fund Solutions LLC
Wilmington, Delaware, USA
UBS Italia SIM SpA
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.
Milan, Italy
Dover, Delaware, USA
Wilmington, Delaware, USA
Boston, Massachusetts, USA
Bangkok, Thailand
Sydney, Australia
Toronto, Canada
UBS Securities España Sociedad de Valores SA
Madrid, Spain
UBS Securities India Private Limited
UBS Securities Japan Co., Ltd.
Mumbai, India
Tokyo, Japan
UBS Securities Pte. Ltd.
UBS Services LLC
UBS South Africa (Proprietary) Limited
UBS Trust Company of Puerto Rico
Singapore, Singapore
Wilmington, Delaware, USA
Sandton, South Africa
Hato Rey, Puerto Rico
Asset Management
Asset Management
Asset Management
Investment Bank
Asset Management
Investment Bank
Asset Management
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Corporate Center
Investment Bank
Wealth Management Americas
UBS UK Properties Limited
London, United Kingdom
Corporate Center
1 Includes a nominal amount relating to redeemable preference shares.
708
CHF
EUR
CHF
USD
USD
AUD
EUR
HKD
JPY
SGD
GBP
CHF
AUD
EUR
EUR
CHF
USD
EUR
USD
EUR
CHF
USD
EUR
USD
USD
USD
THB
AUD
CAD
EUR
INR
JPY
SGD
USD
ZAR
USD
GBP
0.2
95.0
150.0
0.0
0.0
20.11
7.7
150.0
2,200.0
4.0
125.0
0.1
46.7
97.2
568.8
0.1
0.0
176.0
0.0
13.0
1.0
0.1
15.1
1.0
0.0
9.0
500.0
0.31
10.0
15.0
140.0
46,450.0
420.4
0.0
0.0
0.1
132.0
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
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Note 30 Interests in subsidiaries and other entities (continued)
Changes in consolidation scope
During 2015, a number of subsidiaries were incorporated in order
to improve the resolvability of UBS AG in response to too big to
fail requirements, namely UBS Americas Holding LLC, UBS Swit-
zerland AG and UBS Asset Management AG. UBS Fund Services
(Cayman) Ltd and a few smaller subsidiaries of Asset Manage-
ment were removed from the scope of consolidation as part of
the sale of the Alternative Fund Services business.
Non-controlling interests
As of 31 December 2015 and 31 December 2014, 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 subsidiaries
resulting 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
indicate 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 have
control and therefore consolidates the fund.
Securitization SEs are generally consolidated when UBS AG
holds a significant percentage of the asset backed securities
issued 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 2015 and 2014, UBS AG has not entered into any contractual
obligation that could require UBS AG to provide financial support
to consolidated SEs. In addition, UBS AG did not provide support,
financial or otherwise, to a consolidated SE when 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 provide support, financial
or otherwise, to a previously unconsolidated SE that resulted in UBS
AG controlling the SE during the reporting period.
709
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
b) Interests in associates and joint ventures
As of 31 December 2015 and 2014, no associate or joint venture
was individually material to UBS AG. In addition, there were no
significant restrictions on the ability of associates or joint ven-
tures to transfer funds to UBS 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 ven-
tures 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 profit1, 2
of which: share of other comprehensive income3
Dividends received
Foreign currency translation
Carrying amount at the end of the year
of which: associates
of which: UBS Securities Co. Limited, Beijing4
of which: SIX Group AG, Zurich5
of which: other associates
of which: joint ventures
31.12.15
31.12.14
927
12
(2)
151
169
(18)
(114)
(20)
954
925
411
413
102
29
842
1
(2)
103
94
9
(54)
38
927
900
404
406
90
27
1 For 2015, consists of CHF 158 million from associates and CHF 11 million from joint ventures. For 2014, consists of CHF 83 million from associates and CHF 11 million from joint ventures. 2 In 2015, the SIX Group
sold its stake in STOXX Ltd and Indexium Ltd. The UBS share of the resulting gain on sale was CHF 81 million. 3 For 2015, consists of CHF (18) million from associates and CHF 0 million from joint ventures. For 2014,
consists of CHF 8 million from associates and CHF 0 million from joint ventures. 4 During 2015, UBS AG’s equity interest increased to 24.99% (20.0% as of 31 December 2014). 5 UBS AG’s equity interest amounts
to 17.3%. UBS AG is represented on the Board of Directors.
710
Note 30 Interests in subsidiaries and other entities (continued)
c) Interests in unconsolidated structured entities
During 2015, UBS AG sponsored the creation of various SEs and
interacted with a number of non-sponsored SEs, including securi-
tization vehicles, client vehicles as well as certain investment
funds, which UBS AG did not consolidate as of 31 December
2015 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
2015. In addition, the total assets held by the SEs in which UBS
AG had an interest as of 31 December 2015 are provided, except
for investment funds sponsored by third parties, for which the
carrying value of UBS AG’s interest as of 31 December 2015 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
Securitization
vehicles
Client
vehicles
31.12.15
Investment
funds
1,060
41
0
0
1,1013
304
305
463
101
972
0
3,396
452
4,102
631
631
6,102
57
101
102
0
6,362
0
0
Assets held by the unconsolidated structured entities in which UBS AG
had an interest (CHF billion)
1416
437
3208
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
Securitization
vehicles
Client
vehicles
1,955
26
466
2,4473
2454
2455
676
83
1152
40
4,029
522
4,996
27
27
31.12.14
Investment
funds
8,079
2
102
206
94
8,482
75
75
Maximum
exposure to loss1
7,624
200
1,636
101
3,498
937
19
Maximum
exposure to loss1
10,711
111
2,422
712
4,123
1,248
21
Total
7,624
200
97
101
3,498
45
11,565
661
661
Total
10,711
111
217
712
4,123
52
15,925
347
347
Assets held by the unconsolidated structured entities in which UBS AG
had an interest (CHF billion)
3556
1137
3048
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 2015, CHF 0.9 billion of the CHF 1.1 billion was held in
Corporate Center – Non-core and Legacy Portfolio. As of 31 December 2014, CHF 2.2 billion of the CHF 2.4 billion 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 in 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 2015: CHF 310 billion, 31 December 2014: CHF 296 billion) and the carrying value of UBS AG’s interests in the investment funds not sponsored by UBS (31 Decem-
ber 2015: CHF 10 billion, 31 December 2014: CHF 8 billion).
711
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
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
derivatives 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 2015 and 2014, 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 2015 and 2014, income and expenses from interests in
unconsolidated SEs primarily resulted from mark-to-market move-
ments recognized in net trading income, which have generally
been hedged with other financial instruments, as well as fee and
commission income received from UBS sponsored funds.
Interests in securitization vehicles
As of 31 December 2015 and 31 December 2014, UBS AG
retained interests in various securitization vehicles. As of
31 December 2015, a majority of our interests in securitization
vehicles related to a portfolio of credit default swap (CDS) posi-
tions referencing asset-backed securities (ABS), which are held
within Corporate Center – Non-core and Legacy Portfolio. The
Investment Bank also retained interests in securitization vehicles
related to financing, underwriting, secondary market and deriva-
tive 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 UBS AG’s interests in unconsolidated securitization
vehicles and the relative ranking and external credit rating of
those interests as of 31 December 2015 and 31 December 2014
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 2015 and 31 December 2014, UBS AG
retained 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
investment funds and receives fees that 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 that 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 generally backed by the
assets of the fund. UBS AG did not have any material exposure to
loss from these interests as of 31 December 2015 or as of
31 December 2014.
712
Note 30 Interests in subsidiaries and other entities (continued)
Interests in unconsolidated securitization vehicles1
Residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
31.12.15
Other
asset-backed
securities2
Re-securiti-
zation3
Total
CHF million, except where indicated
Sponsored by UBS AG
Interests in senior tranches
of which: rated investment grade
of which: defaulted
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
Total
of which: Trading portfolio assets
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
Interests in mezzanine tranches
of which: rated investment grade
of which: defaulted
Interests in junior tranches
of which: rated investment grade
of which: not rated
Total
of which: Trading portfolio assets
Total assets held by the vehicles in which UBS AG had an interest (CHF billion)
0
3
2
1
3
3
0
284
284
61
58
3
11
11
0
356
356
64
54
54
7
7
61
61
28
66
65
17
17
3
0
3
86
86
37
0
0
0
0
0
0
383
383
17
17
0
400
400
6
13
13
0
13
13
1
140
140
0
0
0
140
140
2
1 This table excludes derivative transactions with securitization vehicles. 2 Includes credit card, car and student loan structures. 3 Includes collateralized debt obligations.
66
54
13
10
7
2
1
77
77
29
873
872
95
92
3
14
11
3
983
983
109
713
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
Interests in unconsolidated securitization vehicles1 (continued)
CHF million, except where indicated
Sponsored by UBS AG
Interests in senior tranches
of which: rated investment grade
of which: defaulted
Interests in mezzanine tranches
of which: rated 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)
Not sponsored by UBS AG
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
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
31.12.14
Other
asset-backed
securities2
Re-securiti-
zation3
0
0
1
1
1
1
1
376
369
6
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
18
11
6
0
1
453
453
0
115
1
1
0
1
1
3
454
452
2
172
164
8
1
1
627
588
39
88
389
381
8
6
6
395
14
381
2
207
205
1
62
54
8
0
2
2
271
225
46
12
Total
450
442
8
22
13
2
8
472
91
381
20
1,329
1,313
15
531
457
69
5
89
67
10
1
11
1,949
1,865
85
331
1 This table excludes derivative transactions with securitization vehicles. 2 Includes credit card, car and student loan structures. 3 Includes collateralized debt obligations.
714
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 2015 or as of 31 December 2014. However, during
the respective reporting period UBS AG transferred assets, pro-
vided services and held instruments that did not qualify as an
interest in 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 enti-
ties during 2015 and 2014 as well as corresponding asset infor-
mation. 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 unconsoli-
dated SEs.
Sponsored unconsolidated structured entities in which UBS AG did not have an interest at year end1
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
31.12.15
Securitization
vehicles
Client vehicles
Investment
funds
2
0
18
20
82
(11)
0
208
197
13
0
57
48
104
124
As of or for the year ended
31.12.14
Securitization
vehicles
Client vehicles
Investment
funds
6
63
69
42
(51)
(158)
(208)
13
54
10
64
144
Total
(10)
57
274
321
Total
(44)
54
(85)
(75)
1 These tables exclude profit attributable to preferred noteholders of CHF 77 million for the year ended 31 December 2015 and CHF 142 million for the year ended 31 December 2014. 2 Represents the amount of
assets transferred to the respective securitization vehicles. Of the total amount transferred, CHF 3 billion was transferred by UBS AG (31 December 2014: CHF 1 billion) and CHF 5 billion was transferred by third parties
(31 December 2014: CHF 3 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 2014: CHF 1 billion)
and CHF 1 billion was transferred by third parties (31 December 2014: CHF 1 billion). 4 Represents the total net asset value of the respective investment funds.
715
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
During 2015 and 2014, UBS AG primarily earned fees and rec-
ognized net trading income from sponsored SEs in which UBS AG
did not hold an interest. The majority of the fee income arose
from investment funds that 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 income from mark-
to-market movements arising primarily from derivatives, such as
interest 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 income
reported does not reflect economic hedges or other mitigating
effects from UBS AG’s risk management activities.
During 2015, UBS AG and third parties transferred assets total-
ing CHF 9 billion (2014: CHF 6 billion) into sponsored securitiza-
tion and client vehicles created in 2015. For sponsored investment
funds, transfers arose during the period as investors invested and
redeemed positions, thereby changing the overall size of the
funds, which, when combined with market movements, resulted
in a total closing net asset value of CHF 12 billion (31 December
2014: CHF 14 billion).
Note 31 Business combinations
In 2015 and 2014, UBS AG did not complete any significant business combinations.
716
Note 32 Changes in organization and disposals
Measures to improve the resolvability of the Group in
response to too big to fail requirements in Switzerland
and other countries in which the Group operates
In December 2014, UBS Group AG completed an exchange offer
for the shares of UBS AG and established UBS Group AG as the
holding company for UBS Group. During 2015, UBS Group AG
filed and completed a court procedure under article 33 of the
Swiss Stock Exchange Act (SESTA procedure) resulting in the can-
cellation of the shares of the remaining minority shareholders of
UBS AG. As a result, UBS Group AG now owns 100% of the
outstanding shares of UBS AG.
In June 2015, UBS AG transferred its Personal & Corporate
Banking and Wealth Management business booked in Switzer-
land to UBS Switzerland AG.
In the second quarter of 2015, UBS AG also completed the
implementation of a more self-sufficient business and operating
model for UBS Limited, its investment banking subsidiary in the
UK, under which UBS Limited bears and retains a larger propor-
tion of the risk and reward in its business activities.
Also during 2015, UBS AG established a new subsidiary, UBS
Americas Holding LLC, which UBS AG intends to designate as its
intermediate holding company for its US subsidiaries prior to the
1 July 2016 deadline under new rules for foreign banks in the US
pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank). During the third quarter of 2015,
UBS AG contributed its equity participation in the principal US
operating subsidiaries to UBS Americas Holding LLC to meet the
requirement under Dodd-Frank that the intermediate holding
company own all of our US operations, except branches of UBS
AG.
Lastly, UBS AG also established UBS Asset Management AG, a
new subsidiary, in 2015.
Sale of subsidiaries and businesses
In 2015, UBS AG sold its Alternative Fund Services (AFS) business
to Mitsubishi UFJ Financial Group Investor Services. The Asset
Management Investment Fund Services business, which provides
fund administration for traditional mutual funds, was not included
in the sale. Upon completion of the sale, UBS AG recognized a
gain on sale of CHF 56 million and reclassified an associated net
foreign currency translation gain of CHF 119 million from Other
comprehensive income to the Income statement.
Also during 2015, UBS AG completed the sale of certain sub-
sidiaries and businesses within Wealth Management, which
resulted in the recognition of a combined gain of CHF 197 million.
Finally, in 2015, UBS AG agreed to sell certain businesses
within Wealth Management and these sales are expected to close
in 2016 subject to customary closing conditions. As of 31 Decem-
ber 2015, the assets and liabilities of these subsidiaries and busi-
nesses were presented as a disposal group held-for-sale within
Other assets and Other liabilities and amounted to CHF 279 mil-
lion and CHF 235 million, respectively. UBS recognized a loss of
CHF 28 million in 2015 related to these sales.
Restructuring expenses
Restructuring expenses arise from programs that materially
change either the scope of business undertaken by UBS AG or the
manner in which such business is conducted. Restructuring
expenses are temporary costs that are necessary to effect such
programs and include items such as severance and other person-
nel-related expenses, duplicate headcount costs, impairment and
accelerated depreciation of assets, contract termination costs,
consulting fees, and related infrastructure and system costs. These
costs are presented in the income statement according to the
underlying nature 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.
717
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 32 Changes in organization and disposals
Net restructuring expenses by business division and Corporate Center unit
CHF million
Wealth Management
Wealth Management Americas
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
of which: Services
of which: Non-core and Legacy Portfolio
Total net restructuring expenses
of which: personnel expenses
of which: general and administrative expenses
of which: depreciation and impairment of property, equipment and software
of which: amortization and impairment of intangible assets
Net restructuring expenses 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 expenses: personnel expenses
Net restructuring expenses 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
Other1
Total net restructuring expenses: general and administrative expenses
1 Mainly comprised of onerous real estate lease contracts.
718
For the year ended
31.12.15
31.12.14
31.12.13
323
137
101
82
396
194
138
56
1,233
458
760
12
2
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
For the year ended
31.12.15
31.12.14
31.12.13
311
38
108
46
5
(65)
15
458
145
35
138
28
4
(29)
6
327
65
(15)
88
3
5
8
3
156
For the year ended
31.12.15
31.12.14
31.12.13
109
31
7
16
187
316
95
760
49
23
3
11
148
82
2
319
35
8
2
4
76
59
364
548
Note 33 Operating leases and finance leases
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 2015, 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.
CHF million
Expenses for operating leases to be recognized in:
2016
2017
2018
2019
2020
2021 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
31.12.15
743
683
558
475
413
1,858
4,730
348
4,382
31.12.15
31.12.14
31.12.13
741
70
671
759
73
686
792
74
718
b) Finance lease receivables
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.
As of 31 December 2015, unguaranteed residual values of CHF
167 million had been accrued, and the accumulated allowance
for uncollectible minimum lease payments receivable amounted
to CHF 10 million. No contingent rents were received in 2015.
Lease receivables
CHF million
2016
2017–2020
thereafter
Total
31.12.15
Total minimum lease
payments
Unearned finance
income
Present value
341
651
158
1,150
23
38
6
67
318
613
152
1,083
719
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 34 Related parties
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 management employment contracts and receive pension benefits upon retire-
ment. Total remuneration of the non-independent members of the BoD and GEB members, including those who stepped down during
2015, is provided in the table below.
Remuneration of key management personnel
CHF million
Base salaries and other cash payments
Incentive awards – cash2
Annual incentive award under DCCP
Employer’s contributions to retirement benefit plans
Benefits in kind, fringe benefits (at market value)
Equity-based compensation3
Total
31.12.15
211
9
31.12.14
221
8
20
1
2
39
92
18
2
1
35
86
31.12.13
19
10
19
2
2
38
89
1 Includes role-based allowances that have been made in line with 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 2015, 2014 and 2013, equity-based compensation was entirely comprised of EOP awards.
The independent members of the BoD do not have employment or service contracts with UBS AG, 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 6.7 million in 2015, CHF 7.1 million in 2014 and CHF 7.6 million in 2013.
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 members1
Number of shares held by members of the BoD, GEB and parties closely linked to them2
1 Refer to Note 29 for more information. 2 Excludes shares granted under variable compensation plans with forfeiture provisions.
31.12.15
1,401,686
3,324,650
31.12.14
1,738,598
3,716,957
Of the share totals above, 95,597 shares were held by close
family members of key management personnel on 31 December
2015 and 31 December 2014. 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 December 2015 and 31 December 2014. Refer to Note 29 for
more information. As of 31 December 2015, no member of the
BoD or GEB was the beneficial owner of more than 1% of UBS
Group AG’s shares.
720
Note 34 Related parties (continued)
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 personnel1
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.
2015
2014
27
6
(1)
33
20
10
(3)
27
d) Other related party transactions with entities controlled by key management personnel
In 2015, UBS AG did not enter into transactions with entities which are directly or indirectly controlled or jointly controlled by UBS AG’s
key management personnel or their close family members. In 2014, UBS AG entered into transactions with Immo Heudorf AG (Swit-
zerland).
Other related party transactions
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year1
1 Comprised of loans.
2015
2014
0
0
0
0
10
0
10
0
In 2014 and 2015, entities controlled by key management personnel did not sell goods or provide services to UBS AG, and therefore
did not receive any fees from UBS AG. Furthermore, UBS AG did not provide services to such entities in both 2014 and 2015, and
therefore also did not receive any fees.
721
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 34 Related parties (continued)
e) Transactions with associates and joint ventures
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
Trading portfolio assets
Other assets
Payables
Due to customers
Other liabilities
722
2015
552
9
(85)
0
0
476
464
1
2014
288
313
(1)
(51)
3
552
539
1
As of or for the year ended
31.12.15
31.12.14
149
7
4
169
1
2
2015
2014
774
12
93
12,323
943
227
0
80
772
511
Note 35 Invested assets and net new money
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
assets held for cash management and transactional purposes, are
excluded from invested assets as UBS AG only administers the
assets and does not offer advice on how the assets should be
invested. 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
another, it is counted in both the business division that manages
the investment and the one that distributes it. This results in dou-
ble counting within UBS AG total invested assets, as both busi-
ness divisions are independently providing a service 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 Invest-
ment Bank to another business division, this produces net new
money even though client assets were already with UBS AG.
There were no such transfers between the Investment Bank and
other business divisions in 2015 and 2014.
Invested assets and net new money
CHF billion
Fund assets managed by UBS
Discretionary assets
Other invested assets
Total invested assets1
of which: double count
Net new money1
1 Includes double counts.
Development of invested assets
CHF billion
Total invested assets at the beginning of the year1
Net new money
Market movements2
Foreign currency translation
Other effects
of which: acquisitions / (divestments)
Total invested assets at the end of the year1
1 Includes double counts. 2 Includes interest and dividend income.
For the year ended
31.12.15
31.12.14
282
830
1,577
2,689
185
27.7
270
854
1,610
2,734
173
58.9
For the year ended
31.12.15
2,734
31.12.14
2,390
28
(24)
(31)
(16)
(16)
59
115
173
(3)
0
2,689
2,734
723
Consolidated financial statements Consolidated financial statements
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 rate1
For the year ended
31.12.15
31.12.14
31.12.15
31.12.14
31.12.13
1.00
1.09
1.48
0.83
0.99
1.20
1.55
0.83
0.97
1.06
1.47
0.80
0.92
1.21
1.51
0.86
0.92
1.23
1.45
0.95
1 Monthly income statement items of foreign operations with a functional currency other than the Swiss franc are translated with month-end rates into Swiss francs. Disclosed average rates for a year represent an aver-
age of 12 month-end rates, weighted according to the income and expense volumes of all foreign operations with the same functional currency for each month. Weighted average rates for individual business divisions
may deviate from the weighted average rates for UBS AG.
Note 37 Events after the reporting period
There have been no material events after the reporting period which would require disclosure in or adjustment to the 31 December
2015 Financial Statements.
724
Note 38 Swiss GAAP requirements
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 that present their financial statements
under IFRS to provide a narrative explanation of the main differ-
ences between IFRS and Swiss GAAP (FINMA Circular 2015 / 1
and the Banking Ordinance). Included in this Note are the
significant differences in the recognition and measurement
between IFRS and the provisions of the Banking Ordinance and
the guidelines of FINMA governing true and fair view financial
statement reporting pursuant to Article 25 through Article 42 of
the Banking Ordinance.
1. Consolidation
Under IFRS, all entities that are controlled by the holding entity are
consolidated.
Under Swiss GAAP, controlled entities that are deemed imma-
terial to the group or that are held temporarily only are exempt
from consolidation, but instead are recorded as participations or
financial investments.
2. Financial investments classified as available-for-sale
Under IFRS, financial investments classified as 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 dis-
posed 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 included in net profit or loss for the period. On disposal
of a financial investment classified as available-for-sale, the cumu-
lative unrealized gain or loss previously recognized in equity is
reclassified to the income statement.
Under Swiss GAAP, classification and measurement of financial
investments designated as available-for-sale depends on the
nature of the investment. Equity instruments with no permanent
holding intent, as well as debt instruments, are classified as Finan-
cial 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 invest-
ment are recorded 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.
Impairment 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
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 equity. When the hedged cash
flows materialize, the accumulated unrealized 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
exposures is deferred on the balance sheet as Other assets or
Other liabilities. The deferred amounts are released to the income
statement 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 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 debt instruments that consist of a debt host contract
and one or more embedded derivatives that do not relate to own
equity. Furthermore, changes in fair value attributable to changes
in unrealized own credit are not recognized in the income state-
ment and the balance sheet.
725
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 38 Swiss GAAP requirements (continued)
5. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is not
amortized but tested annually for impairment. Intangible assets
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 10 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 the non-Swiss
defined benefit plans and Swiss GAAP (FER 16) for the Swiss pen-
sion plan in its standalone financial statements. The requirements
of Swiss GAAP 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 IFRS 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 IFRS
is based on the yield of high-quality corporate bonds of the mar-
ket 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 requires that employer contributions to the pen-
sion fund are recognized as personnel expenses in the income
statement. Further, Swiss GAAP 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 economic benefit to, or obligation of, the employer arises from
the pension 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 available 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 and related cash collateral are
reported on a gross basis unless the restrictive IFRS netting require-
ments are met: i) existence of master netting agreements and
related collateral arrangements that are unconditional and legally
enforceable, both in the normal course of business and in the
event of default, bankruptcy or insolvency of UBS AG and its
counterparties, and ii) UBS AG’s intention to either settle on a net
basis or to realize the asset and settle the liability simultaneously.
Under Swiss GAAP, replacement values and related cash col-
lateral are generally reported on a net basis, provided the master
netting and the related collateral agreements are legally enforce-
able in the event of default, bankruptcy or insolvency of UBS AG’s
counterparties.
8. Negative interest
Under IFRS, negative interest income arising on a financial asset
does not meet the definition of interest income and, therefore,
negative interest on financial assets and negative interest on
financial liabilities is presented within interest expense and inter-
est income, respectively.
Under Swiss GAAP, negative interest on financial assets is pre-
sented within interest income and negative interest on financial
liabilities is presented within interest expense.
9. Extraordinary income and expense
Certain non-recurring and non-operating income and expense
items, such as realized gains or losses from the disposal of partici-
pations, fixed and intangible assets, as well as reversals of impair-
ments of participations and fixed assets, are classified as extraor-
dinary items under Swiss GAAP. This distinction is not available
under IFRS.
10. 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, the concept
of other comprehensive income does not exist and consequently
no Statement of comprehensive income is required. In addition,
various other presentational differences exist.
726
Note 39 Supplemental guarantor information required under SEC regulations
Guarantee of PaineWebber securities
Prior to its acquisition by UBS in 2000, Paine Webber Group Inc.
(PaineWebber) was an SEC registrant. Upon acquisition,
PaineWebber was merged into UBS Americas Inc., a wholly
owned subsidiary of UBS AG. Following the acquisition, UBS AG
entered into a full and unconditional guarantee of the senior
notes (Debt Securities) issued by PaineWebber. Under the guaran-
tee, if UBS Americas Inc. fails to make any timely payment under
the Debt Securities agreements, the holders of the Debt Securities
or the Debt Securities trustee may demand payment from UBS AG
without first proceeding against UBS Americas Inc.
As of 31 December 2015, the amount of outstanding senior
notes of UBS Americas Inc. was approximately CHF 150 million.
These senior notes mature between 2017 and 2018.
Guarantee of other securities
Certain US-domiciled entities that are 100% legally owned by
UBS AG have outstanding trust preferred securities, which are
registered under the US Securities Act. These entities, UBS Pre-
ferred Funding Trust IV and UBS Preferred Funding Trust V, are
not consolidated by UBS AG as UBS AG does not absorb any
variability from the performance of these entities. However, UBS
AG has fully and unconditionally guaranteed these securities.
The non-consolidated issuing US domiciled entities are pre-
sented in a separate column in the supplemental guarantor
information provided in the following tables. Amounts pre-
sented in this column are eliminated in the Elimination entries
column, as these entities are not consolidated. UBS AG’s obliga-
tions under the guarantee are subordinated to the prior pay-
ment in full of the deposit liabilities of UBS AG and all other
liabilities of UBS AG.
As of 31 December 2015, the outstanding amount of the pre-
ferred securities was USD 1.3 billion and the amount of senior
liabilities of UBS AG to which the holders of these securities would
be subordinated was approximately CHF 872 billion.
Joint liability of UBS Switzerland AG
In June 2015, the Retail & Corporate and Wealth Management
businesses booked in Switzerland were transferred from UBS AG
to UBS Switzerland AG through an asset transfer in accordance
with the Swiss Merger Act. Under the terms of the asset transfer
agreement, UBS Switzerland AG assumed joint liability for con-
tractual obligations of UBS AG existing on the asset transfer date,
including the existing guarantee of abovementioned PaineWeb-
ber and other securities. To reflect this joint liability, UBS Switzer-
land AG is, on a prospective basis, presented in a separate column
as a subsidiary co-guarantor.
727
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2015
UBS AG
(standalone)1
UBS
Switzerland AG
(standalone)1
UBS
Americas Inc.2
UBS Preferred
Funding Trust
IV & V
Other
subsidiaries2
Elimination
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,
equipment and software
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
8,911
(5,882)
3,029
(109)
2,921
2,852
5,252
10,335
21,359
6,800
549
672
22
8,044
13,315
1,136
12,180
77
3,040
(544)
2,496
(12)
2,484
2,539
709
564
6,296
1,607
2,579
11
4,197
2,099
489
1,610
1,662
(590)
1,072
0
1,072
7,751
274
496
9,592
6,281
3,442
159
73
9,955
(362)
(1,200)
837
12,103
1,610
837
63
63
63
63
63
63
31
32
1,515
(1,321)
194
4
198
4,115
224
(917)
3,620
1,265
1,647
76
12
3,001
619
(1,317)
1,936
3
(2,013)
1,888
(125)
0
(126)
(72)
(763)
(9,366)
(10,326)
0
2
0
0
2
(10,327)
(16)
(10,313)
(31)
0
13,178
(6,449)
6,729
(117)
6,612
17,184
5,696
1,112
30,605
15,954
8,219
918
107
25,198
5,407
(908)
6,314
77
3
1,933
(10,281)
6,235
1 Amounts presented for UBS AG (standalone) and UBS Switzerland AG (standalone) represent IFRS-standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone 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.
728
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 2015
UBS AG
(standalone)1
UBS
Switzerland AG
(standalone)1
UBS
Americas Inc.2
UBS Preferred
Funding Trust
IV & V
Other
subsidiaries2
Elimination
entries
UBS AG
(consolidated)
Comprehensive income attributable to UBS
AG shareholders
Net profit / (loss)
12,103
1,610
837
32
1,933
(10,281)
6,235
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
Total other comprehensive income that will
not be reclassified to the income statement,
net of tax
Total other comprehensive income
(11)
(51)
(503)
(564)
701
701
136
0
43
(72)
(29)
(337)
(337)
(366)
Total comprehensive income attributable to
shareholders
12,239
1,244
Total comprehensive income attributable to
preferred noteholders
Total comprehensive income attributable to non-
controlling interests
Total comprehensive income attributable to UBS
Preferred Funding Trust IV & V
18
0
0
0
0
0
121
(21)
0
100
(71)
(71)
29
866
0
0
0
Total comprehensive income
12,257
1,244
866
(843)
(16)
0
467
(19)
57
(266)
(64)
(518)
(859)
504
(848)
27
27
(832)
(15)
(15)
489
304
304
(545)
1,101
(9,792)
5,690
0
1
0
1,102
0
0
(40)
(9,832)
18
1
0
5,709
0
0
0
32
0
0
40
72
1 Amounts presented for UBS AG (standalone) and UBS Switzerland AG (standalone) represent IFRS-standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone 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.
729
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated balance sheet
CHF million
As of 31 December 2015
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, equipment and software
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
Switzerland AG
(standalone)1
UBS
Americas Inc.2
UBS Preferred
Funding Trust
IV & V
Other
subsidiaries2
Elimination
entries
UBS AG
(consolidated)
45,125
29,225
27,925
61,253
94,132
53,708
175,943
19,026
6,303
89,052
32,044
45,689
6,499
347
2,332
12,108
647,006
31,725
34,094
20,658
21,193
170,718
31,399
61,630
102,483
70,792
1,680
40,255
586,628
58,423
1,954
0
60,378
647,006
38,701
3,224
7,414
16,258
1,736
0
6,033
1,056
0
186,872
23,184
14
15
0
845
1,255
286,608
18,948
2,493
6,505
128
5,655
374
0
231,252
8,274
179
1,806
275,611
10,997
0
0
4,971
12,776
38,007
21,039
5,931
3,038
21,463
5,964
199
47,054
5,360
1
972
5,112
7,766
10,041
186,654
26,320
23,437
11,490
3,919
21,109
6,438
288
53,633
3,126
1,969
16,683
168,411
18,243
0
0
10,997
286,608
18,243
186,654
1,310
2,509
27,510
6,506
14,586
30,132
2,264
28,921
12,678
2,628
14,554
5,996
1
197
1,139
1,890
3,111
0
(60,868)
(54,268)
(45,243)
(9,194)
(7,066)
(64,925)
(14,962)
(3,322)
(24,809)
(4,042)
(44,751)
0
(30)
0
(4,266)
1,310
152,359
(330,680)
4
1
4
4
1,302
0
1,306
1,310
5,782
2,274
16,244
11,317
29,877
15,033
4,675
34,002
321
319
(70,944)
(54,268)
(45,243)
(7,420)
(64,928)
(14,962)
(3,598)
(18,848)
(153)
17
20,179
(4,318)
140,023
(284,664)
12,296
0
41
(44,714)
(1,302)
0
12,336
(46,016)
152,359
(330,680)
91,306
11,866
25,584
67,893
124,047
51,943
167,435
23,763
5,808
312,723
62,543
954
7,683
6,568
12,833
22,249
943,256
11,836
8,029
9,653
29,137
162,430
38,282
62,995
402,522
82,359
4,163
74,606
886,013
55,248
1,954
41
57,243
943,256
1 Amounts presented for UBS AG (standalone) and UBS Switzerland AG (standalone) represent IFRS-standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone 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.
730
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 2015
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 assets2
Purchase of property, equipment and software
Disposal of property, equipment and software
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)
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 activity related to group internal capital transactions and dividends3
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
Money market paper4
Total
UBS AG1
(1,457)
UBS
Switzerland AG1
2,681
UBS
Americas Inc.1
(525)
Other
subsidiaries1
1,298
(12)
464
(1,423)
503
(15,144)
(15,613)
(5,603)
(2,626)
46,882
(42,415)
(108)
0
(30,512)
(34,382)
(1,309)
(52,760)
100,662
47,902
45,125
2,072
704
47,902
0
0
(5)
0
3,815
3,810
24
0
772
(402)
0
0
33,293
33,687
67
40,246
0
40,246
38,701
1,438
107
40,246
(1)
13
(299)
9
230
(47)
(826)
0
7
(129)
0
0
(114)
(1,062)
(241)
(1,875)
8,960
7,084
4,971
2,009
104
7,084
0
0
(114)
35
3,494
3,415
0
0
129
(1,274)
0
(5)
(2,666)
(3,817)
(259)
638
7,093
7,731
2,509
5,213
9
7,731
UBS AG
(consolidated)
1,997
(13)
477
(1,841)
547
(7,605)
(8,434)
(6,404)
(2,626)
47,790
(44,221)
(108)
(5)
0
(5,573)
(1,742)
(13,753)
116,715
102,962
91,306
10,732
924
102,9625
1 Cash flows generally represent a third-party view from a UBS AG (consolidated) perspective. As a consequence, the non-consolidated UBS Preferred Funding Trusts IV and V are not presented in this table. For the year
ended 31 December 2015, these trusts had cash inflows of CHF 77 million from operating activities and an equivalent cash outflow for dividends paid to preferred note holders. 2 Includes dividends received from asso-
ciates. 3 Includes transfer of cash and cash equivalents from UBS AG to UBS Switzerland AG of CHF 33,283 million. Refer to “Establishment of UBS Switzerland AG” in the “Legal entity financial and regulatory infor-
mation” section of this report for more information on the business transfer from UBS AG to UBS Switzerland AG. 4 Money market paper is included in the balance sheet under Trading portfolio assets and Financial
investments available-for-sale. 5 CHF 3,963 million of cash and cash equivalents were restricted.
731
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2014
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, equipment and software
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
UBS AG
(standalone)1
UBS
Americas Inc.2
Other
subsidiaries2
Elimination
entries
UBS AG
(consolidated)
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) represent IFRS-standalone information. Refer to the UBS AG standalone financial statements for information prepared in accordance with Swiss GAAP. 2 Amounts pre-
sented in these columns serve as a basis for preparing UBS AG (consolidated) financial statements in accordance with IFRS.
732
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 2014
UBS AG
(standalone)1
UBS
Americas Inc.2
Other
subsidiaries2
Elimination
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
4,330
2,779
1,086
(4,693)
3,502
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.
733
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
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, equipment and software
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
subsidiaries2
Elimination
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.
734
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 assets2
Purchase of property, equipment and software
Disposal of property, equipment and software
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 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 activity related to group internal capital transactions and dividends
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
Money market paper3
Total
UBS AG1
7,438
UBS
Americas Inc.1
(1,814)
Other
subsidiaries1
1,608
UBS AG
(consolidated)
7,231
(18)
41
(1,521)
313
7,774
6,589
(3,984)
(719)
(938)
40,272
(32,083)
(110)
0
(319)
2,118
7,394
23,539
77,123
100,662
95,711
4,119
832
100,662
0
9
(300)
14
(568)
(845)
0
0
0
24
(494)
0
0
0
(470)
840
(2,289)
11,249
8,960
6,440
2,489
31
8,960
0
20
(94)
23
(3,098)
(3,149)
1,064
0
0
686
(1,632)
0
(3)
319
434
289
(819)
7,911
7,093
1,923
5,164
6
7,093
(18)
70
(1,915)
350
4,108
2,596
(2,921)
(719)
(938)
40,982
(34,210)
(110)
(3)
0
2,081
8,522
20,430
96,284
116,715
104,073
11,772
869
116,7154
1 Cash flow generally represent a third-party view from a UBS AG (consolidated) perspective. 2 Includes dividends received from associates. 3 Money market paper is included in the balance sheet under Trading port-
folio assets and Financial investments available-for-sale. 4 CHF 4,178 million of cash and cash equivalents were restricted.
735
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2013
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, equipment and software
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
UBS AG
(standalone)1
UBS
Americas Inc.2
Other
subsidiaries2
Elimination
entries
UBS AG
(consolidated)
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) represent IFRS-standalone information. Refer to the UBS AG standalone financial statements for information prepared in accordance with Swiss GAAP. 2 Amounts pre-
sented in these columns serve as a basis for preparing UBS AG (consolidated) financial statements in accordance with IFRS.
736
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
subsidiaries2
Elimination
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
2,634
630
(347)
256
3,172
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
(471)
(154)
(1,520)
(196)
(2,145)
0
0
0
(196)
60
0
0
60
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.
737
Consolidated financial statements Consolidated financial statements
Notes to the UBS AG consolidated financial statements
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 assets2
Purchase of property, equipment and software
Disposal of property, equipment and software
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 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 activity related to group internal capital transactions and dividends
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
Money market paper3
Total
UBS AG1
58,756
UBS
Americas Inc.1
(8,311)
Other
subsidiaries1
3,929
UBS AG
(consolidated)
54,374
(49)
136
(1,032)
545
751
351
(1,400)
(341)
1
(564)
27,442
(65,112)
(1,415)
0
12
(41,377)
(2,329)
15,400
61,723
77,123
69,808
3,091
4,224
77,123
0
0
(160)
5
6,076
5,922
0
0
0
0
59
(486)
0
0
23
(405)
(203)
(2,998)
14,247
11,249
8,893
2,327
28
11,249
0
0
(44)
91
(861)
(815)
(2,890)
0
0
0
513
(3,356)
0
(6)
(35)
(5,774)
(174)
(2,834)
10,745
7,911
2,178
5,699
35
7,911
(49)
136
(1,236)
639
5,966
5,457
(4,290)
(341)
1
(564)
28,014
(68,954)
(1,415)
(6)
0
(47,555)
(2,705)
9,569
86,715
96,284
80,879
11,117
4,288
96,2844
1 Cash flow generally represent a third-party view from a UBS AG (consolidated) perspective. 2 Includes dividends received from associates. 3 Money market paper is included in the balance sheet under Trading port-
folio assets and Financial investments available-for-sale. 4 CHF 4,534 million of cash and cash equivalents were restricted.
738
Legal entity
financial and
regulatory
information
Legal entity financial and regulatory information
Table of contents
742
Introduction
UBS Group AG
766 Establishment of UBS Switzerland AG
UBS AG
743 UBS Group AG standalone financial statements
772 UBS AG standalone financial statements
Income statement
743
744 Balance sheet
745 Statement of appropriation of retained earnings
and proposed dividend distribution out of capital
contribution reserve
Income statement
772
773 Balance sheet
775 Statement of changes in equity
775 Statement of appropriation of retained earnings and
proposed dividend distribution
746
747
749
749
749
749
749
750
750
750
750
751
751
752
752
752
752
753
754
754
754
755
756
12
13
14
15
16
17
21
22
23
746 Notes to the UBS Group AG standalone
2
3
4
5
financial statements
1
Corporate information
Accounting policies
Other operating income
Financial Income
Personnel expenses
Other operating expenses
Financial expenses
Liquid assets
Marketable securities
9
10 Other short-term receivables
11
8
6
7
Accrued income and prepaid expenses
Investments in subsidiaries
Financial assets
Accrued expenses and deferred income
Long-term interest-bearing liabilities
Compensation-related long-term liabilities
Share capital
Treasury shares
18
19 Guarantees
20
Assets pledged to secure own liabilities
Contingent liabilities
Significant shareholders
Share and option ownership of the members of the
Board of Directors, the Group Executive Board and
other employees
Related parties
758
24
759 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
761
762
740
2
1
4
3a
3b
776
780
780
780
776 Notes to the UBS AG standalone financial statements
Name, legal form and registered office
776
Accounting policies
Net trading income by business
Net trading income by underlying risk category
Sundry ordinary income and expenses
Personnel expenses
General and administrative expenses
Extraordinary income and expenses
Taxes
Securities financing transactions
9
10a Collateral for loans and off-balance sheet transac-
783
781
782
781
782
8
6
5
7
783
784
784
784
785
786
787
787
787
787
788
788
789
789
790
790
791
791
791
tions
10b Impaired financial instruments
11a Allowances
11b Provisions
12
Trading portfolio and other financial instruments
measured at fair value
Derivative instruments
Financial investments by instrument type
14a
14b Financial investments by counterparty rating – debt
13
instruments
15a Other assets
15b Other liabilities
Pledged assets
16
Country risk of total assets
Structured debt instruments
18
19a Share capital
19b Significant shareholders
20
17
Swiss pension plan and non-Swiss defined benefit
plans
Share-based compensation
Related parties
Fiduciary transactions
21
22
23
791
Invested assets and net new money
24a
24b Development of invested assets
792
793 Report of the statutory auditor on the financial
795
statements
Independent auditor’s report related to the issue of new
shares from conditional capital
796 UBS AG (standalone) regulatory information
UBS Switzerland AG
800 UBS Switzerland AG standalone financial statements
Income statement
800
801 Balance sheet
803 Statement of changes in equity
803 Statement of appropriation of retained earnings
811
812
812
812
812
812
813
813
814
814
814
815
815
816
816
11
Derivative instruments
Financial investments by instrument type
12a
12b Financial investments by counterparty rating – debt
instruments
13a Other assets
13b Other liabilities
Pledged assets
14
Country risk of total assets
18
15
16a Share capital
16b Significant shareholders
Swiss pension plan
17
Share-based compensation
Related parties
Fiduciary transactions
Invested assets and net new money
21a
21b Development of invested assets
19
20
804 Notes to the UBS Switzerland AG standalone financial
statements
817 Report of the statutory auditor on the financial
statements
1
804
804
807
807
807
808
808
808
809
809
809
810
810
2
3a
3b
4
5
6
7
8a
8b
9a
9b
10
Name, legal form and registered office
Accounting policies
Net trading income by business
Net trading income by underlying risk category
Personnel expenses
General and administrative expenses
Taxes
Securities financing transactions
Collateral for loans and off-balance sheet transactions
Impaired financial instruments
Allowances
Provisions
Trading portfolio and other financial instruments
measured at fair value
819 UBS Switzerland AG (standalone)
regulatory information
UBS Limited
823 UBS Limited (standalone) financial and regulatory
information
Income statement
823
823 Statement of comprehensive income
824 Balance sheet
825 Basis of accounting
825 Capital information
741
Legal entity financial and regulatory information UBS Limited
Select standalone financial information and standalone regulatory
information in accordance with FINMA Circular 2008 / 22 “Disclo-
sure – banks.”
Other legal entity-specific disclosures
In addition to legal entity disclosures provided within this Annual
Report, UBS provides further legal entity-specific disclosures,
including disclosures in accordance with Article 89 of the Euro-
pean Union Capital Requirements Directive IV (CRD IV), in “Sub-
sidiary and branch information” at www.ubs.com / investors.
Under CRD IV, UBS is required to provide certain disclosures
(such as nature of activities, location, turnover, number of employ-
ees, and profit or loss before tax), on an annual basis by Member
State and by third country in which it has an establishment. UBS
subsidiaries domiciled in Luxembourg, France, Germany, Italy,
Monaco, The Netherlands, Spain and the UK are in scope of this
requirement.
➔ Refer to “Subsidiary and branch information” at
www.ubs.com / investors for more information
All references to 2015 and 2014 refer to the financial years ended
31 December 2015 and 2014, respectively.
Legal entity financial and regulatory information
Introduction
This section of the Annual Report includes select financial and
regulatory information for UBS Group AG, the holding company
of the UBS Group, and those legal entities within the UBS Group
that are considered by the Swiss Financial Market Supervisory
Authority (FINMA) to be significant for Pillar 3 reporting purposes
and consists of:
UBS Group AG
Audited 2015 standalone financial statements prepared in accor-
dance with the principles of the Swiss Law on Accounting and
Financial Reporting (32nd title of the Swiss Code of Obligations).
Establishment of UBS Switzerland AG
Transition disclosures including pre- and post-transfer balance
sheets for UBS AG and UBS Switzerland AG.
UBS AG
– Audited 2015 standalone financial statements prepared in
accordance with Swiss GAAP (FINMA Circular 2015 / 1 and the
Banking Ordinance); and
– Standalone regulatory disclosures in accordance with FINMA
Circular 2008 / 22 “Disclosure – banks.”
UBS Switzerland AG
– Audited 2015 standalone financial statements prepared in
accordance with Swiss GAAP (FINMA Circular 2015 / 1 and the
Banking Ordinance); and
– Standalone regulatory disclosures in accordance with FINMA
Circular 2008 / 22 “Disclosure – banks.”
The financial statements of UBS Group AG, UBS AG and UBS
Switzerland AG have been audited by Ernst & Young Ltd.
742
UBS Group AG standalone
financial statements
Audited |
Income statement
CHF million
Dividend income from the investment in UBS AG
Other operating income
Financial 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 year ended
For the period ended
% change from
Note
31.12.15
31.12.14
31.12.14
3
4
5
6
7
2,869
49
294
3,213
9
171
267
447
2,765
9
2,756
551
0
8
0
8
0
10
7
17
(10)
0
(10)
UBS Group AG was incorporated on 10 June 2014. The Income statement and corresponding Notes presented for the period ended
on 31 December 2014 include income and expenses for the period from 10 June to 31 December 2014 only.
743
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS Group AG standalone financial statements
Balance sheet
CHF million
Assets
Liquid assets
Marketable securities
Other short-term receivables
Accrued income and prepaid expenses
Total current assets
Investments in subsidiaries
of which: 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
Long-term interest-bearing liabilities
Compensation-related long-term liabilities
Total long-term liabilities
Total liabilities
of which: amounts due to subsidiaries
Equity
Share capital
General reserves
of which: statutory capital reserve
of which: capital contribution reserve
of which: other capital reserve
Voluntary earnings reserve
Treasury shares
Reserve for own shares held by subsidiaries
Net profit / (loss) for the period
Equity attributable to shareholders
Total liabilities and equity
744
Note
31.12.15
31.12.14
% change from
31.12.14
8
9
10
11
12
13
14
15
16
17
18
1,442
85
632
264
2,422
40,431
40,376
5,475
54
45,959
48,381
7,503
736
1,006
1,741
5,106
3,119
8,225
9,966
750
385
37,006
37,006
38,035
(1,029)
(10)
(1,724)
1
2,756
38,415
48,381
742
113
511
91
1,457
38,691
38,691
320
64
39,074
40,531
1,239
227
838
1,065
0
2,313
2,313
3,377
227
372
38,321
38,321
39,428
(1,107)
0
(1,529)
0
(10)
37,154
40,531
94
(25)
24
190
66
4
4
(16)
18
19
505
224
20
64
35
256
195
230
4
(3)
(3)
(4)
(7)
13
3
19
Statement of appropriation of retained earnings and proposed dividend distribution out of capital contribution reserve
The Board of Directors proposes that the Annual General Meeting of Shareholders (AGM) on 10 May 2016 approves the following
appropriation of retained earnings.
Proposed appropriation of retained earnings
CHF million
Net profit for the period
Retained earnings carried forward
Total retained earnings available for appropriation
Proposed appropriation of retained earnings
Appropriation to other capital reserve
Appropriation to voluntary earnings reserve
Retained earnings carried forward
For the year ended
31.12.15
2,756
0
2,756
(1,029)
(1,727)
0
Proposed dividend distribution out of capital contribution reserve
The Board of Directors proposes that the Annual General Meeting
of Shareholders (AGM) on 10 May 2016 approves an ordinary
dividend distribution of CHF 0.60 in cash per share of CHF 0.10
par value and a special dividend distribution of CHF 0.25 in cash
per share of CHF 0.10 par value payable out of the capital contri-
bution reserve. Provided that the proposed dividend distribution
out of the capital contribution reserve is approved, the total pay-
ment of CHF 0.85 per share would be made on 17 May 2016 to
holders of shares on the record date 13 May 2016. The shares will
be traded ex-dividend as of 12 May 2016 and, accordingly, the
last day on which the shares may be traded with entitlement to
receive the dividend will be 11 May 2016.
CHF million, except where indicated
Total statutory capital reserve: capital contribution reserve before proposed distribution1, 2
Proposed ordinary distribution of capital contribution reserve within statutory capital reserve: CHF 0.60 per dividend-bearing share3
Proposed special distribution of capital contribution reserve within statutory capital reserve: CHF 0.25 per dividend-bearing share3
Total statutory capital reserve: capital contribution reserve after proposed distribution
31.12.15
38,035
(2,310)
(962)
34,763
1 The capital contribution reserve of CHF 38,035 million is a component of the statutory capital reserve of CHF 37,006 million after taking into account the negative other capital reserve of CHF 1,029 million. 2 The
Swiss Federal tax authorities confirmed that UBS Group AG would be able to repay to shareholders a maximum amount of CHF 25.6 billion of the disclosed capital contribution reserve (status as of 31 December 2014)
without being subject to the 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 the share-for-share exchange. The amount decreased to CHF 22.9 billion as of 31 December 2015 subsequent to distributions in 2015. 3 Dividend-bearing shares are all shares
issued except for treasury shares held by UBS Group AG as of the record date. The CHF 2,310 million and CHF 962 million presented are based on the total number of shares issued as of 31 December 2015.
745
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Group AG standalone financial statements
Notes to the UBS Group AG standalone financial statements
Note 1 Corporate information
UBS Group AG is incorporated and domiciled in Switzerland and
its registered office is at Bahnhofstrasse 45, CH-8001 Zurich,
Switzerland. UBS Group AG operates under the Swiss Code of
Obligations as a stock corporation (Aktiengesellschaft), a corpora-
tion that has issued shares of common stock to investors.
and will continue on this basis. Furthermore, obligations related
to other compensation awards, 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.
UBS Group AG is the ultimate holding company of the UBS
Group, the grantor of the majority of UBS’s deferred compensa-
tion plans and also issues long-term capital instruments.
Establishment of UBS Group AG
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. On 28 November 2014, the first settlement of the
exchange offer was completed and UBS Group AG became the
holding company of UBS Group and the parent company of UBS
AG. Following the exchange offer and subsequent private exchanges
on a one-for-one basis with various shareholders and banks in Swit-
zerland and elsewhere outside the United States, UBS Group AG
acquired 96.68% of UBS AG shares by 31 December 2014.
In March 2015, UBS Group AG initiated a procedure under
article 33 of the Swiss Stock Exchange Act (SESTA procedure).
Upon the successful completion of the SESTA procedure in August
2015, all UBS AG shares that had remained publicly held were
canceled and UBS Group AG shares were delivered as compensa-
tion. As a result, UBS Group AG now owns 100% of the issued
shares of UBS AG. UBS AG shares traded on 27 August 2015 for
the last time on the SIX Swiss Exchange.
Transfer of deferred compensation plans
As part of the Group reorganization in 2014, UBS Group AG
assumed obligations of UBS AG as grantor in connection with cer-
tain outstanding awards under employee share, option, notional
fund and deferred cash compensation 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. As a result of the trans-
fer, UBS Group AG assumed all responsibilities and rights associated
with the grantor role for the plans from UBS AG, including the right
of recharge to its subsidiaries employing the personnel.
Obligations relating to deferred compensation plans which are
required to be, and have been, granted by employing and / or
sponsoring subsidiaries have not been assumed by UBS Group AG
Establishment of UBS Business Solutions AG
In 2015, UBS Business Solutions AG was established as a direct
subsidiary of UBS Group AG. Its purpose is to act as the Group
service company. As part of the establishment of UBS Business
Solutions AG, UBS AG paid a cash dividend of CHF 30 million and
transferred its participation in the Poland Service Center (PSC) as a
dividend-in-kind at book value of CHF 5 million to UBS Group AG.
UBS Group AG then contributed CHF 30 million and the participa-
tion in the PSC at book value into UBS Business Solutions AG.
Further, during 2015, UBS Business Solutions AG purchased
UBS Corporate Management (Shanghai) Co. Ltd from UBS AG for
CHF 4 million in cash consideration.
UBS Business Solutions (India) Private Limited was incorporated
on 18 November 2015 as a direct subsidiary of UBS Business Solu-
tions AG.
Issuance of additional tier 1 capital instruments
During 2015, UBS Group AG issued perpetual capital notes, which
qualify as Basel III additional tier 1 (AT1) capital on a consolidated UBS
Group basis. The issuances consisted of: i) EUR 1.0 billion, low-trigger
loss-absorbing capital notes with a fixed-rate initial coupon of 5.75%
and an optional first call date in 7 years, ii) USD 1.25 billion high-
trigger loss-absorbing capital notes with a fixed-rate initial coupon of
7.125% and an optional first call date in 5 years, iii) USD 1.25 billion
low-trigger loss-absorbing capital notes with a fixed-rate initial cou-
pon of 7% and an optional first call date in 10 years, iv) USD 1.575
billion high-trigger loss-absorbing capital notes with a fixed-rate ini-
tial coupon of 6.875% and an optional first call date in 10 years.
Furthermore, UBS Group AG granted deferred contingent cap-
ital plan (DCCP) awards to UBS Group employees during 2015.
These DCCP awards also qualify as Basel III AT1 capital on a con-
solidated UBS Group basis.
As of 31 December 2015, UBS Group AG’s distributable items for
the purpose of additional tier 1 capital instruments were CHF 38.0
billion. For this purpose, distributable items are defined in the terms
and conditions of the relevant instruments as the aggregate of (i)
net profits carried forward and (ii) freely distributable reserves, in
each case, less any amounts that must be contributed to legal
reserves under applicable law.
746
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 functional currency of UBS Group AG is the Swiss franc.
The significant accounting and valuation principles applied are
described below.
Foreign currency translation
Transactions denominated in foreign currency are translated into
Swiss francs at the spot exchange rate on the date of the transac-
tion. At the balance sheet date, all current assets and short-term
liabilities as well as Financial assets measured at fair value, which
are denominated in a foreign currency, are translated into Swiss
francs using the closing exchange rate. For other non-current
assets and long-term liabilities, where the asset mirrors the terms
of a corresponding liability or the asset and liability otherwise
form an economic hedge relationship, the asset and liability are
treated as one unit of account for foreign currency translation
purposes, with offsetting unrealized foreign currency translation
gains and losses based on the closing exchange rate presented
net in the income statement. Investments in subsidiaries mea-
sured at historic cost are translated at the exchange rate on the
date of the transaction. All currency translation effects are recog-
nized in the income statement.
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 recognized
in Financial income and Financial expenses, respectively.
Investments in AIVs 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.
Financial assets further include loans granted to UBS AG which
substantially mirror the terms of additional tier 1 perpetual capital
notes issued. The loans are measured at nominal value.
➔ Refer to Note 13 for more information
Investments in subsidiaries
Investments in subsidiaries are equity interests that are held to
carry on the business of UBS Group or for other strategic pur-
poses. They include all subsidiaries directly held by UBS Group AG
through which UBS conducts its business on a global basis. The
investments are measured individually and carried at cost less
impairment.
➔ Refer to Note 2 to the consolidated financial statements for a
description of businesses of the UBS Group
➔ Refer to Note 30 to the consolidated financial statements
The main currency translation rates used by UBS Group AG can
Treasury shares
be found in Note 36 to the consolidated financial statements.
Marketable securities
Marketable securities include investments in alternative invest-
ment vehicles (AIVs) with a short-term holding period. The hold-
ing 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 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 AIVs 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
Treasury shares acquired by UBS Group AG are recognized at
acquisition cost and are presented as a deduction from sharehold-
ers’ 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, respec-
tively. For settlement of related share awards, the realized gains
and losses on treasury shares represent the difference between
the market price of the treasury shares at settlement and their
acquisition cost.
For shares of UBS Group AG acquired by a direct or indirect
subsidiary, a Reserve for own shares held by subsidiaries is gener-
ally created in UBS Group AG’s equity. However, where UBS AG or
UBS Switzerland AG acquire shares of UBS Group AG and hold
them in their trading portfolios, no Reserve for own shares held
by subsidiaries is created.
➔ Refer to Note 18 for more information
747
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Group AG standalone financial statements
Note 2 Accounting policies (continued)
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 in 2014 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 that was recorded in the standalone
financial statements of UBS AG and transferred to UBS Group AG
(net liability related to deferred compensation plan transfer) in
2014. The fair value of this net liability is taken into account in the
income statement over the average vesting period (for share
awards) or upon exercise / expiry (for option awards) as Other
operating income. Upon exercise of option awards that are set-
tled using conditional capital, the fair value of this net liability is
recorded in the Statutory capital reserve within General reserves.
The difference between the fair value of the hedging assets and
the fair value of the obligations on the plans transferred was com-
pensated for with a loan from UBS AG to UBS Group AG.
Equity participation plans
The grant date fair value of equity-settled share-based compensa-
tion 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 Compensation-related long-term liabilities if vesting
is more than 12 months after the balance sheet date or as Accrued
expenses and 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 recog-
nized 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 expenses, respectively. Realized gains and
losses on share awards represent the difference between the mar-
ket 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 conditional
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 any paid amount exceeding the
nominal value is considered to be share premium and is recorded
in the Statutory capital reserve within General reserves.
Other compensation plans
Deferred compensation plans that are not share-based, including
deferred contingent capital plan (DCCP) awards and awards in
the form of AIVs, are accounted for as cash-settled awards. The
fair value of the amount payable to employees that is settled in
cash is recognized as a liability generally over the vesting period,
as Compensation-related long-term liabilities if vesting is more
than 12 months after the balance sheet date and as Accrued
expenses and deferred income if vesting is within 12 months from
the balance sheet date. The liabilities are remeasured at each bal-
ance sheet date at the fair value of the corresponding award and
investments in AIVs, respectively. Gains and losses resulting from
fair value changes in the liabilities are recognized in Other operat-
ing income and Other operating expenses, respectively.
Recharge of compensation expenses
Expenses related to deferred compensation plans are recharged
by UBS Group AG to its subsidiaries employing the personnel.
Upon recharge, UBS Group AG recognizes a receivable from its
subsidiaries and a liability representing its obligation towards
employees.
Dispensations in the standalone financial statements
As UBS Group AG prepares consolidated financial statements in
accordance with IFRS, UBS Group AG is exempt from various dis-
closures in the standalone financial statements. The dispensations
include the management report and the statement of cash flows,
as well as certain note disclosures.
748
Income statement notes
Note 3 Other operating income
CHF million
Fair value gains on alternative investment vehicles awards
Realized gains from the settlement of equity-settled awards
Amortization of net liability related to deferred compensation plan transfer
Commission income from guarantees issued
Total other operating income
For the year ended
For the period ended
% change from
31.12.15
31.12.14
13
29
6
1
49
7
0
0
0
8
31.12.14
82
551
Note 4 Financial Income
CHF million
For the year ended
For the period ended
% change from
31.12.15
31.12.14
31.12.14
Realized gains on disposition of and settlement of equity-settled awards with treasury shares
Interest income on long-term receivables from UBS AG
Foreign currency translation gains
Total financial income
32
253
10
294
0
0
0
0
Note 5 Personnel expenses
Personnel expenses include recharges from UBS AG for person-
nel-related costs for activities performed by UBS AG personnel for
the benefit of UBS Group AG.
UBS Group AG had no employees throughout 2015. All
employees of the UBS Group, including the members of the
Group Executive Board of UBS Group AG, were employed by sub-
sidiaries of UBS Group AG. As of 31 December 2015, the UBS
Group employed 60,099 personnel (31 December 2014: 60,155)
on a full-time equivalent basis.
Note 6 Other operating expenses
CHF million
Realized losses from the settlement of equity-settled awards
Capital tax
Stamp tax
Other
Total other operating expenses
Note 7 Financial expenses
CHF million
Fair value losses on marketable securities and financial assets
Interest expense on interest-bearing liabilities
Total financial expenses
For the year ended
For the period ended
% change from
31.12.15
31.12.14
31.12.14
147
13
1
11
171
0
8
2
0
10
66
(69)
For the year ended
For the period ended
% change from
31.12.15
31.12.14
13
255
267
7
0
7
31.12.14
83
749
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Group AG standalone financial statements
Balance sheet notes
Note 8 Liquid assets
Liquid assets comprise current accounts held at UBS Switzerland AG.
Note 9 Marketable securities
Marketable securities include investments in AIVs related to compensation awards vesting within 12 months after the balance sheet
date.
Note 10 Other short-term receivables
Other short-term receivables are mainly comprised of receivables from employing entities related to compensation awards.
Note 11 Accrued income and prepaid expenses
CHF million
Short-term portion of prepaid awards
Accrued interest income
Total accrued income and prepaid expenses
31.12.15
31.12.14
7
257
264
91
0
91
% change from
31.12.14
(92)
190
750
Note 12 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. 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 respec-
tive registered office is located is also generally the principal place
of business.
Directly held subsidiaries as of 31 December 2015
Company
UBS AG
UBS Business Solutions AG
UBS Group Funding (Jersey) Ltd.
Registered office
Zurich and Basel, Switzerland
Zurich, Switzerland
St. Helier, Jersey
Individually significant subsidiaries of UBS AG as of 31 December 2015
Company
UBS Americas Holding LLC
UBS Bank USA
UBS Financial Services Inc.
UBS Limited
UBS Securities LLC
UBS Switzerland AG
Registered office
Primary business division
Wilmington, Delaware, USA
Corporate Center
Salt Lake City, Utah, USA
Wealth Management Americas
Wilmington, Delaware, USA
Wealth Management Americas
London, United Kingdom
Wilmington, Delaware, USA
Investment Bank
Investment Bank
Zurich, Switzerland
Personal & Corporate Banking
Share capital in million
Equity interest
accumulated in %
CHF
CHF
CHF
385.8
1.0
0.0
100.0
100.0
100.0
Share capital in million
USD 1,200.01
0.0
USD
USD
0.0
GBP
226.6
USD 1,283.12
10.0
CHF
Equity interest
accumulated in %
100.0
100.0
100.0
100.0
100.0
100.0
1 Comprised of common share capital of USD 1,000 and non-voting preferred share capital of USD 1,200,000,000. 2 Comprised of common share capital of USD 100,000 and non-voting preferred share capital of
USD 1,283,000,000.
Individually significant subsidiaries of UBS AG are those entities
that 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 and loss before tax, in accordance with Swiss
regulations.
UBS Americas Holding LLC, UBS Limited and UBS Switzerland
AG are fully held by UBS AG. UBS Bank USA, UBS Financial Ser-
vices Inc. and UBS Securities LLC are fully held, directly or indi-
rectly, by UBS Americas Holding LLC.
Note 13 Financial assets
CHF million
Long-term receivables from UBS AG1
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
31.12.15
31.12.14
5,171
294
9
5,475
0
309
11
320
1 Long-term receivables from UBS AG include the onward lending of the proceeds from the issuances of additional tier 1 (AT1) perpetual capital notes.
% change from
31.12.14
(5)
(12)
751
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Group AG standalone financial statements
Note 14 Accrued expenses and deferred income
CHF million
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
Accrued interest expense
Other
Total accrued expenses and deferred income
31.12.15
31.12.14
31.12.14
% change from
2
720
65
655
255
29
1,006
6
830
49
781
0
3
838
(68)
(13)
32
(16)
984
20
Note 15 Long-term interest-bearing liabilities
Notes issued, overview by amount, maturity and coupon
in million, except where indicated
Euro-denominated low-trigger loss-absorbing additional tier 1 perpetual capital notes
US dollar-denominated low-trigger loss-absorbing additional tier 1 perpetual capital notes
US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes
US dollar-denominated high-trigger loss-absorbing additional tier 1 perpetual capital notes
Total long-term interest-bearing liabilities
Carrying value
in transaction
currency
31.12.15
Carrying value
in CHF
988
1,234
1,234
1,555
1,075
1,236
1,236
1,558
5,106
Maturity1
19.02.22
19.02.25
19.02.20
07.08.25
Coupon1
5.750%
7.000%
7.125%
6.875%
1 The disclosed maturity refers to the optional first call date of the respective issuance and the disclosed coupon refers to the fixed coupon rate from the issue date up to (but excluding) the optional first call date.
Note 16 Compensation-related long-term liabilities
CHF million
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 compensation-related long-term liabilities
Note 17 Share capital
31.12.15
31.12.14
31.12.14
% change from
11
3,107
1,109
1,999
3,119
15
2,298
745
1,552
2,313
(24)
35
49
29
35
On 31 December 2015, the issued share capital consisted of 3,849,731,535 (31 December 2014: 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 of this report for more information on UBS Group AG shares
752
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 AG1
of which: short sales of treasury shares by UBS AG and other subsidiaries
Share-for-share exchange
Acquisitions
Dispositions
Delivery of shares to settle equity-settled awards
Balance as of 31 December 2015
of which: treasury shares held by UBS Group AG1
of which: 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)
(100,923)
89,594,586
(27,510,789)
(51,148,336)
98,706,275
98,465,708
240,567
0.10
16.95
0.10
15.24
17.31
17.08
16.94
16.95
17.30
19.90
17.57
17.08
17.29
17.51
17.50
19.51
1 Treasury shares held by UBS Group AG had a carrying value of CHF 1,724 million as of 31 December 2015 (31 December 2014: CHF 1,529 million).
line
item share-for-share exchange
The
includes
90,490,886 UBS AG treasury shares that were held by UBS AG as
a hedge of its share based compensation plans before the share-
for-share exchange. These shares were exchanged into UBS Group
in 2014
AG shares and were transferred to UBS Group AG in connection
with the transfer of the deferred compensation plans. They were
transferred from UBS AG to UBS Group AG at the price of CHF
16.95, the fair value at the date of transfer.
753
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Group AG standalone financial statements
Additional information
Note 19 Guarantees
In 2015, UBS Group AG issued senior unsecured debt, through its
subsidiary UBS Group Funding (Jersey) Ltd, for a nominal amount
equivalent to CHF 5,668 million as of 31 December 2015. This
debt will contribute to the total loss-absorbing capacity (TLAC) of
the Group. UBS Group AG issued guarantee to the external inves-
tors against any default in payments of interest and principal by
UBS Group Funding (Jersey) Ltd.
Note 20 Assets pledged to secure own liabilities
As of 31 December 2015, total pledged assets of UBS Group AG
were CHF 41,835 million (31 December 2014: CHF 39,761 mil-
lion). These assets, which primarily consist of the investment in
UBS AG, as well as certain liquid assets, marketable securities and
financial assets were pledged to UBS AG. The associated liabilities
secured by these pledged assets were CHF 581 million as of
31 December 2015 (31 December 2014: CHF 206 million).
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.
754
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 York1
Nortrust Nominees Ltd., London
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
31.12.15
31.12.14
9.14
6.38
6.14
3.60
9.05
6.61
5.76
3.52
As of 1 January 2016, the Federal Act on Financial Market Infra-
structures and Market Conduct in Securities and Derivatives Trad-
ing of 19 June 2015 (Swiss Financial Market Infrastructure Act)
replaced certain provisions of the Swiss Federal Act on Stock
Exchanges and Securities Trading of 24 March 1995 as amended
(Swiss Stock Exchange Act). Under the Swiss Financial Market
Infrastructure 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 dis-
closure requirements and the methodology for calculating the
thresholds are defined in the Swiss Financial Market Supervisory
Authority Ordinance on Financial Market Infrastructure (FMIO-
FINMA), which replaced certain provisions of the Swiss Financial
Market Supervisory Authority Ordinance on Stock Exchanges and
Securities Trading (SESTO-FINMA) as of 1 January 2016. In partic-
ular, the FMIO-FINMA (as the former SESTO-FINMA) sets forth
that nominee companies that cannot autonomously decide how
voting rights are exercised are not obligated to notify the com-
pany and SIX if they reach, exceed or fall below the threshold
percentages. In addition, pursuant to the Swiss Code of Obliga-
tions, UBS Group AG must disclose in the notes to its financial
statements the identity of any shareholder with a holding of more
than 5% of the total share capital of UBS Group AG.
According to disclosure notifications filed on 10 December
2014 with UBS Group AG and the SIX under the Swiss Stock
Exchange Act and respective FINMA Ordinance, both as in force
at that time, 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 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% and on 10 February 2016,
MFS Investment Management, Boston, disclosed a holding of
3.05%. In accordance with the Swiss Stock Exchange Act and, as
of 1 January 2016, the Swiss Financial Market Infrastructure Act,
the aforementioned percentages 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
and the Swiss Financial Market Infrastructure Act, respectively, is
available on the SIX Disclosure Office website at www.six-
exchange-regulation.com/en/home/publications/significantshare-
holders.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 2015.
755
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Group AG standalone financial statements
Note 23 Share and option ownership of the members of the Board of Directors, the Group Executive Board and other
employees
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 31.12.15
For the year ended 31.12.14
Number of shares
425,258
2,230,800
64,213,472
66,869,530
Value of shares
in CHF million
Number of shares
Value of shares
in CHF million
7
37
1,042
1,087
473,567
1,888,666
57,036,519
59,398,752
9
35
1,045
1,088
➔ Refer to the “Corporate Governance “ section in this report for more information on the terms and conditions of the shares and options
awarded to the members of the Board of Directors and the Group Executive Board
Number of shares of BoD members1
Name, function
Axel A. Weber, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Reto Francioni, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Helmut Panke, former member2
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 %
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
488,889
333,333
215,992
181,246
163,317
185,181
28,787
11,859
169,054
139,653
252,761
217,373
–
182,009
104,271
100,019
66,490
44,217
71,261
45,424
87,354
66,863
1,648,176
1,507,177
0.026
0.017
0.012
0.009
0.009
0.009
0.002
0.001
0.009
0.007
0.014
0.011
–
0.009
0.006
0.005
0.004
0.002
0.004
0.002
0.005
0.003
0.088
0.077
1 This table includes blocked and unblocked shares held by BoD members, including those held by related parties. No options were granted in 2015 and 2014. 2 Helmut Panke did not stand for re-election at the AGM
on 7 May 2015.
756
Note 23 Share and option ownership of the members of the Board of Directors, the Group Executive Board and other
employees (continued)
Share and option ownership / entitlements of GEB members1
Name, function
on
31 December
Sergio P. Ermotti, Group Chief Executive Officer
Markus U. Diethelm, Group General Counsel
Lukas Gähwiler, President Personal & Corporate
Banking and President UBS Switzerland
Ulrich Körner, President Asset Management and
President UBS EMEA
Philip J. Lofts, Group Chief Risk Officer
Robert J. McCann, President Wealth Management
Americas and President UBS Americas
Tom Naratil, Group Chief Financial Officer and Group
Chief Operating Officer
Andrea Orcel, President Investment Bank
Chi-Won Yoon, President UBS Asia Pacific
Jürg Zeltner, President Wealth Management
Total
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Number of
unvested
shares / at risk2
947,964
670,935
447,694
528,973
558,657
522,769
642,813
713,051
540,288
611,479
1,010,805
983,028
598,172
523,751
933,686
915,399
383,164
492,093
683,767
675,211
Number of
vested shares
Total number
of shares
Potentially
conferred
voting
rights in %
155,736
97,589
61,797
0
1,515
1,052
95,597
292,519
247,929
204,346
0
62,901
310,054
288,151
117,646
408,296
683,994
507,602
3,721
0
1,103,700
768,524
509,491
528,973
560,172
523,821
738,410
1,005,570
788,217
815,825
1,010,805
1,045,929
908,226
811,902
1,051,332
1,323,695
1,067,158
999,695
687,488
675,211
8,424,999
8,499,145
0.059
0.039
0.027
0.027
0.030
0.027
0.039
0.051
0.042
0.042
0.054
0.053
0.049
0.041
0.056
0.068
0.057
0.051
0.037
0.034
0.450
0.434
Potentially
conferred
voting
rights in %4
0.000
Number of
options3
0
0
0
0
0
0
0
0
277,082
394,172
0
0
555,115
721,125
0
0
483,210
515,180
86,279
108,121
1,401,686
1,738,598
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.015
0.020
0.000
0.000
0.030
0.037
0.000
0.000
0.026
0.026
0.005
0.006
0.075
0.089
6,747,010
6,636,689
1,677,989
1,862,456
1 This table includes all vested and unvested shares and options of GEB members, including those held by 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 “Our deferred variable compensation plans for 2015” section in this report for more information on the
plans. 3 Refer to “Note 29 Equity participation and other compensation plans” in the “Consolidated financial statements” section of the Annual Report 2015 for more information. 4 No conversion rights are out-
standing.
757
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Group AG standalone financial statements
Note 24 Related parties
Related parties are defined under the Swiss Code of Obligations
as direct and indirect participants with voting rights of 20% or
more, management bodies (Board of Directors and Group Execu-
tive 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.
Amounts due from and due to subsidiaries are provided on the
face of the balance sheet.
CHF million
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
31.12.15
31.12.14
% change from
31.12.14
144
53
91
102
28
74
41
89
23
758
759
Legal entity financial and regulatory information Legal entity financial and regulatory information
760
761
Legal entity financial and regulatory information Legal entity financial and regulatory information
762
763
Legal entity financial and regulatory information Legal entity financial and regulatory information
764
765
Legal entity financial and regulatory information Legal entity financial and regulatory information
Establishment of UBS Switzerland AG
Establishment of UBS Switzerland AG
Establishment of UBS Switzerland AG
UBS Switzerland AG is a stock corporation (Aktiengesellschaft)
incorporated and organized under the laws of, and domiciled in,
Switzerland, with its registered office at Bahnhofstrasse 45,
Zurich.
UBS Switzerland AG was incorporated on 3 September 2014
as a wholly owned subsidiary of UBS AG. Between 3 September
2014 and 31 March 2015, UBS Switzerland AG had a share capi-
tal of CHF 100,000, but no operations and recorded therefore
virtually no profit or loss during that period. On 12 May 2015, the
share capital of UBS Switzerland AG was increased to CHF 10 mil-
lion and on 21 May 2015, UBS Switzerland AG received banking,
securities dealer and custodian bank licenses from FINMA.
On 14 June 2015, UBS AG transferred its Personal & Corporate
Banking and Wealth Management businesses booked in Switzer-
land to UBS Switzerland AG. This business transfer was executed
by way of transfer of assets and liabilities in accordance with arti-
cles 69 ff. of the Swiss Federal Act on Merger, Scission, Conver-
sion and Transfer of Assets and Liabilities (Merger Act) as an
equity contribution to UBS Switzerland AG, thereby increasing
UBS AG’s investment in UBS Switzerland AG. The transfer was
recorded retrospectively as of 1 April 2015.
The opening balance sheet of UBS Switzerland AG as of 1 April
2015, presented within the table on page 770, was audited by
Ernst & Young.
Business transferred to UBS Switzerland AG
The following businesses and related functions booked in Switzer-
land were transferred from UBS AG to UBS Switzerland AG:
i. The Personal & Corporate Banking and Wealth Management
businesses of UBS AG, including the front- and middle-office
functions, but excluding certain specific transactions, as out-
lined in the “Businesses retained in UBS AG” paragraph;
ii. other businesses of UBS AG, mainly from the Investment
Bank, including market-making on the SIX Swiss Exchange,
secured financing transactions and the bank notes business;
iii. the access to financial market infrastructure serving the busi-
ness, including payment and custody infrastructure, third-
party brokers and certain exchange memberships; and
iv. select finance, risk control and legal functions, generally part
of Corporate Center, aligned with the businesses mentioned
under items i to iii above.
Businesses retained in UBS AG
UBS AG retained the following businesses and related functions:
i. Personal & Corporate Banking and Wealth Management busi-
ness booked outside Switzerland;
ii. certain Personal & Corporate Banking and Wealth Manage-
ment business transactions (mainly comprised of derivative
transactions) booked within Switzerland. This primarily relates
to clients that had entered into international trading agree-
ments with various UBS AG branches (multi-branch trading
agreements); and
iii. the business or functions of the Corporate Center and all
other business divisions of UBS AG, especially the Investment
Bank and Asset Management, with the exception of the
aforementioned functions aligned with the transferred busi-
nesses.
Financial accounting effects for UBS AG and
UBS Switzerland AG
UBS AG’s investment in UBS Switzerland AG
The business transfer resulted in a CHF 7,822 million increase in
UBS AG’s investment in UBS Switzerland AG and a corresponding
increase in the General reserve of UBS Switzerland AG. The value
of this equity contribution was equal to the net book value of
assets and liabilities transferred to, or assumed by, UBS Switzer-
land AG immediately prior to the transfer. UBS AG did not recog-
nize any gains or losses as a result of the transfer.
Transfer of third party assets and liabilities from UBS AG to
UBS Switzerland AG
Total assets and liabilities transferred from UBS AG to UBS Swit-
zerland AG amounted to CHF 272,634 million and CHF 274,671
million, respectively. The transfer of the Personal & Corporate
Banking and Wealth Management business booked in Switzer-
land resulted in the transfer of nearly all Mortgage loans, a sig-
nificant portion of Lombard and other loans as well as the major-
ity of amounts Due to customers.
766
Additionally, certain foreign exchange and interest rate deriva-
tive instruments with Personal & Corporate Banking and Wealth
Management clients were transferred. The transfer of receivables
and payables from and to banks mainly related to positions with
UBS Group subsidiaries entered into in connection with the
Wealth Management business and Corporate Center – Group
Asset and Liability Management functions. Balances with UBS
Group subsidiaries mainly related to UBS Switzerland AG having
assumed the clearing business of UBS AG (and any related receiv-
ables and payables) in connection with the business transfer.
These balances significantly decreased until 31 December 2015 as
UBS Group subsidiaries and their clients have updated their settle-
ment instructions for the newly established clearing accounts in
UBS AG. The remainder of the assets and liabilities transferred
mainly consisted of alternative funding sources such as liquid
assets, money market paper and financial investments in connec-
tion with the management of liquidity risk of UBS Switzerland AG.
Intercompany assets and liabilities between UBS AG and
UBS Switzerland AG
As a result of the business transfer, certain internal transactions
between businesses and functions of UBS AG became intercom-
pany transactions between UBS AG and UBS Switzerland AG as of
1 April 2015. These transactions mainly relate to securities financ-
ing transactions, on-demand payables and receivables in various
currencies, derivative instruments that transfer the market risk of
derivative transactions with Personal & Corporate Banking and
Wealth Management from UBS Switzerland AG to UBS AG, as
well as derivatives to manage the UBS Switzerland AG interest
rate risk.
Recognition of goodwill by UBS Switzerland AG
As part of the business transfer and in addition to net assets of
CHF 7,822 million, UBS Switzerland AG recognized Goodwill of
CHF 5,250 million. This Goodwill will be amortized over five years.
Despite tax technical limitations otherwise restricting the level of
UBS AG tax losses that could be transferred as part of the estab-
lishment of UBS Switzerland AG, UBS Group’s tax position in Swit-
zerland and globally remains materially unchanged. The business
transfer did not result in the recognition of a tax expense from any
write-off of deferred tax assets at the Group level, largely as a
result of the aforementioned recognition of Goodwill by UBS
Switzerland AG that is deductible for tax purposes as it is amor-
tized into the income statement.
Other
For UBS AG, the business transfer also resulted in a balance sheet
reclassification of fiduciary deposits, totaling CHF 9,977 million,
from Due to customers to Due to banks, as the counterparty to
these liabilities is now UBS Switzerland AG and not its clients. For
UBS Switzerland AG, these fiduciary deposits are recorded as off-
balance sheet positions as UBS Switzerland AG only acts in a fidu-
ciary capacity for these deposits.
UBS Switzerland AG has also recognized CHF 7,782 million of
off-balance sheet contingent liabilities and CHF 7,784 million of
off-balance sheet irrevocable commitments as a result of the busi-
ness transfer.
Joint and several liability
As of the asset transfer date, UBS AG assumed joint liability for
approximately CHF 260 billion of obligations of UBS Switzerland
AG, excluding the collateralized portion of secured contractual
obligations. Conversely, UBS Switzerland AG assumed joint liabil-
ity for approximately CHF 325 billion of obligations of UBS AG,
excluding the collateralized portion of secured contractual obliga-
tions and covered bonds.
➔ Refer to the UBS AG and UBS Switzerland AG standalone
financial statements within this section for more information
767
Legal entity financial and regulatory information Legal entity financial and regulatory information
Establishment of UBS Switzerland AG
UBS AG (standalone): reconciliation of pre- and post-transfer balance sheet
Balance sheet
as of 31.3.15
Transfer of third-party
assets and liabilities to
UBS Switzerland AG1
Intercompany assets
and liabilities with UBS
Switzerland AG as
counterparty
Investment in
UBS Switzerland AG
and other items
Balance sheet
as of 1.4.15
60,944
39,784
110,022
32,570
77,453
153,306
155,391
102,153
45,234
56,341
2,157
26,243
5,881
52
3,709
(30,564)
(6,153)
(7,800)
(7,800)
0
(44,125)
(151,121)
(2,792)
(3,017)
(26,058)
(276)
(42)
(22)
0
(663)
761,216
(272,634)
43,111
54,833
32,347
22,486
381,935
21,884
48,398
45,968
539
105,690
4,147
8,098
2,542
(18,978)
(4,355)
(3,409)
(946)
(238,574)
(191)
(2,109)
0
(539)
(7,901)
(314)
(1,538)
(174)
19,288
16,668
4,123
12,545
651
46
2,057
38,708
25,238
23,214
1,361
21,853
75
5
37
717,144
(274,671)
48,569
384
36,302
5,689
1,696
44,072
761,216
(274,671)
48,569
424
30,380
52,918
118,890
28,893
89,998
109,180
4,270
99,361
42,868
30,283
1,926
34,022
5,859
52
5,526
535,538
59,348
73,691
30,299
43,393
7,822
424
8,246
9,977
(9,977)
133,384
424
424
21,693
46,363
45,968
0
97,789
3,838
7,021
2,369
491,466
384
36,302
5,689
1,696
44,072
535,538
CHF million, Swiss GAAP
Assets
Cash and balances with central banks
Due from banks
Receivables from securities financing transactions
of which: cash collateral on securities borrowed
of which: reverse repurchase agreements
Due from customers
Mortgage loans
Trading portfolio assets
Positive replacement values
Financial investments
Accrued income and prepaid expenses
Investments in subsidiaries and other participations
Property, equipment and software
Goodwill and other intangible assets
Other assets
Total assets
Liabilities
Due to banks
Payables from securities financing transactions
of which: cash collateral on securities lent
of which: repurchase agreements
Due to customers
Trading portfolio liabilities
Negative replacement values
Financial liabilities designated at fair value
Medium-term notes
Bonds issued and loans from central mortgage institutions
Accrued expenses and deferred income
Other liabilities
Provisions
Total liabilities
Equity
Share capital
General reserve
Voluntary earnings reserve
Net profit / (loss) for the period
Total equity
Total liabilities and equity
1 Includes balances with other UBS Group subsidiaries.
768
UBS AG (standalone): reconciliation of pre- and post-transfer off-balance sheet items
CHF million, Swiss GAAP
Contingent liabilities1
Irrevocable commitments1
Forward starting transactions2
Liabilities for calls on shares and other equities
Off-balance sheet
as of 31.3.15
Transfer of third-party
UBS AG positions
Intercompany positions
with UBS Switzerland AG
as counterparty
Off-balance sheet
as of 1.4.15
38,986
49,448
16,394
45
(7,782)
(7,784)
(37)
74
0
881
31,278
41,665
17,275
7
1 Numbers are presented net of sub-participations. 2 Cash to be paid in the future by either UBS AG or the counterparty.
769
Legal entity financial and regulatory information Legal entity financial and regulatory information
Establishment of UBS Switzerland AG
UBS Switzerland AG (standalone): reconciliation of pre- and post-transfer balance sheet
Balance sheet
as of 31.3.15
Transfer of third-party
assets and liabilities
from UBS AG1
Intercompany assets
and liabilities with UBS
AG as counterparty
Subtotal
including equity
Recognition of
goodwill
Balance sheet
as of 1.4.15
0
30,564
6,153
7,800
7,800
0
44,125
151,121
2,792
3,017
26,058
276
42
22
0
663
0
272,634
18,978
4,355
3,409
946
238,574
191
2,109
0
539
7,901
314
1,538
174
25,238
23,214
1,361
21,853
75
5
37
48,569
19,288
16,668
4,123
12,545
651
46
2,057
30,564
31,391
31,013
9,161
21,853
44,125
151,121
2,792
3,092
26,058
281
42
22
0
700
30,564
31,391
31,013
9,161
21,853
44,125
151,121
2,792
3,092
26,058
281
42
22
5,250
700
5,250
321,203
5,250
326,452
38,265
21,023
7,531
13,491
238,574
191
2,760
0
539
7,901
360
3,594
174
38,265
21,023
7,531
13,491
238,574
191
2,760
0
539
7,901
360
3,594
174
274,671
38,710
313,381
313,381
0
0
0
0
7,822
7,822
321,203
5,250
5,250
5,250
0
13,072
13,072
326,452
274,671
38,710
CHF million, Swiss GAAP
Assets
Cash and balances with central banks
Due from banks
Receivables from securities financing transactions
of which: cash collateral on securities borrowed
of which: reverse repurchase agreements
Due from customers
Mortgage loans
Trading portfolio assets
Positive replacement values
Financial investments
Accrued income and prepaid expenses
Investments in subsidiaries and other participations
Property, equipment and software
Goodwill and other intangible assets
Other assets
Total assets
Liabilities
Due to banks
Payables from securities financing transactions
of which: cash collateral on securities lent
of which: repurchase agreements
Due to customers
Trading portfolio liabilities
Negative replacement values
Financial liabilities designated at fair value
Medium-term notes
Bonds issued and loans from central mortgage institutions
Accrued expenses and deferred income
Other liabilities
Provisions
Total liabilities
Equity
Share capital
General reserve
Voluntary earnings reserve
Net profit / (loss) for the period
Total equity
Total liabilities and equity
1 Includes balances with other UBS Group subsidiaries.
770
UBS Switzerland AG (standalone): reconciliation of pre- and post-transfer off-balance sheet items
CHF million, Swiss GAAP
Contingent liabilities1
Irrevocable commitments1
Forward starting transactions2
Liabilities for calls on shares and other equities
Off-balance sheet
as of 31.3.15
Transfer of third-party
UBS AG positions
Intercompany positions
with UBS AG as
counterparty
Off-balance sheet
as of 1.4.15
7,782
7,784
37
881
7,782
7,784
881
37
1 Numbers are presented net of sub-participations. 2 Cash to be paid in the future by either UBS Switzerland AG or the counterparty.
771
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS AG standalone financial statements
UBS AG standalone financial statements
For the year ended
% change from
Note
31.12.15
31.12.14
31.12.14
6,204
2,602
199
(5,917)
3,088
(158)
2,929
3,416
285
110
(1,012)
2,799
3,725
150
1,218
565
4,706
(831)
5,809
15,263
6,438
5,615
12,053
413
674
22
25
13,187
2,076
10,264
136
220
11,984
8,653
2,683
210
(6,450)
5,097
(129)
4,968
6,248
492
598
(1,147)
6,192
3,407
147
878
26
4,494
(1,816)
3,729
18,297
6,787
5,727
12,514
415
596
20
1,484
15,029
3,267
4,850
57
212
7,849
3
4
4
5
6
7
7
8
(28)
(3)
(5)
(8)
(39)
22
(41)
(45)
(42)
(82)
(12)
(55)
9
2
39
5
(54)
56
(17)
(5)
(2)
(4)
0
13
10
(98)
(12)
(36)
112
139
4
53
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
Gross interest income
Credit loss (expense) / recovery
Net interest income
Fee and commission income from securities and investment business
Credit-related fees and commissions
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
Total operating income
Personnel expenses
General and administrative expenses
Subtotal operating expenses
Impairment of investments in subsidiaries and other participations
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and other intangible assets
Changes in provisions and other allowances and losses
Total operating expenses
Operating profit
Extraordinary income
Extraordinary expenses
Tax expense / (benefit)
Net profit / (loss)
772
Balance sheet
CHF million
Assets
Cash and balances with central banks
Due from banks
Receivables from securities financing transactions
of which: cash collateral on securities borrowed
of which: reverse repurchase agreements
Due from customers
Mortgage loans
Trading portfolio assets
Positive replacement values
Financial investments
Accrued income and prepaid expenses
Investments in subsidiaries and other participations
Property, equipment and software
Goodwill and other intangible assets
Other assets
Total assets
of which: subordinated assets
of which: subject to mandatory conversion and / or debt waiver
Liabilities
Due to banks
Payables from securities financing transactions
of which: cash collateral on securities lent
of which: repurchase agreements
Due to customers
Trading portfolio liabilities
Negative replacement values
Financial liabilities designated at fair value
Medium-term notes
Bonds issued and loans from central mortgage institutions
Accrued expenses and deferred income
Other liabilities
Provisions
Total liabilities
Equity
Share capital
General reserve
of which: statutory capital reserve
of which: capital contribution reserve1
of which: statutory earnings reserve
Voluntary earnings reserve
Net profit / (loss) for the period
Total equity
Total liabilities and equity
of which: subordinated liabilities
of which: subject to mandatory conversion and / or debt waiver
Note
31.12.15
31.12.14
31.12.14
% change from
9
10
10
12
13
14
15
9
12
13
12,18
15
11
19
45,125
40,611
90,479
27,925
62,553
97,401
4,679
94,210
20,987
27,528
1,708
43,791
6,503
36
3,986
477,045
5,752
4,020
36,669
55,457
34,094
21,363
95,711
39,245
100,158
33,676
66,481
156,344
155,406
107,549
42,385
42,384
2,012
27,199
5,899
33
3,568
777,893
4,257
0
43,787
56,460
33,284
23,175
144,842
397,194
21,179
24,669
58,104
0
72,750
4,356
5,505
1,786
18,965
42,911
49,803
602
111,302
4,700
6,962
2,831
425,316
735,517
386
33,669
38,149
38,149
(4,480)
5,689
11,984
51,728
477,045
16,139
11,858
384
28,453
40,782
40,782
(12,329)
5,689
7,849
42,376
777,893
18,538
10,687
(53)
3
(10)
(17)
(6)
(38)
(97)
(12)
(50)
(35)
(15)
61
10
9
12
(39)
35
(16)
(2)
2
(8)
(64)
12
(43)
17
(100)
(35)
(7)
(21)
(37)
(42)
0
18
(6)
(6)
(64)
0
53
22
(39)
(13)
11
773
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS AG standalone financial statements
Balance sheet (continued)
CHF million
Off-balance sheet items
Contingent liabilities, gross
Sub-participations
Contingent liabilities, net
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, gross
Sub-participations
Irrevocable commitments, net
of which: loan commitments
of which: payment commitment related to deposit insurance
Forward starting transactions2
of which: reverse repurchase agreements
of which: securities borrowing agreements
of which: repurchase agreements
of which: securities lending agreements
Liabilities for calls on shares and other equity instruments
31.12.15
31.12.14
31.12.14
% change from
27,787
(1,866)
25,920
19,392
4,224
26
2,278
50,901
(1,559)
49,342
49,342
0
4,195
1,626
6
2,561
2
7
41,872
(2,792)
39,080
23,140
7,842
2,555
5,543
54,296
(1,256)
53,040
52,172
868
9,932
6,048
125
3,758
0
45
(34)
(33)
(34)
(16)
(46)
(99)
(59)
(6)
24
(7)
(5)
(100)
(58)
(73)
(95)
(32)
(84)
1 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 decreased to CHF 23.0 billion as of 31 December 2015 subsequent to distributions in 2012, 2013, 2014 and 2015. The decision about the remaining amount has been deferred
to a future point in time. 2 Cash to be paid in the future by either UBS AG or the counterparty.
Off-balance sheet items
Off-balance sheet items include indemnities and guarantees
issued by UBS AG for the benefit of subsidiaries and creditors of
subsidiaries.
Where the indemnity amount issued by UBS AG is not specifi-
cally 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.
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 enters into. UBS AG promises to pay to that counter-
party on demand any unpaid balance of such liabilities under the
terms of the guarantee.
Joint and several liability UBS Switzerland AG
In June 2015, the Personal & Corporate Banking and Wealth
Management businesses booked in Switzerland were transferred
from UBS AG to UBS Switzerland AG through an asset transfer in
accordance with the Swiss Merger Act (refer to “Establishment of
UBS Switzerland AG” in this section for more information). Under
the Swiss Merger Act, UBS AG assumed joint liability for obliga-
tions existing on the asset transfer date, 14 June 2015, which
were transferred to UBS Switzerland AG. UBS AG has no liability
for new obligations incurred by UBS Switzerland AG after the
asset transfer date.
As of the asset transfer date, UBS AG assumed joint liability for
approximately CHF 260 billion of obligations of UBS Switzerland
AG, excluding the collateralized portion of secured contractual
obligations. The joint liability amount declines as obligations
mature, terminate or are novated following the asset transfer
date. As of 31 December 2015, the joint liability amounted to
approximately CHF 55 billion.
As of 31 December 2015, the probability of an outflow under
this joint and several liability was assessed to be remote and as a
result, the table above does not include any exposures arising
under this joint and several liability.
774
Statement of changes in equity
CHF million
Balance as of 1 January 2015
Capital increase
Dividends and other distributions
Net profit / (loss) appropriation
Net profit / (loss) for the period
Share capital
Statutory capital
reserve
Statutory earnings
reserve
Voluntary earnings
reserve
Net profit / (loss)
for the period
384
1
40,782
(12,329)
5,689
7,849
(2,633)
7,849
Total equity
42,376
1
(2,633)
0
11,984
51,728
(7,849)
11,984
11,984
Balance as of 31 December 2015
386
38,149
(4,480)
5,689
Statement of appropriation of retained earnings and proposed dividend distribution
The Board of Directors proposes that the Annual General Meeting
of Shareholders (AGM) on 4 May 2016 approves the following
appropriation of retained earnings and dividend distribution. Pro-
vided that the proposed dividend distribution is approved, the
payment of CHF 3,434 million would be made on 12 May 2016
to UBS Group AG. Dividend payments out of retained earnings
are generally subject to Swiss withholding tax. However, as cer-
tain conditions are met, the withholding tax related to the divi-
dend distribution from UBS AG to UBS Group AG will be settled
with the Swiss Federal Tax Administration through a so-called
dividend notification procedure. Under this procedure, effectively
no tax will be withheld.
Proposed appropriation of retained earnings
CHF million
Net profit for the period
Retained earnings carried forward
Total retained earnings available for appropriation
Proposed appropriation of retained earnings
Appropriation to general reserve: statutory earnings reserve
Appropriation to voluntary earnings reserve
Dividend distribution
Retained earnings carried forward
For the year ended
31.12.15
11,984
0
11,984
(4,480)
(4,070)
(3,434)
0
775
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Notes to the UBS AG standalone financial statements
Note 1 Name, legal form and registered office
UBS AG is incorporated and domiciled in Switzerland. Its regis-
tered offices are at Bahnhofstrasse 45, CH-8001 Zurich and
Aeschenvorstadt 1, CH-4051 Basel, Switzerland. UBS AG oper-
ates under the Swiss Code of Obligations and Swiss Federal Bank-
ing Law as a stock corporation (Aktiengesellschaft), a corporation
that has issued shares of common stock to investors. UBS AG is
100% owned by UBS Group AG, the ultimate parent of the UBS
Group.
Note 2 Accounting policies
a) Significant accounting policies
UBS AG standalone financial statements are prepared in accor-
dance with Swiss GAAP (FINMA Circular 2015 / 1 and the Banking
Ordinance) in the form of reliable assessment statutory single-
entity financial statements. The accounting policies are principally
the same as for the consolidated financial statements outlined in
Note 1 to the consolidated financial statements. Major differences
between the Swiss GAAP requirements and International Finan-
cial 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.
Risk management
UBS AG (standalone) is fully integrated into the Group-wide risk
management process described in the audited part of the “Risk,
treasury and capital management” section of this report.
Further information on the use of derivative instruments and
hedge accounting are outlined in Notes 1 and 14 to the consoli-
dated financial statements.
Compensation policy
The compensation structure and processes of UBS AG conform to
the compensation principles and framework of UBS Group AG.
For detailed information refer to the Compensation Report of UBS
Group AG.
Foreign currency translation
Transactions denominated in foreign currency are translated into
Swiss francs at the spot exchange rate on the date of the transac-
tion. At the balance sheet date, all monetary assets and liabilities,
as well as equity instruments recorded in Trading portfolio assets
and Financial investments denominated in foreign currency, are
translated into Swiss francs using the closing exchange rate. Non-
monetary items measured at historic cost are translated at the
exchange rate on the date of the transaction. Assets and liabilities
of foreign branches are translated into Swiss francs at the closing
exchange rate. Income and expense items of foreign branches are
translated at weighted average exchange rates for the period. All
currency translation effects are recognized in the income state-
ment.
The main currency translation rates used by UBS AG can be
found in Note 36 to the consolidated financial statements.
Structured products
Structured products consist of a host contract and one or more
embedded derivatives that do not relate to UBS AG’s own equity.
The embedded derivatives are assessed for bifurcation for mea-
surement purposes and presented in the same balance sheet line
as the host contract. By applying the fair value option, certain
structured debt instruments are measured at fair value as a whole,
and recognized in Financial liabilities designated at fair value.
Structured debt instruments comprise structured debt instru-
ments issued and structured over-the-counter debt instruments.
The fair value option for structured debt instruments can be
applied only if the following criteria are cumulatively met:
– the structured debt instrument is measured on a fair value
basis and is subject to risk management that is equivalent to
risk management for trading activities;
– the application of the fair value option eliminates or signifi-
cantly reduces an accounting mismatch that would otherwise
arise; and
– changes in fair value attributable to changes in unrealized own
credit are not recognized in the income statement and the bal-
ance sheet.
Fair value changes related to Financial liabilities designated at fair
value, excluding changes in unrealized own credit, are recognized
in Net trading income. Interest expense on Financial liabilities des-
ignated at fair value is recognized in Interest expense.
➔ Refer to Note 18 for more information
776
Note 2 Accounting policies (continued)
Investments in subsidiaries and other participations
Investments in subsidiaries and other participations are equity
interests that are held to carry on the business of UBS AG or for
other strategic purposes. They include all subsidiaries directly held
by UBS AG through which UBS AG conducts its business on a
global basis. The investments are measured individually and car-
ried at cost less impairment. The carrying value is tested for
impairment when indications for a decrease in value exist, which
include incurrence of significant operating losses or a severe
depreciation of the currency in which the investment is denomi-
nated. If an investment in a subsidiary is impaired, its value is gen-
erally 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, forecasts of future profit-
ability provide sufficient evidence that a carrying value above net
asset value is supported. Management may exercise its discretion
as to what extent and in which period a recovery in value is recog-
nized.
Impairments of investments are presented as Impairment of
investments in subsidiaries and other participations. Reversals of
impairments are presented as Extraordinary income in the income
statement. Impairments and partial or full reversals of impair-
ments for a subsidiary during the same annual period are deter-
mined on a net basis.
Deferred taxes
Deferred tax assets are not recognized in UBS AG’s standalone
financial statements. However, deferred tax liabilities may be rec-
ognized for taxable temporary differences. Changes in the
deferred tax liability balance are recognized in the income state-
ment.
Services provided to and received from subsidiaries,
affiliated entities and UBS Group AG
Services provided to and received from UBS Group AG or any of
its subsidiaries are settled in cash as hard cost transfers or hard
revenue transfers paid or received.
When the nature of the underlying transaction between UBS
AG and UBS Group AG or any of its subsidiaries contains a single,
clearly identifiable service element, related income and expenses
are presented in the respective income statement line item, e.g.,
Fee and commission income from securities and investment busi-
ness, Other fee and commission income, Fee and commission
expense, Net trading income or General and administrative
expenses. To the extent the nature of the underlying transaction
contains various service elements and is not clearly attributable to
a particular Income statement line item, related income and
expenses are presented in Sundry ordinary income and Sundry
ordinary expenses.
➔ Refer to Notes 4 and 6 for more information
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 Swiss GAAP (FER 16) for the Swiss
pension plan in its standalone financial statements. The require-
ments of Swiss GAAP 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. Swiss GAAP
requires that the employer contributions to the pension fund are
recognized as Personnel expenses in the income statement. The
employer contributions to the Swiss pension fund are determined
as a percentage of contributory compensation. Further, Swiss
GAAP requires an assessment as to whether, based on the finan-
cial statements of the pension fund prepared in accordance with
Swiss accounting standards (FER 26), an economic benefit to, or
obligation of, UBS AG arises from the pension fund and is recog-
nized 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 available or UBS AG
is required to contribute to the reduction of a pension deficit (on
a FER 26 basis).
Key differences between Swiss GAAP and IFRS 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 IFRS is based on the yield of
high-quality corporate bonds of the market in the respective pen-
sion 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.
➔ Refer to Note 20 for more information
UBS AG has elected to apply IFRS (IAS 19) for its non-Swiss
defined benefit plans. However, remeasurements of the defined
benefit obligation and the plan assets are recognized in the
income statement rather than directly in equity. For corresponding
disclosures in accordance with IAS 19 requirements, refer to
Note 28 to the consolidated financial statements.
777
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Note 2 Accounting policies (continued)
Subordinated assets and liabilities
Subordinated assets are comprised of claims that arise from an
irrevocable written declaration where in the event of liquidation,
bankruptcy or restructuring of the debtor, rank after the claims of
all other creditors and may not be offset against amounts payable
to the debtor nor secured by its assets. Subordinated liabilities are
comprised of corresponding obligations.
Subordinated assets and liabilities that contain a point-of-non-
viability clause in accordance with Swiss capital requirements per
articles 29 and 30 of the Capital Adequacy Ordinance are dis-
closed as being subject to mandatory conversion and / or debt
waiver and provide for the claim or the obligation to be written
off or converted into equity in the event that the issuing bank
reaches a point of non-viability.
Dispensations in the standalone financial statements
As UBS AG prepares consolidated financial statements in accor-
dance with IFRS, UBS AG is exempt from various disclosures in the
standalone financial statements. The dispensations include the
management report, the statement of cash flows and various
note disclosures, as well as the publication of interim financial
statements.
b) Changes in accounting policies, comparability and other adjustments
Comparative period figures
Comparative figures presented for 31 December 2014 include the
Personal & Corporate Banking and Wealth Management busi-
nesses booked in Switzerland, which were transferred from UBS
AG to UBS Switzerland AG effective 1 April 2015.
➔ Refer to “Establishment of UBS Switzerland AG” within this
section of the report for more information
Furthermore, as explained in further detail below, UBS AG
adopted the revisions to Swiss GAAP retrospectively from 1 Janu-
ary 2015. The comparative 2014 income statement and balance
sheet were only amended for changes in presentation. Also, no
comparatives are provided for Note disclosures that are newly
required under revised Swiss GAAP, as UBS AG made use of the
available transition relief.
Lastly, UBS AG re-assessed the presentation of hard cost and
revenue transfers and 2015 figures are presented on a revised
basis, while comparative 2014 amounts were not amended. Fur-
ther details are provided on the next page.
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 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 Janu-
ary 2015). Following this change, the accounting standards appli-
cable to banks and securities 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, is effective for annual periods beginning on or
after 1 January 2015. UBS AG made use of transition relief for
interim reporting from the first to third quarter of 2015 and
adopted revised Swiss GAAP as of 1 November 2015 for the 2015
annual financial statements, retrospectively from 1 January 2015.
The main transition effects on the UBS AG standalone financial
statements from this adoption are summarized below.
Recognition and measurement changes
The scope of the fair value option was increased to include struc-
tured debt instruments with embedded derivatives that are clearly
and closely related to the host debt contracts. As a result, structured
debt instruments with a fair value in the amount of CHF 19.3 billion
were reclassified to Financial liabilities designated at fair value from
Due to customers and Bonds issued and loans from central mort-
gage institutions. The transition impact from measuring those struc-
tured debt instruments at fair value was CHF 190 million, which was
recognized as a decrease to Net trading income in 2015.
Own bonds held in the amount of CHF 4.9 billion previously
recognized within Trading portfolio assets were offset against
bonds issued recognized within Financial liabilities designated at
fair value and Bonds issued and loans from central mortgage insti-
tutions. An accumulated measurement difference between own
bonds held and own bonds issued in the amount of CHF 25 mil-
lion was recognized as a decrease to Net trading income in 2015.
A reduction of the useful life of certain intangible assets from
20 to 10 years had an immaterial impact on the income statement
and balance sheet.
778
Note 2 Accounting policies (continued)
Revision to Swiss GAAP: presentational balance sheet changes
CHF million
Total assets
of which: Money market paper
of which: Trading portfolio assets
of which: Financial investments
of which: Due from banks
of which: Due from customers
of which: Receivables from securities financing transactions
Total liabilities
of which: Money market paper issued
of which: Bonds issued and loans from central mortgage institutions
of which: Due to banks
of which: Due to customers on savings and deposit accounts
of which: Other amounts due to customers
of which: Due to customers
of which: Payables from securities financing transactions
Former Swiss GAAP
Revised Swiss GAAP
Absolute change
31.12.14
31.12.14
31.12.14
777,893
10,966
101,820
37,154
112,649
183,091
735,517
34,235
77,067
94,952
112,709
289,779
777,893
107,549
42,384
39,245
156,344
100,158
735,517
111,302
43,787
397,194
56,460
0
(10,966)
5,729
5,230
(73,404)
(26,747)
100,158
0
(34,235)
34,235
(51,165)
(112,709)
(289,779)
397,194
56,460
Presentation and disclosure changes
The presentation order of certain items in the income statement
was amended and different sub-totals were added to the income
statement. Furthermore, Credit loss (expense) / recovery is now
included within Net interest income, whereas previously this was
included within Allowances, provisions and losses. The compara-
tive income statement for 2014 was amended accordingly and as
a result, Net interest income and Total operating income decreased
by CHF 129 million with a corresponding increase in Changes in
provisions and other allowances and losses, reflecting the afore-
mentioned change in presentation of Credit loss (expense) / recov-
ery. There was no impact on net profit or equity.
The structure of the balance sheet was also amended. Money
market paper held and money market paper issued are no longer
shown as separate balance sheet line items but are instead
reported within Trading portfolio assets, Financial investments,
Due from customers and Bonds issued and loans from central
mortgage institutions. Conversely, Receivables from securities
financing transactions and Payables from securities financing
transactions are now shown separately, whereas previously these
receivables and payables were reported within Due from banks,
Due from customers, Due to banks and Due to customers. Lastly,
the previously disclosed balance sheet lines Due to customers on
savings and deposit accounts and Other amounts due to custom-
ers were combined into Due to customers. The table above pro-
vides the quantitative effect on the balance sheet as of 31 Decem-
ber 2014 from these presentational changes.
In addition to the aforementioned changes to the income
statement and balance sheet, certain Notes have been added to
the financial statements.
Presentation of internal hard transfers
During 2015, UBS re-assessed the presentation of hard cost and
revenue transfers between UBS AG and its subsidiaries, affiliated
entities and UBS Group AG, and aligned the presentation of the
related income and expenses with the underlying nature of the
transaction for the year ended 31 December 2015, without
adjusting comparative period amounts. When the nature of the
underlying transaction contains a single, clearly identifiable ser-
vice element, related income and expenses are newly presented in
the respective income statement line item. Only to the extent that
the nature of the underlying transaction contains various service
elements and is not clearly attributable to a particular Income
statement line item, related income and expenses continue to be
presented in Sundry ordinary income and Sundry ordinary
expenses.
779
Legal entity financial and regulatory information
Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Note 3a Net trading income by business
CHF million
Investment Bank Corporate Client Solutions
Investment Bank Investor Client Services
Other business divisions and Corporate Center
Total net trading income
Note 3b Net trading income by underlying risk category
CHF million
Interest rate instruments (including funds)
Foreign exchange instruments
Equity instruments (including funds)
Credit instruments
Precious metals / commodities
Total net trading income
of which: net gains / (losses) from financial liabilities designated at fair value1
For the year ended
% change from
31.12.15
31.12.14
31.12.14
318
3,203
205
3,725
56
3,039
313
3,407
467
5
(35)
9
For the year ended
31.12.15
(346)
1,912
1,822
290
47
3,725
3,139
1 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.
Note 4 Sundry ordinary income and expenses
CHF million
Gains from sale of loans and receivables
Income from hard cost transfers1, 2
Income from hard revenue transfers2
Other
Total sundry ordinary income
Losses from early redemption of debt
Expenses from hard revenue transfers2
Other
Total sundry ordinary expenses
For the year ended
% change from
31.12.15
31.12.14
31.12.14
23
4,580
18
86
4,706
(275)
(497)
(59)
(831)
47
2,498
1,853
96
4,494
(4)
(1,772)
(40)
(1,816)
(52)
83
(99)
(11)
5
(72)
47
(54)
1 Represents income received from UBS Group AG and subsidiaries in the UBS Group for services provided by UBS AG. Services provided by UBS AG primarily related to Corporate Center functions. 2 Refer to Note 2b
for more information.
780
Note 5 Personnel expenses
CHF million
Salaries
Variable compensation – performance awards
Variable compensation – other
Contractors
Social security
Pension and other post-employment benefit plans
of which: value adjustments for economic benefits or obligations from pension funds1
Wealth Management Americas: Financial advisor compensation
Other personnel expenses
Total personnel expenses
1 Reflects the remeasurement of the defined benefit obligation and return on plan assets for the non-Swiss defined benefit plans where UBS AG applies IAS 19.
Note 6 General and administrative expenses
CHF million
Occupancy
Rent and maintenance of IT equipment
Communication and market data services
Administration1
of which: hard cost transfers paid
Marketing and public relations
Travel and entertainment
Fees to audit firms
of which: financial and regulatory audits
of which: audit related services
of which: tax and other services
Other professional fees
Outsourcing of IT and other services
Total general and administrative expenses
1 Includes hard cost transfers paid to UBS Group AG and subsidiaries in the UBS Group for services provided to UBS AG.
For the year ended
31.12.15
3,459
1,707
191
303
408
122
(318)
8
240
6,438
For the year ended
31.12.15
588
383
322
1,413
955
283
226
53
44
6
3
776
1,571
5,615
781
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Note 7 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
Total extraordinary income
Losses from disposals of subsidiaries and other participations
Prior period related expenses
Other extraordinary expenses
Total extraordinary expenses
For the year ended
% change from
31.12.15
31.12.14
31.12.14
334
9,551
0
379
10,264
1
0
134
136
96
4,646
63
45
4,850
0
55
2
57
249
106
(100)
735
112
(100)
139
In the third quarter of 2015, UBS AG contributed its participations
in UBS Americas Inc., UBS Securities LLC and three Asset Manage-
ment subsidiaries into UBS Americas Holding LLC, a direct subsid-
iary of UBS AG. This contribution was made at a fair value of CHF
21.2 billion, resulting in a gain of CHF 10.0 billion that was recog-
nized in the income statement, largely as extraordinary income,
and which increased UBS AG’s investment value in UBS Americas
Holding LLC.
Note 8 Taxes
CHF million
Income tax expense / (benefit)
of which: current
of which: deferred
Capital tax
Total tax expense / (benefit)
For the year ended
31.12.15
186
185
1
34
220
For the year ended 31 December 2015, the average tax rate,
defined as income tax expense divided by the sum of operating
profit and extraordinary income minus extraordinary expenses
and capital tax, was 1.5%. Income tax expense for the year ended
31 December 2015 includes a benefit of CHF 3,188 million from
the utilization of tax losses carried forward in UBS AG’s main tax
jurisdictions.
782
Note 9 Securities financing transactions
CHF billion
On-balance sheet
Receivables from securities financing transactions, gross
Netting of securities financing transactions
Receivables from securities financing transactions, net
Payables from securities financing transactions, gross
Netting of securities financing transactions
Payables from securities financing transactions, net
Assets pledged as collateral in connection with securities financing transactions
of which: trading portfolio assets
of which: assets which may be sold or repledged by counterparties
of which: financial investments
of which: assets which may be sold or repledged by counterparties
Off-balance sheet
Fair value of assets received as collateral in connection with securities financing transactions
of which: repledged
of which: sold in connection with short sale transactions
Note 10a Collateral for loans and off-balance sheet transactions
31.12.15
133.3
(42.8)
90.5
98.2
(42.8)
55.5
54.0
52.8
51.9
1.2
1.2
249.9
183.0
21.2
CHF million
On-balance sheet
Due from customers, gross
Mortgage loans, gross
of which: residential mortgages
of which: office and business premises mortgages
of which: industrial premises mortgages
of which: other mortgages
Total on-balance sheet, gross
Allowances
Total on-balance sheet, net
Off-balance sheet
Contingent liabilities, gross
Irrevocable commitments, gross
Forward starting reverse repurchase and securities borrowing transactions
Liabilities for calls on shares and other equities
Total off-balance sheet
Secured
Secured by collateral
Real estate
Other
collateral1
31.12.15
Secured by
other credit
enhancements2
Unsecured
Total
4
4,681
4,605
4
44
28
4,684
(2)
4,683
0
456
0
0
456
64,223
0
1,457
0
31,9473
0
97,630
4,681
4,605
4
44
28
64,223
(152)
64,071
2,121
9,673
1,632
0
13,425
1,457
0
1,457
2,093
7,515
0
0
31,947
102,311
(77)
(231)
31,870
102,080
23,573
33,256
0
7
27,787
50,901
1,632
7
9,608
56,837
80,327
1 Mainly comprised of cash and securities. 2 Includes credit default swaps and guarantees.
3 Primarily comprised of amounts due from subsidiaries.
783
Legal entity financial and regulatory information
Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Note 10b Impaired financial instruments
CHF million
Amounts due from customers
Mortgage loans
Guarantees and loan commitments
Total impaired financial instruments
Note 11a Allowances
CHF million
Specific allowances for amounts due from
customers and mortgage loans
Specific allowances for due from banks
Collective allowances1
Other allowances
Total allowances
Gross impaired finan-
cial instruments
Allowances and
provisions
Estimated liquidation
proceeds of collateral
Net impaired finan-
cial instruments
31.12.15
474
5
17
496
229
2
3
234
0
4
0
4
245
0
14
259
Increase
recognized
in the
income
statement
Balance
as of
31.12.14
Release
recognized
in the
income
statement Write-offs
Recoveries
and past
due interest
Reclassifica-
tions / other2
Foreign
currency
translation
Transfer to
UBS Switzerland AG
Balance
as of
31.12.15
655
12
5
0
673
198
0
0
0
198
(39)
0
(1)
0
(40)
(18)
0
0
0
(18)
21
0
0
0
21
44
0
0
0
44
(18)
0
0
0
(18)
(611)
(12)
(5)
0
(628)
231
0
0
0
231
1 Mainly relates to amounts due from customers. 2 Includes CHF 47 million related to a specific allowance for amounts due from customers, which was recognized in a prior period.
Note 11b Provisions
CHF million
Default risk related to loan commitments
and guarantees
Operational risks
Litigation, regulatory and similar matters1
Restructuring
Real estate2
Employee benefits
Parental support to subsidiaries
Deferred taxes
Other
Total provisions
Increase
recognized
in the
income
statement
Release
recognized
in the
income
statement
Balance
as of
31.12.14
Provisions
used in
conformity
with
designated
purpose
23
28
1,881
329
83
208
97
10
172
2,831
3
8
95
158
26
4
0
1
6
301
(3)
(5)
(73)
(40)
(1)
(15)
0
0
0
(3)
(720)
(160)
(16)
0
0
0
(15)
(152)
(112)
(1,011)
Recoveries
Reclassifi-
cations
Foreign
currency
translation
Transfer to
UBS Switzerland AG
Balance
as of
31.12.15
0
0
0
7
3
2
0
0
0
12
3
0
0
0
0
0
0
0
0
3
0
(2)
(17)
3
(1)
(7)
0
(1)
0
(24)
(23)
(7)
(103)
(9)
0
(27)
0
0
(5)
3
20
1,063
288
94
165
96
10
47
(174)
1,786
1 Includes provisions for litigation resulting from security risks. 2 Includes provisions for onerous lease contracts of CHF 25 million as of 31 December 2015 (31 December 2014: CHF 14 million) and reinstatement cost
provisions for leasehold improvements of CHF 69 million as of 31 December 2015 (31 December 2014: CHF 70 million).
784
Note 12 Trading portfolio and other financial instruments measured at fair value
CHF million
Assets
Trading portfolio assets
of which: debt instruments1
of which: listed
of which: equity instruments
of which: precious metals and other physical commodities
Total assets measured at fair value
of which: fair value derived using a valuation model
of which: securities eligible for repurchase transactions in accordance with liquidity regulations
Liabilities
Trading portfolio liabilities
of which: debt instruments1
of which: listed
of which: equity instruments
Financial liabilities designated at fair value2
Total liabilities measured at fair value
of which: fair value derived using a valuation model
1 Includes money market paper. 2 Refer to Note 18 for more information.
31.12.15
94,210
22,261
13,831
70,035
1,915
94,210
18,783
15,894
21,179
4,190
3,899
16,989
58,104
79,283
60,520
785
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Note 13 Derivative instruments
CHF billion
Interest rate contracts
Forwards1
Swaps
of which: designated in hedge accounting relationships
Futures
Over-the-counter (OTC) options
Exchange-traded options
Total
Foreign exchange contracts
Forwards
Interest and currency swaps
Futures
Over-the-counter (OTC) options
Exchange-traded options
Total
Equity / index contracts
Forwards
Swaps
Futures
Over-the-counter (OTC) options
Exchange-traded options
Total
Credit derivative contracts
Credit default swaps
Total return swaps
Other
Total
Commodity, precious metals and other contracts
Forwards
Swaps
Futures
Over-the-counter (OTC) options
Exchange-traded options
Total
Total before netting as of 31 December 2015
of which: trading derivatives
of which: fair value derived using a valuation model
of which: derivatives designated in hedge accounting relationships
of which: fair value derived using a valuation model
Netting with cash collateral payables / receivables
Replacement value netting
Total after netting as of 31 December 2015
of which: with central clearing counterparties
of which: with bank and broker-dealer counterparties
of which: other client counterparties
CHF billion
Total before netting as of 31 December 2014
Netting with cash collateral payables / receivables
Replacement value netting
Total after netting as of 31 December 2014
1 Includes forward rate agreements. 2 PRV: positive replacement values. 3 NRV: negative replacement values.
786
31.12.15
NRV3
Total notional
values
2,458
7,636
6
335
1,132
208
11,769
1,388
2,837
8
975
8
5,217
15
150
25
156
231
577
318
12
4
334
5
19
8
19
11
63
17,960
0.3
60.7
0.0
0.0
19.2
0.0
80.1
16.5
38.0
0.0
9.3
0.0
63.8
0.1
4.6
0.0
6.7
6.5
18.0
5.9
0.7
0.0
6.5
0.3
0.5
0.0
0.6
0.9
2.3
170.7
170.7
170.3
0.0
0.0
(9.7)
(136.3)
24.7
0.6
9.2
14.9
Total notional
values
25,017
31.12.14
NRV3
258.7
(16.0)
(199.8)
42.9
PRV2
0.1
69.3
0.4
0.0
17.4
0.0
86.9
17.7
38.8
0.0
9.6
0.0
66.1
0.1
3.5
0.0
4.7
5.5
13.8
6.0
0.6
0.0
6.7
0.3
0.7
0.0
0.9
0.7
2.5
176.0
175.6
175.2
0.4
0.4
(18.7)
(136.3)
21.0
0.0
7.4
13.6
PRV2
262.2
(20.0)
(199.8)
42.4
Note 14a Financial investments by instrument type
CHF million
Debt instruments available-for-sale
Equity instruments
of which: qualified participations1
Property
Total financial investments
of which: securities eligible for repurchase transactions in accordance with liquidity regulations
1 Qualified participations are investments in which UBS AG holds 10% or more of the total capital or has at least 10% of total voting rights.
Note 14b Financial investments by counterparty rating – debt instruments
31.12.15
Carrying value
27,296
223
133
9
27,528
27,127
CHF million
Internal UBS rating1
0–1
2–3
4–5
6–8
9–13
Non-rated
Total financial investments
1 Refer to Note 17 for more information.
Note 15a Other assets
CHF million
Settlement and clearing accounts
VAT and other indirect tax receivables
Bail deposit1
Other
of which: other receivables from UBS Group AG and subsidiaries in the UBS Group
Total other assets
1 Refer to item 1 in Note 22b to the consolidated financial statements for more information.
Note 15b Other liabilities
CHF million
Deferral position for hedging instruments
Settlement and clearing accounts
Net defined benefit liabilities
VAT and other indirect tax payables
Other
of which: other payables to UBS Group AG and subsidiaries in the UBS Group
Total other liabilities
Fair value
27,354
234
137
9
27,598
27,181
31.12.15
26,632
653
0
0
0
10
27,296
31.12.15
31.12.14
31.12.14
% change from
116
226
1,210
2,435
1,850
3,986
348
179
1,323
1,718
1,344
3,568
(67)
26
(9)
42
38
12
31.12.15
2,826
31.12.14
3,597
232
129
110
2,208
1,694
5,505
720
680
232
1,732
818
6,962
% change from
31.12.14
(21)
(68)
(81)
(53)
27
107
(21)
787
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Note 16 Pledged assets1
The table below provides information on assets that are primarily
pledged in connection with derivative transactions. Information
for 31 December 2014 included loans pledged to Swiss mortgage
institutions and in connection with the issuance of covered bonds.
These loans were transferred to UBS Switzerland AG during 2015.
The table excludes securities financing transactions.
➔ Refer to Note 9 for more information on securities financing
transactions
CHF million
Mortgage loans2
Securities
Pledges of precious metals to subsidiaries and other
Total pledged assets
31.12.15
31.12.14
Carrying value of
pledged assets
Effective
commitment
Carrying value of
pledged assets
0
2,597
0
2,597
0
258
0
258
27,973
1,568
1,153
30,694
Effective
commitment
21,643
0
0
21,643
1 Excludes assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2015: CHF 2.1 billion, 31 December 2014: CHF 4.9 billion). 2 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 0 billion as 31 Decem-
ber 2015 (31 December 2014: approximately CHF 4.5 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements.
Note 17 Country risk of total assets
The table below provides a breakdown of total non-Swiss assets
by credit rating. These credit ratings represent the sovereign credit
rating of the country to which the ultimate risk of the underlying
asset is related. The ultimate risk country on unsecured loan posi-
tions is the domicile of the immediate borrower, or, in the case of
a legal entity, the domicile of the ultimate parent entity. For col-
lateralized or guaranteed positions, the ultimate risk country is
the domicile of the provider of the collateral or guarantor, or, if
applicable, the domicile of the ultimate parent entity of the pro-
vider of the collateral or guarantor. For mortgage loans, the ulti-
mate risk country is the country where the real estate is located.
Similarly, the ultimate risk country of property and equipment is
the country where the property and equipment is located. Assets
for which Switzerland is the ultimate risk country are provided
separately in order to reconcile to total balance sheets assets.
➔ Refer to the “Risk management and control” section of this
report for more information
Classification
Internal UBS rating
Description
Moody’s Investors
Service
0 and 1
Investment grade
Aaa
Sub-investment grade
2
3
4
5
6
7
8
9
10
11
12
13
Default
Defaulted
Aa1 to Aa3
A1 to A3
Baa1 to Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa
Ca to C
D
Low risk
Medium risk
High risk
Very high risk
Distressed
Subtotal
Switzerland
Total assets
788
Standard & Poor’s
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
Fitch
AAA
AA+ to AA–
A+ to AA–
BBB+ to BBB
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
31.12.15
CHF million
227,855
141,073
39,846
19,053
4,399
2,430
84
73
173
93
954
216
82
5
%
48
30
8
4
1
1
0
0
0
0
0
0
0
0
436,336
40,709
477,045
91
9
100
Note 18 Structured debt instruments
The table below provides a breakdown of financial liabilities designated at fair value which are considered structured debt instruments.
CHF million
Fixed rate bonds with structured features
Structured debt instruments issued:
Equity-linked
Rates-linked
Credit-linked
Commodities-linked1
FX-linked
Structured over-the-counter debt instruments
Total financial liabilities designated at fair value
1 Includes precious metals-linked debt instruments issued.
31.12.15
3,017
30,236
16,118
2,949
1,075
218
4,491
58,104
In addition to financial liabilities designated at fair value, certain
structured debt instruments were reported within the balance
sheet lines Bonds issued and loans from central mortgage institu-
tions and Due to customers. These instruments were bifurcated
for measurement purposes. As of 31 December 2015, the carry-
ing values of the host instruments amounted to CHF 3,304 million
and CHF 320 million, respectively. The carrying values of the bifur-
cated embedded derivatives were negative CHF 126 million and
positive CHF 66 million, respectively.
Note 19a Share capital
Share capital1
of which: shares outstanding
of which: treasury shares held by UBS AG
Conditional share capital
of which: capital increase during the year
1 Registered shares issued.
31.12.15
31.12.14
Par value in CHF
Number of shares
Of which: dividend
bearing
Par value in CHF
Number of shares
Of which: dividend
bearing
385,840,847
3,858,408,466
3,858,408,466
385,840,847
3,858,408,466
3,858,408,466
384,456,091
384,244,566
211,526
3,844,560,913
3,842,445,658
3,842,445,658
3,842,445,658
2,115,255
55,235,276
552,352,759
1,384,755
13,847,553
51,620,031
516,200,312
255,884
2,558,844
UBS AG’s share capital is fully paid up. Each share has a par value
of CHF 0.10 and entitles the holder to one vote at the UBS AG
shareholder’s meeting, if entered into the share register as having
the right to vote, as well as a proportionate share of distributed
dividends. UBS AG does not apply any restrictions or limitations
on the transferability of shares.
Treasury shares
As of 1 January 2015, UBS AG held 2,115,255 treasury shares,
which were exchanged with UBS Group AG shares in 2015.
Non-distributable reserves
Non-distributable reserves consist of 50% of the share capital of
UBS AG, amounting to CHF 193 million as of 31 December 2015.
Non-cash dividends
During 2015, shares issued by UBS AG increased by 13,847,553
shares due to the issuance of new UBS AG shares out of conditional
share capital upon distribution of a share dividend in May 2015.
As part of the establishment of UBS Business Solutions AG, UBS
AG transferred its participation in the Poland Service Center as a
dividend-in-kind at book value of CHF 5 million to UBS Group AG.
789
Legal entity financial and regulatory information
Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Note 19b Significant shareholders
CHF million, except where indicated
Significant direct shareholder of UBS AG
UBS Group AG
Significant indirect shareholders of UBS AG
Chase Nominees Ltd., London
GIC Private Limited, Singapore
DTC (Cede & Co.), New York1
Nortrust Nominees Ltd, London
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
31.12.15
31.12.14
Share capital held
Shares held (%)
Share capital held
Shares held (%)
386
35
25
24
14
100
9
6
6
4
372
34
25
21
13
97
9
7
6
4
Significant shareholders presented in this Note are those that,
directly or indirectly, hold 3% or more of UBS AG’s total share
capital. The sole direct shareholder of UBS AG is UBS Group AG,
which holds 100% of UBS AG shares. These shares entitle to vot-
ing rights. Indirect shareholders of UBS AG included in the table
above comprise direct shareholders of UBS Group AG, who are
entered into the UBS Group AG share register. The shares and
share capital of UBS AG held by indirect shareholders represent
their relative holding of UBS Group AG shares. They do not have
voting rights in UBS AG.
➔ Refer to Note 22 to the UBS Group AG standalone financial
statements for more information on significant shareholders of
UBS Group AG
Note 20 Swiss pension plan and non-Swiss defined benefit plans
a) Liabilities related 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 related to Swiss pension plan and non-Swiss defined benefit plans
b) Swiss pension plan
CHF million
Pension plan surplus1
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
31.12.15
31.12.14
0
129
129
260
27
416
0
680
680
385
102
1,168
As of or for the year ended
31.12.15
2,243
31.12.14
4,572
0
0
270
30
300
0
0
444
45
489
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 2015 or 31 December 2014.
UBS AG has elected to apply FER 16 for the Swiss pension plan
and IAS 19 for its UK and other non-Swiss defined benefit plans.
➔ Refer to Note 28 to the consolidated financial statements for
more information on non-Swiss defined benefit plans in
accordance with IAS 19
The Swiss pension plan had no employer contribution reserve in
2015 or 2014.
790
Note 21 Share-based compensation
Following the establishment of UBS Group AG as the ultimate
holding company of the UBS Group, the obligations of UBS AG as
grantor of certain outstanding awards under employee share,
option, notional fund and deferred cash compensation plans were
transferred to UBS Group AG. Expenses for such awards granted
to UBS AG employees are charged by UBS Group AG to UBS AG.
Obligations relating to deferred compensation plans which are
required to be, and have been, granted by employing and / or
sponsoring subsidiaries, such as UBS AG, 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 retained by the relevant
employing and / or sponsoring subsidiaries, such as UBS AG.
➔ Refer to Note 29 to the consolidated financial statements for
more information
Note 22 Related parties
Transactions with related parties are conducted at internally
agreed transfer prices, at arm’s length, or with respect to loans,
fixed advances and mortgages to non-independent members of
the Board of Directors and Group Executive Board members on
the same terms and conditions that are available to other
employees.
CHF million
Qualified shareholders
of which: Due from / to customers
Subsidiaries
of which: Due from / to banks
of which: Due from / to customers
of which: Receivables / payables from securities financing transactions
Affiliated entities
of which: Due from / to customers
Members of the Board of Directors and Group Executive Board
External auditors
Other related parties1
1 Primarily relates to UBS Securities Co. Limited, Beijing, in which UBS AG has a 24.99% equity interest.
31.12.15
Amounts due from
Amounts due to
581
567
119,900
37,278
23,308
54,422
117
39
33
9
5,776
5,171
87,059
28,685
8,558
44,149
5,752
5,699
20
As of 31 December 2015, off-balance sheet positions related to subsidiaries amounted to CHF 26.5 billion, of which CHF 19.4 billion
were guarantees to third parties and CHF 5.3 billion were loan commitments.
Note 23 Fiduciary transactions
CHF million
Fiduciary deposits
of which: placed with third-party banks
of which: placed with subsidiaries and affiliated entities
Total fiduciary transactions
31.12.15
31.12.14
31.12.14
% change from
310
310
0
310
5,869
5,853
16
5,869
(95)
(95)
(100)
(95)
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 insti-
tutions. 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 that are
initially placed as fiduciary transactions with UBS AG may be rec-
ognized on UBS AG’s balance sheet in situations in which the
deposit is subsequently placed within UBS AG. In such cases,
these deposits are not reported in the table above.
791
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS AG standalone financial statements
Note 24a Invested assets and net new money
CHF billion
Fund assets managed
Discretionary assets
Other invested assets
Total invested assets
of which: double count
Net new money
Note 24b Development of invested assets
CHF billion
Total invested assets at the beginning of the year1
Net new money
Market movements2
Foreign currency translation
Transfer to UBS Switzerland AG
Other effects
of which: acquisitions / (divestments)
Total invested assets at the end of the year1
1 Includes double counts. 2 Includes interest and dividend income.
➔ Refer to Note 35 to the consolidated financial statements for more information
For the year ended
31.12.15
11
166
311
488
2
0.0
For the year ended
31.12.15
1,076
0
8
(29)
(557)
(10)
(10)
488
792
793
Legal entity financial and regulatory information Legal entity financial and regulatory information
794
795
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS AG (standalone) regulatory information
UBS AG (standalone) regulatory information
Swiss SRB capital requirements and capital information
Pillar 3 | UBS AG is considered a systemically relevant bank (SRB)
under Swiss banking law and is subject to capital regulations on a
standalone basis.
Under Swiss SRB regulations, article 125 “Reliefs for financial
groups and individual institutions” of the Swiss Capital Ordinance
(CAO) stipulates that the Swiss Financial Market Supervisory
Authority (FINMA) may grant, under certain conditions, capital
relief to individual institutions, to ensure that an individual institu-
tion’s compliance with the capital requirements does not lead to a
de facto overcapitalization of the group of which it is part.
FINMA granted relief concerning the regulatory capital require-
ments of UBS AG on a standalone basis by means of a decree
issued on 20 December 2013, which became effective on 1 Janu-
ary 2014.
Reconciliation of Swiss federal banking law equity to Swiss SRB capital
CHF billion
Equity – Swiss federal banking law1
Deferred tax assets
Defined benefit plans
Investments in the finance sector
Goodwill and intangible assets
Other2
Common equity tier 1 capital (phase-in)
Additional tier 1 capital (phase-in)
Tier 2 capital (phase-in)
Total capital (phase-in)
31.12.15
51.7
1.9
0.0
(16.6)
(0.4)
(4.0)
32.7
0.0
0.0
32.7
31.12.143
42.4
3.5
3.7
(9.2)
(0.4)
(4.2)
35.9
0.0
6.4
42.2
1 Equity under Swiss federal banking law is adjusted to derive equity in accordance with IFRS and then further adjusted to derive common equity tier 1 (CET1) capital in accordance with Swiss SRB require-
ments. 2 Includes accruals for proposed dividends to shareholders and other items. 3 Comparative balances presented for 31 December 2014 include the Personal & Corporate Banking and Wealth Management
businesses booked in Switzerland which were transferred from UBS AG to UBS Switzerland AG effective 1 April 2015. Refer to “Establishment of UBS Switzerland AG” within this section for more information.
796
Swiss SRB capital ratio requirements and information (phase-in)
CHF million, except where indicated
Common equity tier 1 capital
of which: effect of countercyclical buffer
Common equity tier 1 capital / high-trigger loss-absorbing capital
Low-trigger loss-absorbing capital less net deductions
Total capital
Capital ratio (%)
Capital
Requirement
Actual
Requirement
Eligible
31.12.15
31.12.15
10.0
0.0
11.6
14.0
14.4
0.0
14.4
0.0
14.4
31.12.141
12.2
0.1
12.2
2.2
14.4
31.12.15
22,717
0
26,337
31,804
31.12.15
32,656
0
32,656
0
32,656
31.12.141
35,851
322
35,851
6,390
42,241
1 Comparative balances presented for 31 December 2014 include the Personal & Corporate Banking and Wealth Management businesses booked in Switzerland, which were transferred from UBS AG to UBS Switzerland
AG effective 1 April 2015. Refer to “Establishment of UBS Switzerland AG” for more information.
Swiss SRB capital information (phase-in)
CHF million, except where indicated
Common equity tier 1 capital
Common equity tier 1 capital
Additional tier 1 capital
High-trigger loss-absorbing capital
Net deductions
Total additional tier 1 capital
Tier 1 capital
Tier 2 capital
Low-trigger loss-absorbing capital
Net deductions
Total tier 2 capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
31.12.15
31.12.141
32,656
35,851
1,252
(1,252)
0
32,656
10,325
(10,325)
0
32,656
14.4
14.4
14.4
0
0
0
35,851
10,451
(4,061)
6,390
42,241
12.2
12.2
14.4
227,170
293,889
1 Comparative balances presented for 31 December 2014 include the Personal & Corporate Banking and Wealth Management businesses booked in Switzerland, which were transferred from UBS AG to UBS Switzerland
AG effective 1 April 2015. Refer to “Establishment of UBS Switzerland AG” for more information.
797
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS AG (standalone) regulatory information
Leverage ratio information
Swiss SRB leverage ratio
The Swiss SRB leverage ratio requirement is equal to 24% of the
capital ratio requirements (excluding the countercyclical buffer
requirement).
As of 31 December 2015, the effective total leverage ratio require-
ment for UBS AG (standalone) was 3.4%, resulting from multiply-
ing the total capital ratio requirement (excluding the countercycli-
cal buffer requirement) of 14.0% by 24%.
Swiss SRB leverage ratio requirements and information (phase-in)
CHF million, except where indicated
Common equity tier 1 capital
Common equity tier 1 capital and high-trigger loss-absorbing capital
Total capital
Swiss SRB leverage ratio (%)
Swiss SRB leverage ratio capital
Requirement1
31.12.15
Actual
31.12.15
2.4
2.8
3.4
5.2
5.2
5.2
31.12.143
3.8
3.8
4.5
Requirement2
31.12.15
15,216
17,640
21,302
Eligible
31.12.15
32,656
32,656
32,656
31.12.143
35,851
35,851
42,241
1 Requirements for common equity tier 1 capital (24% of 10%), common equity tier 1 capital / high-trigger loss absorbing capital (24% of 11.6%) and total capital (24% of 14%). 2 The leverage ratio denominator
(LRD) used to calculate the actual requirements is calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, these are fully aligned to the BIS Basel III rules and the LRD is reported on a spot basis.
Prior to the alignment to BIS rules, the LRD was calculated based on former FINMA rules and reported on a 3-month average basis and is therefore not fully comparable. 3 Comparative balances presented for 31 Decem-
ber 2014 include the Personal & Corporate Banking and Wealth Management businesses booked in Switzerland which were transferred from UBS AG to UBS Switzerland AG effective 1 April 2015. Refer to “Establish-
ment of UBS Switzerland AG” within this section for more information.
Swiss SRB leverage ratio1
CHF million, except where indicated
Swiss GAAP total assets
Difference between Swiss GAAP and IFRS total assets
Less derivative exposures and securities financing transactions2
On-balance sheet exposures (excluding derivative exposures and securities financing transactions)
Derivative exposures2
Securities financing transactions2
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital, phase-in
Total exposures (leverage ratio denominator), phase-in3
Phase-in
Common equity tier 1 capital
Tier 2 capital
Total capital
Swiss SRB leverage ratio (%)
As of 31.12.15
Average 4Q14
477,045
169,961
(295,490)
351,516
124,079
130,766
42,573
(14,948)
633,985
As of
31.12.15
32,656
0
32,656
5.2
770,253
231,226
(374,315)
627,165
153,659
70,859
102,117
(9,552)
944,248
31.12.14
35,851
6,390
42,241
4.5
1 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the Swiss SRB leverage ratio denominator (LRD) calculation is fully aligned to the BIS Basel III rules and the LRD is reported on a spot
basis. Prior to the alignment to BIS rules, the LRD was calculated based on former FINMA rules and reported on a 3-month average basis and is therefore not fully comparable to the LRD reported for 31 December 2015,
although the presentation format was aligned. In addition, due to the business transfer to UBS Switzerland AG effective in June 2015, numbers are not comparable. Refer to “Establishment of UBS Switzerland AG” within
this section for more information. 2 Consists of positive replacement values, cash collateral receivables on derivative instruments, cash collateral on securities borrowed, reverse repurchase agreements, margin loans
and prime brokerage receivables related to securities financing transactions, which are presented separately under derivative exposures and securities financing transactions in this table. 3 In accordance with former
Swiss SRB LRD calculation rules, the leverage ratio denominator for average 4Q14 excludes forward starting repos, securities lending indemnifications and CEM add-ons for exchange-traded derivatives (ETD), both pro-
prietary and agency transactions, and for OTC derivatives with a qualifying central counterparty.
BIS Basel III leverage ratio (phase-in)
CHF million, except where indicated
BIS Basel III tier 1 capital
Total exposures (leverage ratio denominator)
BIS Basel III leverage ratio (%)
798
31.12.15
32,656
633,985
5.2
Liquidity coverage ratio
FINMA and Basel III rules require disclosure of the liquidity coverage ratio (LCR). As a Swiss SRB, we must maintain an LCR of at least
100% since 1 January 2015 and disclose LCR information on a quarterly basis.
Liquidity coverage ratio
CHF billion, except where indicated
High-quality liquid assets
Total net cash outflows
of which: cash outflows
of which: cash inflows
Liquidity coverage ratio (%)
1 Calculated after the application of haircuts and inflow and outflow rates.
Weighted value1
Average 4Q15
108
93
219
125
116
799
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS Switzerland AG standalone financial statements
UBS Switzerland 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
Gross interest income
Credit loss (expense) / recovery
Net interest income
Fee and commission income from securities and investment business
Credit-related fees and commissions
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
Total operating income
Personnel expenses
General and administrative expenses
Subtotal operating expenses
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and other intangible assets
Changes in provisions and other allowances and losses
Total operating expenses
Operating profit
Extraordinary income
Extraordinary expenses
Tax expense / (benefit)
Net profit / (loss)
For the financial year ended1
31.12.15
Note
2,963
0
54
(533)
2,484
(4)
2,480
2,642
116
524
(281)
3,001
735
11
30
0
103
(66)
79
6,295
1,608
2,583
4,192
11
788
15
5,005
1,290
0
0
222
1,068
3
4
5
6
1 The financial year ended 31 December 2015 covers the period 1 April 2015 to 31 December 2015. Comparative results have not been presented as no material profit / (loss) was generated by UBS Switzerland AG dur-
ing the prior period.
800
Balance sheet
CHF million
Assets
Cash and balances with central banks
Due from banks
Receivables from securities financing transactions
of which: cash collateral on securities borrowed
of which: reverse repurchase agreements
Due from customers
Mortgage loans
Trading portfolio assets
Positive replacement values
Financial investments
Accrued income and prepaid expenses
Investments in subsidiaries and other participations
Property, equipment and software
Goodwill and other intangible assets
Other assets
Total assets
of which: subordinated assets
of which: subject to mandatory conversion and / or debt waiver
Liabilities
Due to banks
Payables from securities financing transactions
of which: cash collateral on securities lent
of which: repurchase agreements
Due to customers
Trading portfolio liabilities
Negative replacement values
Medium-term notes
Bonds issued and loans from central mortgage institutions
Accrued expenses and deferred income
Other liabilities
Provisions
Total liabilities
Equity
Share capital
General reserve
of which: statutory capital reserve
of which: capital contribution reserve
Voluntary earnings reserve
Net profit / (loss) for the period
Total equity
Total liabilities and equity
of which: subordinated liabilities
of which: subject to mandatory conversion and / or debt waiver
Note
31.12.15
1.4.151
1.4.15
% change from
9
7
8, 9
8, 9
10
11
12
13
7
10
11
13
9
16
38,701
3,477
23,672
7,414
16,258
38,373
148,492
1,736
2,274
22,878
237
42
15
4,463
817
285,176
0
0
19,280
8,997
2,493
6,505
30,564
31,391
31,013
9,161
21,853
44,125
151,121
2,792
3,092
26,058
281
42
22
5,250
700
326,452
1,155
0
38,265
21,023
7,531
13,491
231,294
238,574
128
1,092
0
8,274
822
963
179
191
2,760
539
7,901
360
3,594
174
271,027
313,381
10
13,072
13,072
13,072
0
1,068
14,149
285,176
4,020
4,020
0
13,072
13,072
13,072
0
0
13,072
326,452
19
0
27
(89)
(24)
(19)
(26)
(13)
(2)
(38)
(26)
(12)
(16)
0
(32)
(15)
17
(13)
(100)
(50)
(57)
(67)
(52)
(3)
(33)
(60)
(100)
5
128
(73)
3
(14)
0
0
0
8
(13)
801
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS Switzerland AG standalone financial statements
Balance sheet (continued)
CHF million
Off-balance sheet items
Contingent liabilities, gross
Sub-participations
Contingent liabilities, net
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, gross
Sub-participations
Irrevocable commitments, net
of which: loan commitments
of which: payment commitment related to deposit insurance
Forward starting transactions2
of which: reverse repurchase agreements
of which: repurchase agreements
Liabilities for calls on shares and other equity instruments
31.12.15
1.4.15
1.4.15
% change from
8,784
(854)
7,930
9
3,313
2,318
2,291
7,982
0
7,982
7,117
865
0
0
0
37
8,689
(907)
7,782
9
2,895
2,413
2,465
7,784
0
7,784
6,916
868
881
733
148
37
1
(6)
2
0
14
(4)
(7)
3
3
3
0
(100)
(100)
(100)
0
1 As of 31 March 2015, UBS Switzerland AG had share capital of CHF 0.1 million and a corresponding balance in Due from banks. Comparative balances have been provided as of 1 April 2015 in order to provide greater
transparency with respect to movements during the period. 2 Cash to be paid in the future by either UBS or the counterparty.
Off-balance sheet items
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 the
share of UBS Switzerland AG from 1 July 2015 to 30 June 2016 to
be CHF 865 million, which is reflected in the table above.
Joint and several liability UBS Switzerland AG
In June 2015, the Personal & Corporate Banking and Wealth
Management businesses booked in Switzerland were transferred
from UBS AG to UBS Switzerland AG through an asset transfer in
accordance with the Swiss Merger Act (refer to “Establishment of
UBS Switzerland AG” in this section for more information). Under
the Swiss Merger Act, UBS AG assumed joint liability for obliga-
tions existing on the asset transfer date, 14 June 2015, which
were transferred to UBS Switzerland AG.
As of the asset transfer date, UBS Switzerland AG assumed
joint liability for approximately CHF 325 billion of obligations of
UBS AG, excluding the collateralized portion of secured contrac-
tual obligations and covered bonds. UBS Switzerland AG has no
liability for new obligations incurred by UBS AG after the asset
transfer date. The joint liability amount declines as obligations
mature, terminate or are novated following the asset transfer
date. As of 31 December 2015, the joint liability of UBS Switzer-
land AG amounted to approximately CHF 136 billion.
As of 31 December 2015, the probability of an outflow under
this joint and several liability was assessed to be remote and as a
result, the table above does not include any exposures arising
under this joint and several liability.
802
Statement of changes in equity
CHF million
Balance as of 1 April 2015
Capital increase
Net profit / (loss) for the period
Balance as of 31 December 2015
Share capital
Statutory capital
reserve
Voluntary
earnings reserve
Net profit / (loss)
for the period
0
10
10
13,072
13,072
0
0
0
1,068
1,068
Total equity
13,072
10
1,068
14,149
Statement of appropriation of retained earnings
The Board of Directors proposes that the Annual General Meeting of Shareholders (AGM) on 25 April 2016 approves the following
appropriation of retained earnings.
Proposed appropriation of retained earnings
CHF million
Net profit for the period
Retained earnings carried forward
Total retained earnings available for appropriation
Proposed appropriation of retained earnings
Appropriation to voluntary earnings reserve
Retained earnings carried forward
For the financial year ended
31.12.15
1,068
0
1,068
(1,068)
0
803
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Switzerland AG standalone financial statements
Notes to the UBS Switzerland AG standalone financial statements
Note 1 Name, legal form and registered office
UBS Switzerland AG is incorporated and domiciled in Switzerland.
Its registered office is at Bahnhofstrasse 45, CH-8001 Zurich,
Switzerland. UBS Switzerland AG operates under the Swiss Code
of Obligations and Swiss Federal Banking Law as a stock corpora-
tion (Aktiengesellschaft), a corporation that has issued shares of
common stock to investors. UBS Switzerland AG is 100% owned
by UBS AG.
Note 2 Accounting policies
a) Significant accounting policies
UBS Switzerland AG standalone financial statements are prepared
in accordance with Swiss GAAP (FINMA Circular 2015 / 1 and the
Banking Ordinance) in the form of reliable assessment statutory
single-entity financial statements. The accounting policies are
principally the same as for the consolidated financial statements
of UBS Group AG outlined in Note 1 to the consolidated financial
statements of UBS Group AG. Major differences between the
Swiss GAAP requirements and International Financial Reporting
Standards are described in Note 38 to the consolidated financial
statements of UBS Group AG. The significant accounting policies
applied for the standalone financial statements of UBS Switzer-
land AG are discussed below.
Risk management
Foreign currency translation
Transactions denominated in foreign currency are translated into
Swiss francs at the spot exchange rate on the date of the transac-
tion. At the balance sheet date, all monetary assets and liabilities,
as well as equity instruments recorded in Trading portfolio assets
and Financial investments denominated in foreign currency, are
translated into Swiss francs using the closing exchange rate. Non-
monetary items measured at historic cost are translated at the
exchange rate on the date of the transaction. All currency transla-
tion effects are recognized in the income statement.
The main currency translation rates used by UBS Switzerland
AG can be found in Note 36 to the consolidated financial state-
ments of UBS Group AG.
UBS Switzerland AG (standalone) is fully integrated into the
Group-wide risk management process described in the audited
part of the “Risk, treasury and capital management” section of
this report.
Further information on the use of derivative instruments and
hedge accounting are outlined in Notes 1 and 14 to the consoli-
dated financial statements of UBS Group AG.
Goodwill
As part of the business transfer as outlined in the section “Estab-
lishment of UBS Switzerland AG”, UBS Switzerland AG recog-
nized goodwill of CHF 5,250 million. This goodwill is amortized
on a straight-line basis over five years and assessed for impair-
ment annually.
Compensation policy
Deferred taxes
The compensation structure and processes of UBS Switzerland AG
conform to the compensation principles and framework of UBS
Group AG. For detailed information refer to the Compensation
Report of UBS Group AG.
Deferred tax assets are not recognized in UBS Switzerland AG’s
standalone financial statements. However, deferred tax liabilities
may be recognized for taxable temporary differences. Changes in
the deferred tax liability balance are recognized in the income
statement.
804
Note 2 Accounting policies (continued)
Services provided to and received from subsidiaries,
affiliated entities, UBS AG and UBS Group AG
Services provided to and received from UBS Group AG or any of
its subsidiaries are settled in cash as hard cost transfers or hard
revenue transfers paid or received.
When the nature of the underlying transaction between UBS
Switzerland AG and UBS Group AG or any of its subsidiaries con-
tains a single, clearly identifiable service element, related income
and expenses are presented in the respective Income statement
line item, e.g., Fee and commission income from securities and
investment business, Other fee and commission income, Fee and
commission expense, Net trading income or General and admin-
istrative expenses. To the extent the nature of the underlying
transaction contains various service elements and is not clearly
attributable to a particular Income statement line item, related
income and expenses are presented in Sundry ordinary income
and Sundry ordinary expenses.
➔ Refer to Note 5 for more information
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 Switzerland AG has elected to apply Swiss GAAP (FER 16)
for its pension plan. The requirements of Swiss GAAP 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. Swiss GAAP requires that the employer contributions
to the pension fund are recognized as Personnel expenses in the
income statement. The employer contributions to the Swiss pen-
sion fund are determined as a percentage of contributory com-
pensation. Further, Swiss GAAP 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 economic benefit to, or obligation of, UBS Switzerland AG
arises from the pension fund and is recognized in the balance
sheet when conditions are met. Conditions for recording a pen-
sion asset or liability would be met if, for example, an employer
contribution reserve is available or UBS Switzerland AG is required
to contribute to the reduction of a pension deficit (on a FER 26
basis).
➔ Refer to Note 17 for more information
Subordinated assets and liabilities
Subordinated assets are comprised of claims that arise from an
irrevocable written declaration where in the event of liquidation,
bankruptcy or restructuring of the debtor, rank after the claims of
all other creditors and may not be offset against amounts payable
to the debtor nor secured by its assets. Subordinated liabilities are
comprised of corresponding obligations.
Subordinated assets and liabilities that contain a point-of-non-
viability clause in accordance with Swiss capital requirements per
articles 29 and 30 of the Capital Adequacy Ordinance are dis-
closed as being subject to mandatory conversion and / or debt
waiver and provide for the claim or the obligation to be written
off or converted into equity in the event that the issuing bank
reaches a point of non-viability.
Dispensations in the standalone financial statements
As UBS Switzerland AG has no listed shares outstanding and is
within the scope of the UBS Group AG consolidated financial
statements prepared in accordance with IFRS, UBS Switzerland
AG is exempt from various disclosures in the standalone financial
statements. The dispensations include the management report
and the statement of cash flows, as well as various note disclo-
sures.
b) Changes in accounting policies, comparability and other adjustments
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 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 Janu-
ary 2015). Following this change, the accounting standards appli-
cable to banks and securities 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, is effective for annual periods beginning on or
after 1 January 2015. UBS Switzerland AG made use of transition
relief for interim reporting for the second and third quarters of
2015 and adopted revised Swiss GAAP as of 1 November 2015
for the 2015 annual financial statements, retrospectively from
1 April 2015.
805
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Switzerland AG standalone financial statements
Note 2 Accounting policies (continued)
The main transition effects on the UBS Switzerland AG standalone
financial statements from this adoption are summarized below.
The presentation order of certain items in the income state-
ment was amended and different sub-totals were added to the
income statement. Furthermore, Credit loss (expense) / recovery is
now included within Net interest income, whereas previously this
was included within Allowances, provisions and losses. There was
no impact on net profit or equity.
The structure of the balance sheet was also amended. Money
market paper held and money market paper issued are no longer
shown as separate balance sheet line items but are instead
reported within Trading portfolio assets, Financial investments,
Due from customers and Bonds issued and loans from central
mortgage institutions. Conversely, Receivables from securities
financing transactions and Payables from securities financing
transactions are now shown separately, whereas previously these
receivables and payables were reported within Due from banks,
Due from customers, Due to banks and Due to customers. Lastly,
the previously disclosed balance sheet lines Due to customers on
savings and deposit accounts and Other amounts due to custom-
ers were combined into Due to customers. The table below pro-
vides the quantitative effect on the balance sheet as of 1 April
2015 from these presentational changes.
Term deposits previously presented as Medium-term notes
were re-classified to Due to customers under revised Swiss GAAP.
UBS Switzerland AG presents its remaining immaterial balance of
medium-term notes within Bonds issued and loans from central
mortgage institutions.
In addition to the aforementioned changes to the income
statement and balance sheet, certain Notes have been added to
the financial statements.
Comparative period figures
UBS Switzerland AG prepared its first annual financial statements
as a bank for the short financial year beginning 1 April 2015 and
ending 31 December 2015. During the period from its incorpora-
tion on 3 September 2014 to 31 March 2015, UBS Switzerland
AG had share capital of CHF 0.1 million and a corresponding bal-
ance in Due from banks, but no operations and hence recorded
virtually no profit or loss during that period. Refer to “Establish-
ment of UBS Switzerland AG” within this section for more infor-
mation. Therefore, no comparative results have been presented
for the income statement and no comparative results or balances
have been presented for the Notes.
Comparative balances for the balance sheet and off-balance
sheet items have been provided as of 1 April 2015 in order to
provide greater transparency with respect to movements during
the aforementioned short financial year.
Revision to Swiss GAAP: presentational balance sheet changes
Former Swiss GAAP
Revised Swiss GAAP
Absolute change
CHF million
Total assets
of which: Money market paper
of which: Trading portfolio assets
of which: Financial investments
of which: Due from banks
of which: Due from customers
of which: Receivables from securities financing transactions
Total liabilities
of which: Money market paper issued
of which: Bonds issued and loans from central mortgage institutions
of which: Due to banks
of which: Due to customers on savings and deposit accounts
of which: Other amounts due to customers
of which: Due to customers
of which: Payables from securities financing transactions
806
1.4.15
326,452
5,825
2,762
20,269
62,405
44,119
313,381
36
7,865
59,287
96,542
142,032
1.4.15
326,452
2,792
26,058
31,391
44,125
31,013
313,381
7,901
38,265
238,574
21,023
1.4.15
0
(5,825)
29
5,789
(31,013)
7
31,013
0
(36)
36
(21,022)
(96,542)
(142,032)
238,574
21,023
Note 3a Net trading income by business
CHF million
Wealth Management
Personal & Corporate Banking
Other business divisions and Corporate Center
Total net trading income
Note 3b Net trading income by underlying risk category
CHF million
Interest rate instruments (including funds)
Foreign exchange instruments
Equity instruments (including funds)
Credit instruments
Precious metal / commodities
Total net trading income
Note 4 Personnel expenses
CHF million
Salaries
Variable compensation – performance awards
Variable compensation – other
Contractors
Social security
Pension and other post-employment benefit plans
Other personnel expenses
Total personnel expenses
For the financial year ended
31.12.15
280
248
206
735
For the financial year ended
31.12.15
123
571
11
7
22
735
For the financial year ended
31.12.15
976
314
14
3
80
181
41
1,608
807
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Switzerland AG standalone financial statements
Note 5 General and administrative expenses
CHF million
Occupancy
Rent and maintenance of IT equipment
Communication and market data services
Administration1
of which: hard cost transfer paid
Marketing and public relations
Travel and entertainment
Fees to audit firms
of which: financial and regulatory audits
of which: other services
Other professional fees
Outsourcing of IT and other services
Total general and administrative expenses
1 Includes hard cost transfers paid to UBS Group AG and subsidiaries in the UBS Group for services provided to UBS Switzerland AG.
Note 6 Taxes
CHF million
Income tax expense / (benefit)
of which: current
of which: deferred
Capital tax
Total tax expense / (benefit)
For the financial year ended
31.12.15
2
5
23
2,182
2,097
148
75
2
1
0
69
78
2,583
For the financial year ended
31.12.15
199
199
0
23
222
For the financial year ended 31 December 2015, the average tax
rate, defined as income tax expense divided by the sum of operat-
ing profit and extraordinary income minus extraordinary expenses
and capital tax, was 15.7%. Income tax expense for the financial
year ended 31 December 2015 includes a benefit of CHF 66 mil-
lion from the utilization of tax losses carried forward in Switzer-
land.
Note 7 Securities financing transactions
CHF billion
On-balance sheet
Receivables from securities financing transactions, gross
Netting of securities financing transactions
Receivables from securities financing transactions, net
Payables from securities financing transactions, gross
Netting of securities financing transactions
Payables from securities financing transactions, net
Off-balance sheet
Fair value of assets received as collateral in connection with securities financing transactions
of which: repledged
of which: sold in connection with short sale transactions
808
31.12.15
24.4
(0.8)
23.7
9.8
(0.8)
9.0
118.1
102.9
0.1
Note 8a Collateral for loans and off-balance sheet transactions
CHF million
On-balance sheet
Due from customers, gross
Mortgage loans, gross
of which: residential mortgages
of which: office and business premises mortgages
of which: industrial premises mortgages
of which: other mortgages
Total on-balance sheet, gross
Allowances
Total on-balance sheet, net
Off-balance sheet
Contingent liabilities gross
Irrevocable commitments gross
Forward starting transactions
Total off-balance sheet
31.12.15
Secured
Unsecured
Total
Secured by collateral
Real estate
Other
collateral1
Secured by
other credit
enhancements2
1,301
148,514
127,252
7,908
3,170
10,184
149,815
(28)
149,787
175
1,251
1,425
27,589
1,462
8,533
27,589
(73)
27,517
2,452
82
2,535
1,462
(57)
1,405
1,033
304
0
1,336
8,533
(376)
8,157
5,125
6,345
11,507
38,885
148,514
127,252
7,908
3,170
10,184
187,400
(534)
186,865
8,784
7,982
0
16,804
1 Includes but not limited to deposits, securities, life insurance contracts, inventory, accounts receivable, patents, and copyrights. 2 Includes credit default swaps and guarantees.
Note 8b Impaired financial instruments
CHF million
Amounts due from banks
Amounts due from customers
Mortgage loans
Guarantees and loan commitments
Total impaired financial instruments
1 Includes CHF 4 million collective loan loss allowances.
Note 9a Allowances
CHF million
Specific allowances for amounts due
from customers and mortgage loans
Specific allowances for due from banks
Collective allowances2
Total allowances
31.12.15
Gross impaired
financial
instruments
3
702
185
275
1,164
Allowances
and provisions1
3
512
22
31
568
Estimated
liquidation
proceeds of
collateral
Net impaired
financial
instruments
0
22
137
4
163
0
168
26
239
433
Balance
as of
1.4.151
Increase
recognized in
the income
statement
Release
recognized in
the income
statement
Recoveries and
past due
interest Reclassifications
Foreign
currency
translation
Balance as
of
31.12.15
Write-offs
611
12
5
628
135
0
0
135
(133)
0
0
(133)
(127)
(9)
0
(137)
44
0
0
44
(6)
0
0
(6)
6
0
0
6
1 Represents the effects of the business transfer from UBS AG. 2 Mainly relates to amounts due from customers.
530
3
4
537
809
Legal entity financial and regulatory information
Legal entity financial and regulatory information
Notes to the UBS Switzerland AG standalone financial statements
Note 9b Provisions
CHF million
Default risk related to loan commitments
and guarantees
Operational risks
Litigation, regulatory and similar matters2
Restructuring
Employee benefits
Other
Total provisions
Balance
as of
1.4.151
Increase
recognized in
the income
statement
Release
recognized in
the income
statement
Provisions
used in
conformity with
designated
purpose
23
7
103
9
27
5
174
2
0
11
37
1
6
58
0
0
(2)
(9)
(2)
0
(14)
0
(4)
(15)
(24)
0
(3)
(46)
Recoveries Reclassifications
Foreign
currency
translation
Balance as
of
31.12.15
0
0
0
0
0
0
0
6
1
(2)
1
0
0
6
0
0
1
0
0
0
0
31
3
96
13
27
8
179
1 Represents the effects of the business transfer from UBS AG. 2 Includes provisions for litigation resulting from security risks.
Note 10 Trading portfolio and other financial instruments measured at fair value
31.12.15
1,736
2
1
7
1,728
1,736
6
128
64
61
64
128
89
CHF million
Assets
Trading portfolio assets
of which: debt instruments
of which: listed
of which: equity instruments
of which: precious metals and other physical commodities
Total assets measured at fair value
of which: fair value derived using a valuation model
Liabilities
Trading portfolio liabilities
of which: debt instruments
of which: listed
of which: equity instruments
Total liabilities measured at fair value
of which: fair value derived using a valuation model
810
Note 11 Derivative instruments
CHF million, except where indicated
Interest rate contracts
Forwards1
Swaps
of which: designated in hedge accounting relationships
Over-the-counter (OTC) options
Total
Foreign exchange contracts
Forwards
Interest and currency swaps
Over-the-counter (OTC) options
Total
Equity / index contracts
Forwards
Swaps
Over-the-counter (OTC) options
Exchange-traded options
Total
Credit derivative contracts
Credit default swaps
Total
Commodity, precious metals and other contracts
Forwards
Swaps
Over-the-counter (OTC) options
Total
Total before netting as of 31 December 2015
of which: trading derivatives
of which: fair value derived using a valuation model
of which: derivatives designated in hedge accounting relationships
of which: fair value derived using a valuation model
Netting with cash collateral payables / receivables
Replacement value netting
Total after netting as of 31 December 2015
of which: with bank and broker-dealer counterparties
of which: other client counterparties
1 Includes forward rate agreements. 2 PRV: positive replacement values. 3 NRV: negative replacement values.
31.12.15
NRV3
19
3,099
382
78
3,196
517
819
244
1,580
21
2
323
281
627
10
10
14
51
176
241
5,655
5,273
5,223
382
382
(804)
(3,759)
1,092
259
833
PRV2
13
3,393
1,022
81
3,488
551
876
245
1,672
18
2
323
281
625
7
7
15
51
176
242
6,033
5,011
4,968
1,022
1,022
(3,759)
2,274
80
2,194
Total notional
values
(CHF billion)
5
213
44
3
222
42
127
31
200
3
0
7
0
10
1
1
1
2
6
9
441
811
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Switzerland AG standalone financial statements
Note 12a Financial investments by instrument type
CHF million
Debt instruments available-for-sale
Property
Total financial investments
of which: securities eligible for repurchase transactions in accordance with liquidity regulations
31.12.15
Carrying value
22,849
29
22,878
22,849
Note 12b Financial investments by counterparty rating – debt instruments
CHF million
Internal UBS rating1
0–1
2–3
4–5
6–8
9–13
Non-rated
Total financial investments
1 Refer to Note 15 for more information.
Note 13a Other assets
CHF million
Deferral position for hedging instruments
Settlement and clearing accounts
VAT and other indirect tax receivables
Other
of which: other receivables from UBS Group AG and subsidiaries in the UBS Group
Total other assets
Note 13b Other liabilities
CHF million
Settlement and clearing accounts
VAT and other indirect tax payables
Other
of which: other payables to UBS Group AG and subsidiaries in the UBS Group
Total other liabilities
Note 14 Pledged assets1
CHF million
Mortgage loans2
Securities
Pledges of precious metals to subsidiaries and other
Total pledged assets
31.12.15
Carrying value of
pledged assets
24,980
0
0
Effective
commitment
16,235
0
0
24,980
16,235
1 Excluding securities financing transactions. Refer to Note 7 for more information on securities financing transactions. 2 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 4.4 billion as 31 December 2015 could be withdrawn or used for future liabilities or covered bond
issuances without breaching existing collateral requirements.
812
Fair value
22,875
29
22,904
22,875
31.12.15
22,321
528
0
0
0
0
22,849
31.12.15
349
101
33
334
293
817
31.12.15
338
115
510
323
963
Note 15 Country risk of total assets
The table below provides a breakdown of total non-Swiss assets
by credit rating. These credit ratings represent the sovereign credit
rating of the country to which the ultimate risk of the underlying
asset is related. The ultimate risk country on unsecured loan posi-
tions is the domicile of the immediate borrower, or, in the case of
a legal entity, the domicile of the ultimate parent entity. For col-
lateralized or guaranteed positions, the ultimate risk country is
the domicile of the provider of the collateral or guarantor, or, if
applicable, the domicile of the
ultimate parent entity of the provider of the collateral or guaran-
tor. For mortgage loans, the ultimate risk country is the country
where the real estate is located. Similarly, the ultimate risk country
of property and equipment is the country where the property and
equipment is located. Assets for which Switzerland is the ultimate
risk country are provided separately in order to reconcile to total
balance sheets assets.
➔ Refer to the “Risk management and control” section of this
report for more information
Classification
Internal UBS rating
Description
Moody’s Investors
Service
0 and 1
Investment grade
Aaa
Sub-investment grade
2
3
4
5
6
7
8
9
10
11
12
13
Default
Defaulted
Aa1 to Aa3
A1 to A3
Baa1 to Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa
Ca to C
D
Low risk
Medium risk
High risk
Very high risk
Distressed
Subtotal
Switzerland
Total assets
Note 16a Share capital
Share capital1
of which: shares outstanding
1 Registered shares issued.
Standard & Poor’s
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
Fitch
AAA
AA+ to AA–
A+ to AA–
BBB+ to BBB
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
31.12.15
CHF million
40,924
14,884
5,906
2,518
1,248
884
17
16
53
39
99
144
33
0
%
14
5
2
1
0
0
0
0
0
0
0
0
0
0
66,767
218,410
285,176
23
77
100
31.12.15
Par value in CHF
Number of shares
Of which: dividend bearing
10,000,000
10,000,000
100,000,000
100,000,000
100,000,000
100,000,000
UBS Switzerland AG’s share capital is fully paid up. Each share has
a par value of CHF 0.10 and entitles the holder to one vote at the
UBS Switzerland AG shareholder’s meeting, if entered into the
share register as having the right to vote, as well as a proportion-
ate share of distributed dividends. UBS Switzerland AG does not
apply any restrictions or limitations on the transferability of shares.
Non-distributable reserves
Non-distributable reserves consist of 50% of the share capital of
UBS Switzerland AG, amounting to CHF 5 million as of 31 Decem-
ber 2015.
813
Legal entity financial and regulatory information
Legal entity financial and regulatory information
Notes to the UBS Switzerland AG standalone financial statements
Note 16b Significant shareholders
CHF million, except where indicated
Significant direct shareholder of UBS Switzerland AG
UBS AG
Significant indirect shareholders of UBS Switzerland AG
UBS Group AG
Chase Nominees Ltd., London
GIC Private Limited, Singapore
DTC (Cede & Co.), New York1
Nortrust Nominees Ltd, London
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
31.12.15
Share capital held
Shares held (%)
10
10
1
1
1
0
100
100
9
6
6
4
Significant shareholders presented in this Note are those that,
directly or indirectly, hold 3% or more of UBS Switzerland AG’s
total share capital. The sole direct shareholder of UBS Switzerland
AG is UBS AG, which holds 100% of UBS Switzerland AG shares.
These shares entitle to voting rights. Indirect shareholders of UBS
Switzerland AG, which do not have voting rights, include UBS
Group AG, which holds 100% of UBS AG shares. The table above
additionally includes as indirect shareholders of UBS Switzerland
the shareholders of UBS Group AG, who are entered into the UBS
Group AG share register. The shares and share capital of UBS
Switzerland held by indirect shareholders other than UBS Group
AG represent their relative holding of UBS Group AG shares.
➔ Refer to Note 22 to the UBS Group AG standalone financial
statements for more information on significant shareholders of
UBS Group AG
Note 17 Swiss pension plan
a) Liabilities related to Swiss pension plan
CHF million
Provision for Swiss pension plan
Bank accounts at UBS and UBS debt instruments held by Swiss pension fund
UBS derivative financial instruments held by Swiss pension fund
Total liabilities related to Swiss pension plan
b) Swiss pension plan1
CHF million
Pension plan surplus
Economic benefit / (obligation) of UBS Switzerland 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
31.12.15
0
262
27
289
As of or for the financial year ended
31.12.15
2,264
0
0
158
24
181
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 Switzerland AG in accordance
with FER 16 as of 31 December 2015.
The Swiss pension plan had no employer contribution reserve in 2015.
Note 18 Share-based compensation
UBS Group AG is the grantor of the majority of UBS’s deferred compensation plans. Expenses for awards granted under such plans to
UBS Switzerland AG employees are charged by UBS Group AG to UBS Switzerland AG.
➔ Refer to Note 29 to the UBS Group AG consolidated financial statements for more information
814
Note 19 Related parties
Transactions with related parties are conducted at internally
agreed transfer prices or at arm’s length, or with respect to loans,
fixed advances and mortgages to non-independent members of
the Board of Directors and Group Executive Board members on
the same terms and conditions that are available to other employ-
ees.
CHF million
Qualified shareholders1
of which: Due from / to banks
of which: Receivables / payables from securities financing transactions
of which: Due from / to customers
Subsidiaries2
of which: Due from / to customers
Affiliated entities3
of which: Due from / to banks
of which: Receivables / payables from securities financing transactions
of which: Due from / to customers
Members of the Board of Directors and Group Executive Board
External auditors
Other related parties4
31.12.15
Amounts due from
Amounts due to
11,232
743
9,958
169
35
30
1,239
318
372
78
7
468
21,683
13,881
5,760
1,442
380
380
2,232
629
786
328
1
1 Qualified shareholders of UBS Switzerland AG are UBS Group AG and UBS AG. 2 Subsidiaries of UBS Switzerland AG are UBS Card Center AG, Topcard Service AG and UBS Hypotheken AG. 3 Affiliated entities of
UBS Switzerland AG are all direct and indirect subsidiaries of UBS Group AG including subsidiaries of UBS AG. 4 Primarily relates to SIX Group AG, in which UBS AG has a 17.3% equity interest.
Note 20 Fiduciary transactions
CHF million
Fiduciary deposits
of which: placed with third-party banks
of which: placed with subsidiaries and affiliated entities
Total fiduciary transactions
31.12.15
13,210
7,246
5,964
13,210
Fiduciary transactions encompass transactions entered into or
granted by UBS Switzerland 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 Switzerland AG’s balance sheet and income statement, but
disclosed in this Note as off-balance sheet fiduciary transactions.
Client deposits that are initially placed as fiduciary transactions
with UBS Switzerland AG may be recognized on UBS Switzerland
AG’s balance sheet in situations in which the deposit is subse-
quently placed within UBS Switzerland AG. In such cases, these
deposits are not reported in the table above.
815
Legal entity financial and regulatory information Legal entity financial and regulatory information
Notes to the UBS Switzerland AG standalone financial statements
Note 21a Invested assets and net new money
CHF billion
Fund assets managed
Discretionary assets
Other invested assets
Total invested assets
of which: double count
Net new money
Note 21b Development of invested assets
CHF billion
Total invested assets as of 1.4.151, 2
Net new money
Market movements3
Foreign currency translation
Other effects
of which: acquisitions / (divestments)
Total invested assets at the end of the year2
1 Represents the effects of the business transfer from UBS AG. 2 Includes double counts. 3 Includes interest and dividend income.
➔ Refer to Note 35 to the UBS Group AG consolidated financial statements for more information
For the financial year ended
31.12.15
0
88
444
532
0
(17.3)
For the financial year ended
31.12.15
557
(17)
(17)
9
0
0
532
816
817
Legal entity financial and regulatory information Legal entity financial and regulatory information
818
UBS Switzerland AG (standalone)
regulatory information
Swiss SRB capital requirements and capital information
UBS Switzerland AG (standalone) met these capital requirements
since commencement of business.
Pillar 3 | UBS Switzerland AG is considered a systemically relevant
bank (SRB) under Swiss banking law and is subject to capital regu-
lations on a standalone basis.
The tables in this section provide capital information under
Swiss SRB regulations for UBS Switzerland AG (standalone), in
accordance with the abovementioned requirements.
As of 31 December 2015, the total capital requirement for UBS
Switzerland AG (standalone) according to the Swiss Capital Ade-
quacy Ordinance was 12.8% of RWA and consisted of: (i) base
capital of 4.5%, (ii) buffer capital of 5.5%, of which 0.4% was
attributable to the countercyclical buffer capital requirement and
(iii) progressive buffer capital of 2.8%. In addition, FINMA has
defined capital requirements for UBS Switzerland AG (standalone)
which are outlined in footnote 1 of the table “Swiss SRB capital
ratio requirements and information (phase-in)” on the next page.
In the first quarter of 2016, UBS Switzerland AG increased its
additional tier 1 capital by CHF 0.5 billion. The respective instru-
ments are held by UBS AG. They are not included in the table
below.
➔ Refer to “Disclosure for subsidiaries and branches” at www.ubs.
com / investors for more information on the capital instruments
of UBS Switzerland AG on a standalone basis
Reconciliation of Swiss federal banking law equity to Swiss SRB capital
CHF billion
Equity – Swiss federal banking law1
Deferred tax assets
Goodwill and intangible assets
Other
Common equity tier 1 capital (phase-in)
Additional tier 1 capital (phase-in)
Tier 2 capital (phase-in)
Total capital (phase-in)
31.12.15
14.1
0.9
(4.5)
(0.1)
10.5
1.5
2.5
14.5
1 Equity under Swiss federal banking law is adjusted to derive equity in accordance with IFRS and then further adjusted to derive common equity tier 1 (CET1) capital in accordance with Swiss SRB requirements.
819
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS Switzerland AG (standalone) regulatory information
Swiss SRB capital ratio requirements and information (phase-in)
CHF million, except where indicated
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital and high-trigger loss-absorbing capital)
of which: effect of countercyclical buffer
Progressive buffer capital (high- and low-trigger loss-absorbing capital)
Total capital
Capital ratio (%)
Capital
Requirement1
31.12.15
Actual2
31.12.15
Requirement
31.12.15
4.5
5.53
0.4
2.8
12.8
4.5
7.8
0.4
2.8
15.1
4,309
5,259
351
2,711
12,280
Eligible
31.12.15
4,309
7,447
351
2,7114
14,468
1 The total capital ratio requirement of 12.8% is the current phase-in requirement according to the Swiss Capital Adequacy Ordinance. In addition, FINMA defined a total capital ratio requirement for UBS Switzerland
AG which is the sum of 14.4% and the effect of the countercyclical buffer requirement of 0.4%, of which 10.0% plus the effect of the countercyclical buffer requirement must be satisfied with CET1 capital. The FINMA
total capital requirement will be effective until it is exceeded by the Swiss SRB phase-in requirement. 2 Swiss SRB CET1 capital exceeding the base capital requirement is allocated to the buffer capital. 3 CET1 capi-
tal can be substituted by high-trigger loss-absorbing capital up to 2.3% in 2015. 4 Includes tier 2 capital of CHF 2,500 million; the residual amount of CHF 211 million was allocated from buffer capital to meet the
progressive buffer requirement.
Swiss SRB capital information (phase-in)
CHF million, except where indicated
Common equity tier 1 capital
Common equity tier 1 capital
Additional tier 1 capital
High-trigger loss-absorbing capital
Tier 1 capital1
Tier 2 capital
Low-trigger loss-absorbing capital
Tier 2 capital1
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets2
31.12.15
10,468
1,500
11,968
2,500
2,500
14,468
10.9
12.5
15.1
95,765
1 CHF 211 million of tier 1 capital and CHF 2,500 million tier 2 capital are used to meet the progressive buffer requirement. 2 Effective 31 December 2015, UBS Switzerland AG early adopted revised Basel 1 floor
requirements set by FINMA, resulting in CHF 14 billion higher RWA compared with the RWA disclosed in our third quarter 2015 report.
820
Leverage ratio information
Swiss SRB leverage ratio
The Swiss SRB leverage ratio requirement is equal to 24% of the
capital ratio requirements (excluding the countercyclical buffer
requirement).
As of 31 December 2015, the effective total leverage ratio
requirement for UBS Switzerland AG (standalone) was 3.0%,
resulting from multiplying the total capital ratio requirement
(excluding the countercyclical buffer requirement) of 12.5% by
24%.
Swiss SRB leverage ratio requirements and information (phase-in)
CHF million, except where indicated
Base capital (common equity tier 1 capital)
Buffer capital (common equity tier 1 capital and high-trigger loss-absorbing capital)
Progressive buffer capital (low-trigger loss-absorbing capital)
Total
Swiss SRB leverage ratio (%)
Actual2, 3
31.12.15
Requirement1
31.12.15
Requirement
Swiss SRB leverage ratio capital
Eligible2, 3
31.12.15
31.12.15
1.1
1.23
0.7
3.0
1.1
3.0
0.8
4.9
3,206
3,651
2,017
8,875
3,206
8,762
2,500
14,468
1 The total leverage ratio requirement of 3.0% is the current phase-in requirement according to the Swiss Capital Adequacy Ordinance. In addition, FINMA defined a total leverage ratio requirement of 3.5%, which will
be effective until it is exceeded by the Swiss SRB phase-in requirement. 2 Swiss SRB CET1 capital exceeding the base capital requirement is allocated to the buffer capital. 3 CET1 capital can be substituted by high-
trigger loss-aborbing capital up to 0.5% in 2015.
Swiss SRB leverage ratio1
CHF million, except where indicated
Swiss GAAP total assets
Difference between Swiss GAAP and IFRS total assets
Less derivative exposures and securities financing transactions2
On-balance sheet exposures (excluding derivative exposures and securities financing transactions)
Derivative exposures2
Securities financing transactions2
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital, phase-in
Total exposures (leverage ratio denominator), phase-in
Phase-in
Common equity tier 1 capital
Loss-absorbing capital
Common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio (%)
31.12.15
285,176
1,431
(30,761)
255,846
4,736
24,705
11,871
(292)
296,865
10,468
4,000
14,468
4.9
1 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the Swiss SRB leverage ratio denominator (LRD) calculation is fully aligned to the BIS Basel III rules and the LRD is reported on a spot
basis. 2 Consists of positive replacement values, cash collateral receivables on derivative instruments, cash collateral on securities borrowed, reverse repurchase agreements, margin loans and prime brokerage receiv-
ables related to securities financing transactions, which are presented separately under derivative exposures and securities financing transactions in this table.
BIS Basel III leverage ratio (phase-in)
CHF million, except where indicated
BIS Basel III tier 1 capital
Total exposures (leverage ratio denominator)
BIS Basel III leverage ratio (%)
31.12.15
11,968
296,865
4.0
821
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS Switzerland AG (standalone) regulatory information
Liquidity coverage ratio
FINMA and Basel III rules require disclosure of the liquidity coverage ratio (LCR). As a Swiss SRB, we must maintain an LCR of at least
100% and disclose LCR information on a quarterly basis.
Liquidity coverage ratio
CHF billion, except where indicated
High-quality liquid assets
Total net cash outflows
of which: cash outflows
of which: cash inflows
Liquidity coverage ratio (%)
1 Calculated after the application of haircuts and inflow and outflow rates.
Weighted value1
Average 4Q15
75
65
106
41
115
822
UBS Limited (standalone) financial and
regulatory information
Income statement
GBP million
Interest income
Interest expense
Net interest income
Credit loss expense / recovery
Net fee and commission income
Net trading income
Other income
Total operating income
Total operating expenses
Operating profit before tax
Tax expense / (benefit)
Net profit
Statement of comprehensive income
GBP million
Net profit
Other comprehensive income
Other comprehensive income that may be reclassified to the income statement
Financial investments available-for-sale
Net unrealized gains / (losses) on financial investments available-for-sale
Total other comprehensive income that may be reclassified to the income statement
Total comprehensive income
For the year ended
% change from
31.12.15
31.12.14
31.12.14
289
(289)
0
2
667
42
17
727
538
189
(52)
241
313
(270)
43
(2)
439
(45)
47
482
383
99
(101)
199
(8)
7
52
(64)
51
40
91
(48)
21
For the year ended
% change from
31.12.15
241
31.12.14
199
31.12.14
21
(5)
(5)
236
6
6
205
15
823
Legal entity financial and regulatory information Legal entity financial and regulatory information
UBS Limited (standalone) financial and regulatory information
Balance sheet
GBP 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
Deferred tax asset
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
Other liabilities
Total liabilities
Equity
Share capital
Share premium
Retained earnings
Cumulative net income recognized directly in equity, net of tax
Other equity instruments
Total equity
Total liabilities and equity
824
31.12.15
31.12.14
31.12.14
% change from
5
841
3,711
2,973
3,770
17,668
6,027
666
791
3,163
172
320
40,106
2,309
668
4,021
4,787
18,040
5,966
728
230
316
9
900
2,486
8,914
3,937
30,042
7,052
527
364
5,512
106
214
60,063
5,150
946
7,818
2,447
29,929
7,991
559
754
257
37,064
55,851
227
2,184
396
1
235
3,042
40,106
227
3,123
241
6
615
4,212
60,063
(43)
(7)
49
(67)
(4)
(41)
(15)
26
117
(43)
62
50
(33)
(55)
(29)
(49)
96
(40)
(25)
30
(69)
23
(34)
0
(30)
64
(78)
(62)
(28)
(33)
Basis of accounting
The financial statements of UBS Limited are prepared in accor-
dance with International Financial Reporting Standards (IFRS), as
endorsed by the European Union (EU), and are stated in British
pounds (GBP), the functional currency of the entity. UBS Limited is
100% owned by UBS AG, which is 100% owned by UBS Group
AG, the ultimate parent company of the UBS Group.
This financial information is unaudited and should be read in
conjunction with the audited financial statements of UBS Limited.
The full Annual Report and Financial Statements of UBS Limited
for the year ended 31 December 2015 will be available from April
2016 in the “Subsidiary and branch information” section at www.
ubs.com / investors.
Capital information1, 2, 3
GBP million, except where indicated
Tier 1 capital
of which: common equity tier 1 capital
Tier 2 capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Risk-weighted assets
Leverage Ratio %
Leverage Ratio Denominator
31.12.15
31.12.14
3,947
3,332
997
4,944
30.8
36.5
45.7
10,810
2,629
2,394
587
3,216
19.4
21.3
26.1
12,316
6.9
38,046
1 Capital information for UBS Limited has been prepared in accordance with Regulation (EU) No 575 / 2013 (as amended by Regulation (EU) 2015 / 62 in respect of the leverage ratio). 2 There is no local disclosure
requirement for the liquidity coverage ratio for UBS Limited. 3 Capital information disclosed in this table excludes 2015 net profit carried forward, which will become eligible for inclusion only after completion of the
statutory audit.
825
Legal entity financial and regulatory information Additional
regulatory
information
Additional regulatory information
Table of contents
831 UBS Group AG consolidated supplemental
disclosures required under SEC regulations
853 UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3 regulations
831 A – Introduction
854
Introduction
832 B – Selected financial data
833 Key figures
835
836 Balance sheet data
Income statement data
837 C – Information on the company
837 Property, plant and equipment
838 D – Information required by industry guide 3
838 Selected statistical information
839 Average balances and interest rates
842 Analysis of changes in interest income and expense
844 Deposits
845 Short-term borrowings
845 Contractual maturities of investments in debt
instruments available-for-sale
846 Due from banks and loans (gross)
847 Due from banks and loan maturities (gross)
Impaired and non-performing loans
848
849 Cross-border outstandings
850 Summary of movements in allowances and provisions
for credit losses
855
Location of Pillar 3 disclosures
858 Our approach to measuring risk exposure and
risk-weighted assets
860 Scope of regulatory consolidation
860 Table 1: Main legal entities consolidated under IFRS but
not included in the regulatory scope of consolidation
861 Overview of exposures and risk-weighted assets
862 Table 2: Detailed segmentation of exposures and
risk-weighted assets
864 Credit risk
865 Table 3: Regulatory credit risk exposure and RWA
865 Table 4: Regulatory gross credit risk exposure
by geographical region
866 Table 5: Regulatory gross credit risk exposure
by counterparty type
866 Table 6: Regulatory gross credit risk exposure
851 Allocation of the allowances and provisions
by residual contractual maturity
for credit losses
867 Table 7: Credit risk mitigation for standardized and
852 Due from banks and loans by industry sector (gross)
A-IRB approaches
867 Table 8: Regulatory gross credit risk exposure covered
by guarantees and credit derivatives
867 Advanced internal ratings-based approach
868 Table 9a: Sovereigns – A-IRB approach: Regulatory net
credit risk exposure, weighted average PD, LGD and RWA
by internal UBS ratings
869 Table 9b: Banks – A-IRB approach: Regulatory net credit
risk exposure, weighted average PD, LGD and RWA by
internal UBS ratings
870 Table 9c: Corporates – A-IRB approach: Regulatory net
credit risk exposure, weighted average PD, LGD and RWA
by internal UBS ratings
828
871 Table 9d: Residential mortgages – A-IRB approach:
886 Market risk
Regulatory net credit risk exposure, weighted average PD,
LGD and RWA by internal UBS ratings
872 Table 9e: Lombard lending – A-IRB approach: Regulatory
net credit risk exposure, weighted average PD, LGD and
RWA by internal UBS ratings
887 Securitization
887 Table 17: Securitization / re-securitization
873 Table 9f: Qualifying revolving retail exposures – A-IRB
888 Objectives, roles and involvement
approach: Regulatory net credit risk exposure, weighted
average PD, LGD and RWA by internal UBS ratings
874 Table 9g: Other retail – A-IRB approach: Regulatory net
credit risk exposure, weighted average PD, LGD and RWA
by internal UBS ratings
875 Standardized approach
875 Table 10a: Regulatory gross and net credit risk exposure
by risk weight under the standardized approach
876 Table 10b: Regulatory net credit risk exposure under the
standardized approach risk-weighted using external ratings
876 Table 11: Eligible financial collateral recognized under the
890 Securitization exposures in the banking and trading book
890 Table 18: Securitization activity for the year in the
banking book
891 Securitization activity for the year in the trading book
891 Table 19: Outstanding securitized exposures
892 Table 20: Impaired or past due securitized exposures
and losses related to securitized exposures in the
banking book
892 Table 21: Exposures intended to be securitized in the
standardized approach
banking and trading book
877 Comparison of A-IRB approach and Standardized
in the banking book
Approach (SA)
894 Table 23: Securitization positions retained or purchased
878 Table 12: Breakdown by exposure segments
in the trading book
893 Table 22: Securitization positions retained or purchased
Impairment, default and credit loss
882
882 Table 13: Total actual and expected credit losses
883 Derivatives credit risk
883 Table 14: Credit risk exposure of derivative instruments
884 Other credit risk information
884 Table 15: Credit derivatives
885 Equity instruments in the banking book
885 Table 16: Equity instruments in the banking book
895 Table 24a: Capital requirement for securitization / re-
securitization positions retained or purchased in the
banking book
895 Table 24b: Securitization / re-securitization exposures
treated under the ratings-based approach by
rating clusters – banking book
896 Table 24c: Securitization / re-securitization exposures
treated under the supervisory formula approach by
rating clusters – banking book
896 Gains on sale – securitization exposures to be deducted
from Basel III tier 1 capital
829
Additional regulatory information Additional regulatory information
896 Securitization exposures subject to early amortization in
908 UBS AG consolidated supplemental disclosures
the banking and trading book
required under SEC regulations
896 Re-securitization positions retained or purchased in the
banking book
908 A – Introduction
897 Table 25: Re-securitization positions retained or pur-
chased in the trading book
897 Outstanding notes issued by securitization vehicles
related to UBS’s retained exposures subject to the market
risk approach
898 Table 26: Correlation products subject to the comprehen-
sive risk measure or the securitization framework for
specific risk
899 Table 27a: Securitization positions and capital require-
ment for trading book positions subject to the securitiza-
tion framework
899 Table 27b: Securitization / re-securitization exposures
treated under the ratings-based approach by rating
clusters – trading book
900 Table 27c: Securitization / re-securitization exposures
treated under the supervisory formula approach by rating
clusters – trading book
909 B – Selected financial data
910 Key figures
911
913 Balance sheet data
913 Ratio of earnings to fixed charges
Income statement data
914 C – Information on the company
914 Property, plant and equipment
915 D – Information required by industry guide 3
915 Selected statistical information
916 Average balances and interest rates
919 Analysis of changes in interest income and expense
921 Deposits
922 Short-term borrowings
922 Contractual maturities of investments in debt instruments
900 Table 28: Capital requirement for securitization positions
available-for-sale
related to correlation products
901 Balance sheet reconciliation
901 Table 29: Reconciliation of accounting balance sheet to
balance sheet under the regulatory scope of consolida-
tion
903 Composition of capital
904 Table 30: Composition of capital
907 G-SIB indicators
923 Due from banks and loans (gross)
924 Due from banks and loan maturities (gross)
Impaired and non-performing loans
925
926 Cross-border outstandings
927 Summary of movements in allowances and provisions for
credit losses
928 Allocation of the allowances and provisions for credit
losses
929 Due from banks and loans by industry sector (gross)
830
UBS Group AG consolidated supplemental
disclosures required under SEC regulations
A – Introduction
The following pages contain supplemental UBS Group AG disclo-
sures that 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.
The consolidated financial statements of UBS Group AG were
prepared as a continuation of the consolidated financial statements
of UBS AG, applying the same accounting policies under Interna-
tional Financial Reporting Standards (IFRS). The comparative infor-
mation for 2013, 2012 and 2011 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.
831
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
B – Selected financial data
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
certified for customs purposes by the Federal Reserve Bank of
New York.
On 29 February 2016, the noon purchase rate was 1.0040
USD per 1 CHF.
Year ended 31 December
2011
2012
2013
2014
2015
Month
September 2015
October 2015
November 2015
December 2015
January 2016
February 2016
1 The average of the noon purchase rates on the last business day of each full month during the relevant period.
Average rate
(USD per 1 CHF)1
1.1398
1.0724
1.0826
1.0893
1.0368
At period end
1.0668
1.0923
1.1231
1.0066
0.9983
High
1.3706
1.1174
1.1292
1.1478
1.1781
High
1.0401
1.0539
1.0149
1.0180
1.0028
1.0303
Low
1.0251
1.0043
1.0190
1.0066
0.9704
Low
1.0225
1.0086
0.9704
0.9713
0.9779
0.9802
832
Key figures
CHF million, except where indicated
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
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 indicators2
Profitability
Return on tangible equity (%)
Return on assets, gross (%)
Cost / income ratio (%)
Growth
Net profit growth (%)
Net new money growth for combined wealth management
businesses (%)3
Resources
Common equity tier 1 capital ratio (%, fully applied)4
BIS tier 1 capital ratio, Basel 2.5 (%)
BIS total capital ratio, Basel 2.5 (%)
Swiss SRB leverage ratio (phase-in, %)5
Additional information
Profitability
Return on equity (RoE) (%)
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, %)5
Swiss SRB leverage ratio denominator (fully applied)5
Swiss SRB leverage ratio denominator (phase-in)5
BIS tier 1 capital, Basel 2.5
BIS risk-weighted assets, Basel 2.5
Average equity of average assets (%)
30,605
25,116
5,489
6,203
1.64
13.7
3.1
81.8
79.0
2.2
14.5
28,027
25,567
2,461
3,466
0.91
8.2
2.8
91.0
9.3
2.5
13.4
27,732
24,461
3,272
3,172
0.83
8.0
2.5
88.0
3.4
12.8
6.2
5.4
4.7
11.8
14.1
7.0
12.4
6.7
11.4
25,423
27,216
(1,794)
(2,480)
(0.66)
1.6
1.9
106.6
3.2
9.8
21.3
25.2
3.6
(5.1)
12.0
942,819
1,062,478
1,013,355
1,259,797
55,313
30,044
40,378
207,530
212,302
19.0
22.9
26.8
5.3
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
897,607
904,014
997,822
1,004,869
1,015,306
1,022,924
5.0
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
27,788
22,482
5,307
4,138
1.08
11.9
2.1
80.7
(44.5)
2.4
15.9
17.2
9.1
13.7
1,416,962
48,530
38,370
240,962
3.2
833
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Key figures (continued)
CHF million, except where indicated
Other
Invested assets (CHF billion)7
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 capitalization8
Total book value per share (CHF)8
Tangible book value per share (CHF)8
Registered ordinary shares (number)9
Treasury shares (number)8
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
As of or for the year ended
2,689
60,099
20,816
19,897
7,539
10,505
5,373
4,957
176
21,238
75,147
14.75
13.00
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
3,849,731,535
3,717,128,324
3,842,002,069
3,835,250,233
3,832,121,899
98,706,275
87,871,737
73,800,252
87,879,601
84,955,551
1 Refer to Note 9 to the consolidated financial statements for more information. 2 Refer to the “Measurement of performance” section of this report for the definitions of our key performance indicators. 3 Based on
adjusted net new money, which excludes the negative effect on net new money in 2015 of CHF 9.9 billion from our balance sheet and capital optimization program. 4 Based on the Basel III framework as applicable
for Swiss systemically relevant banks (SRBs). Refer to the “Capital management” section of this report for more information. 5 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the Swiss
SRB leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the
“Capital management” section of this report for more information. 6 Based on phase-in risk-weighted assets. 7 Includes invested assets for Personal & Corporate Banking. 8 Refer to the “UBS shares” section of
this report for more information. 9 Registered ordinary shares as of 31 December 2015 and 31 December 2014 reflect UBS Group AG shares. Other comparative period information relates to UBS AG shares. Refer to
the “UBS shares” section of this report for more information.
834
Income statement data
CHF million, except where indicated
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) 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
Cost / income ratio (%)1
Per share data (CHF)
Basic2
Diluted2
Ordinary cash dividends declared per share (CHF)3, 4
Ordinary cash dividends declared per share (USD)3, 4
Special cash dividends declared per share (CHF)3, 4
Special cash dividends declared per share (USD)3, 4
Dividend payout ratio (%)
Rates of return (%)
Return on equity attributable to UBS Group AG shareholders
Return on average equity
Return on average assets
31.12.15
13,177
(6,445)
6,732
(117)
6,615
17,140
5,742
1,107
30,605
25,116
5,489
(898)
6,386
183
6,203
81.8
1.68
1.64
0.60
0.25
52
11.8
11.8
0.6
For the year ended
31.12.14
31.12.13
13,194
(6,639)
6,555
(78)
6,477
17,076
3,842
632
28,027
25,567
2,461
(1,180)
3,640
142
32
3,466
91.0
0.93
0.91
0.50
0.54
0.25
0.26
555
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
204
5
3,172
88.0
0.84
0.83
0.25
0.28
30
6.7
6.7
0.3
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)
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
268
4,138
80.7
1.10
1.08
0.10
0.11
9
9.1
9.1
0.3
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 dividend distribution out of capital contribution reserve” in the UBS Group AG standalone financial statements
for more information. 5 The calculation of the dividend payout ratio for the year ended 31 December 2014 excludes the special cash dividend related to the one-time supplementary capital return paid after the suc-
cessful completion of the SESTA procedure.
835
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
942,819
1,062,478
1,013,355
1,259,797
1,416,962
91,306
11,948
25,584
67,893
124,035
51,943
167,435
23,763
311,954
62,543
22,160
11,836
8,029
9,653
29,137
162,430
38,282
62,995
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
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
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
254,101
248,079
395,260
42,372
75,297
44,507
69,901
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
390,185
410,207
390,825
93,147
75,652
55,313
91,207
71,112
50,608
81,586
62,777
48,002
Balance sheet data
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
836
C – Information on the company
Property, plant and equipment
As of 31 December 2015, UBS operated about 856 business and
banking locations worldwide, of which approximately 41% were
in Switzerland, 41% in the Americas, 11% in the rest of Europe,
Middle East and Africa and 7% in Asia Pacific. Of the business
and banking locations in Switzerland, 33% were owned directly
by 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.
837
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
D – Information required by industry guide 3
Selected statistical information
The following tables set forth select statistical information regarding
the Group’s banking operations extracted from the financial state-
ments. Unless otherwise indicated, average balances for the years
ended 31 December 2015, 31 December 2014 and 31 December
2013 are calculated from monthly data. The distinction between
domestic (Swiss) and foreign (non-Swiss) 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.
838
Average balances and interest rates
The following table 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
31.12.15
31.12.14
31.12.13
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
3,524
10,846
5
61
6,415
138,961
4,921
121,542
0
141
6141
159
2,912
0
0.1
0.6
0.2
0.4
3.2
2.4
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
121,542
2,912
2.4
118,038
2,988
2.5
119,894
2,736
249
29,469
710
4,715
3
59
1
193
192,815
120,692
3,644
2,510
20,037
43,131
0
43,131
0
12,749
710,777
63
328
0
328
0
526
11,092
1,630
4551
13,177
1.2
0.2
0.1
4.1
1.9
2.1
0.3
0.8
0.8
4.1
1.6
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
0.9
0.2
0.1
4.2
2.0
2.3
0.4
0.6
0.6
4.0
1.6
155
29,244
414
10,113
0
70
0
364
189,969
100,027
3,974
2,420
1,980
60,093
0
60,093
0
8,953
11
310
0
310
0
430
719,460
11,168
1,528
441
0.3
0.5
0.1
0.4
3.4
2.3
2.3
0.0
0.2
0.0
3.6
2.1
2.4
0.6
0.5
0.5
4.8
1.6
Interest income on off-balance sheet securities and other
Interest income and average interest-earning assets
710,777
1.9
686,662
13,194
1.9
719,460
13,137
1.8
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
213,913
7,154
126,767
1,058,611
232,739
6,383
127,799
1,053,584
337,781
6,054
115,921
1,179,216
839
Additional regulatory information Additional regulatory 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
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 and other
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
31.12.15
31.12.14
31.12.13
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
9,571
2,480
3,413
71,129
11
11
22
4422
535
5
31,418
1,665
993
41,499
2,055
65,446
124,210
96,848
12,372
233,430
157,496
873
26,425
18,717
49,457
0
39,968
754,904
1
57
6
724
(19)
70
11
62
264
4
107
720
1,762
0
58
5,899
5462
0.1
0.4
0.1
0.6
0.9
5.3
0.1
0.1
0.3
1.1
0.0
0.1
0.1
0.0
0.2
0.5
0.4
3.8
3.6
0.1
0.8
8,932
3,691
5,328
58,639
16
14
1
338
638
14
28,733
1,789
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
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
37
24
2
344
628
12
29,874
1,834
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
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
754,904
6,445
0.9
736,733
6,640
0.9
773,717
7,351
1.0
210,551
37,960
1,003,415
55,196
1,058,611
229,286
35,474
1,001,493
52,091
1,053,584
321,681
34,188
1,129,586
49,630
1,179,216
6,732
6,555
5,786
0.9
1.0
0.8
1 Includes negative interest, including fees, on securities lent and repurchase agreements. 2 Includes negative interest, including fees, on securities borrowed and reverse repurchase agreements.
840
Average balances and interest rates (continued)
The percentage of total average interest-earning assets attribut-
able to foreign activities was 68% for 2015 (69% for 2014 and
71% for 2013). The percentage of total average interest-bearing
liabilities attributable to foreign activities was 64% for 2015 (63%
for 2014 and 66% for 2013). 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-exempt
income is considered to be insignificant and the impact from such
income is therefore negligible.
841
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
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 2015 compared with the
year ended 31 December 2014, and for the year ended
31 December 2014 compared with the year ended 31 Decem-
ber 2013. 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 proportionally.
2015 compared with 2014
2014 compared with 2013
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
(35)
(1)
16
(8)
88
0
88
1
3
0
(11)
(4)
266
72
(57)
0
(57)
0
29
61
299
360
(5)
2
11
135
(42)
(164)
0
(164)
1
2
0
(4)
(131)
(276)
(17)
78
0
78
0
19
(183)
(208)
(391)
(4)
(33)
10
151
(50)
(76)
0
(76)
2
5
0
(15)
(135)
(10)
55
21
0
21
0
48
(122)
91
(31)
17
(4)
(17)
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)
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
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
842
Analysis of changes in interest income and expense (continued)
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 expense on interest-bearing liabilities
Interest expense on off-balance sheet securities and other
Total interest expense
2015 compared with 2014
2014 compared with 2013
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
(5)
0
75
(2)
166
0
(1)
2
(45)
0
(2)
10
8
(3)
(1)
(1)
113
260
0
9
121
455
576
(6)
2
0
30
(8)
(290)
1
13
(9)
(137)
(62)
(100)
(11)
(173)
(73)
3
7
160
(332)
0
(9)
(32)
(790)
(822)
(5)
(3)
0
105
(10)
(124)
1
12
(7)
(182)
(62)
(102)
(1)
(165)
(76)
2
6
273
(72)
0
0
89
(335)
(246)
51
(195)
(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)
(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)
843
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Deposits
The following table analyzes average deposits and average rates
on each deposit category listed below for the years ended
31 December 2015, 2014 and 2013. 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 72,532 million, CHF 76,362 million and CHF 76,246 million
at 31 December 2015, 31 December 2014 and 31 December
2013, respectively.
CHF million, except where indicated
31.12.15
Average
deposits
Average
rate (%)
31.12.14
Average
deposits
Average
rate (%)
31.12.13
Average
deposits
Average
rate (%)
Banks
Domestic offices
Demand deposits
Time deposits
Total domestic offices
Foreign offices
Interest-bearing deposits
Total due to banks1
Customer accounts
Domestic offices
Demand deposits
Savings deposits
Time deposits
Total domestic offices
Foreign offices
Demand deposits
Time and savings deposits
Total foreign offices
Total due to customers
5,261
4,310
9,571
2,437
12,007
124,210
96,848
12,372
233,430
52,404
105,091
157,496
390,925
(0.2)
0.5
0.1
0.4
0.2
0.0
0.1
0.1
0.0
0.0
0.2
0.2
0.1
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 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 2015, the maturity of time deposits was as follows:
Domestic
16,145
887
314
235
60
Foreign
39,735
1,982
812
596
99
17,642
43,225
CHF million
Within 3 months
3 to 6 months
6 to 12 months
1 to 5 years
Over 5 years
Total time deposits
844
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 2015, 2014 and 2013.
CHF million, except where indicated
31.12.15
31.12.14
31.12.13
31.12.15
Short-term debt
Due to banks1
31.12.14
31.12.13
Repurchase agreements2
31.12.14
31.12.15
31.12.13
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
21,215
27,298
31,911
0.4
0.5
27,363
28,004
33,674
0.4
0.2
27,633
35,067
44,789
0.5
0.4
0
44
570
0.2
0.0
0
0
0
0.0
0.0
0
309
1,370
0.3
0.0
71,775
65,118
80,372
0.3
0.2
54,625
52,865
65,033
0.2
0.2
41,160
61,251
76,014
0.2
0.2
1 Amounts due to banks are presented net of amounts due from banks in order 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-sale1, 2
CHF million, except percentages
31 December 2015
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value3
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 value3
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 value3
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Total
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
(0.83)
0.39
0.21
0.42
701
11,171
13,966
6,062
31,900
6,856
11,049
8,118
0
26,023
1.29
0.64
0.87
5.20
1
4.00
1.33
1.27
104
264
369
3,396
3,396
1.74
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
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
243
280
0
525
1.25
1.33
4.42
4,029
4,029
1.34
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
0.17
0.27
0.52
849
25,483
743
27,075
0.46
0.36
0.55
0.80
43
13,010
7,277
6,873
27,202
1
3
63
178
0
245
3.55
3.30
0.98
0.85
4.71
19
1
4,017
4,037
12.16
6.60
2.09
702
18,027
25,119
14,443
3,396
61,688
Total
43
13,189
28,072
10,858
4,029
56,192
Total
44
13,861
32,842
7,795
4,017
58,559
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 2015 issued by
US government and government agencies of CHF 21,424 million (31 December 2014: CHF 17,219 million, 31 December 2013: CHF 17,876 million), the German government of CHF 8,583 million (31 December 2014:
CHF 10,145 million, 31 December 2013: CHF 6,733 million), the French government of CHF 3,566 million (31 December 2014: CHF 5,351 million, 31 December 2013: CHF 5,601 million) and the UK government of
CHF 2,782 million (31 December 2014: CHF 2,348 million, 31 December 2013: CHF 8,089 million).
845
Additional regulatory information
Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
EDTF | Due from banks and loans (gross)
The Group’s lending portfolio is widely diversified across industry
sectors. CHF 186.7 billion (57.5% 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 73.7 billion (22.7% 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 2015 was CHF 23.2 billion (7.1% 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 2015, 2014,
2013, 2012 and 2011. 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
National Bank. Loans designated at fair value and loans held in
the trading portfolio are excluded from the tables below.
CHF million
Domestic
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Food and beverages
Hotels and restaurants
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Food and beverages
Hotels and restaurants
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other
Total foreign
Total gross
846
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
538
308
1,520
234
5,325
208
1,647
2,012
23
123,967
1,609
13,707
3,687
5,250
1,876
697
1,157
392
1,418
260
6,466
206
1,696
2,319
34
125,461
2,098
14,549
4,169
4,794
1,964
732
736
382
1,429
255
4,643
241
1,817
2,512
36
124,569
2,415
14,511
3,784
5,330
2,013
753
532
300
1,360
351
4,265
284
1,745
2,976
45
123,167
2,708
13,682
4,345
5,862
1,728
830
566
377
1,292
260
4,257
276
1,831
3,252
35
120,671
2,992
13,169
4,433
5,770
1,414
769
162,609
167,713
165,426
164,180
161,364
11,413
12,190
113
635
706
56,375
65
148
1,958
1,466
62,695
1,272
2,213
1,975
17,929
2,858
163
75
645
1,100
57,645
56
120
1,961
1,345
60,466
1,413
2,517
1,924
17,470
3,017
142
13,201
178
1,132
1,337
43,125
63
181
1,850
1,175
49,920
1,322
2,995
1,791
14,733
2,809
362
20,711
254
1,731
1,205
40,650
45
347
1,828
1,279
46,458
4,319
2,721
2,063
10,735
3,021
301
161,985
324,594
162,086
329,800
136,174
301,601
137,669
301,849
22,669
392
750
746
38,801
49
372
1,955
1,979
41,045
5,459
2,158
2,044
8,529
2,068
282
129,300
290,664
EDTF | Due from banks and loans (gross) (continued)
The table below analyzes the Group’s mortgage portfolio by client domicile and type of mortgage as of 31 December 2015, 2014,
2013, 2012 and 2011. 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
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
144,230
18,887
163,117
141,608
21,509
163,117
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
Within 1 year
1 to 5 years
Over 5 years
Total
538
60,404
14,461
75,403
11,354
5,170
109,263
125,787
201,191
0
49,062
2,555
51,617
34
4,615
18,387
23,036
74,654
0
34,764
824
35,588
24
9,102
4,035
13,162
48,750
538
144,230
17,840
162,609
11,413
18,887
131,685
161,985
324,594
As of 31 December 2015, the total amounts of Due from banks and Loans granted at fixed- and floating-rates were as follows:
CHF million
Fixed-rate loans
Adjustable or floating-rate loans
Total
Within 1 year
1 to 5 years
Over 5 years
136,297
64,893
201,191
59,052
15,601
74,654
38,929
9,821
48,750
Total
234,278
90,316
324,594
847
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
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,
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 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
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
1,174
455
1,630
1,293
309
1,602
1,113
469
1,582
1,121
395
1,516
1,199
329
1,529
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
6
7
26
5
9
6
22
7
6
4
23
7
8
3
28
6
10
9
29
6
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 2015, 2014, 2013, 2012 or 2011.
848
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 at 31 Decem-
ber 2015, 2014 and 2013. As of 31 December 2015, there were
no outstandings that exceeded 0.75% of total IFRS assets in any
country currently facing debt restructuring or liquidity problems
that the Group expects would materially impact the country’s abil-
ity to service its obligations. Aggregate country risk exposures are
monitored and reported on an ongoing basis. The internal risk
view is not directly comparable to the cross-border outstandings
in the table below due to different approaches to netting, differ-
ing trade populations and differing approach to allocation of
exposures to countries. For more information on the country
framework within risk control, refer to the “Risk management
and control” section of this report.
CHF million
USA
United Kingdom
Japan
France
Hong Kong
CHF million
USA
United Kingdom
Japan
France
CHF million
USA
United Kingdom
Japan
France
Germany
Private sector
Public sector
Total
outstandings
% of total assets
31.12.15
90,201
56,282
11,275
3,758
7,692
27,807
9,560
5,054
681
121
31.12.14
Private sector
Public sector
84,629
47,003
16,906
6,006
59,103
13,928
5,422
67
31.12.13
Private sector
Public sector
76,047
39,528
17,009
7,478
2,664
51,287
8,583
4,765
56
1,900
126,641
70,414
19,794
8,482
8,160
Total
outstandings
153,019
67,220
24,107
10,025
Total
outstandings
149,327
58,749
22,794
12,273
8,478
13.4
7.5
2.1
0.9
0.9
% of total assets
14.4
6.3
2.3
0.9
% of total assets
14.7
5.8
2.2
1.2
0.8
Guarantees and
Commitments1
42,286
6,448
136
5,029
79
Guarantees and
Commitments1
34,967
7,660
1,771
5,037
Guarantees and
Commitments1
38,778
8,494
289
6,997
2,062
Banks
8,633
4,571
3,466
4,043
347
Banks
9,287
6,288
1,780
3,952
Banks
21,993
10,638
1,019
4,739
3,914
1 Includes forward starting transactions (reverse repurchase agreements and securities borrowing agreements).
849
Additional regulatory information
Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
EDTF | Summary of movements in allowances and provisions for credit losses
The following table provides an analysis of movements in allow-
ances 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.
31.12.15
31.12.14
31.12.13
31.12.12
735
750
794
938
31.12.11
1,287
CHF million
Balance at beginning of year
Domestic
Write-offs
Construction
Electricity, gas and water supply
Financial services
Hotels and restaurants
Manufacturing
Private households
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communications
Total gross domestic write-offs
Foreign
Write-offs
Banks
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 communications
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
(116)
(124)
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 year1
1 Includes allowances for cash collateral on securities borrowed.
117
0
(11)
2
727
89
(11)
21
11
735
850
(2)
(1)
(3)
0
(9)
(35)
0
(47)
(3)
(9)
(110)
(9)
0
0
(3)
0
(1)
(12)
0
0
(19)
(10)
0
(54)
0
(164)
41
7
48
(1)
0
0
0
(3)
(39)
(1)
(28)
(15)
(3)
(90)
(15)
(1)
(1)
(12)
(7)
0
(6)
0
(2)
(2)
(14)
(1)
(63)
(1)
(154)
29
0
29
(2)
0
(6)
0
(4)
(38)
0
(11)
(4)
(1)
(67)
(1)
(6)
0
(44)
0
0
(6)
(1)
(1)
(1)
0
0
(61)
0
(128)
35
10
45
(83)
144
(93)
(9)
(3)
750
(1)
(6)
0
(1)
(20)
(45)
(2)
(21)
(6)
(11)
(8)
0
(17)
0
(31)
(59)
(3)
(37)
(21)
(6)
(112)
(183)
0
0
0
(106)
0
0
(15)
(54)
0
0
(19)
(5)
(201)
0
(313)
43
21
63
(8)
0
0
(39)
0
0
(72)
(175)
(7)
0
(1)
0
(303)
(14)
(501)
50
1
51
(250)
(450)
133
(15)
(8)
(3)
794
0
84
(1)
18
938
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 at 31 December 2015, 2014, 2013, 2012
and 2011. 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.
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
CHF million
Domestic
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Food and beverages
Hotels and restaurants
Manufacturing
Private households
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other1
Total domestic specific allowances
Foreign
Banks2
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 losses3
1 Includes mining and public authorities. 2 Counterparty allowances only. 3 Includes allowances for cash collateral on securities borrowed.
3
0
13
2
17
3
13
77
47
13
78
23
32
0
321
0
0
1
0
90
13
46
61
14
1
80
19
40
365
6
35
727
2
0
14
1
18
4
16
72
52
18
123
25
29
0
374
10
0
1
0
35
9
11
65
14
1
112
29
43
330
8
23
735
3
1
16
1
16
2
12
57
54
9
152
23
19
0
365
13
0
17
1
37
18
2
66
16
2
77
35
19
303
20
61
750
3
0
16
0
21
3
9
44
60
10
123
24
12
1
326
19
1
20
1
37
23
0
45
39
4
39
35
27
290
114
64
794
1
0
15
9
19
2
6
65
77
14
131
24
16
1
379
16
8
6
1
96
23
0
60
33
10
15
28
39
335
131
93
938
851
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under SEC regulations
Due from banks and loans by industry sector (gross)
The following table presents the percentage of loans in each industry sector and geographic location to total loans.
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
0.2
0.1
0.5
0.1
1.6
0.1
0.5
0.6
38.2
0.5
4.2
1.1
1.6
0.6
0.2
50.1
3.5
0.0
0.2
0.2
17.4
0.0
0.6
0.5
19.3
0.4
0.7
0.6
5.5
0.9
0.1
0.4
0.1
0.4
0.1
2.0
0.1
0.5
0.7
38.0
0.6
4.4
1.3
1.5
0.6
0.2
50.9
3.7
0.0
0.2
0.3
17.5
0.0
0.6
0.4
18.3
0.4
0.8
0.6
5.3
0.9
0.0
0.2
0.1
0.5
0.1
1.5
0.1
0.6
0.8
41.3
0.8
4.8
1.3
1.8
0.7
0.2
54.8
4.4
0.1
0.4
0.4
14.3
0.1
0.6
0.4
16.6
0.4
1.0
0.6
4.9
0.9
0.1
0.2
0.1
0.5
0.1
1.4
0.1
0.6
1.0
40.8
0.9
4.5
1.4
1.9
0.6
0.3
54.4
6.9
0.1
0.6
0.4
13.5
0.1
0.6
0.4
15.4
1.4
0.9
0.7
3.6
1.0
0.1
0.2
0.1
0.4
0.1
1.5
0.1
0.6
1.1
41.5
1.0
4.5
1.5
2.0
0.5
0.3
55.5
7.8
0.1
0.3
0.3
13.3
0.1
0.7
0.7
14.1
1.9
0.7
0.7
2.9
0.7
0.1
49.9
100.0
49.1
100.0
45.2
100.0
45.6
100.0
44.5
100.0
In %
Domestic
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Food and beverages
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other1
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Hotels and restaurants
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other2
Total foreign
Total gross
1 Includes mining 2 Includes food and beverages
852
UBS Group AG consolidated supplemental
disclosures required under Basel III Pillar 3
regulations
853
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Introduction
This section of the report provides supplemental Bank for 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 2015 and are labelled accordingly as Pillar 3 |.
The capital adequacy framework consists of three complementary
pillars. Pillar 1 provides a framework for measuring minimum cap-
ital requirements 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 relates to UBS
Group AG on a consolidated basis as Pillar 3 disclosure requirements
are applicable at this level. An exception is the requirement to dis-
close total and tier 1 capital ratios related to the significant bank
subsidiaries UBS AG, UBS Switzerland AG and UBS Limited, which
are presented in the “Legal entity financial and regulatory informa-
tion” section of this report. Capital information as of 31 December
2015 for UBS Group AG (consolidated) and UBS AG (consolidated)
is provided in the “Capital management” section of this report.
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 Swiss
Federal Council and required by Swiss Financial Market Supervi-
sory Authority (FINMA) regulation. Further, as UBS is considered a
systemically relevant bank (SRB) under Swiss banking law, UBS
Group and UBS AG are required to comply with regulations based
on the Basel III framework as applicable to Swiss SRBs on a con-
solidated basis.
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 2015, our Basel III
Pillar 3 disclosures were provided in the Basel III Pillar 3 report
published on the UBS website.
➔ Refer to the “Legal entity financial and regulatory information”
section of this report for more information on UBS AG, UBS
Switzerland AG and UBS Limited
➔ 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 Basel Committee on Banking Supervision
(BCBS) issued revised Pillar 3 disclosure requirements 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.
854
Location of Pillar 3 disclosures
The following table provides an overview of Pillar 3 disclosures in this report.
Location in this supplemental section
Scope of regulatory consolidation (on page 860)
Table 1: Main legal entities consolidated under IFRS but not included in the
regulatory scope of consolidation
Pillar 3 disclosures
Scope of consolidation and
transfer restrictions
Capital structure
Location in our UBS Group AG
Annual Report 2015
Consolidatedfinancialstatements
–Note1Summaryofsignificant
accounting policies
– Note 30 Interests in subsidiaries and
other entities
– Note 25 Restricted and transferred
financialassets
Capital management (on pages
253 – 257, 260)
Capital adequacy
Capital management (on page 249)
Capital instruments
BIS Basel III leverage ratio
Capital management (on pages
258 – 259)
“Bondholder information” at
www.ubs.com/investors
Capital management (on page 275)
“Pillar3,SECfilings&otherdisclosures”
at www.ubs.com/investors
Risk management objec-
tives, policies and method-
ologies – qualitative disclo-
sures
Risk management and control
(on pages 165 – 233)
Currency management (on page 247)
Capital management (on page 250)
Risk-weighted assets
Capital management (on pages
263 – 266)
Overview of exposures and risk-weighted assets (on pages 861 – 863)
Table 2: Detailed segmentation of exposures and risk-weighted assets
855
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Location of Pillar 3 disclosures (continued )
The following table provides an overview of Pillar 3 disclosures in this report.
Pillar 3 disclosures
Credit risk
Location in our UBS Group AG
Annual Report 2015
Risk management and control (on pages
177, 196 – 201)
Information on
– Impaired assets by region,
– Impaired assets by exposure
segment, and on
– Changes in allowances and provi-
sions (on pages 181 – 186)
Treasury management (on page 244)
Consolidatedfinancialstatements
– Note 14 Derivative instruments and
hedge accounting
Location in this supplemental section
Credit risk (on pages 864 – 885)
Table 3: Regulatory credit risk exposure and RWA
Table 4: Regulatory gross credit risk exposure by geographical region
Table 5: Regulatory gross credit risk exposure by counterparty type
Table 6: Regulatory gross credit risk exposure by residual contractual maturity
Table 7: Credit risk mitigation for standardized and A-IRB approaches
Table 8: Regulatory gross credit risk exposure covered by guarantees and
credit derivatives
Table 9a: Sovereigns – A-IRB approach: Regulatory net credit risk exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Table 9b: Banks – A-IRB approach: Regulatory net credit risk exposure,
weighted average PD, LGD and RWA by internal UBS ratings
– Note26Offsettingfinancialassets
Table 9c: Corporates – A-IRB approach: Regulatory net credit risk exposure,
andfinancialliabilities
weighted average PD, LGD and RWA by internal UBS ratings
Table 9d: Residential mortgages – A-IRB approach: Regulatory net credit risk
exposure, weighted average PD, LGD and RWA by internal UBS rat-
ings
Table 9e: Lombard lending – A-IRB approach: Regulatory net credit risk expo-
sure, weighted average PD, LGD and RWA by internal UBS ratings
Table 9f: Qualifying revolving retail exposures – A-IRB approach: Regulatory
net credit risk exposures, weighted average PD, LGD and RWA by
internal UBS ratings
Table 9g: Other retail – A-IRB approach: Regulatory net credit risk exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Table 10a:Regulatory gross and net credit risk exposure by risk weight under
the standardized approach
Table 10b: Regulatory net credit risk exposure under the standardized approach
risk-weighted using external ratings
Table11: Eligiblefinancialcollateralrecognizedunder
the standardized approach
Table 12: Breakdown by exposure segments
Table 13: Total actual and expected credit losses
Table 14: Credit risk exposure of derivative instruments
Table 15: Credit derivatives
Table 16: Equity instruments in the banking book
856
Location of Pillar 3 disclosures (continued)
The following table provides an overview of Pillar 3 disclosures in this report.
Pillar 3 disclosures Location in our UBS Group AG
Location in this supplemental section
Market risk
Operational risk
Annual Report 2015
Risk management and control (on pages
204 – 205)
Information on Group regulatory value-
at-risk (on pages 207, 209 – 216)
Consolidatedfinancialstatements
– Note 24 Fair value measurement
Risk management and control (on pages
230 – 233)
Interest rate risk in the
banking book
Risk management and control (on pages
217 – 221)
Securitization
Securitization (on pages 887 – 900)
Table 17: Securitization / re-securitization
Table 18: Securitization activity for the year in the banking book
Securitization activity for the year in the trading book
Table 19: Outstanding securitized exposures
Table 20: Impaired or past due securitized exposures and losses related to securi-
tized exposures in the banking book
Table 21: Exposures intended to be securitized in the banking and trading book
Table 22: Securitization positions retained or purchased in the banking book
Table 23: Securitization positions retained or purchased in the trading book
Table 24a: Capital requirement for securitization / re-securitization positions retained
or purchased in the banking book
Table 24b: Securitization / re-securitization exposures treated under the ratings-
based approach by rating clusters – banking book
Table 24c: Securitization / re-securitization exposures treated under the supervisory
formula approach by rating clusters – banking book
Gains on sale – securitization exposures to be deducted from Basel III tier 1 capital
Securitization exposures subject to early amortization in the banking and trading
book
Re-securitization positions retained or purchased in the banking book
Table 25: Re-securitization positions retained or purchased in the trading book
Outstanding notes issued by securitization vehicles related to UBS’s retained expo-
sures subject to the market risk approach
Table 26: Correlation products subject to the comprehensive
riskmeasureorthesecuritizationframeworkforspecificrisk
Table 27a: Securitization positions and capital requirement for trading book posi-
tions subject to the securitization framework
Table 27b: Securitization / re-securitization exposures treated under the ratings-
based approach by rating clusters – trading book
Table 27c: Securitization / re-securitization exposures treated under the supervisory
formula approach by rating clusters – trading book
Table 28: Capital requirement for securitization positions related to correlation
products
857
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Location of Pillar 3 disclosures (continued)
The following table provides an overview of Pillar 3 disclosures in this report.
Pillar 3 disclosures
Location in our UBS Group AG
Annual Report 2015
Location in this supplemental section
Balance sheet reconciliation (on pages 901–902)
Table 29: Reconciliation of accounting balance sheet to balance sheet under
the regulatory scope of consolidation
Composition of capital (on pages 903–906)
Table 30: Composition of capital
G-SIB indicator (on page 907)
“Pillar3,SECfilings&otherdisclosures”atwww.ubs.com/investors
Balance sheet
reconciliation
Composition of capital
G-SIB indicators
(annual disclosure
requirement only)
Remuneration
(annual disclosure
requirement only)
Equity attribution
and performance
measurement
Legal entity information
Compensation (on pages 342–343, 344,
348, 353–354, 356–357, 360, 364, 368–
372, 373–374, 376–379)
Corporate governance (on page 308)
Measurement of performance (on page 39)
Equity attribution framework (on pages
280–281)
Legalentityfinancialandregulatoryinfor-
mation (on pages 796–799, 819–822)
Our approach to measuring risk exposure and
risk-weighted assets
Measures of risk exposure may differ depending on whether the
exposures are calculated for financial accounting purposes under
International Financial Reporting Standards (IFRS), for deriving our
regulatory capital requirement or for risk management purposes.
Our Basel III Pillar 3 disclosures are generally based on measures of
risk exposure used to derive the regulatory capital required to
underpin those risks.
The table on the next page provides a summary of the
approaches we use for the main risk categories to derive risk-
weighted assets (RWA).
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
example, “sovereigns” under the BIS naming convention are
termed “central governments and central banks” under the Swiss
and EU regulations. Similarly, “banks” are “institutions” and “res-
idential mortgages” are “claims secured by residential real
estate.”
Our RWA are published according to the BIS Basel III frame-
work, as implemented by the revised Swiss Capital 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
858
Category
Credit risk
Credit risk by exposure
segment
UBS approach
Under the advanced internal ratings-based (A-IRB) approach applied for the majority of our businesses, counterparty risk
weights are determined by reference to internal counterparty ratings and loss given default estimates. We use internal models
tomeasurethecreditriskexposurestothirdpartiesonderivativesandsecuritiesfinancingtransactions.Allinternalcreditrisk
models are approved by FINMA. For a subset of our credit portfolio, we apply the standardized approach, based on external
ratings.
Securitization /
re-securitization 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,
considering the A-IRB risk weights.
Equity instruments in the
banking book
Credit valuation adjust-
ment (CVA)
Simple risk weight method under the IRB approach.
The credit valuation adjustment (CVA) is an additional capital requirement 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. For a subset of our credit portfolio, we apply the
standardized approach.
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 property, equipment and software,
deferredtaxassetsontemporarydifferencesanddefinedbenefitplansiscalculatedaccordingtoprescribedregulatoryrisk
weights.
Market risk
Value-at-risk (VaR)
Stressed VaR (SVaR)
Add-on for risks-not-in-
VaR (RniV)
Incremental risk charge
(IRC)
Comprehensive risk mea-
sure (CRM)
Securitization /
re-securitization in the
trading book
Operational 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-securitizationinthetradingbookareassessedfortheirgeneralmarketriskaswellasfortheirspecificrisk.
The capital requirement for general market risk is determined by the VaR and SVaR methods, whereas the capital requirement
forspecificriskisdeterminedusingtheCRMmethodortheratings-basedapproach,applyingriskweightsbasedonexternal
ratings.
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
859
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
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
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 2015, are
available in the “Consolidated financial statements” section of
this report.
➔ Refer to “Note 1 Summary of significant accounting policies” and
“Note 30 Interests in subsidiaries and other entities” in the
“Consolidated financial statements” section of this report for
more information
The main differences in the basis of consolidation between
IFRS and regulatory capital purposes relate to the following enti-
ties as of 31 December 2015:
– Investments in insurance, real estate and commercial compa-
nies as well as investment vehicles that were consolidated
under IFRS, but not for regulatory capital purposes, and were
subject to risk-weighting;
– Joint ventures which were fully consolidated for regulatory
capital purposes, but which were accounted for under the
equity method under IFRS;
– Entities that 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, 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
2015, 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
required 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 clear-
ing 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 16: Equity instruments in the banking book” of
this section for more information on the measurement of these
instruments
➔ Refer to “Table 29: Reconciliation of accounting balance sheet to
balance sheet under the regulatory scope of consolidation” of
this section for more information
➔ Refer to “Note 25 Restricted and transferred financial assets” in
the “Consolidated financial statements” section of this report for
more information on transferability restrictions under IFRS 12
Table 1: Main legal entities consolidated under IFRS but not included in the regulatory scope of consolidation
CHF million
UBS Asset Management Life Ltd – Long Term Fund
UBS International Life Designated Activity Company
A&Q Alternative Solution Limited
A&Q Alternative Solution Master Limited
UBS Life AG
A&Q Alpha Select Hedge Fund XL
A&Q Alpha Select Hedge Fund Limited
O’Connor Global Multi-Strategy Alpha (Levered) Limited
UBS Life Insurance Company USA
A&Q Global Alpha Strategies XL Limited
Key Multi-Manager Alternative Commodities Fund Limited
31.12.15
Total assets1
10,032
5,806
660
647
293
275
219
189
166
145
113
Total equity1
16
82
6312
6402
57
1392
2132
1892
43
732
1052
Purpose
Life insurance
Life Insurance
Investment vehicle for multiple investors
Investment vehicle for feeder funds
Life insurance
Investment vehicle for multiple investors
Investment vehicle for multiple investors
Investment vehicle for multiple investors
Life Insurance
Investment vehicle for multiple investors
Offshore hedge fund
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.
860
Overview of exposures and risk-weighted assets
“Table 2: Detailed segmentation of exposures and risk-weighted
assets” and subsequent tables provide a breakdown according 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
applied 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 (CCP) are clearing houses that interpose
themselves between counterparties to contracts 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 becomes a counter-
party to trades with market participants through novation, an
open offer system, or another legally binding arrangement.
– Retail, Residential mortgages, consisting of residential mort-
gages, regardless of exposure size, if the debtor 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
advanced 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, 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 component
“Stressed expected positive exposure (sEPE)” is newly included in
“Credit risk by exposure segment” while “Credit valuation adjust-
ment (CVA)” is still disclosed separately in this table. Comparative
figures for December 2014 have been restated accordingly.
Gross EAD decreased by CHF 20 billion to CHF 724 billion in
2015, of which CHF 17 billion related to credit risk. This decrease
was primarily a result of lower high-quality liquid assets held at
central banks and reductions in derivative and securities financing
transactions as a higher portion of these exposures with banks
and corporate counterparties were treated with an internal expo-
sure model. Further decreases resulted from asset size reductions
and currency effects. These reductions were partially offset by
increased gross EAD with central clearing houses following a
change in treatment of these exposures.
Gross EAD related to highly-rated securities held for liquidity
purposes previously treated with the standardized approach are
now treated under the A-IRB / model-based approach. This
resulted in a CHF 30 billion increase in exposures to sovereigns
treated under the A-IRB / model-based approach and a corre-
sponding decrease in exposures to sovereigns treated under the
standardized approach.
Capital requirements presented in the following tables are cal-
culated based on our Swiss SRB total capital requirement of
12.6% of RWA as of 31 December 2015 and 11.1% of RWA as
of 31 December 2014, respectively.
➔ Refer to the table “Risk-weighted assets by exposure segment”
in the “Capital management” section of this report for more
information on RWA by business division and Corporate Center
unit
➔ Refer to the table “Risk-weighted assets movement by key
driver – fully applied” in the “Capital management” section of
this report for more information on RWA movements
861
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
EDTF | Table 2: Detailed segmentation of exposures and risk-weighted assets
Gross EAD
A-IRB / model-based approach
Standardized approach
Total
31.12.15
Swiss SRB (phase-in)
Total
Net EAD
703,326
571,755
Capital
requirement
Net EAD
10,757
118,036
CHF million
Credit risk
Credit risk by exposure segment3
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 book4
Credit valuation adjustment (CVA)
Settlement risk
Non-counterparty-related risk
Deferred tax assets
Property, equipment and software
Other
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 book5
Operational risk
of which: incremental RWA6
RWA1
85,210
76,653
2,710
7,934
566,121
138,754
44,217
137,438
41,768
245,712
130,408
113,131
1,504
669
4,207
1,272
155
24,241
17,617
5,743
526
355
707
4,072
3,557
221
697,240
162,229
50,210
159,570
69,193
256,039
136,696
113,131
1,504
4,708
4,207
1,272
607
19,652
9,634
7,612
2,406
1,263
9,676
342
1,002
5,273
3,060
2,224
725
66
45
89
514
449
28
RWA1
19,231
17,147
317
1,115
7,051
2,846
5,817
2,360
Capital
requirement
2,428
2,165
40
141
890
359
734
298
117,604
23,475
4,561
10,048
69,193
10,327
6,288
4,038
3,457
436
432
19,652
9,634
7,612
2,406
1,798
286
20,743
12,901
7,612
230
227
36
2,619
1,629
961
29
1,263
12,063
1,523
1,528
2,835
4,212
2,732
84
1,263
1,263
672
75,055
13,327
193
358
532
345
11
85
9,475
1,682
Net EAD
689,792
RWA1
104,441
requirement2
13,184
Capital
683,725
162,229
48,778
147,486
69,193
256,039
136,696
113,131
1,504
4,708
4,207
1,272
587
19,652
9,634
7,612
2,406
1,263
1,263
93,800
3,027
9,050
48,819
2,846
30,058
19,977
5,743
526
3,812
707
4,072
5,355
508
20,743
12,901
7,612
230
12,063
1,528
2,835
4,212
2,732
84
672
75,055
13,327
11,841
382
1,142
6,163
359
3,794
2,522
725
66
481
89
514
676
64
2,619
1,629
961
29
1,523
193
358
532
345
11
85
9,475
1,682
Total Swiss SRB
724,241
573,018 172,328
21,754
137,688
39,974
5,046
710,706
212,302
26,800
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 total capital requirement of 12.6%
of RWA. 3 Includes sEPE, most of which relates to exposures to Banks and Corporates. 4 Simple risk weight method applied. 5 The EAD of securitization positions equals the fair value of the net long and net short
securitization positions retained or purchased in the trading book. 6 Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed by UBS and FINMA.
862
Table 2: Detailed segmentation of exposures and risk-weighted assets (continued)
Gross EAD
A-IRB / model-based approach
Standardized approach
Total
31.12.14
Swiss SRB (phase-in)
Net EAD
697,810
RWA1
108,601
CHF million
Credit risk
Credit risk by exposure segment3
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 book4
Credit valuation adjustment (CVA)
Settlement risk
Non-counterparty-related risk
Deferred tax assets
Property, equipment and software
Other5
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 book6
Operational risk
of which: incremental RWA7
Total
720,039
709,293
166,261
59,302
172,605
54,291
256,834
137,159
115,192
1,524
2,959
9,048
1,448
250
22,126
10,010
6,760
5,356
1,610
Net EAD
553,788
543,230
108,939
48,628
145,399
240,263
131,121
107,036
1,524
582
9,048
1,448
62
RWA1
86,282
72,406
1,319
8,070
41,126
21,892
15,767
5,359
532
233
2,650
4,735
6,395
96
Capital
requirement
9,594
8,051
147
897
4,573
2,434
1,753
596
59
26
295
526
711
11
1,610
16,483
1,833
Net EAD
144,021
143,841
57,321
7,916
15,899
54,291
8,414
6,038
RWA1
22,318
18,694
189
2,360
10,650
1,478
4,017
2,234
Capital
requirement
2,482
2,079
21
262
1,184
164
447
248
2,376
1,783
198
180
22,126
10,010
6,760
5,356
3,381
244
376
27
19,060
2,119
8,897
6,760
3,404
989
752
378
2,024
4,115
5,911
3,039
131
1,262
76,734
17,451
225
458
657
338
15
140
8,532
1,940
1,610
1,610
687,072
166,261
56,544
161,298
54,291
248,678
137,159
107,036
1,524
2,959
9,048
1,448
242
22,126
10,010
6,760
5,356
1,610
1,610
Capital
requirement2
12,075
10,129
168
1,160
5,757
164
2,881
2,002
596
59
224
295
526
1,087
38
2,119
989
752
378
91,099
1,508
10,430
51,775
1,478
25,909
18,002
5,359
532
2,016
2,650
4,735
9,775
340
19,060
8,897
6,760
3,404
16,483
1,833
2,024
4,115
5,911
3,039
131
1,262
76,734
17,451
225
458
657
338
15
140
8,532
1,940
Total Swiss SRB
743,774
555,398
179,498
19,958
166,147
41,379
4,601
721,545
220,877
24,559
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 total capital requirement of 11.1%
of RWA. 3 Includes sEPE, most of which relates to exposures to Banks and Corporates. 4 Simple risk weight method applied. 5 Primarily relates to defined benefit plans. 6 The EAD of securitization positions equals
the fair value of the net long and net short securitization positions retained or purchased in the trading book. 7 Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed
by UBS and FINMA.
863
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
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
include, for example, the application of regulatory prescribed
floors and multipliers, and differences with respect to eligibility
criteria and exposure definitions. The exposure information pre-
sented in this section therefore differs from our internal manage-
ment view disclosed in the “Risk management and control” sec-
tions of our quarterly and annual reports. Similarly, the regulatory
capital prescribed measure of credit risk exposure also differs
from that required under IFRS. The following credit risk-related
tables are based on Swiss SRB phase-in requirements and corre-
spond to the credit risk by exposure segment which is shown in
“Table 2: Detailed segmentation of exposures and risk-weighted
assets”. Stressed expected positive exposure (sEPE) is newly
included in credit risk by exposure segment and comparative fig-
ures for December 2014 have been restated accordingly in the
following tables.
➔ 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
exposure on the majority of our derivatives portfolio by applying
the effective EPE and sEPE as defined in the Basel III framework.
However, for the rest of the portfolio we apply the current expo-
sure method (CEM) based on the replacement value of derivatives
in combination with a regulatory prescribed add-on. For the
majority of securities financing transactions (securities borrow-
ing / lending and repurchase agreements / reverse repurchase
agreements), we determine the regulatory gross credit exposure
using the close-out period (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 risk 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
impaired and defaulted assets, consistent with the regulatory
capital treatment, is presented in the “Impairment, default and
credit loss” section of this report.
864
EDTF | Table 3: Regulatory credit risk exposure and RWA
This table shows the derivation of RWA from the regulatory gross credit risk exposure including sEPE broken down by major types of
regulatory gross credit risk exposure according to classes of financial instruments.
Exposure
Regulatory gross
credit risk
exposure
Less: regulatory
credit risk offsets
and adjustments
Regulatory
net credit risk
exposure
Average regulatory risk
weighting1
RWA2
CHF million
Cash and balances with central banks
Due from banks4
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 31.12.15
Total 31.12.14
Average regulatory
gross credit risk
exposure3
84,113
11,564
311,190
3,191
33,764
443,823
78,202
44,585
57,468
89,776
9,902
310,138
3,962
32,788
446,565
73,473
44,925
54,995
180,254
173,394
3,417
64,222
11,103
78,742
702,820
671,762
6,034
60,842
10,406
77,281
697,240
709,293
89,776
9,902
298,329
3,422
32,386
433,815
73,473
44,925
54,995
173,394
6,034
60,842
9,641
76,517
683,725
687,072
(11,808)
(540)
(402)
(12,750)
(765)
(765)
(13,515)
(22,221)
1%
20%
16%
23%
36%
14%
21%
3%
9%
12%
15%
4%
77%
14%
14%
13%
779
2,009
46,476
774
11,726
61,764
15,294
1,535
4,712
21,542
892
2,168
7,433
10,493
93,800
91,099
1 Calculated as a ratio of regulatory net credit risk exposure to the corresponding RWA. 2 The derivation of RWA is based on the various credit risk parameters of the A-IRB approach and the standardized approach,
respectively. 3 The average regulatory gross credit exposure represents the average of the applicable quarter-end exposures for the relevant reporting periods. 4 Includes non-bank financial institutions.
EDTF | Table 4: Regulatory gross credit risk exposure by geographical region
This table provides a breakdown of our portfolio including sEPE broken down by major types of regulatory gross credit risk exposure
according to classes of financial instruments by geographical regions. The geographical distribution is based on the legal domicile of
the counterparty or issuer.
CHF million
Cash and balances with central banks
Due from banks1
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 31.12.15
Total 31.12.14
1 Includes non-bank financial institutions.
Asia Pacific
Latin
America
Middle East
and Africa
5,921
2,317
22,624
1,016
908
32,786
7,304
4,888
4,836
17,029
85
1,735
508
2,328
52,142
55,198
35
6,112
4
300
6,451
632
35
206
872
7
46
41
94
191
4,551
421
5,163
580
38
1,478
2,096
21
14
34
7,418
8,658
7,293
7,632
North
America
25,480
2,942
80,098
1,724
Switzerland
46,596
763
161,885
389
18,551
7,081
128,795
216,715
24,994
17,436
24,899
67,329
2,869
28,781
6,094
37,744
233,868
261,607
6,756
164
2,282
9,202
11
2,163
702
2,875
228,793
211,551
Rest of
Europe
11,778
3,655
34,867
829
5,526
56,655
33,207
22,363
21,295
76,865
3,042
28,117
3,047
34,206
167,727
164,646
Total regulatory
gross credit risk
exposure
Total regulatory
net credit risk
exposure
89,776
9,902
310,138
3,962
32,788
446,565
73,473
44,925
54,995
173,394
6,034
60,842
10,406
77,281
697,240
709,293
89,776
9,902
298,329
3,422
32,386
433,815
73,473
44,925
54,995
173,394
6,034
60,842
9,641
76,517
683,725
687,072
865
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
EDTF | Table 5: Regulatory gross credit risk exposure by counterparty type
This table provides a breakdown of our portfolio including sEPE broken down by major types of regulatory gross credit risk exposure
according to classes of financial instruments 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 banks1
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 31.12.15
Total 31.12.14
1 Includes non-bank financial institutions.
Private
individuals
Corporates1
Public entities
(including
sovereigns and
central banks)
Banks and
multilateral
institutions
Total regulatory
gross credit risk
exposure
Total regulatory
net credit risk
exposure
197,507
496
2,574
200,577
1,936
24
28
109,758
3,020
28,744
141,522
45,108
42,424
39,088
1,988
126,619
951
9,898
3,488
14,337
282,478
283,300
4,419
4,419
206,984
205,470
89,267
1,032
2,873
4
33
93,209
5,076
677
4,918
10,671
4,945
34,342
1,596
40,882
144,763
153,477
508
8,870
443
1,437
11,257
21,353
1,800
10,962
34,115
138
16,602
903
17,643
63,015
67,046
89,776
9,902
310,138
3,962
32,788
446,565
73,473
44,925
54,995
173,394
6,034
60,842
10,406
77,281
697,240
709,293
89,776
9,902
298,329
3,422
32,386
433,815
73,473
44,925
54,995
173,394
6,034
60,842
9,641
76,517
683,725
687,072
EDTF | Table 6: Regulatory gross credit risk exposure by residual contractual maturity
This table provides a breakdown of our portfolio including sEPE by major types of regulatory gross credit risk exposure according to
classes of financial instruments 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 risk
exposure
Total regulatory
net credit risk
exposure
CHF million
Cash and balances with central banks
Due from banks2
Loans
Financial assets designated at fair value
Guarantees, commitments and forward starting transactions
On demand1
89,776
7,885
41,476
1,966
147,231
1,207
8,321
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 31.12.15
139,137
158,725
12,486
42,258
54,744
5,583
5,583
199,464
45,319
8,711
11,403
65,434
295
31,303
56
31,654
255,812
26
72,673
2,408
21,374
96,481
15,790
9,925
1,334
27,049
572
25,790
2,899
29,260
152,790
24
48,757
348
3,093
52,222
12,364
13,803
26,167
5,167
3,750
1,868
10,784
89,173
89,776
9,902
310,138
3,962
32,788
446,565
73,473
44,925
54,995
173,394
6,034
60,842
10,406
77,281
697,240
89,776
9,902
298,329
3,422
32,386
433,815
73,473
44,925
54,995
173,394
6,034
60,842
9,641
76,517
683,725
Total 31.12.14
1 Includes loans without a fixed term, cash collateral on derivative instruments and securities financing transactions, on which notice of termination has not been given. 2 Includes non-bank financial institutions.
141,195
709,293
250,598
239,564
687,072
77,935
866
Table 7: Credit risk mitigation for standardized and A-IRB approaches
This table provides a derivation of the regulatory net credit risk exposure from the regulatory gross credit risk exposure including sEPE
after the application of credit risk mitigation according to the A-IRB and the standardized approach.
CHF million
Total regulatory gross credit risk exposure
Less: regulatory credit risk offsets and adjustments
Total regulatory net credit risk exposure
Total 31.12.14
Advanced IRB
approach
Standardized
approach
Total 31.12.15
Total 31.12.14
573,246
(7,125)
566,121
543,230
123,994
(6,391)
117,604
143,841
697,240
(13,515)
683,725
709,293
(22,221)
687,072
➔ Refer to “Table 2: Detailed segmentation of exposures and risk-weighted assets” for more information on the regulatory net credit
exposure by exposure segment
Table 8: Regulatory gross credit risk exposure covered by guarantees and credit derivatives
This table provides a breakdown of regulatory gross credit risk exposure including sEPE covered by guarantees and credit derivatives
according 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 31.12.15
Total 31.12.14
1 Includes guarantees and standby letters of credit provided by third parties, the majority of which are banks.
Advanced internal ratings-based approach
UBS uses the advanced internal ratings-based (A-IRB) approach
for calculating certain credit risk exposures. Under the A-IRB
approach, the required capital for credit risk is quantified through
empirical models that we have developed to estimate the proba-
bility of default (PD), loss given default (LGD), exposure at default
(EAD) and other parameters, subject to FINMA approval.
➔ Refer to the “Risk management and control” section of this
report for more information
Regulatory gross credit
risk exposure
of which: covered by
guarantees1
of which: covered by
credit derivatives
162,229
50,210
159,570
69,193
136,696
113,131
1,504
4,708
697,240
709,293
105
234
3,212
1
1,360
56
1
4,969
4,507
43
7,263
7,306
9,392
Tables 9a to 9g provide a breakdown of the regulatory net
credit risk exposure, weighted average PD, LGD, RWA and the
average risk weight under the A-IRB approach by internal UBS
ratings across BIS-defined exposure segments. In line with the
numbers presented in table 2, impaired and defaulted assets and
sEPE are now included in tables 9a through 9g. Comparative fig-
ures for December 2014 have been restated accordingly.
867
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
EDTF | Table 9a: Sovereigns – Advanced IRB approach: Regulatory net credit risk exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.15
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
31.12.15
65,602
65,207
3,937
3,365
117
434
29
15
10
13
3
8
3
0
12
138,754
1
87
0
1
0
1
89
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
0.02
34.0
32.9
36.7
46.8
66.0
42.0
36.1
41.6
28.5
25.9
39.8
40.4
10.0
10.0
RWA
0
1,627
335
443
49
179
14
12
9
10
3
13
2
0
13
Average
risk weight in %
0.0
2.5
8.5
13.2
42.3
41.3
48.7
79.2
90.5
79.6
118.4
153.8
55.2
60.2
106.0
2.0
33.92
2,710
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of this report for information on impaired and defaulted financial instruments.
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.14
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.14
95,107
6,888
2,277
4,142
185
286
8
9
1
7
3
1
9
0
17
108,939
1
79
4
0
0
0
1
84
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
0.02
33.1
32.9
44.2
51.6
58.9
42.4
10.2
42.6
85.8
12.6
39.8
16.1
30.7
10.0
29
243
223
584
67
126
2
6
1
3
4
0
13
0
18
34.12
1,319
0.0
3.5
9.8
14.1
36.4
44.0
21.0
63.0
175.7
42.3
121.8
66.4
154.3
54.5
106.0
1.2
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of our Annual Report 2014 for information on impaired and defaulted financial instruments.
868
Table 9b: Banks – Advanced IRB approach: Regulatory net credit risk exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.15
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.15
22,392
13,699
4,449
1,899
1,241
331
85
63
18
28
3
1
9
3,335
2,025
101
3
4
0
2
1
44,217
5,471
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.12
32.9
34.6
39.2
43.5
40.1
46.4
34.2
38.9
44.2
44.5
42.0
23.1
2,168
2,301
1,443
881
698
202
73
74
26
50
8
1
10
34.82
7,934
9.7
16.8
32.4
46.4
56.2
61.2
85.8
117.4
146.8
179.2
227.6
132.8
106.0
17.9
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of this report for information on impaired and defaulted financial instruments.
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.14
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.14
29,231
12,022
3,644
2,197
779
425
80
141
45
31
11
5
17
5,550
1,567
106
6
7
1
48,628
7,236
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.12
35.9
35.6
39.3
44.9
43.0
43.9
30.6
36.2
35.5
43.0
43.3
43.6
2,859
2,028
1,135
940
484
253
58
149
53
56
25
12
18
36.72
8,070
9.8
16.9
31.1
42.8
62.1
59.5
72.6
105.5
116.8
179.5
225.5
259.1
106.0
16.6
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of our Annual Report 2014 for information on impaired and defaulted financial instruments.
869
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 9c: Corporates – Advanced IRB approach: Regulatory net credit risk exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.15
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.15
48,252
14,745
15,857
12,199
11,794
12,888
9,830
5,579
3,060
1,228
532
114
1,359
137,4383
3,673
3,960
3,245
1,868
752
512
766
395
1,153
464
213
40
19
17,058
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.72
20.1
35.1
37.3
37.6
25.1
20.1
15.6
18.7
24.6
16.4
13.2
17.4
25.42
3,482
3,111
5,636
6,177
5,187
5,757
3,777
3,044
2,804
879
369
103
1,441
41,7684
7.2
21.1
35.5
50.6
44.0
44.7
38.4
54.6
91.6
71.6
69.4
90.2
106.0
30.4
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of this report for infrormation on impaired and defaulted financial instruments. 3 Includes CHF 38,954 million relating to exposures with managed funds. Typically these funds have virtually no debt, are very low
risk, and therefore have a very low A-IRB risk weight. 4 Includes high volatility commercial real estate (HVCRE) exposures. These exposures relate to specialized lending that is secured by properties sharing higher vol-
atilities in portfolio default rates (RWA: CHF 98 million as of 31 December 2015).
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.14
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.14
53,700
20,974
11,427
12,071
13,741
12,287
8,250
5,579
3,994
1,416
300
108
1,552
145,3993
2,568
5,431
1,354
992
708
500
611
586
1,575
452
82
21
4
14,884
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.72
19.2
36.8
37.9
36.4
26.9
22.8
18.5
20.8
21.1
17.5
14.6
23.1
25.82
3,744
4,108
3,728
5,417
6,114
5,424
3,492
3,038
3,028
1,068
186
135
1,645
41,1264
7.0
19.6
32.6
44.9
44.5
44.1
42.3
54.4
75.8
75.4
62.1
124.3
106.0
28.3
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of our Annual Report 2014 for information on impaired and defaulted financial instruments. 3 Includes CHF 45,653 million relating to exposures with managed funds. Typically these funds have virtually no debt,
are very low risk, and therefore have a very low A-IRB risk weight. 4 Includes high volatility commercial real estate (HVCRE) exposures. These exposures relate to specialized lending that is secured by properties sharing
higher volatilities in portfolio default rates (RWA: CHF 159 million as of 31 December 2014).
870
Table 9d: Residential mortgages – Advanced IRB approach: Regulatory net credit risk exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.15
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.15
38,012
16,511
17,272
15,144
11,461
11,601
8,617
5,740
3,221
1,455
618
208
548
130,408
191
60
51
60
49
281
47
24
16
4
11
2
796
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.82
10.6
11.0
11.2
11.4
12.3
12.0
12.0
11.3
10.9
10.7
11.2
10.9
688
622
1,163
1,637
1,801
2,544
2,643
2,380
1,778
1,028
546
206
581
11.22
17,617
1.8
3.8
6.7
10.8
15.7
21.9
30.7
41.5
55.2
70.6
88.4
99.1
106.0
13.5
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of this report for information on impaired and defaulted financial instruments.
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.14
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
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
477
131,121
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
0.82
10.6
11.0
11.2
11.4
12.4
12.0
12.1
11.3
11.0
10.8
10.8
11.0
579
540
995
1,433
1,658
2,331
2,517
2,132
1,525
909
443
199
506
11.32
15,767
1.6
3.2
5.8
9.4
14.0
19.4
27.0
36.6
48.5
62.6
76.3
89.1
106.0
12.0
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of our Annual Report 2014 for information on impaired and defaulted financial instruments.
871
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 9e: Lombard lending – Advanced IRB approach: Regulatory net credit risk exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.15
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.15
61,107
36,902
2,632
7,010
2,226
1,433
604
95
578
537
6
113,131
146
63
1
4
1
8
15
10
0
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
20.0
20.0
20.0
20.0
20.0
20.0
20.0
248
0.22
20.02
1,610
1,650
203
872
365
390
180
28
212
228
7
5,743
2.6
4.5
7.7
12.4
16.4
27.2
29.8
29.1
36.6
42.4
106
5.1
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of this report for information on impaired and defaulted financial instruments.
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.14
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
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
6
107,036
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
20.0
20.0
20.0
20.0
20.0
20.0
20.0
393
0.22
20.02
1,473
1,577
250
807
520
315
111
11
156
132
6
5,359
2.6
4.5
7.7
12.1
17.3
21.6
31.0
29.1
31.0
33.3
106
5.0
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of our Annual Report 2014 for information on impaired and defaulted financial instruments.
872
Table 9f: Qualifying revolving retail exposures – Advanced IRB approach: Regulatory net credit risk exposure,
weighted average PD, LGD and RWA by internal UBS ratings
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.15
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.15
117
1,380
7
1,504
1.7
2.7
47.0
42.0
2.62
42.42
33
485
8
526
28.0
35.2
106.0
34.9
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of this report for information on impaired and defaulted financial instruments.
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.14
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.14
124
1,394
7
1,524
1.7
2.7
47.0
42.0
2.62
42.42
35
490
7
532
28.0
35.2
106.0
34.9
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of our Annual Report 2014 for information on impaired and defaulted financial instruments.
873
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 9g: Other retail – Advanced IRB approach: Regulatory net credit risk exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.15
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.15
133
21
8
11
7
263
4
203
7
3
0
8
669
0
0
2
3
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
18.0
16.6
10.5
10.0
15.6
41.4
14.1
58.5
23.7
20.4
63.2
5
1
0
1
1
162
1
172
3
1
0
9
1.42
39.62
355
3.6
3.9
4.5
6.6
14.2
61.4
17.6
84.6
37.2
33.8
112.8
106.0
53.0
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of this report for information on impaired and defaulted financial instruments.
CHF million, except where indicated
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
Impaired and defaulted2
Total 31.12.14
Regulatory net
credit risk
exposure
of which:
loan commitments
Average
PD in %1
Average
LGD in %
RWA
Average
risk weight in %
31.12.14
146
63
7
10
2
107
3
217
8
10
0
8
582
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
18.0
18.4
12.4
11.3
14.1
32.8
22.7
51.8
26.4
49.7
16.5
7
3
0
1
0
38
1
163
3
8
0
9
1.52
34.12
233
4.8
4.3
5.1
7.3
12.9
35.7
28.1
75.0
42.0
81.1
30.2
106.0
40.1
1
1
1 Average PD for internal rating categories is based on midpoint values. 2 Total weighted average PD and LGD exclude impaired and defaulted financial instruments. Refer to the “Risk management and control” sec-
tion of our Annual Report 2014 for information on impaired and defaulted financial instruments.
874
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, where possible, risk assessments prepared
by external credit assessment institutions (ECAI) or export credit
agencies to determine the risk weightings applied to rated coun-
terparties. We use FINMA-recognized ECAI risk assessments to
determine the risk weight for certain counterparties according to
the BIS- defined exposure segments.
We use three FINMA-recognized ECAI for this purpose: Stan-
dard & Poor’s, Moody’s Investors Service and Fitch Ratings. 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 risk exposure by risk weight under the standardized approach
This table provides a breakdown of the regulatory gross and net credit risk exposure by risk weight according to BIS-defined exposure
segments for those credit exposures for which we apply the standardized approach.
CHF million
Risk weight
Regulatory gross credit risk exposure
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving retail exposures
Other retail
Total 31.12.15
Total 31.12.14
Regulatory net credit risk exposure
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving retail exposures
Other retail
Total 31.12.15
Total 31.12.14
Total exposure
Total exposure
0%
>0–20%
21–50%
51–100%
over 100%
31.12.15
31.12.14
22,842
148
3,933
3,133
398
620
998
26,3311
41,913
85
22
12,280
578
2
13
371
23,475
4,575
16,425
69,193
57,321
8,044
21,065
54,291
5,993
295
6,288
6,038
49,173
86,387
49,127
35,861
8,010
9,823
22,842
148
3,919
3,133
398
620
990
26,3311
41,913
4,038
17,299
16,823
85
22
5,911
578
386
243
2
13
371
4,038
123,994
23,475
4,561
10,048
69,193
2,377
149,136
57,321
7,916
15,899
54,291
5,993
295
6,288
6,038
49,173
86,387
49,114
35,859
8,002
9,705
4,038
10,930
11,662
386
228
4,038
117,604
2,376
143,841
1 A risk weight of 0% is applied for trades that we have entered into with central counterparties on behalf of a client and where the client has signed a legally enforceable agreement reflecting that the default risk of
that central counterparty is carried by the client.
875
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 10b: Regulatory net credit risk exposure under the standardized approach risk-weighted using external ratings
This table provides a breakdown of the rated and unrated regulatory net credit risk 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
Regulatory net credit risk exposure2
Sovereigns
Banks
Corporates
Total 31.12.15
Total 31.12.14
Total exposure1
Total exposure1
0%
>0–20%
21–50%
51–100% over 100%
31.12.15
31.12.14
Rated3
Unrated
Rated3
Unrated
Rated3
Unrated
22,517
325
148
1,237
2,683
3,133
398
232
388
990
22,842
56,931
7,201
11,330
2,008
3,905
28
57
22
39
5,872
6,019
8,952
2
23,093
57,249
382
1,491
3,071
4,172
5,876
38,084
72
3,720
4,196
7,038
8,861
81,136
9
4
15
19
1 As external ratings are not used in the calculation of RWA for retail exposures and exposures to central counterparties, these exposures are not reflected in the above table. For more information on the risk weights
applied for these exposures, please refer to “Table 10a: Regulatory gross and net credit risk exposure by risk weight under the standardized approach”. 2 For a breakdown of securitization exposures by risk weight
bands and rating clusters refer to tables 24a to 24c (banking book) and 27a to 27c (trading book) of this report. 3 We use three FINMA-recognized ECAI to determine the risk weight for certain counterparties: Stan-
dard & Poor’s, Moody’s Investors Service and Fitch Ratings.
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 risk exposure under standard-
ized approach
Eligible financial collateral recognized in capital cal-
culation1
31.12.15
31.12.14
31.12.15
31.12.14
23,475
4,561
10,048
69,193
6,288
4,038
117,604
57,321
7,916
15,899
54,291
6,038
2,376
143,841
442
7,762
30,961
39,165
3
1,662
6,604
9,465
19
17,752
1 Eligible financial collateral recognized in the capital calculation is based on the difference between the regulatory gross credit risk exposure and the regulatory net credit risk exposure for exposures not covered under
internal exposure models.
876
Comparison of A-IRB approach and Standardized
Approach (SA)
In accordance with current prudential regulations, FINMA has
approved our use of the Advanced IRB (A-IRB) approach for calcu-
lating the required capital for a majority of our credit risk exposures.
In light of a number of Basel Committee on Banking Supervi-
sion (BCBS) consultations on material changes to current Stan-
dardized Approach (SA) rules, and potential implementation of
capital floors based on the revised SA, we have outlined below
the principal differences between the current SA rules and the
A-IRB approach.
UBS is actively participating in the Quantitative Impact Studies,
whereby the BCBS collects data from banks for the design of the
revised SA rules. Given the uncertainty regarding the final rules
and the calibration of any floors, the discussion of the differences
provided below is based on the current SA rules. There can be no
assurance that the differences described will be indicative of the
differences under the revised rules.
We continue to believe that advanced approaches that ade-
quately capture economic risks are paramount for the appropriate
representation of the capital requirements related to risk-taking
activities. Within a strong risk control framework and in combina-
tion with robust stress testing practices, strict risk limits, as well as
leverage and liquidity requirements, advanced approaches pro-
mote a proactive risk culture, ensuring the right incentives are in
place to prudently manage risks.
Key methodological differences between A-IRB and current
SA approaches
In line with the BCBS objective, the A-IRB approach seeks to bal-
ance the maintenance of prudent levels of capital while encour-
aging, where appropriate, the use of advanced risk management
techniques. By design, the calibration of the current SA rules and
the A-IRB approaches is such that low-risk, short-maturity, well-
collateralized portfolios across the various asset classes (with the
exception of Sovereigns) receive lower risk weights under the
A-IRB than under the current SA rules. Accordingly, risk weighted
assets (RWA) and capital requirements under the current SA rules
would be substantially higher than under the A-IRB approach for
lower risk portfolios. Conversely, RWA for higher risk portfolios
are higher under the A-IRB than under the current SA approach.
Differences primarily arise due to the measurement of Expo-
sure at Default (EAD) and to the risk weights applied. In both
cases, the treatment of risk mitigation such as collateral can have
a significant impact.
EAD measurement:
For the measurement of EAD, the main differences relate to deriv-
atives, driven by the differences between the Internal Model
Method (IMM) and the regulatory prescribed Current Exposure
Method (CEM).
The model-based approaches to derive estimates of EAD for
derivatives and securities financing transactions reflect the
detailed characteristics of individual transactions. They model the
range of possible exposure outcomes across all transactions within
the same legally enforceable netting set at various future time
points. This assesses the net amount that may be owed to us, or
that we may owe to others, taking into account the impact of
correlated market moves over the potential time it could take to
close out a position. The calculation considers current market con-
ditions, and is therefore sensitive to deteriorations in the market
environment.
In contrast, EAD under the regulatory prescribed rules are cal-
culated as replacement costs at the balance sheet date plus regu-
latory add-ons, which take into account potential future market
movements, but, at predetermined fixed rates, which are not sen-
sitive to changes in market conditions. These add-ons are crudely
differentiated by reference to only five product types and three
maturity buckets. Further, the current regulatory prescribed rules
calculation gives very limited recognition to the benefits of diver-
sification across transactions within the same legally enforceable
netting set. As a result, large diversified portfolios, such as those
arising from our activities with other market making banks, will
generate much higher EAD under the current regulatory pre-
scribed rules than under the model-based approach.
Risk Weights:
Under the A-IRB approach, risk weights are assigned according to
the bank’s internal credit assessment of the counterparty to deter-
mine the Probability of Default (PD) and Loss Given Default (LGD).
The PD is an estimate of the likelihood of a counterparty
defaulting on its contractual obligations. It is assessed using rating
tools tailored to the various categories of counterparties. Statisti-
cally developed scorecards, based on key attributes of the obligor,
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 counterpar-
ties. For Lombard loans, Merton-type model simulations are used
that take into account potential changes in the value of securities
collateral. PD is not only an integral part of the credit risk mea-
surement, but also an important input for determining the level of
credit approval required for any given transaction. Moreover, for
the purpose of capital underpinning, the majority of counterparty
PDs are subject to a floor.
The LGD is an estimate of the magnitude of the likely loss if
there is a default. The calculation takes into account the 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. Importantly, LGD con-
siders credit mitigation by way of collateral or guarantees, with
the estimates being supported by our internal historical loss data
and external information where available.
877
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
The combination of PD and LGD determined at the counter-
party level results in a highly granular level of differentiation of the
economic risk from different borrowers and transactions.
In contrast, the SA risk weights are largely reliant on external
rating agencies’ assessments of the credit quality of the counter-
party, with a 100% risk weight typically being applied where no
external rating is available. Even where external ratings are avail-
able, there is only a coarse granularity of risk weights, with only
four primary risk weights used for differentiating counterparties,
with the addition of a 0% risk weight for AA- or better rated
sovereigns. In addition, weights of 35% and 75% are used for
mortgages and retail exposures.
In addition, the SA does not differentiate across transaction
maturities except for interbank lending, albeit in a very simplistic
manner considering only shorter or longer than three-months. This
has clear limitations. For example, the economic risk of a six-month
loan to, say, a BB rated US corporate, is significantly different to
that of a 10-year loan to the same borrower. This difference is evi-
dent from the distinction of probability of default levels based on
ratings assigned by external rating agencies through their separate
ratings for short-term and long-term debt for a given issuer.
The SA typically assigns lower risk weights to sub-investment
grade counterparties than the A-IRB approach, thereby potentially
understating the economic risk. Conversely, investment grade
counterparties typically receive higher risk weights under the SA
than under the A-IRB approach.
Maturity also plays an important factor, with the A-IRB
approach producing a higher capital requirement for longer
maturity exposures than for shorter maturity 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.
Additionally, under the A-IRB approach we calculate expected
loss measures that are deducted from CET1 capital to the extent
that they exceed general provisions, which is not the case under
the SA.
Given the divergence between the SA and the economic risk,
which is better represented under the A-IRB approach, particularly
for lower grade counterparties, there is a risk that applying the SA
could incentivize higher risk taking without a commensurate
increase in capital required.
Comparison of the A-IRB approach EAD and Leverage Ratio
Denominator by exposure segment
The following table shows EAD, average risk-weight (RW), risk-
weighted assets (RWA) and Leverage Ratio Denominator (LRD)
per Basel III Exposure Segment for Sovereigns, Banks, Corporates
and Retail credit risk exposures subject to the A-IRB approach,
consistent with our Pillar 3 disclosures. LRD is the exposure mea-
sure used for the Leverage Ratio.
LRD estimates presented in the table reflect the credit risk-
related component of exposures only and are therefore not repre-
sentative of the LRD requirement at bank level overall. The LRD
estimates exclude exposures subject to market risk, non-counter-
party related risk and SA credit risk, to provide a like-for-like com-
parison with the A-IRB credit risk EAD shown.
Table 12: Breakdown by exposure segments
in CHF billion
Sovereigns
Banks
Corporates
Retail
o / w Residential mortgages
o / w Lombard Lending
A-IRB
LRD
EAD
139
44
137
246
130
113
RW
2%
18%
30%
10%
14%
5%
RWA
3
8
42
24
18
6
138
71
205
246
130
114
878
Comparison of the A-IRB approach, the SA and LRD by
exposure segment
The following discusses the differences between the A-IRB
approach, the SA and LRD per exposure segment.
Exposure Segment Sovereigns:
The regulatory net EAD for Sovereigns is CHF 139 billion under
the A-IRB approach. Since the vast majority of our exposure to
Sovereigns is driven by banking products exposures, the LRD is
broadly in line with the A-IRB net EAD and we would expect a
similar amount under the SA.
The chart below provides a comparison of risk weights for Sov-
ereigns exposures calculated under the A-IRB approach and the
SA. Risk weights under the A-IRB approach are shown for 1-year
and 5-year maturities, both assuming an LGD of 45% (the default
LGD assigned for senior unsecured exposures under the Founda-
tion IRB approach). Our internal A-IRB ratings have been mapped
to external ratings based on the long-term average of one-year
default rates available from the major credit rating agencies, as
described on page 200 of our Annual Report 2014.
(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:2)(cid:115)(cid:2)(cid:53)(cid:81)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:73)(cid:80)(cid:85)
(cid:21)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)
(cid:18)
(cid:55)(cid:80)(cid:84)(cid:67)(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:85)
(cid:35)(cid:35)(cid:35)
(cid:35)(cid:13)
(cid:36)(cid:36)(cid:36)(cid:13)
(cid:36)(cid:36)(cid:13)
(cid:36)(cid:13)
(cid:37)(cid:37)(cid:37)
(cid:35)(cid:15)(cid:43)(cid:52)(cid:36)(cid:2)(cid:19)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:10)(cid:22)(cid:23)(cid:7)(cid:2)(cid:46)(cid:41)(cid:38)(cid:11)
(cid:35)(cid:15)(cid:43)(cid:52)(cid:36)(cid:2)(cid:23)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:10)(cid:22)(cid:23)(cid:7)(cid:2)(cid:46)(cid:41)(cid:38)(cid:11)
(cid:53)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:84)(cid:70)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:35)(cid:82)(cid:82)(cid:84)(cid:81)(cid:67)(cid:69)(cid:74)
The SA assigns a zero risk weight to Sovereigns counterparties
rated AA- and better, while the A-IRB approach generally assigns
risk weights higher than zero even for the highest quality sover-
eign counterparties.
Despite this, we would expect an increase in average risk
weight under the SA due to exposures to unrated counterparties
such as sovereign wealth funds, which attract a 100% risk weight
under the SA despite being generally considered very low risk,
and short-term repo transactions with central banks rated below
AA-, such as the Bank of Japan.
300
However, as the Sovereigns exposure segment is not a signifi-
cant driver of RWA, we would expect any resulting increase in
RWA to be relatively small.
0
Exposure Segment Banks:
The regulatory net EAD for Banks is CHF 44 billion under the
A-IRB approach. The A-IRB net EAD is lower compared to the LRD
as a result of collateral mitigation on derivatives and securities
financing transactions. We would expect the net EAD to increase
significantly under the regulatory prescribed rules related to deriv-
atives and securities financing transactions within the Investment
Bank, due to the aforementioned methodological differences
between the calculation of EAD under the two approaches.
The chart below provides a comparison of risk weights for 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:2)(cid:115)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:85)
(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:13)
(cid:36)(cid:36)(cid:36)(cid:13)
(cid:36)(cid:36)(cid:13)
(cid:36)(cid:13)
(cid:37)(cid:37)(cid:37)
(cid:55)(cid:80)(cid:84)(cid:67)(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:85)
(cid:35)(cid:15)(cid:43)(cid:52)(cid:36)(cid:2)(cid:19)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:10)(cid:22)(cid:23)(cid:7)(cid:2)(cid:46)(cid:41)(cid:38)(cid:11)
(cid:35)(cid:15)(cid:43)(cid:52)(cid:36)(cid:2)(cid:23)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:10)(cid:22)(cid:23)(cid:7)(cid:2)(cid:46)(cid:41)(cid:38)(cid:11)
(cid:53)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:84)(cid:70)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:35)(cid:82)(cid:82)(cid:84)(cid:81)(cid:67)(cid:69)(cid:74)
As can be seen from Table 9b of our Pillar 3 disclosures, the
vast majority of our Banks exposure is of investment grade quality.
The average contractual maturity of this exposure is closer to the
1-year example provided. Therefore, we would expect a higher
average risk weight under the SA than the 18% average risk
weight under the A-IRB approach. In combination with higher
EAD, we would expect this to lead to significantly higher RWA for
Banks under the SA.
300
(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)
(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: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: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)
Exposure Segment Corporates:
The regulatory net EAD for Corporates is CHF 137 billion under
the A-IRB approach. The A-IRB net EAD is lower compared to the
LRD as a result of collateral mitigation on derivatives and securities
financing transactions. We would expect the EAD figure to be
higher under the regulatory prescribed rules related to derivatives,
which typically account for one third of the EAD for this exposure
segment, due to the aforementioned methodological differences
between the calculation of EAD under the two approaches.
0
The following chart provides a comparison of risk weights for
Corporates exposures calculated under the A-IRB approach and
the SA. These exposures primarily arise from corporate lending
and derivatives trading within the Investment Bank, and lending
to large corporates and small- and medium-sized enterprises
within Switzerland.
879
(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)
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
(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:2)(cid:115)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:85)
(cid:21)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)
(cid:18)
(cid:55)(cid:80)(cid:84)(cid:67)(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:85)
(cid:35)(cid:35)(cid:35)
(cid:35)(cid:13)
(cid:36)(cid:36)(cid:36)(cid:13)
(cid:36)(cid:36)(cid:13)
(cid:36)(cid:13)
(cid:37)(cid:37)(cid:37)
(cid:35)(cid:15)(cid:43)(cid:52)(cid:36)(cid:2)(cid:19)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:10)(cid:22)(cid:23)(cid:7)(cid:2)(cid:46)(cid:41)(cid:38)(cid:11)
(cid:35)(cid:15)(cid:43)(cid:52)(cid:36)(cid:2)(cid:23)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:10)(cid:22)(cid:23)(cid:7)(cid:2)(cid:46)(cid:41)(cid:38)(cid:11)
(cid:53)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:84)(cid:70)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:35)(cid:82)(cid:82)(cid:84)(cid:81)(cid:67)(cid:69)(cid:74)
Investment grade counterparties typically receive higher risk
weights under the SA than under the A-IRB approach. The major-
ity of our Corporates exposures fall into this category, as can be
seen from the distribution of Corporates regulatory net EAD pro-
vided in table 9c. We would therefore expect risk weights for Cor-
porates to be generally higher under the SA.
In addition, SA risk weights are reliant on external ratings, with
a default weighting of 100% applied where no external rating is
available. Typically, counterparties with no external rating are risk-
ier and thus also have higher risk weights under the A-IRB
approach. However, managed funds, which comprise nearly one
third of our Corporates EAD, typically have no debt and are there-
fore unrated. The SA applies a 100% risk weight to exposures to
these funds. Under A-IRB, these funds are considered very low risk
and have an average risk weight of 5%. We believe the SA sig-
nificantly overstates the risk.
(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: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)
(cid:21)(cid:24)(cid:14)(cid:21)(cid:20)(cid:21)
(cid:21)(cid:19)(cid:14)(cid:24)(cid:21)(cid:23)
Conversely, for certain exposures, we consider the risk weight
of 100% under the SA resulting from the absence of an external
rating as insufficient, as evident from the hypothetical leveraged
finance counterparty example in the table below.
(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)
Comparison of risk weights as a function of internal rating assessment
300
The table assumes two counterparties without external rating assignment.
Interest
payment
coverage
0
(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%
880
Exposure Segment Retail
Sub-segment residential mortgages:
The regulatory net EAD for residential mortgages is CHF 130 bil-
lion under the A-IRB approach. Since the vast majority is driven
by banking products exposures, the LRD is broadly in line with
the A-IRB net EAD and we would expect a similar amount under
the SA.
With our leading personal and corporate banking business in
Switzerland, our domestic portfolios represent a significant por-
tion of our overall lending exposures, with the largest being loans
secured by residential properties.
Our internal models take a sophisticated approach in assigning
risk weights to such loans by considering the debt service capacity
of borrowers as well as the availability of other collateralizing
assets. These are important considerations for the Swiss market,
where there is legal recourse to the borrower.
In contrast, and different to the assignment of risk weights for
exposure segments above, the SA only crudely differentiates the
risk weights based on loan-to-value (LTV) ranges as shown in the
table below.
(cid:53)(cid:35)(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:2)(cid:115)(cid:2)(cid:52)(cid:71)(cid:85)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:47)(cid:81)(cid:84)(cid:86)(cid:73)(cid:67)(cid:73)(cid:71)(cid:85)
(cid:19)(cid:23)(cid:18)
(cid:19)(cid:18)(cid:18)
(cid:23)(cid:18)
(cid:18)
(cid:46)(cid:54)(cid:56)(cid:28)
(cid:24)(cid:25)(cid:7) (cid:26)(cid:18)(cid:7)
(cid:19)(cid:18)(cid:18)(cid:7)
(cid:53)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:84)(cid:70)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:35)(cid:82)(cid:82)(cid:84)(cid:81)(cid:67)(cid:69)(cid:74)
150
100
50
0
The vast majority of our exposures would attract the 35% risk
weight under the SA, compared to the 14% observed under the
A-IRB approach.
The difference is largely due to the current SA rules not giving
benefit to the portion of exposures with LTV lower than 67%. The
vast majority of exposures fall within this category, as shown in
the “Swiss mortgages: distribution of net exposure at default
(EAD) across exposure segments and loan-to-value (LTV) buckets”
table in the “Risk management and control” section of this report.
The following example illustrates the importance of consider-
ing the quality of the portfolio at a more granular level than the
SA allows. The majority of the CHF 130 billion Residential mort-
gages EAD shown relates to loans secured by real estate in Swit-
zerland. If the value assigned to the real estate collateral underly-
ing those Swiss mortgage loans were to reduce by 30% and costs
of closing out impaired loans would be 20% of the current prop-
erty value, we estimate that the default rates would need to be
higher than 10% to lose an amount equivalent to the current
capital requirement of CHF 2.2 billion related to that portfolio
(calculated based on our Swiss SRB Basel III total capital ratio
requirement of 12.6% of RWA, including the countercyclical buf-
fer). Moreover, FINMA requires banks using the A-IRB approach to
apply bank-specific A-IRB multipliers when calculating RWA for
Swiss mortgages. As the multiplier is phased in through 2019, the
default rate required to generate a loss exceeding the capital
requirement will increase substantially.
Sub-segment Lombard Lending:
Lombard loans, with CHF 113 billion of regulatory net EAD under
the A-IRB approach, mainly arise in our wealth management busi-
nesses, which offer comprehensive financial services to private
clients with substantial financial resources.
Eligible collateral is more limited under the SA than under
A-IRB. However, the haircuts applied to collateral under the A-IRB
approach are generally greater than those prescribed under the
SA. Given this, we would expect the overall effect of applying cur-
rent SA rules to be limited for this portfolio.
(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)
(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: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: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)
881
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Impairment, default and credit loss
EDTF | The table below and on the next page provides a breakdown
over the last four years of expected loss estimates on our credit
exposures (covering banking and traded products) and actual losses
recognized in our income statement, broken down by exposure
segments. Both expected and actual losses relate to defaulted and
non-defaulted counterparties, include specific credit valuation
adjustments on derivatives and are presented net of recoveries.
Although such a comparison may provide some insight, the
comparison between expected and actual losses has limitations
and the two measures are not 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 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 ongoing basis, affecting the actual loss experience.
➔ Refer to the “Risk management and control” section and
“Note 12 Allowances and provisions for credit losses” in the
“Consolidated financial statements” section of this report for
more information on the impaired, default and credit loss-
related disclosures
EDTF | Table 13: Total actual and expected credit losses1
CHF million
Sovereigns
Banks
Corporates
Central Counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving other retail exposures
Other retail
Not allocated segment2
Total (gain) / loss
As of 31.12.14
for the year
ended 31.12.15
For the year ended 31.12.15
As of 31.12.13 for
the year ended
31.12.14
For the year ended 31.12.14
Expected loss
Allowances balance
Actual loss
Expected loss Allowances balance
Actual loss
17
45
989
145
54
33
19
14
17
654
40
47
17
9
6
83
26
4
0
16
130
1,001
158
61
34
18
1,302
803
114
1,416
14
27
792
39
19
16
15
8
930
122
80
1
5
0
(11)
196
1 Actual losses reflect credit losses for financial assets at amortized cost and financial instruments not recognized on the balance sheet as well as specific credit valuation adjustments for derivative instruments recog-
nized in our IFRS income statement, including recoveries. Actual and expected losses include defaulted and not defaulted assets. Prior period numbers for 2014, 2013 and 2012 have been restated accordingly. 2 Includes
changes in collective loan loss allowances.
882
Table 13: Total actual and expected credit losses1 (continued)
CHF million
Sovereigns
Banks
Corporates
Central Counterparties
Retail
Residential mortgages
Lombard lending
Qualifying revolving other retail exposures
Other retail
Not allocated segment2
Total (gain) / 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
Expected loss
Allowances balance
Actual loss
Expected loss Allowances balance
Actual loss
20
75
1,150
147
67
34
17
14
91
812
46
31
17
13
20
1,510
1,044
14
(21)
(1)
7
0
(93)
(94)
35
63
2,410
124
46
18
30
2,726
15
39
951
51
35
18
14
114
1,238
(3)
227
12
7
0
(15)
229
1 Actual losses reflect credit losses for financial assets at amortized cost and financial instruments not recognized on the balance sheet as well as specific credit valuation adjustments for derivative instruments recog-
nized in our IFRS income statement, including recoveries. Actual and expected losses include defaulted and not defaulted assets. Prior period numbers for 2014, 2013 and 2012 have been restated accordingly. 2 Includes
changes in collective loan loss allowances.
Derivatives credit risk
EDTF | Table 14: Credit risk exposure of derivative instruments
This table provides an overview of our credit risk exposures arising
from derivatives. Exposures are provided based on the balance
sheet carrying values of derivatives as well as regulatory net credit
risk exposures. The net balance sheet credit exposure differs from
the regulatory net credit risk exposures because of differences in
valuation methods, netting and collateral deductions used for
accounting and regulatory capital purposes. Net current credit risk
exposure 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 million
Gross positive replacement values
Netting benefits recognized1
Collateral held1
of which: cash collateral
of which: non-cash collateral
Net current credit exposure
Regulatory net credit risk exposure
of which: based on internal models (effective EPE)
of which: based on supervisory approaches (current exposure method)
31.12.15
167,435
(122,985)
(25,513)
(19,757)
(5,756)
18,938
73,473
58,662
14,811
31.12.14
256,978
(198,744)
(30,794)
(25,128)
(5,666)
27,439
82,961
68,917
14,044
1 For the purpose of this disclosure, the amounts of financial instruments and cash collateral presented have been capped by the relevant netting agreement so as not to exceed the net amount of financial assets pre-
sented on the balance sheet; i.e., over-collateralization, where it exists, is not reflected in the table.
➔ Refer to “Note 14 Derivative instruments and hedge accounting” in the “Consolidated financial statements” section of this report for more
information on derivative instruments
883
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
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) deriv-
atives, are netted and included in the calculation of the collateral
that is required to be posted. Trading with lower-rated counter-
parties, 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 gener-
ally takes the form of cash or highly liquid debt securities, is avail-
able to cover any amounts due under those derivative transac-
tions.
Table 15: Credit derivatives
This table provides an overview of the notional amount of credit
derivatives, including those used to manage risks within our bank-
ing and trading books. Notional amounts of credit derivatives do
not include any netting benefits. For capital underpinning of the
counterparty credit risk of derivative positions, the effective EPE or
exposure according to current exposure method is applied.
Notional amounts are reported based on the regulatory scope of
consolidation.
Notional amounts, CHF million
Credit default swaps
Total rate of return swaps
Options and warrants
Total 31.12.15
Total 31.12.14
Regulatory banking book
Regulatory trading book
Total
Protection
bought
10,644
2,819
13,463
13,970
Protection sold
369
369
751
Total
11,013
2,819
13,832
14,722
Protection
bought
155,257
3,456
4,225
162,938
248,849
Protection sold
Total
152,095
307,352
2,810
54
154,959
237,231
6,266
4,280
317,897
486,080
31.12.15
318,365
9,085
4,280
331,729
31.12.14
483,875
8,899
8,028
500,802
Measured on a notional basis, our counterparties for buying
and selling protection are mainly banks and central counterparties
and to a lesser extent broker-dealers. In 2015, we saw a material
reduction in notional exposures of CDS in the regulatory trading
book, primarily with banks.
➔ Refer to “Note 14 Derivative instruments and hedge accounting”
in the “Consolidated financial statements” section of this report
for more information on credit derivatives by instrument and
counterparty
884
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
investments classified as available-for-sale are subject to fair
value accounting under IFRS but for regulatory capital pur-
poses the “lower of cost or market” or “cost less impairment”
concept is applied.
– 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 16: Equity instruments in the banking book
The table below shows the different equity instruments categories
held in the banking book on the basis of amounts recognized
under IFRS, followed by the regulatory capital adjustment amount.
This adjustment considers the abovementioned differences to
IFRS resulting in the total regulatory equity instruments exposure
under the BIS framework, the corresponding RWA and the capital
requirement.
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 adjustment1
Total equity instruments under regulatory capital2
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 capital4
RWA according to simple risk-weight method5
Capital requirement according to simple risk-weight method5
Total capital requirement (including deductions from common equity tier 1 capital)
Net realized gains / (losses) and unrealized gains from equity instruments
Net realized gains / (losses) from disposals
Unrealized revaluation gains
of which: included in the BIS tier 2 capital
As of
31.12.15
31.12.14
645
954
1,598
419
2,017
37
814
805
360
4,072
514
875
664
927
1,591
780
2,371
219
1,039
738
375
4,735
526
901
For the year ended
31.12.15
For the year ended
31.12.14
106
332
149
80
285
128
1 Includes CHF 477 million of investment fund units treated as debt investments under IFRS as of 31 December 2015 (31 December 2014: CHF 767 million). 2 The gross and net EAD of CHF 1,272 million presented
for “Equity instruments in the banking book” line of “Table 2: Detailed segmentation of exposures and risk-weighted assets” excludes CHF 385 million booked in trust entities (compensation and benefit vehicles) and
CHF 360 million goodwill of investments in associates. 3 Includes CHF 385 million exposure booked in trust entities (compensation and benefit vehicles) that did not generate risk-weighted assets. 4 Goodwill related
to investments in associates is deducted from common equity tier 1 capital. 5 Risk-weighted assets of CHF 4,072 million and the capital requirement of CHF 514 million, as of 31 December 2015, are also disclosed in
the “Equity instruments in the banking book” line of “Table 2: Detailed segmentation of exposures and risk-weighted assets.”
885
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Market risk
The “Risk management and control” section of this report provides comprehensive information on market risk-related Pillar 3 disclosures.
➔ Refer to “Market risk” in the “Risk management and control” section of this report for more information
886
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 generally risk-
weighted, based on their external ratings. This section also pro-
vides details of the regulatory capital requirement associated with
these exposures.
tions, enabling us to transfer significant risk to third-party inves-
tors. As sponsor, we manage, provide financing or advise secu-
ritization 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 securi-
tization positions.
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
securities 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
originator, we create or purchase financial assets, which are
then securitized in traditional or synthetic securitization transac-
RWA attributable to securitization positions decreased to CHF
1.4 billion as of 31 December 2015 from CHF 3.9 billion as of
31 December 2014, mainly due to a decline of CHF 2.2 billion in
Corporate Center – Non-core and Legacy Portfolio, primarily due
to the termination of hedging transactions synthetically transfer-
ring credit risk.
➔ Refer to “Note 30 Interests in subsidiaries and other entities
subsidiaries and other entities” in the “Consolidated financial
statements” section of this report for more information on
structured entities
➔ Refer to the “Corporate Center” section of this report for more
information on RWA by portfolio composition and exposure
category
Table 17: Securitization / re-securitization
CHF million
Gross EAD
Net EAD
RWA
Capital
requirement
Gross EAD
Net EAD
31.12.15
31.12.14
Securitization / re-securitization in the banking book
CC – Non-core and Legacy Portfolio
Other business divisions1
Securitization / re-securitization in the trading book
CC – Non-core and Legacy Portfolio
Other business divisions1
1 Mainly reflecting exposures in the Investment Bank.
4,207
1,089
3,119
1,263
925
338
4,207
1,089
3,119
1,263
925
338
707
319
388
672
518
154
89
40
49
85
65
19
9,048
4,735
4,313
1,610
1,205
405
9,048
4,735
4,313
1,610
1,205
405
RWA
2,650
2,028
622
1,262
993
268
Capital
requirement
295
226
69
140
110
30
887
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Objectives, roles and involvement
Securitization in the banking book
Securitization positions held in the banking book include tranches
of synthetic securitization of loan exposures. These were primarily
hedging transactions executed by synthetically transferring credit
risk. In addition, securitization in the banking book includes leg-
acy risk positions in Corporate Center – Non Core and Legacy
portfolio.
In 2015, 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
securitization programs and helped to place the securities in the
market. Refer to “Table 18: Securitization activity for the year in
the banking book” for an overview of our originating and spon-
soring activities in 2015 and 2014, 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,
reflecting market prices where available or are based on our inter-
nal 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 include limited liability
corporations, common law trusts and depositor entities.
We also manage or advise significant groups of affiliated enti-
ties that invest in exposures we have securitized or in structured
entities that we sponsor.
➔ Refer to “Note 30 Interests in subsidiaries and other entities” in
the “Consolidated financial statements” section of this report for
more information on structured entities
➔ Refer to the “Corporate Center” 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, such as management VaR
and stress limits as well as market value limits. As part of manag-
ing 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 retained securitization
from origination activities and any purchased securitization posi-
tions are governed by risk limits together with any other trading
positions. Legacy trading book securitization exposure is subject
to the same management VaR limit framework. Additionally, risk
limits are used to control the unwind, novation and asset sales
process on an ongoing basis.
888
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, 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 having the credit assessment by one
ECAI applied to 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 assessments. If any two of the above-
mentioned 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 secu-
ritization and re-securitization exposures in the banking book is
capped at the level of the capital requirement that would have
been assessed against the underlying assets had they not been
securitized. This treatment has been applied in particular to the
US and European reference-linked note programs. For the pur-
poses of determining regulatory capital and the Pillar 3 disclosure
for these positions, the underlying exposures are reported under
the standardized approach, the advanced internal ratings-based
approach or the securitization approach, depending on the cate-
gory of the underlying security. If the underlying security is
reported under the standardized approach or the advanced inter-
nal ratings-based approach, the related 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
derivatives and loan exposures for which an external rating was
not sought. The supervisory formula approach is also applied to
leveraged 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
underlying assets as well as associated hedges that are not neces-
sarily 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 deriv-
atives 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 “Consolidated financial statements” section of this report for
information on accounting policies that relate to securitization
activities, primarily “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
Disclosures within this section consider the “Industry good prac-
tice guidelines on Pillar 3 disclosure requirement for securitiza-
tion” as published by the European Banking Federation, the Asso-
ciation for Financial Markets in Europe, the European Savings
Banks Group and the European Association of Public Banks and
Funding Agencies.
889
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Securitization exposures in the banking and trading book
Table 18 outlines the exposures measured as the transaction size
we securitized at inception in the banking book in 2015 and in
2014. The activity is further broken down by our role (origina-
tor / sponsor) and by type (traditional / synthetic).
Amounts disclosed under the Traditional column of this table
reflect the total outstanding notes at par value issued by the secu-
ritization vehicle at issuance. For synthetic securitization transac-
tions, 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 retained
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 2015 and 31 December
2014, amounts of CHF 2.8 billion and CHF 2.9 billion, respec-
tively, were included in “Table 18: Securitization activity for the
year in the banking book” under both Originator and Sponsor
and in “Table 19: Outstanding securitized exposures” under both
Originator and Sponsor.
Table 18: 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
973
1,784
51
7,891
973
1,784
2,718
2,718
0
1,680
1,262
51
68
7,891
0
9,258
1,680
1,262
351
351
0
68
9,258
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 31.12.15
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
890
Securitization activity for the year in the trading book
In 2015 and 2014, we had no securitization activity in the trading book.
Table 19: Outstanding securitized exposures
This 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
2015 and in 2014 in which we retained and / or purchased posi-
tions. These can also be found in “Table 18: Securitization activity
for the year in the banking 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.
Banking book
Trading book1, 2
Originator
Sponsor
Originator
Sponsor
Traditional
Synthetic
Traditional
Synthetic
Traditional
Synthetic
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 31.12.15
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
673
1,822
23,874
263
359
4,864
4,864
423
26,741
1,053
0
673
1,053
1,008
2,756
2,756
2,942
Synthetic
Traditional3
3,119
5,894
0
311
13,341
22,665
7,307
2,437
742
17,234
282
405
1,106
463
19,489
243
7,306
7,549
2,942
199
1,057
0
1,207
1,057
10,487
0
1 Both net long and net short positions are underpinned in the trading book and EAD is capped at the maximum possible loss. 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 there was no other impact on our capital ratios.
891
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 20: Impaired or past due securitized exposures and losses related to securitized exposures in the banking book
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 positions.
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
assessment of the fair value of the retained position or reference
assets, or identification of any credit events.
31.12.15
31.12.14
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
13
36
6
55
1
0
0
2
30
8
38
0
0
1
0
6
6
0
2
2
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
Table 21: Exposures intended to be securitized in the banking and trading book
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.
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
892
31.12.15
31.12.14
Banking book
Trading book
Banking book
Trading book
323
144
323
0
144
0
Table 22: 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
Other2
Total1
31.12.15
Off-balance
sheet3
On balance
sheet
351
0
0
0
178
0
3,678
4,207
0
0
Total
351
0
0
0
178
0
3,678
4,207
On balance
sheet
31.12.14
Off-balance
sheet3
499
31
1
173
1
402
452
7,449
9,009
39
39
Total
499
31
1
173
1
402
492
7,449
9,048
1 The total exposure of CHF 4,207 million as of 31 December 2015 is also disclosed in “Table 2: Detailed segmentation of 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 classi-
fied as off-balance sheet exposures.
893
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 23: Securitization positions retained or purchased in the trading book
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 the Basel III framework. The amounts disclosed are
either the fair value or, in the case of derivative positions, the
aggregate of the notional amount and the associated replace-
ment value 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 31.12.15
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
Cash positions
Derivative positions
Total
Gross long
Gross short
Gross long
Gross short
Net long
Net short
7
146
0
24
5
183
14
238
28
3
283
1
0
0
0
1
3
1
0
4
260
1,500
291
1,570
13
209
15
117
24
106
1,889
481
1,299
19
106
1,985
633
1,332
106
203
2,090
39
203
2,208
9
5
236
16
427
15
3
461
1
133
45
6
4
55
Net Total1, 2
28
326
10
5
369
61
433
18
3
515
1 Both net long and net short positions are underpinned in the trading book and EAD is capped at the maximum possible loss. 2 Figures as of 31 December 2015 exclude CHF 894 million related to leveraged super
senior tranches treated under the supervisory formula approach which are reported in “Table 27c: Securitization / re-securitization exposures treated under the supervisory formula approach by rating clusters – trading
book.” Including these exposures, net total exposures were CHF 1,263 million, which equals the gross and net exposure of securitization / re-securitization in the trading book presented in “Table 2: Detailed segmenta-
tion of exposures and risk-weighted assets.”
894
Table 24a: Capital requirement for securitization / re-securitization positions retained or purchased in the banking book
Tables 24a to 24c provide the capital requirements for securitiza-
tion 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, Moody’s Investors Service and Fitch Ratings.
31.12.15
31.12.14
Ratings-based approach
Supervisory formula approach
Ratings-based approach
Supervisory formula approach
Securitization
Re-
securitization
Securitization
Re-
securitization
Total
Securitization
securitization Securitization
Re-
Re-
securitization
12
2
1
7
13
0
0
0
36
28
1
23
52
40
3
1
7
13
0
0
0
23
89
0
20
5
6
11
7
6
5
34
16
110
16
2
18
0
0
1
10
2
49
45
53
37
135
0
0
0
Total
81
60
24
11
7
6
6
44
55
295
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
Total1
1 Refer to “Table 2: Detailed segmentation of exposures and risk-weighted assets.” On 31 December 2015, CHF 4,207 million banking book securitization net exposures translated into an overall capital requirement of
CHF 89 million.
Table 24b: Securitization / re-securitization exposures treated under the ratings-based approach by rating
clusters – banking book
CHF million
Exposure amount Capital requirement
Exposure amount
Capital requirement
31.12.15
31.12.14
AAA
AA
A+
A
A–
BBB+
BBB
BBB–
BB+
BB
BB–
Below BB– / unrated
Total
205
302
31
92
39
20
89
99
0
0
878
3
6
1
2
2
1
7
13
0
1
37
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
895
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 24c: 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
31.12.15
31.12.14
Exposure amount
Capital charge
Exposure amount
Capital charge
3,247
68
15
3,329
28
1
23
52
5,190
1,782
27
6,998
45
53
37
135
Gains on sale – securitization exposures to be deducted from
Basel III tier 1 capital
In 2015 and in 2014, 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 2015 and in 2014, we have not retained any securitization
structures in the banking and trading book that are subject to
early amortization treatment.
Re-securitization positions retained or purchased in the banking book
During 2015, the majority of our Re-securitization positions retained or purchased in the banking book have been sold or terminated.
896
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 the Basel III frame-
work. As of 31 December 2015, none of the retained or pur-
chased trading book re-securitization positions had an integrated
insurance wrapper.
CHF million
Total 31.12.15
Total 31.12.14
Gross long
Gross short
Net long
Net short
48
134
19
41
9
15
1
4
Outstanding notes issued by securitization vehicles related to UBS’s retained exposures subject to the market risk approach
The information presented in table 26 in our Annual Report 2014 is now located within the “Trading Book” information in “Table 19:
Outstanding securitized exposures” in this report. In 2015 and 2014, there was no origination activity for securitization vehicles in the
trading book.
897
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 26: 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 com-
positive replacement value and negative replacement value. The
prehensive risk measure or the securitization framework for spe-
decrease in notional values related to positive and negative
cific risk. Correlation products subject to the securitization frame-
replacement values resulted mainly from trades maturing during
work are leveraged super senior positions. The values disclosed
the year, as well as from trade terminations.
are market values for cash positions, replacement values and
notional values for derivative positions. Derivatives are split by
CHF million
31.12.15
Positions subject to comprehensive risk measure
Positions subject to securitization framework1
31.12.14
Positions subject to comprehensive risk measure
Positions subject to securitization framework1
1 Includes leveraged super senior tranches.
Cash positions
Derivative positions
Assets
Liabilities
Assets
Liabilities
Market value
Market value
Positive
replacement
value
Positive
replacement
value notionals
Negative
replacement
value
Negative
replacement
value notionals
59
481
60
137
609
254
1
1,371
2,569
4,019
3,095
305
627
1
2,011
2,569
5,610
3,095
898
Table 27a: Securitization positions and capital requirement for trading book positions subject to the
securitization framework
Tables 27a to 27c outline securitization positions we purchased or
retained and the capital requirement in the trading book subject
to the securitization framework for specific market risk, irrespec-
tive 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 bal-
ance sheet date after eligible netting under the Basel III frame-
work.
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
Total3
31.12.15
Ratings-based approach
31.12.14
Ratings-based approach
Net long
Net short
147
52
9
6
2
5
9
6
236
97
5
0
14
0
14
3
133
Net Total1
244
Capital
requirement2
4
57
9
6
16
0
5
23
9
369
2
1
1
2
0
3
36
13
62
Net long
Net short
346
51
17
8
0
8
13
18
461
0
0
3
6
0
42
2
55
Net Total1
347
51
18
11
6
8
0
55
20
516
Capital
requirement
5
2
1
1
1
2
0
76
28
116
1 Both net long and net short positions are underpinned in the trading book and EAD is capped at the maximum possible loss. 2 The capital requirement of CHF 85 million as of 31 December 2015 disclosed in “Table
2: Detailed segmentation of exposures and risk-weighted assets” in line “Securitization / re-securitization in the trading book” includes the total ratings-based approach charge of CHF 62 million and a CHF 23 million
capital requirement for leveraged super senior tranches as disclosed in “Table 28: Capital requirement for securitization positions related to correlation products.” 3 Leveraged super senior tranches (subject to the secu-
ritization framework) are not included in this table, but are disclosed in “Table 26: Correlation products subject to the comprehensive risk measure or the securitization framework for specific risk.”
Table 27b: Securitization / re-securitization exposures treated under the ratings-based approach by rating
clusters – trading book
CHF million
Exposure amount Capital requirement
Exposure amount
Capital requirement
31.12.15
31.12.14
AAA
AA
A+
A
A–
BBB+
BBB
BBB–
BB+
BB
BB–
Below BB– / unrated
Total
224
40
4
37
9
1
16
0
5
0
32
369
4
1
0
2
1
0
2
0
3
0
50
62
301
60
12
35
14
4
6
8
0
75
515
4
1
1
1
1
0
1
2
0
104
116
899
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 27c: Securitization / re-securitization exposures treated under the supervisory formula approach by rating
clusters – trading book
CHF million
over 0–20%
Total
31.12.15
31.12.14
Exposure amount Capital requirement
Exposure amount
Capital requirement
894
894
23
23
1,095
1,095
24
24
Table 28: 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 exposure 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
declined mainly from trades maturing during the year, as well as
from trade terminations
CHF million
Positions subject to comprehensive risk measure
Positions subject to securitization framework1
Total
1 Leveraged super senior tranches.
31.12.15
31.12.14
Capital requirement
Capital requirement
11
23
34
15
24
39
900
Balance sheet reconciliation
Table 29: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation
The table below provides a reconciliation of the IFRS balance
sheet to the balance sheet according to the regulatory scope of
consolidation as defined by BIS and FINMA. Lines in the balance
sheet under the regulatory scope of consolidation are expanded
and referenced where relevant to display all components that are
used in “Table 30: Composition of capital.”
➔ Refer to the “Introduction” section for more information
Balance sheet in
accordance with
IFRS scope
of consolidation
Effect of
deconsolidated
entities for
regulatory consolidation
Effect of
additional consolidated
entities for
regulatory consolidation
Balance sheet
in accordance with
regulatory scope of
consolidation
References1
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, equipment and software
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
of which: net defined benefit pension and other post-
employment assets
Total assets
31.12.15
91,306
11,948
25,584
67,893
124,035
167,435
23,763
6,146
311,954
62,543
0
954
360
7,695
6,568
6,240
328
12,835
7,093
5,742
22,160
50
942,819
(280)
(16,302)
17
78
(80)
166
(83)
(1)
(1)
(280)
(16,764)
91,306
11,668
25,584
67,893
107,733
167,452
23,763
6,146
312,032
62,463
166
954
360
7,612
6,568
6,240
328
12,834
7,092
5,742
21,881
50
926,055
1
1
4
4
5
9
12
10
901
Additional regulatory information
Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 29: 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
deconsolidated
entities for
regulatory consolidation
Effect of
additional consolidated
entities for
regulatory consolidation
Balance sheet in
accordance with
regulatory scope of
consolidation
References1
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 high-trigger loss-absorbing additional
tier 1 capital2
of which: amount eligible for low-trigger loss-absorbing additional
tier 1 capital2
of which: amount eligible for low-trigger loss-absorbing tier 2 capital3
of which: amount eligible for capital instruments subject to phase-out
from tier 2 capital4
Provisions
Other liabilities
of which: amount eligible for high-trigger loss-absorbing capital
(Deferred Contingent Capital Plan (DCCP))5
Total liabilities
Equity
Share capital
Share premium
Treasury shares
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
of which: unrealized gains / (losses) from cash flow hedges according
to regulatory scope of consolidation
Equity attributable to UBS Group AG shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
31.12.15
11,836
8,029
9,653
29,137
162,430
38,282
62,995
390,185
93,147
2,837
2,326
10,325
996
4,164
75,652
1,134
885,511
385
31,164
(1,693)
29,504
(4,047)
1,638
55,313
1,995
57,308
942,819
(54)
81
68
(165)
(19)
(16,544)
(16,633)
(1)
(247)
116
(132)
1
(131)
(16,764)
11,781
8,029
9,653
29,137
162,512
38,282
63,063
390,021
93,129
2,837
2,326
10,325
996
4,164
59,108
1,134
868,878
385
31,164
(1,693)
29,257
(3,932)
1,638
55,181
1,996
57,177
926,055
13
13
7
8
13
1
1
3
2
3
11
6
0
1
(1)
1
1
1
1 References link the lines of this table to the respective reference numbers provided in the column “References” in “Table 30: Composition of capital.” 2 Represents IFRS book value. 3 IFRS book value is CHF 10,346
million. 4 IFRS book value is CHF 2,254 million. 5 IFRS book value is CHF 1,181 million. Refer to the “Compensation” section of this report for more information on the DCCP.
902
Composition of capital
The table on the next pages provides the “Composition of capi-
tal” as defined by BIS and FINMA. The naming convention does
not always reflect the UBS naming convention. Reference is made
to items reconciling to the balance sheet under the regulatory
scope of consolidation as disclosed in “Table 29: 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
An overview of the main features of our regulatory capital
instruments, as well as the full terms and conditions, are pub-
lished 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
AG and UBS AG on a consolidated and on a standalone basis
903
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
EDTF | Table 30: Composition of capital
CHF million, except where indicated
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 capital2
Intangible assets, net of tax2
Deferred tax assets recognized for tax loss carry-forwards3
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
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
17a Qualifying interest where a controlling influence is exercised together with other owners (CET instruments)
17b Consolidated investments (CET1 instruments)
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)
18
19
20 Mortgage servicing rights (amount above 10% threshold)
Numbers
phase-in
31.12.15
Effect of the
transition phase
31.12.15
References1
31,549
29,257
(5,625)
55,181
(83)
(2,618)
(323)
(2,988)
(1,638)
(311)
(442)
(20)
(1,383)
1
2
3
4
5
9
11
10
(3,927)
(4,480)
(30)
21
22
23
24
25
26
Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability)6
Amount exceeding the 15% threshold
(702)
(1,896)
12
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
(402)
(3,895)
13
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)
(14,804)
40,378
(10,334)
(10,334)
27
28
29
904
Table 30: Composition of capital (continued)
CHF million, except where indicated
Directly issued qualifying additional tier 1 instruments plus related stock surplus
of which: classified as equity under applicable accounting standards
of which: classified as liabilities under applicable accounting standards5
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
30
31
32
33
34
35
36
37
38
38a Qualifying interest where a controlling influence is exercised together with other owner (AT1 instruments)
38b Holdings in companies which are to be consolidated (additional tier1 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
31.12.15
References1
Numbers
phase-in
31.12.15
6,154
6,154
1,954
1,954
8,108
0
0
(1,954)
(1,954)
(1,954)
(3,927)
(3,927)
3,927
3,927
of which: goodwill net of tax, offset against hybrid capital and low-trigger loss-absorbing capital
(3,927)
3,927
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 surplus4
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
(3,927)
4,181
44,559
11,242
998
3,927
1,973
(8,361)
0
(998)
12,239
(998)
13
6
7
8
905
Additional regulatory information Additional regulatory information
UBS Group AG consolidated supplemental disclosures required under Basel III Pillar 3 regulations
Table 30: Composition of capital (continued)
CHF million, except where indicated
Investments in own tier 2 instruments
Reciprocal cross holdings in tier 2 instruments
52
53
53a Qualifying interest where a controlling influence is exercised together with other owner (tier 2 instruments)
53b Investments to be consolidated (tier 2 instruments)
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)
National specific regulatory adjustments
54
55
56
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 capital5
of which: low-trigger loss-absorbing capital4
59
Total capital (TC = T1 + T2)
Amount with risk-weight pursuant the transitional arrangement (phase-in)
of which: net defined benefit pension assets
of which: DTA on temporary differences
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)
CET1 requirement (base capital, buffer capital and countercyclical buffer requirements) plus G-SIB
buffer requirement, expressed as a percentage of risk-weighted assets
of which: capital buffer requirement
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–f Not applicable for systemically relevant banks according to FINMA RS 11 / 2
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
Provisions eligible for inclusion in tier 2 in respect of exposures subject to standardised 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)
Cap for inclusion of provisions in tier 2 under internal ratings-based approach
76
77
78
79
Numbers
phase-in
31.12.15
(6)
Effect of the
transition phase
References1
31.12.15
2
7, 8
13
7
2
(996)
(9,357)
(4,771)
(30)
(4,741)
(4,771)
(6)
12,233
912
10,325
56,792
212,302
19.0
21.0
26.8
7.5
2.9
0.2
19.0
1,074
800
5,862
1 References link the lines of this table to the respective reference numbers provided in the column “References” in “Table 29: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of
consolidation.” 2 The CHF 6,545 million (CHF 2,618 million and CHF 3,927 million) reported in line 8 includes goodwill on investments in associates of CHF 360 million and DTL on goodwill of CHF 55 million. The CHF
323 million reported in line 9 includes DTL on intangibles assets of CHF 5 million. 3 The CHF 7,468 million (CHF 2,988 million and CHF 4,480 million) deferred tax assets recognized for tax loss carry-forwards reported
in line 10 differ from the CHF 7,093 million deferred tax assets shown in the line “Deferred tax assets” in Table 29 because the latter figure is shown after the offset of deferred tax liabilities for cash flow hedge gains
(CHF 350 million) and other temporary differences, which are adjusted out in line 11 and other lines of this table respectively. 4 The CHF 11,242 million in the line 46 includes CHF 10,330 million low-trigger loss-
absorbing tier 2 capital recognized in line “Debt issue” in table 29, which is shown net of CHF 4 million investments in own tier 2 instruments reported in the line 52 of this table and high-trigger loss-absorbing capital
of CHF 912 million reported in line 58. 5 CHF 6,154 million and CHF 912 million reported in line 32 and 58 respectively of this report, includes the following positions: CHF 2,837 million and CHF 2,326 million recog-
nized in the line “Debt issued” in table 29, CHF 1,134 million DCCP recognized in the line “Other liabilities” in table 29 and CHF 769 million recognized as a DCCP-related charge for regulatory capital purposes in the
6 The CHF 2,598 million (CHF 702 million and CHF 1,896 million) deferred tax assets arising from temporary differences in line 20 differ from the CHF 5,742 million deferred
line 26b “Other deductions” of this table.
tax assets on temporary differences shown in the line “Deferred tax assets” in Table 29 as the former relates only to the amount above the 10% threshold.
906
G-SIB indicators
The Financial Stability Board (FSB) determined that UBS is a global
systemically important bank (G-SIB), using an indicator-based
methodology adopted by the Basel Committee on Banking Super-
vision (BCBS). Based on published indicators, G-SIB are subject to
additional CET1 capital buffer requirements in the range from
1.0% to 3.5%. These requirements will be phased in from 1 Janu-
ary 2016 to 31 December 2018 and become fully effective on
1 January 2019. In November 2015, the FSB determined that,
based on the year-end 2014 indicators, the requirement for UBS
Group is 1.0%. As our Swiss SRB Basel III capital requirements
exceed the BCBS requirements including the G-SIB buffer, UBS is
not affected by the above.
Banks that qualify as G-SIBs are required to disclose, as defined
by the BCBS, the 12 indicators for assessing the systemic impor-
tance of G-SIBs. These 12 indicators are used for the G-SIB score
calculation and cover the five categories size, cross-jurisdictional
activity, inter-connectedness, substitutability / financial institution
infrastructure and complexity.
Our G-SIB indicators per 31 December 2015 will be available
online by the end of April 2016.
➔ Refer to “Pillar 3, SEC filings & other disclosures” at www.ubs.
com/investors for more information
907
Additional regulatory information Additional regulatory information
UBS AG consolidated supplemental disclosures required under SEC regulations
UBS AG consolidated supplemental
disclosures required under SEC regulations
A – Introduction
The following pages contain supplemental UBS AG disclosures
that are required under SEC regulations. UBS AG’s consolidated
financial statements have been prepared in accordance with Inter-
national Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) and are denomi-
nated in Swiss francs (CHF), the reporting currency of UBS AG.
908
B – Selected financial data
The tables below provide information concerning the noon pur-
chase rate for the Swiss franc, expressed in United States dol-
lars, or USD, per one Swiss franc. The noon purchase rate is the
rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of
New York.
On 29 February 2016, the noon purchase rate was 1.0040
USD per 1 CHF.
Year ended 31 December
2011
2012
2013
2014
2015
Month
September 2015
October 2015
November 2015
December 2015
January 2016
February 2016
1 The average of the noon purchase rates on the last business day of each full month during the relevant period.
Average rate
(USD per 1 CHF)1
1.1398
1.0724
1.0826
1.0893
1.0368
At period end
1.0668
1.0923
1.1231
1.0066
0.9983
High
1.3706
1.1174
1.1292
1.1478
1.1781
High
1.0401
1.0539
1.0149
1.0180
1.0028
1.0303
Low
1.0251
1.0043
1.0190
1.0066
0.9704
Low
1.0225
1.0086
0.9704
0.9713
0.9779
0.9802
909
Additional regulatory information Additional regulatory information
UBS AG consolidated supplemental disclosures required under SEC regulations
Key figures
CHF million, except where indicated
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
As of or for the year ended
Results
Operating income
Operating expenses
Operating profit / (loss) from continuing operations before tax
Net profit / (loss) attributable to UBS AG shareholders
Key performance indicators1
Profitability
Return on tangible equity (%)
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)2
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 equity (RoE) (%)
Return on risk-weighted assets, gross (%)3
Resources
Total assets
Equity attributable to UBS AG shareholders
Common equity tier 1 capital (fully applied)2
Common equity tier 1 capital (phase-in)2
Risk-weighted assets (fully applied)2
Risk-weighted assets (phase-in)2
Common equity tier 1 capital ratio (%, phase-in)2
Total capital ratio (%) (fully applied)2
Total capital ratio (%) (phase-in)2
Swiss SRB leverage ratio (fully applied, %)
Swiss SRB leverage ratio denominator (fully applied)4
Swiss SRB leverage ratio denominator (phase-in)4
BIS tier 1 capital, Basel 2.5
BIS risk-weighted assets, Basel 2.5
Average equity of average assets (%)
30,605
25,198
5,407
6,235
13.5
3.1
82.0
78.0
2.2
15.4
28,026
25,557
2,469
3,502
8.2
2.8
90.9
10.4
2.5
14.2
27,732
24,461
3,272
3,172
8.0
2.5
88.0
3.4
12.8
5.7
5.4
4.7
11.7
14.1
7.0
12.4
6.7
11.4
25,423
27,216
(1,794)
(2,480)
1.6
1.9
106.6
3.2
9.8
21.3
25.2
3.6
(5.1)
12.0
943,256
1,062,327
1,013,355
1,259,797
55,248
32,042
41,516
208,186
212,609
19.5
21.0
24.9
4.9
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
898,251
904,518
999,124
1,006,001
1,015,306
1,022,924
5.0
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
27,788
22,482
5,307
4,138
11.9
2.1
80.7
(44.5)
2.4
15.9
17.2
9.1
13.7
1,416,962
48,530
38,370
240,962
3.2
910
Key figures (continued)
CHF million, except where indicated
Other
Invested assets (CHF billion)5
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
Registered ordinary shares (number)6
Treasury shares (number)6
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
As of or for the year ended
2,689
58,131
20,816
19,897
7,348
8,730
5,373
3,181
176
21,238
2,734
60,155
20,951
19,715
7,385
10,254
5,425
4,663
166
21,564
2,390
60,205
21,317
20,037
7,116
10,052
5,595
4,303
153
21,720
2,230
62,628
21,995
20,833
7,426
10,829
6,459
4,202
167
22,378
2,088
64,820
22,924
21,746
7,690
11,019
6,674
4,182
162
23,188
3,858,408,466
3,844,560,913
3,842,002,069
3,835,250,233
3,832,121,899
0
2,115,255
73,800,252
87,879,601
84,955,551
1 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 2 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRBs).
Refer to the “Capital management” section of this report for more information. 3 Based on phase-in risk-weighted assets. 4 Calculated in accordance with Swiss SRB rules. From 31 December 2015 onward, the Swiss
SRB leverage ratio denominator calculation is fully aligned with the BIS Basel III rules. Prior-period figures are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable. Refer to the
“Capital management” section of this report for more information. 5 Total UBS AG invested assets includes invested assets for Personal & Corporate Banking. 6 Refer to the “UBS shares” section of this report for
more information.
911
Additional regulatory information Additional regulatory information
UBS AG consolidated supplemental disclosures required under SEC regulations
Income statement data
CHF million, except where indicated
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) 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
Cost / income ratio (%)1
Rates of return (%)
Return on equity attributable to UBS AG shareholders
Return on average equity
Return on average assets
1 Operating expenses / operating income before credit loss expense.
31.12.15
13,178
(6,449)
6,729
(117)
6,612
17,184
5,696
1,112
30,605
25,198
5,407
(908)
6,314
77
3
6,235
82.0
11.7
11.7
0.6
For the year ended
31.12.14
31.12.13
13,194
(6,639)
6,555
(78)
6,477
17,076
3,841
632
28,026
25,557
2,469
(1,180)
3,649
142
5
3,502
90.9
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
204
5
3,172
88.0
6.7
6.7
0.3
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)
220
5
(2,480)
106.6
(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
268
4,138
80.7
9.1
9.1
0.3
912
Balance sheet data
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
Ratio of earnings to fixed charges
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
943,256
1,062,327
1,013,355
1,259,797
1,416,962
91,306
11,866
25,584
67,893
124,047
51,943
167,435
23,763
312,723
62,543
22,249
11,836
8,029
9,653
29,137
162,430
38,282
62,995
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
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
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
254,101
248,079
395,260
42,372
75,297
44,507
69,901
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
402,522
410,979
390,825
82,359
74,606
55,248
91,207
70,392
52,108
81,586
62,777
48,002
The 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 ended
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
1.76
1.33
1.41
0.83
1.42
913
Additional regulatory information Additional regulatory information
UBS AG consolidated supplemental disclosures required under SEC regulations
C – Information on the company
Property, plant and equipment
As of 31 December 2015, UBS AG operated about 856 business
and banking locations worldwide, of which approximately 41%
were in Switzerland, 41% in the Americas, 11% in the rest of
Europe, Middle East and Africa and 7% in Asia Pacific. Of the
business and banking locations in Switzerland, 33% were owned
directly by UBS AG, with the remainder, along with most of UBS
AG’s offices outside Switzerland, being held under commercial
leases. These premises are subject to continuous maintenance
and upgrading and are considered suitable and adequate for cur-
rent and anticipated operations.
914
D – Information required by industry guide 3
Selected statistical information
The following tables set forth select statistical information regard-
ing the UBS AG’s banking operations extracted from the financial
statements. Unless otherwise indicated, average balances for the
years ended 31 December 2015, 31 December 2014 and
31 December 2013 are calculated from monthly data. The distinc-
tion between domestic and foreign is generally based on the
booking location. For loans, this method is not significantly differ-
ent from an analysis based on the domicile of the borrower.
915
Additional regulatory information Additional regulatory information
UBS AG consolidated supplemental disclosures required under SEC regulations
Average balances and interest rates
The following table 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
31.12.15
31.12.14
31.12.13
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
3,525
10,822
5
60
6,415
138,961
5,016
121,558
0
141
6141
159
2,912
0
0.1
0.6
0.2
0.4
3.2
2.4
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
121,558
2,912
2.4
118,038
2,988
2.5
119,894
2,736
249
29,469
377
4,689
3
59
1
193
194,032
120,664
3,646
2,510
20,037
43,131
0
43,131
0
12,749
711,695
63
328
0
328
0
526
11,093
1,630
4551
13,178
1.2
0.2
0.3
4.1
1.9
2.1
0.3
0.8
0.8
4.1
1.6
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
0.9
0.2
0.1
4.2
2.0
2.3
0.4
0.6
0.6
4.0
1.6
155
29,244
414
10,113
0
70
0
364
189,969
100,027
3,974
2,420
1,980
60,093
0
60,093
0
8,953
11
310
0
310
0
430
719,460
11,168
1,528
441
0.3
0.5
0.1
0.4
3.4
2.3
2.3
0.0
0.2
0.0
3.6
2.1
2.4
0.6
0.5
0.5
4.8
1.6
Interest income on off-balance sheet securities and other
Interest income and average interest-earning assets
711,695
1.9
686,626
13,194
1.9
719,460
13,137
1.8
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
213,913
7,149
126,820
1,059,576
232,739
6,383
127,812
1,053,561
337,781
6,054
115,921
1,179,216
916
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
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 and other
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
31.12.15
31.12.14
31.12.13
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
9,571
2,480
3,413
71,129
11
11
22
4422
569
5
31,426
1,665
993
41,499
2,057
65,446
126,048
96,848
15,930
238,825
159,027
873
26,425
15,182
47,941
0
39,968
756,824
1
57
6
724
(19)
70
261
312
312
4
107
471
1,717
0
58
5,904
5462
0.1
0.4
0.1
0.6
0.9
5.3
0.1
0.1
0.3
1.1
0.0
0.1
1.6
0.1
0.2
0.5
0.4
3.1
3.6
0.1
0.8
8,932
3,691
5,328
58,639
16
14
1
338
638
14
28,737
1,789
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
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
37
24
2
344
628
12
29,874
1,834
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
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
756,824
6,449
0.9
736,847
6,640
0.9
773,717
7,351
1.0
210,551
37,041
1,004,416
55,160
1,059,576
229,286
35,359
1,001,493
52,068
1,053,561
321,681
34,188
1,129,586
49,630
1,179,216
6,729
6,555
5,786
0.9
1.0
0.8
1 Includes negative interest, including fees, on securities lent and repurchase agreements. 2 Includes negative interest, including fees, on securities borrowed and reverse repurchase agreements.
917
Additional regulatory information Additional regulatory information
UBS AG consolidated supplemental disclosures required under SEC regulations
Average balances and interest rates (continued)
The percentage of total average interest-earning assets attribut-
able to foreign activities was 68% for 2015 (69% for 2014 and
71% for 2013). The percentage of total average interest-bearing
liabilities attributable to foreign activities was 64% for 2015 (63%
for 2014 and 66% for 2013). 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-exempt
income is considered to be insignificant and the impact from such
income is therefore negligible.
918
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 2015 compared with the year
ended 31 December 2014, and for the year ended 31 December
2014 compared with the year ended 31 December 2013. Volume
and rate variances have been calculated on movements in aver-
age balances and changes in interest rates. Changes due to a
combination of volume and rates have been allocated proportion-
ally.
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
2015 compared with 2014
2014 compared with 2013
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
(35)
(1)
16
(4)
88
0
88
1
3
0
(12)
20
265
72
(57)
0
(57)
0
29
89
297
386
(5)
1
11
135
(46)
(164)
0
(164)
1
2
0
(3)
(153)
(275)
(17)
78
0
78
0
19
(209)
(207)
(416)
(4)
(34)
10
151
(50)
(76)
0
(76)
2
5
0
(15)
(133)
(10)
55
21
0
21
0
48
(120)
90
(30)
17
(4)
(17)
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)
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
919
Additional regulatory information Additional regulatory information
UBS AG consolidated supplemental disclosures required under SEC regulations
Analysis of changes in interest income and expense (continued)
2015 compared with 2014
2014 compared with 2013
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
(5)
0
75
(2)
167
0
(1)
2
(45)
0
(2)
17
15
0
(1)
(1)
7
196
0
9
22
395
417
(6)
2
0
30
(8)
(291)
1
13
(9)
(137)
(62)
(100)
232
70
(29)
3
7
18
(312)
0
(9)
68
(727)
(658)
(5)
(3)
0
105
(10)
(124)
1
12
(7)
(182)
(62)
(102)
249
85
(29)
2
6
25
(116)
0
0
90
(332)
(241)
51
(190)
(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)
(182)
(206)
(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)
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 expense on interest-bearing liabilities
Interest expense on off-balance sheet securities and other
Total interest expense
920
Deposits
The following table analyzes average deposits and average rates
on each deposit category listed below for the years ended
31 December 2015, 2014 and 2013. 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 72,544 million, CHF 76,391 million and CHF 76,246 million
at 31 December 2015, 31 December 2014 and 31 December
2013, respectively.
CHF million, except where indicated
Banks
Domestic offices
Demand deposits
Time deposits
Total domestic offices
Foreign offices
Interest-bearing deposits
Total due to banks1
Customer accounts
Domestic offices
Demand deposits
Savings deposits
Time deposits
Total domestic offices
Foreign offices
Demand deposits
Time and savings deposits
Total foreign offices
Total due to customers
31.12.15
31.12.14
31.12.13
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
5,261
4,310
9,571
2,437
12,007
126,048
96,848
15,930
238,825
52,406
106,622
159,027
397,853
(0.2)
0.5
0.1
0.4
0.2
0.0
0.1
0.1
0.1
0.0
0.2
0.2
0.2
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 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 2015, 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
16,145
887
314
238
5,242
22,826
Foreign
39,735
1,982
812
2,399
3,965
48,893
921
Additional regulatory information Additional regulatory 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 2015, 2014 and 2013.
CHF million, except where indicated
31.12.15
31.12.14
31.12.13
31.12.15
Short-term debt
Due to banks1
31.12.14
31.12.13
Repurchase agreements2
31.12.14
31.12.15
31.12.13
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
21,215
27,298
31,911
0.4
0.5
27,363
28,004
33,674
0.4
0.2
27,633
35,067
44,789
0.5
0.4
0
44
570
0.2
0.0
0
0
0
0.0
0.0
0
309
1,370
0.3
0.0
71,775
65,118
80,372
0.3
0.2
54,625
52,865
65,033
0.2
0.2
41,160
61,251
76,014
0.2
0.2
1 Amounts due to banks are presented net of amounts due from banks in order 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-sale1, 2
CHF million, except percentages
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Total
31 December 2015
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value3
(0.83)
0.39
0.21
0.42
701
11,171
13,966
6,062
31,900
6,856
11,049
8,118
0
26,023
1.29
0.64
0.87
5.20
1
4.00
1.33
1.27
104
264
369
3,396
3,396
1.74
CHF million, except percentages
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
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 value3
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
243
280
0
525
4.00
1.25
1.33
4.42
4,029
4,029
1.34
CHF million, except percentages
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
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 value3
0.17
0.27
0.52
849
25,483
743
27,075
0.46
0.36
0.55
0.80
43
13,010
7,277
6,873
27,202
1
3
63
178
0
245
3.55
3.30
0.98
0.85
4.71
19
1
4,017
4,037
12.16
6.60
2.09
702
18,027
25,119
14,443
3,396
61,688
Total
43
13,189
28,072
10,858
4,029
56,192
Total
44
13,861
32,842
7,795
4,017
58,559
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 2015 issued by
US government and government agencies of CHF 21,424 million (31 December 2014: CHF 17,219 million, 31 December 2013: CHF 17,876 million), the German government of CHF 8,583 million (31 December 2014:
CHF 10,145 million, 31 December 2013: CHF 6,733 million), the French government of CHF 3,566 million (31 December 2014: CHF 5,351 million, 31 December 2013: CHF 5,601 million) and the UK government of
CHF 2,782 million (31 December 2014: CHF 2,348 million, 31 December 2013: CHF 8,089 million).
922
Due from banks and loans (gross)
UBS AG’s lending portfolio is widely diversified across industry
sectors. CHF 186.7 billion (57.4% 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 74.3 billion (22.9% 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 2015 was CHF 23.2 billion (7.1% 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 2015, 2014,
2013, 2012 and 2011. 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
National Bank. Loans designated at fair value and loans held in
the trading portfolio are excluded from the tables below.
CHF million
Domestic
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Food and beverages
Hotels and restaurants
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Food and beverages
Hotels and restaurants
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other
Total foreign
Total gross
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
772
308
1,520
234
6,061
208
1,647
2,012
23
123,967
1,609
13,707
3,687
5,250
1,876
697
1,157
392
1,418
260
6,693
206
1,696
2,319
34
125,461
2,098
14,549
4,169
4,794
1,964
732
736
382
1,429
255
4,643
241
1,817
2,512
36
124,569
2,415
14,511
3,784
5,330
2,013
752
532
300
1,360
351
4,265
284
1,745
2,976
45
123,167
2,708
13,682
4,345
5,862
1,728
830
566
377
1,292
260
4,257
276
1,831
3,252
35
120,671
2,992
13,169
4,433
5,770
1,414
769
163,578
167,940
165,426
164,180
161,364
11,097
12,190
113
635
706
56,414
65
148
1,958
1,466
62,695
1,272
2,213
1,975
17,924
2,858
163
75
645
1,100
57,645
56
120
1,961
1,345
60,466
1,413
2,517
1,924
17,470
3,017
142
13,201
178
1,132
1,337
43,125
63
181
1,850
1,175
49,920
1,322
2,995
1,791
14,733
2,809
361
20,711
254
1,731
1,205
40,650
45
347
1,828
1,279
46,458
4,319
2,721
2,063
10,735
3,021
301
22,669
392
750
746
38,802
49
372
1,955
1,979
41,045
5,459
2,158
2,044
8,529
2,068
281
161,703
325,281
162,086
330,027
136,174
301,601
137,669
301,849
129,300
290,664
923
Additional regulatory information Additional regulatory information
UBS AG consolidated supplemental disclosures required under SEC regulations
Due from banks and loans (gross) (continued)
The table below analyzes UBS AG’s mortgage portfolio by client domicile and type of mortgage as of 31 December 2015, 2014, 2013,
2012 and 2011. 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
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
144,230
18,887
163,117
141,608
21,509
163,117
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
Within 1 year
1 to 5 years
Over 5 years
Total
772
60,404
15,196
76,373
11,038
5,170
109,297
125,505
201,878
0
49,062
2,555
51,617
34
4,615
18,387
23,036
74,654
0
34,764
824
35,588
24
9,102
4,035
13,162
48,750
772
144,230
18,576
163,578
11,097
18,887
131,719
161,703
325,281
As of 31 December 2015, the total amounts of Due from banks and Loans granted at fixed- and floating-rates were as follows:
CHF million
Fixed-rate loans
Adjustable or floating-rate loans
Total
Within 1 year
1 to 5 years
Over 5 years
136,297
65,581
201,878
59,052
15,601
74,654
38,929
9,821
48,750
Total
234,278
91,003
325,281
924
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-
performing 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
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
1,174
455
1,630
1,293
309
1,602
1,113
469
1,582
1,121
395
1,516
1,199
329
1,529
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
6
7
26
5
9
6
22
7
6
4
23
7
8
3
28
6
10
9
29
6
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 2015, 2014, 2013, 2012 or 2011.
925
Additional regulatory information Additional regulatory 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 at 31 December
2015, 2014 and 2013. As of 31 December 2015, there were no
outstandings that exceeded 0.75% of total IFRS assets in any coun-
try currently facing debt restructuring or liquidity problems that UBS
AG expects would materially impact the country’s ability to service
its obligations. Aggregate country risk exposures are monitored and
reported on an ongoing basis. The internal 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 allocation of exposures to countries. For more
information on the country framework within risk control, refer to
the “Risk management and control” section of this report.
CHF million
USA
United Kingdom
Japan
France
Hong Kong
CHF million
USA
United Kingdom
Japan
France
CHF million
USA
United Kingdom
Japan
France
Germany
Private sector
Public sector
outstandings % of total assets
31.12.15
Total
90,201
56,282
11,275
3,758
7,692
27,807
9,560
5,054
681
121
31.12.14
Private sector
Public sector
84,629
47,003
16,906
6,006
59,103
13,928
5,422
67
31.12.13
Private sector
Public sector
76,047
39,528
17,009
7,478
2,664
51,287
8,583
4,765
56
1,900
126,641
70,340
19,794
8,482
8,157
Total
outstandings
153,019
67,220
24,107
10,025
Total
outstandings
149,327
58,749
22,794
12,273
8,478
13.4
7.5
2.1
0.9
0.9
% of total assets
14.4
6.3
2.3
0.9
% of total assets
14.7
5.8
2.2
1.2
0.8
Guarantees and
Commitments1
42,286
6,448
136
5,029
79
Guarantees and
Commitments1
34,967
7,660
1,771
5,037
Guarantees and
Commitments1
38,778
8,494
289
6,997
2,062
Banks
8,633
4,498
3,466
4,043
344
Banks
9,287
6,288
1,780
3,952
Banks
21,993
10,638
1,019
4,739
3,914
1 Includes forward starting transactions (reverse repurchase agreements and securities borrowing agreements).
926
Summary of movements in allowances and provisions for credit losses
The following table provides an analysis of movements in allow-
ances and provisions for credit losses.
UBS AG writes off loans against allowances only on final set-
tlement of bankruptcy proceedings, the sale of the underlying
assets and / or in the case of debt forgiveness. Under Swiss law, a
creditor can continue to collect from a debtor who has emerged
from bankruptcy, unless the debt has been forgiven through a
formal agreement
31.12.15
31.12.14
31.12.13
31.12.12
735
750
794
938
31.12.11
1,287
CHF million
Balance at beginning of year
Domestic
Write-offs
Construction
Electricity, gas and water supply
Financial services
Hotels and restaurants
Manufacturing
Private households
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communications
Total gross domestic write-offs
Foreign
Write-offs
Banks
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 communications
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 year1
1 Includes allowances for cash collateral on securities borrowed.
(116)
(124)
117
0
(11)
2
727
89
(11)
21
11
735
(2)
(1)
(3)
0
(9)
(35)
0
(47)
(3)
(9)
(110)
(9)
0
0
(3)
0
(1)
(12)
0
0
(19)
(10)
0
(54)
0
(164)
41
7
48
(1)
0
0
0
(3)
(39)
(1)
(28)
(15)
(3)
(90)
(15)
(1)
(1)
(12)
(7)
0
(6)
0
(2)
(2)
(14)
(1)
(63)
(1)
(154)
29
0
29
(2)
0
(6)
0
(4)
(38)
0
(11)
(4)
(1)
(67)
(1)
(6)
0
(44)
0
0
(6)
(1)
(1)
(1)
0
0
(61)
0
(128)
35
10
45
(83)
144
(93)
(9)
(3)
750
(1)
(6)
0
(1)
(20)
(45)
(2)
(21)
(6)
(11)
(8)
0
(17)
0
(31)
(59)
(3)
(37)
(21)
(6)
(112)
(183)
0
0
0
(106)
0
0
(15)
(54)
0
0
(19)
(5)
(201)
0
(313)
43
21
63
(8)
0
0
(39)
0
0
(72)
(175)
(7)
0
(1)
0
(303)
(14)
(501)
50
1
51
(250)
(450)
133
(15)
(8)
(3)
794
0
84
(1)
18
938
927
Additional regulatory information Additional regulatory 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 at 31 December 2015, 2014, 2013, 2012
and 2011. 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
Chemicals
Construction
Electricity, gas and water supply
Financial services
Food and beverages
Hotels and restaurants
Manufacturing
Private households
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other1
Total domestic specific allowances
Foreign
Banks2
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 losses3
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
3
0
13
2
17
3
13
77
47
13
78
23
32
0
321
0
0
1
0
90
13
46
61
14
1
80
19
40
365
6
35
727
2
0
14
1
18
4
16
72
52
18
123
25
29
0
374
10
0
1
0
35
9
11
65
14
1
112
29
43
330
8
23
735
3
1
16
1
16
2
12
57
54
9
152
23
19
0
365
13
0
17
1
37
18
2
66
16
2
77
35
19
303
20
61
750
3
0
16
0
21
3
9
44
60
10
123
24
12
1
326
19
1
20
1
37
23
0
45
39
4
39
35
27
290
114
64
794
1
0
15
9
19
2
6
65
77
14
131
24
16
1
379
16
8
6
1
96
23
0
60
33
10
15
28
39
335
131
93
938
1 Includes mining and public authorities. 2 Counterparty allowances only. 3 Includes allowances for cash collateral on securities borrowed.
928
Due from banks and loans by industry sector (gross)
The following table presents the percentage of loans in each industry sector and geographic location to total loans.
In %
Domestic
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Food and beverages
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other1
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial services
Hotels and restaurants
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other2
Total foreign
Total gross
1 Includes mining 2 Includes food and beverages
31.12.15
31.12.14
31.12.13
31.12.12
31.12.11
0.2
0.1
0.5
0.1
1.9
0.1
0.5
0.6
38.1
0.5
4.2
1.1
1.6
0.6
0.2
50.3
3.4
0.0
0.2
0.2
17.3
0.0
0.6
0.5
19.3
0.4
0.7
0.6
5.5
0.9
0.1
0.4
0.1
0.4
0.1
2.0
0.1
0.5
0.7
38.0
0.6
4.4
1.3
1.5
0.6
0.2
50.9
3.7
0.0
0.2
0.3
17.5
0.0
0.6
0.4
18.3
0.4
0.8
0.6
5.3
0.9
0.0
0.2
0.1
0.5
0.1
1.5
0.1
0.6
0.8
41.3
0.8
4.8
1.3
1.8
0.7
0.1
54.8
4.4
0.1
0.4
0.4
14.3
0.1
0.6
0.4
16.6
0.4
1.0
0.6
4.9
0.9
0.2
0.2
0.1
0.5
0.1
1.4
0.1
0.6
1.0
40.8
0.9
4.5
1.4
1.9
0.6
0.3
54.4
6.9
0.1
0.6
0.4
13.5
0.1
0.6
0.4
15.4
1.4
0.9
0.7
3.6
1.0
0.1
0.2
0.1
0.4
0.1
1.5
0.1
0.6
1.1
41.5
1.0
4.5
1.5
2.0
0.5
0.3
55.5
7.8
0.1
0.3
0.3
13.3
0.1
0.7
0.7
14.1
1.9
0.7
0.7
2.9
0.7
0.1
49.7
100.0
49.1
100.0
45.2
100.0
45.6
100.0
44.5
100.0
929
Additional regulatory information Appendix
Abbreviations frequently used in our financial reports
asset-backed security
annual general meeting of
shareholders
alternative investment
vehicle
advanced measurement
approach
additional tier 1
Basel Committee on
Banking Supervision
Bank for international
Settlements
Board of Directors
Corporate Center
Comprehensive Capital
Analysis and Review
credit conversion factors
central counterparty
collateralized debt
obligation
constant default rate
credit default swap
Commodity Exchange Act
Chief Executive Officer
common equity tier 1
Chief Financial Officer
Swiss franc
credit-linked note
collateralized loan
obligation
commercial mortgage
backed security
credit valuation
adjustment
D
DBO
DCCP
DOJ
DTA
DVA
E
EAD
EC
ECB
EIR
EMEA
EOP
EPS
ETD
ETF
EU
EUR
EURIBOR
F
FCA
FCT
FDIC
FINMA
FRA
FSA
FSB
FTD
FTP
FVA
FX
defined benefit obligation
Deferred Contingent Capital
Plan
Department of Justice
deferred tax asset
debit valuation adjustment
G
GAAP
GBP
GEB
GIIPS
generally accepted
accounting principles
British pound
Group Executive Board
Greece, Italy, Ireland,
Portugal and Spain
Group ALM Group Asset and Liability
Management
exposure at default
European Commission
European Central Bank
effective interest rate
Europe, Middle East and
Africa
Equity Ownership Plan
earnings per share
exchange-traded derivatives
exchange-traded fund
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 agreement
UK Financial Services
Authority
Financial Stability Board
first to default
funds transfer price
funding valuation
adjustment
foreign exchange
H
HQLA
I
IAS
IASB
IFRS
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
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 note
A
ABS
AGM
AIV
AMA
AT1
B
BCBS
BIS
BoD
C
CC
CCAR
CCF
CCP
CDO
CDR
CDS
CEA
CEO
CET1
CFO
CHF
CLN
CLO
CMBS
CVA
930
Abbreviations frequently used in our financial reports (continued)
N
NAV
NRV
NPA
NSFR
O
OCI
OTC
P
PRA
PRV
R
RLN
RMBS
net asset value
negative replacement values
non-prosecution agreement
net stable funding ratio
other comprehensive
income
over-the-counter
UK Prudential Regulation
Authority
positive replacement values
reference-linked note
residential mortgage-
backed security
RoAE
RoE
RoTE
RV
RWA
S
SE
SEC
SEEOP
SFT
SNB
SRB
SRM
SVaR
T
TBTF
TLAC
TRS
U
USD
V
VaR
return on attributed equity
return on equity
return on tangible equity
replacement value
risk-weighted assets
structured entity
US Securities and Exchange
Commission
Senior Executive Equity
Ownership Plan
securities financing
transaction
Swiss National Bank
systemically relevant bank
Single Resolution
Mechanism
stressed value-at-risk
too big to fail
total loss-absorbing capacity
total return swap
US dollar
value-at-risk
931
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 is pub-
lished for the first, second and third quarter and provides an
update from executive management on our strategy and perfor-
mance. The letter is published in English, German, French and
Italian. Financial report (SAP no. 80834) and results materials: The
quarterly financial report, published for the first, second and third
quarter, and the fourth-quarter earnings release and financial
supplement provide an update on our strategy and performance
for the respective quarter. They are mainly available 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 infor-
mation, including UBS share price charts and data and dividend
information, the UBS corporate calendar and presentations by
management for investors 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
report on Form 20-F, filed pursuant to the US Securities Exchange
Act of 1934. The filing of Form 20-F is structured as a “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 further
information on the operation of its public reference room. Please
visit www.ubs.com/investors for more information.
933
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
described, 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 targets for risk-weighted assets (RWA) and leverage ratio denominator (LRD), and the degree to which UBS is successful in implement-
ing changes to its wealth management businesses to meet changing market, regulatory and other conditions; (ii) the continuing low or negative interest rate
environment, developments in the macroeconomic climate and in the markets in which UBS operates or to which it is exposed, including movements in securities
prices or liquidity, credit spreads, and currency exchange 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, as well as availability and cost of funding to meet requirements for debt that will be eligible for total loss-absorbing capacity (TLAC) requirements, 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, or result in, more stringent capital, TLAC, leverage ratio, liquidity and funding requirements, incremental tax requirements, additional levies, limita-
tions on permitted activities, 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 or gone concern requirements due to measures to reduce resolvability risk; (vi) the degree to which UBS
is successful in implementing changes to its legal structure to improve its resolvability and meet related regulatory requirements, including changes in legal struc-
ture and reporting required to implement US enhanced prudential standards, implementing a service company model, the transfer of the Asset Management
business to a holding company, and the potential need to make further changes to the legal structure or booking model of UBS Group in response to legal and
regulatory requirements relating to capital requirements, resolvability requirements and proposals in Switzerland and other countries for mandatory structural
reform of banks and the extent to which such changes have the intended effects; (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) changes
in the standards of conduct applicable to our businesses that may result from new regulation or new enforcement of existing standards, including measures to
impose new or enhanced duties when interacting with customers or in the execution and handling of customer transactions; (ix) 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 investiga-
tions, including the potential for disqualification from certain businesses or loss of licenses or privileges as a result of regulatory or other governmental sanctions;
(x) 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; (xi) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its businesses, which may be
affected by competitive factors including differences in compensation practices; (xii) changes in accounting or tax standards or policies, and determinations or
interpretations affecting the recognition of gain or loss, the valuation of goodwill, the recognition of deferred tax assets and other matters; (xiii) limitations on the
effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (xiv) whether UBS will
be successful in keeping pace with competitors in updating its technology, particularly in trading businesses; (xv) the occurrence of operational failures, such as
fraud, misconduct, unauthorized trading, financial crime, cyber-attacks, and systems failures; (xvi) restrictions on the ability of UBS Group AG to make payments
or distributions, including due to restrictions on the ability of its subsidiaries to make loans or distributions, directly or indirectly, or, in the case of financial difficul-
ties, due to the exercise by FINMA of its broad statutory powers in relation to protective measures, restructuring and liquidation proceedings; (xvii) the degree to
which changes in regulation, capital or legal structure, financial results or other factors, including methodology, assumptions and stress scenarios, may affect UBS’s
ability to maintain its stated capital return objective; and (xviii) the effect that these or other factors or unanticipated events may have on our reputation and the
additional consequences that this may have on our business and performance. The sequence in which the factors above are presented is not indicative of their
likelihood of occurrence or the potential magnitude of their consequences. Our business and financial performance could be affected by other factors identified
in our past and future filings and reports, including those filed with the 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 2015. UBS is not under any obliga-
tion to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or oth-
erwise.
Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages, percent changes and
absolute variances are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the percentages, percent changes and
absolute variances 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.
934
935
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